Ryan Sudeck is the CEO of Sage Investment Group, a company that transforms hotels into apartments in growth markets throughout the United States. They recently began their 22nd hotel conversion project. Before Ryan joined Sage, he served as Vice President of Marketplaces at Redfin and previously led acquisitions across industries at PwC, Samsung, and Amazon.

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Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Ryan Sudeck. He is the CEO of Sage Investment Group, a company that transforms hotels into apartments in growth markets throughout the United States. They recently began their 22nd hotel conversion project. Before Ryan joined Sage, he served as Vice President of Marketplaces at Redfin and previously led acquisitions across industries at PwC, Samsung, and Amazon. Thank you so much for being on the show!

Ryan:
It’s a pleasure to be here. Thanks so much for having me, Charles. So

Charles:
Give us a little background on yourself. Before joining Sage Investment Group, you were you were with Redfin, some other groups. Tell us a little bit about yourself, both personally and professionally prior to what you’re doing now as eeo.

Ryan:
Yeah, ha, happy to. I’ll, I’ll go way back to my youth and I’ll keep it quick, I promise. So growing up, I grew up on the East Coast in New Jersey. My dad was actually a pilot by trade, but it always had a small portfolio of real estate. And so on the weekends as a kid, I was, you know, swinging hammers, soldering pipes, installing toilets, snake and drains, doing all the dirty work. ’cause You know, he always did the work himself. And it, you know, it was just a couple, couple properties in, in our hometown of Medford, New Jersey. And it was a really formative experience, you know like I said, my dad was a pilot post nine 11, took a massive pay cut when the airlines went bankrupt, lost his pension. And, you know, having that passive income from the real estate really allowed my parents to kind of survive and, you know, then, you know, eventually start thriving again, you know, through some challenging times.

Ryan:
And so, you know, for me, I knew I always wanted that for my family. You know, when I got to that that place one day. So fast forward, you know, moved out to the west coast, went to college, met my wife went into corporate America, as you mentioned. Did a lot of work in mergers and acquisitions. So instead of acquiring, you know, a real estate asset, we were buying companies. So worked on deals like when Amazon Bull bought Whole Foods when Samsung bought smart things, the IOT platform or LoopPay, which became Samsung Pay. And, you know, powers payments on, you know, hundreds of thou, hundreds of millions of phones around the, the world. So got to know, you know, a little bit about a lot in business, got to understand underwriting deals. And then eventually started doing my own real estate investing.

Ryan:
Started with a sixplex value add, you know, did a lot of the work myself. Ended up doing cash out refinance, got a an eight plex, sold those, then a 16 and a 30. And then fast forward to 20 20, 20 20, that’s when Sage Investment Group got started, where I’m now CEO at the time. I, you know, was working in, in m and a, I’d been working at Redfin, actually leading not just m and a and, and business and partnerships, business development, but also operating, you know, real estate businesses, you know, within Redfin, all of their digital revenues businesses. And as SAGE came together, I went fully passive with my investing. So I took my 16 unit and my 30 unit property, moved it into Sage’s fund as we were getting started in exchange for shares, and then just became a passive LP in Sage’s Evergreen Fund. And then you know, I was fortunate enough that about 18 months ago ended up joining the company full-time as CEO and as one of one of three partners here at Sage. Wow. That’s

Charles:
That’s quite the story. You, so when you start off with those smaller ones, you self-manage everything, even like those 16 and 30 units,

Ryan:
Not the property management. Certainly the construction management upfront I was doing myself. But you know, I leave it to the experts to handle, you know, screening tenants and collecting rent checks and, and dealing with the, you know, the overflowing toilets in the middle of the night. It’s the same thing we do at Sage today. You know, we work with the best, you know, local property managers for our

Charles:
Projects. That’s awesome. Yeah, it’s something I wanna get into a little bit more as well. But that was one thing that I found when I was starting my multifamily portfolio kind of business, was that as I was able, when I brought in third party management, it may just makes everything so much easier because it’s one thing about handling that, you know, with the value add portion of it, or, you know, the renovation, getting it rented, all that kind of stuff. And then handing that off and having that property manager there to assist you with, but also something where you can like pass the keys off and now I’m onto the next one kind of a thing. And turning, you know, change your roles into really sitting in that asset management seat, which makes it a lot easier because you wanna really control costs and everything like that.

Charles:
I don’t know if I would trust a property manager to do everything for me on like a long project like that I think would be something like you did is where you’re there, you’re doing some of the work yourself, and then also you’re dealing with all the contractors and you’re making sure that you’re getting bids, everything’s getting done. It’s one thing having a property manager do like, you know, one-off projects overseeing them. You know what I mean? It’s another thing for having ’em take care of a three or four month plus renovation process. Totally.

Ryan:
And especially these, these projects, these properties were totally vacant when I took them on. And so, you know, there were that monthly cost, you know, the CapEx going out the door. I certainly wanted in my eyes and, and control over that to make sure it was being managed properly. But totally agree with you. That, you know, having an intense focus upfront, but then, you know, kind of turning over to the experts to, to deal with the day, day-to-day is, is a great way to operate especially as a real, a retail investor. Yeah,

Charles:
For sure. I, I definitely, I definitely agree with that. Can you, so give us a little background now on what Sage’s investment strategy is, ’cause this is a little unique versus other value add multi-family operators that come on the show. And kind of what’s your strategy and what’s your criteria for investment?

Ryan:
Of course. Yeah, so, so we’re taking hotels and converting them into apartments in growth markets across the country. Our mission and our goals to help address the affordable housing crisis by creating these naturally affordable units that are brand new and renovated in markets and they’re located where people live and work, you know, these, these units appeal to folks who, you know, make good wages. They make too much where they don’t qualify for, you know, government help, but they don’t make enough to afford the brand new class A building down the street. But in our community, they live in something that’s been totally renovated with a lot of amenities. ’cause We take those hotel amenities and repurpose them. You know, we’re a developer, we do all of our own construction management. And so it’s, it’s a heavy lift to transform a hotel to an apartment building, but the value that it unlocks is, is pretty incredible because, you know, we’re buying at a hotel cap rate.

Ryan:
And for those who don’t know what a cap rate is, you know, it’s a valuation metric. A simple way to think about the difference between value of a hotel and, and an apartment building is maybe just a revenue multiple. So an a hotel might be worth three to five times the revenue it generates, whereas an apartment building, it’ll be worth seven to 12 times the revenue that it generates. So when we’re able to buy these hotels, do a lot of heavy development work into them, it’s not easy to capture this arbitrage and value that exists. But once we do that and, and transform them into apartment communities, we see at least a 50% increase over our cost basis in the value of the property just because of that transformation.

Charles:
Wow. Yeah, that’s, that’s pretty amazing. So when you’re looking at different properties, I mean, what does a typical hotel acquisition look like for Sage? I mean, what are some of the important elements that need to be present for a hotel conversion deal? To make sense and to work out for you

Ryan:
Guys? We want to have enough u units on site that we can have, or units in the property that we can have onsite management, that we can get scale over our construction costs. So on the low end, we’re looking for properties with at least a hundred units on the high end, 200 units. And we typically don’t go higher than 200 units ’cause we don’t wanna oversaturate the market with studio housing. We’re typically taking whatever the hotel gives us, you know if they’re just, you know, typical hotel rooms, a studio, right? We’re not usually combining units ’cause you can’t double the rent for a one bedroom that you’d create from two studios compared to what you could rent just a studio as. So that’s the first criteria. So a hundred to 200 units. We’re looking for markets that have strong wage, employment, population growth because we wanna make sure that we have a, a good tenant base.

Ryan:
These properties are really well located you know, near where folks want to or where they work. And so we’re looking for good locations with job centers nearby. On top of that, you know, it’s all about the, the price of acquisition, making sure that we feel good about that. We’re starting to get a pretty good handle. You know, after doing 22 projects or at least starting 22 projects, as you mentioned, we’re getting a good handle on CapEx per room. You know, we’ve learned a lot there. We’ve been able to value engineer. It’s actually our competitive advantage, I think, in the market because we’re saving on materials costs, getting supplies in bulk. We’re optimizing our labor. What’s really important too, when we’re buying these is also working with the local jurisdiction to make sure we can convert the asset. So it’s not just what is the profile of the asset itself?

Ryan:
How many units does it have? Does it have amenities, you know, is it exterior corridors? That’s what we’re typically working with. But the other set of questions, and these are usually, there’s sometimes harder to answer, is, you know, can we convert this? Is the city gonna allow us to change it from commercial, you know, hospitality use to residential use? And so, you know, we’ve got you know, a team internally that focuses on, you know, really helping educate the local jurisdictions about what we are. ’cause We are unique to your point. And not a lot of you know, permitting and planning offices have seen folks out there doing these hotel conversions. Luckily with our track record and the success that we’ve seen with some of our projects, not just helping, you know, solve a need for affordable housing, but on the broader community, we’re able to usually grease the skids and, and get through that process. Okay. There’s, there’s speed bumps along the way for sure though, because

Charles:
You guys are in, so d so many different kinda locations, you know, several different locations states. So I see that that being a little bit di more difficult with dealing with the municipalities zoning and permitting. What is one way that you guys kinda structure your deals so you’re not purchasing a property that cannot be converted? Fantastic

Ryan:
Question. So we’re very upfront with our sellers. You know, we’ve got a strong reputation about closing deals, but we need to close it with certain conditions. It typically takes us about six months, sometimes longer from when we go under a purchase and sale agreement to when we close on the asset because we need a few things. One, we want the property to be vacant. We’ve had issues with hotel guests asserting tenancy rights and having to go through the eviction process. So we’ve learned, you know, we need these properties vacant ’cause we wanna start the renovation date, want to get them into an apartment, you know, to oh, an apartment building as quickly as possible. The second thing we ask for that takes a lot of time is a change of use permit at a minimum. So that change of use permit is basically the local jurisdiction saying, yes, you can change this from commercial to residential use. That allows us to start construction on day one. ’cause We want to close, we wanna secure the property. And then we want to immediately start, you know, the, the work of removing the old and then eventually, you know, putting in the new.

Charles:
So when I’ve spoken to contractors who have, you know, worked on hotel conversion projects, and they’ve told me that it usually costs tens of thousands of dollars per unit to perform a conversion, they were saying mainly the electrical is extremely expensive. What does your inspection due diligence process consist of? Since, I mean, construction budgeting is really paramount to this whole thing working. It’s not just like we’re going and spending a few thousand dollars and we can do that month 12 or month 36, you know, during a value add process. We we’re doing this all in the first six to 12 months, I would imagine.

Ryan:
That’s right. We need to do all the infrastructure work up front. And electrical, like you mentioned, is, is hugely important. Typically, we’re adding new subpanels into the units. Sometimes we have to upgrade the service that’s coming into the building. But again, this is where we’ve been able to value engineer quite a bit. And let’s take Washington, the state of Washington where I’m located, our average electrical scope for adding that new subpanel is about $3,900 to $4,000 retail. That’s at least a $13,000 line item on the bid. And that’s because, you know, we’re getting the supplies, but we’re also using the right labor. We don’t need the master electrician to pull out the old wires, but we certainly need that master electrician to put in the new ones. So simple, you know, it sounds maybe simplified, but that does help us keep costs down. Fire suppression is another big line item for us.

Ryan:
If the, if there aren’t sprinklers in the building, typically we have to add them to bring them up to the you know, residential code. So yeah, those are just some of the early things for us. You, you talked about the tens of thousands of dollars in, in construction costs. That’s, that’s accurate, right? Especially we want these properties to feel and, and be new for all intents and purposes. You know, the bones and the inside are are old, but we’re replacing, you know, casework doors, windows, flooring fixtures, the, you know, the whole nine yards. And we’re usually adding kitchens as well. So we typically spend, you know, anywhere from, on average 37,000 to $45,000 per door in renovation costs. And that includes all the amenities and the infrastructure that we were talking about earlier. There are some projects that break that mold where if it’s a newer build, you know, we might spend, you know, 12 to $15,000 just in more cosmetics if it has a lot of the infrastructure already.

Charles:
Yeah. It’s one of the things that people leave out. It sounds like when people you know, after covid and stuff, people are all talking about offices to residential and you’re like, that sounds great. That’s a, that’s a great thing to talk about. But when you think of it, of how an office building is laid out, you know what I mean? Whatcha are you just gonna have apartments without windows in it? You’re gonna have, I mean, like, there’s no plumbing to all these there, it’s like centrally going up and down on these certain places in the building. So it’s, it’s a kind of a contractor nightmare, you know what I mean, of how you’re gonna do it. And I see it’s not as bad with the hotels, but it’s always something that’s, can you go into a regular hotel? There’s not plumbing usually in one side of it.

Charles:
It’s usually on the other side, electrical, it’s not made for putting in, you know ovens and stoves and stuff like that. And you, you then you look and you go, okay, this is where all the, the costs are coming in. And, you know, one thing I was thinking about when you’re doing this and being in, you know, these different stages that I’ve mentioned before is when you start a project, obviously you’re gonna have a team on the ground that I imagine that you vet that you know, what team from, I mean, what is your kind of in-house team? Are they, do you have part of that that’s going out kind of on site almost and in that market until the project’s over? And kind of how, talk a little bit about that if you don’t mind, because this is, this is a huge undertaking. We’re like renovating, majorly renovating a hundred to 200 units. Yeah,

Ryan:
There’s two critical teams that, that make sure our projects operate successfully. Actually I’d say three. It start, it starts with the acquisitions team and the diligence you asked earlier about the diligence we do, we’re doing full, you know, solar scopes. We’re doing you know, infrared scanning, you know, we’re sometimes doing invasive, you know, getting behind walls to, to try to figure out where the infrastructure is. But certainly acquisition diligence upfront is critical. We need, these are existing structures. They’re, you know, we’ve certainly had surprises in the past. I feel like the, the unknown unknowns has gotten gone from here to here, <laugh>. And so we know what, what to look out for. So we try to accomplish that upfront. And we’ve got our planning team, that’s kind of the second of the three teams that I’d say that’s so critical coming in, making sure we can get permits like we were talking about earlier, so we can, we can start on the projects and we understand, you know, what, what requirements we’re gonna be held to from an energy code perspective, et cetera. The third group is our construction management team. So we have an in-house construction management team led by a, an industry industry vet with a couple decades of experience. And those are the folks that are, you know, going out to market triple bidding to get three bids from general contractors on the ground, having a fixed bid, having a, a robust scope of work with, you know, that’s informed by good functional design. And our asset management team coming in to help us build to the market and the specs in the market.

Charles:
You know, once

Ryan:
We kick the project off and we close, it’s that construction management team that’s, you know, checking in on the contractors on a weekly basis, getting out to the projects. We also use some technology, you know, like 360 cameras to do, walks that overlay on our plan set so we can stay on top of what’s happening on the ground. But it’s so critical to deliver these, you know, on time and ideally on or under budget. That’s, that’s how we generate the returns you know, for our investors. Yeah,

Charles:
That’s, that’s a lot of great information and once one of these projects is done, let’s talk a little bit about your kinda your lease up and your property management, because one thing that I should have follow this before, but you brought it up, is that you were bringing on, ’cause you’re about the saturation, and then right after that you said because of the studios. So, you know, this is in my years of being a multifamily investor, studios have been a challenging property depending on where it’s, I’ve never been in like city centers, right? You know, I’m usually out in like secondary markets or something, but this has been a harder unit demographic to rent to and keep tenants in there. I don’t know how to put it any differently. And it’s like, so how do you manage this? Like you were saying with the Lisa process of bringing on a hundred studios and then bringing your property manager. How do you find a property manager that is versed in that? Because this is something that most people aren’t, most multi-family properties are probably 50%, two bedrooms, you know what I mean? 25%, one bedrooms, maybe even more in 5% studios. So That’s right.

Ryan:
You know, we, when we go into a new market, we interview five plus property managers to try to, to find the folks that understand those that are seeking workforce housing, attainable housing, you know, there’s so many different monikers for it, naturally affordable housing, lowercase a affordable, whatever you wanna call it. We do try to find the property managers that, that have experience with those type of communities. We benefit in our lease up, our lease up benefit from just natural affordability. We’re usually three to $500 less per month than the next than the next cheapest thing. Now the units themselves are smaller, but we’ve got all the hotel amenities too. So I was just out at our property in Olympia yesterday and, you know, we’re walking 16,000 square feet of ballroom space that we’re transforming into fitness club with indoor pickleball and golf simulators, you know, walking trails.

Ryan:
You know, even though your room might be, you know, 300 to 500 square feet, you know, there’s a lot that you can do at these communities and that attracts folks because they’re naturally affordable. So our lease up timeframe, you know, anywhere from three to five months, I’d say for a hundred to 200 unit property on the high end, maybe six months. There’s been some, some weeks, you know, for example, last year, one of our properties in Tacoma last spring, it was 109 units. We signed 19 leases in one week which actually gave us pause and said, eh, well maybe we need to adjust our pricing here a little bit. But just the response is you know, is, is pretty incredible. During lease up. And then you mentioned retention of tenants. Just that, you know, stereotypically, when people think of studios, they think of higher turnover, let’s just call it what it is.

Ryan:
The first hotel conversion that we did that my partner did was in 2019 that property has stayed 96 to 98% occupied in a 92% saturation market. And the average tendency there is 19 to 20 months, whereas I think the nationwide average is about 15 or 16 months. So that’s the, the first one we did. You know, it’s the, the one that has the most cured data that we can look at over time. But generally speaking, we think we see that people, you know, they stay, they love the affordability, they like the community, they like the locations. So that, that helps on the, the resident retention. Yeah,

Charles:
The one great thing about the hotel conversion piece as well is that there’s always enough parking. I mean, obviously when they were built, initially they have enough parking for these units, at least one car per unit, which is with older apartment complexes of all sizes from three units to 300. I mean, if they were built in the sixties or before or something like this, or even the seventies and before, there might be a lacking of that. And that becomes something that you can’t really can’t just add new parking on, eat that easily to most properties, especially if they’re inside a, if it’s like, almost like a, you know, they’re inside almost like a city or town center, you know what I mean? And you’re kind of stuck with that, and it’s an ongoing issue that can never really be corrected. One of the other things I saw or when I was, when we were speaking and I was reading about this before you know, there’s, if I had other people on the show, and it would be something where, you know, I’m a huge fan of yearly leases, but I’d have other people on the show that might be short term people and short term and medium term type investors, has there ever been kind of a notion or an idea or has anybody ever tried to explain to you to go into a short term or medium term type strategy after completion?

Charles:
Or maybe you don’t have to do, I don’t, I don’t know, is like a, a different way of achieving this conversion, but also keeping it almost as a hospitality property, I guess you would say. Hmm,

Ryan:
Interesting. So would this be more like kind of extended stay model or like a corporate leases? Is, is that what you have in mind? Yeah, well,

Charles:
I had a friend of mine. I, I don’t, like I said, I’ve never invested in short term rentals, but I have a friend of mine that has done this before with in more vacation areas, let’s just say. And down here in Florida, and it’s been one thing that they’ve done. If, if they saw the same deal that you were seeing, they would have, depending on the area of course, that they would have a different business plan forward. I don’t know if that was ever personally for me, you know, the yearly rentals and keeping that occupancy and the renewals high is the whole business plan. And that’s what I would go for. I just didn’t know if you were ever, anybody ever came to you and like, or was ever floated as going into more of a short term or medium term type

Ryan:
Business model? To be honest, no. We haven’t really explored it. It’s not something we have experience in. We do, we do try to play with the lease links to just, you know, smooth out the renewal curve so that we don’t have all our renew, our leases renewing at once, right. Since we have that, you know, three to five month lease up. But you know, we’re not looking at, you know, weekly rentals or, or monthly rental, month to month rentals, you know, from the get go. We’re we’re similar to you, Charles, in that we, you know, we like the, the yearly leases.

Charles:
One of the things we kind of brushed over earlier was on the acquisitions when you’re looking at properties and as you said before, these are usually selling ’cause they’re, they’re businesses per se, and they’re selling it four or five times, you know, earnings. Whereas real estate might be seven or eight, you know what I mean? Multifamily, let’s just say or more. And what is, how are these, these hotels usually flagged beforehand? Are they just owned independently? I mean, how is that, and is that how we kind of play into your your acquisition process?

Ryan:
It depends. So we’ve bought all different types of flags from independence to Quality Inns to Marriott Residence Inns. I’d say, you know, kind of on the other end of the spectrum one thing that you and the audience might find interesting is just the natural death cycle. That death spiral, I’ll call it, that hotels go through. So for those who don’t know, like the flag, you know, the franchise, the franchisor, right? Mar call it Marriott in this case has certain brand standards that they have the hoteliers, you know meet, they need them to meet, right? So they want the carpet, they want the, you know, the countertops, the fixtures, the lobbies to all be consistent, right? If you go into a courtyard Marriott in Iowa and you go to one in LA, they’re gonna look and feel similar, right? And that costs money obviously, to refresh these as they ha as they change their brand standards.

Ryan:
The, these franchisers refer to it as a performance improvement plan or a pip. Now post Covid hotels have not been doing well, right? Luxury hotels have kind of come back, but the travel budget hotels have not come back and imagine, you know, your business is suffering. You’re not getting the NOI, you’re not getting the income that you used to, and then you get hit with a pip and you have to come up with a few million dollars in CapEx. As a hotelier, it’s hard to make that pencil. And typically what you’ll do is you’ll drop a flag, you’ll drop a tier. And so even, but then when you drop a tier, you might still face the same issues. You might still have challenged income, you might have debt materials, and then you might drop a tier even more. And so we’re typically buying these when they’re, they’re quite distressed whether it’s debt maturities, you know whether a competition down the street has, has taken a lot of their business because that’s something that’s easy to do in the hotel game or if they’re just, you know, multi-generational, you know, families that have owned these assets, they’re just ready to move on.

Ryan:
So we’re, we’re typically buying these hotels that are distressed. And this natural death cycle is something just, it just happens in, in hospitality because it’s not too hard to go build a brand new ho hotel down the street. And we’ve obviously had these, you know, changes post covid in the way that Americans travel, you know, both for pleasure and for business.

Charles:
Yeah, that makes perfect sense. So it’s really, you have well located properties that how they’re, they’re not the highest and best use, you know what I mean? And so you’re switching it to something that’s gonna be better for the community and you know, better for investors that are involved with that property. What are, what are some of the common mistakes operators make, let’s say, when they’re converting hotels to apartments? And I know you’ve learned from a lot of your mistakes, as you said, you changed everything around from closing up that inspection box and the unknowns. But have there been other, other mistakes maybe you’ve seen that you guys have made or other operators in this space have made that is really something that a normal apartment investor buying something that’s already a multifamily property might not even be aware of if they were gonna do the same thing? Yeah,

Ryan:
There are a few. One is I think the, the one that folks make most commonly is certainly overpaying on the acquisition. That’s not just in hotel conversions, you know, people overpay all the time. The second is, oh, underestimating the CapEx. These are, these are expensive projects that take a lot of work. And, you know, we’ve picked up some distressed properties from other folks who have tried to convert, and their, the most recent one that we picked up our, our construction budget is five times what theirs was. Like we saw their original underwriting. And so, you know, folks think, you know, they see the, the underlying fundamentals of the dislocation and value between hotels and apartments, and they think they can do it, and it’s gonna be like a value add. It’s not especially when the jurisdictions come in.

Ryan:
And so that’s kind of the third challenge. Gotta make sure you can have change of use. You know, you’re not gonna get your building permit and you know, as a multifamily to be able to do these updates unless you have that. And that takes time and it takes education. And so I’ve also seen other other projects out there that have been kinda languishing and working their way through the permitting process for, you know, 12 months. And man, if you’ve got a loan on that project or you’ve got stale equity, that’s a huge drag on your project, so we won’t buy them. And now we’ve bought ones in the past where we haven’t had permits in place and kind of we’ve suffered through them, or maybe we’ve made it as an intentional decision and we’ve kind of understood the risk because we were able to, to negotiate and kind of mitigate that risk through some other, you know, financial means.

Ryan:
So that’s another category. I think, you know, one is also just doing projects that are too large, oversaturated. The market lease of velocity is so critical. One thing that we do to try to mitigate that is, you know, opening in phases. So whether that’s floor by floor building by building, we try to release units and waves so that everything’s not all delivering at once. I’d say, yeah, the last thing is just making sure that the hotels are vacant before you start and just jumping right in. Don’t try to manage hotel operations alongside unit turns. I think other groups that I’ve talked to try to do that, to have some revenue coming in. It just, it makes it complicated for your contractors. It’s not a great tenant or hotel guest experience. And then you can also run into some issues where you need to evict what you thought were hotel guests, but are, you know, asserting rights as tenants.

Charles:
Yeah. Especially if you’ve already changed the the use of the property. And now they’re saying when now we’re here, we’re tenants. Yeah, we can see that. Exactly.

Ryan:
One

Charles:
Last thing before I give you the floor about telling us about yourself and Sage and how we can contact you is you, you know, these being tens of thousands of dollars, as we said, 30, $50,000 a unit, how are these deals usually capitalized? I mean, how much are you taking on debt and are you raising all of this CapEx upfront? Because I would imagine the cost of the unit and the cost of your renovation is probably, I mean, it’s probably 50 50 out the whole cost of the project,

Ryan:
Right? Yeah, you’re spot on. Typically, we’re spending about the same on development as we are on the acquisition of the units upfront. Okay.

Charles:
And you’re raising that upfront. Is that done by debt from local lenders or something like this? Yeah,

Ryan:
So we raise equity through our evergreen fund. So that’s the equity that comes into the deal. And then we have, we’ll work with lenders to get you know, development debt. There’s kind of two categories of lenders that we work with. You know, we’ll work with the typical debt funds higher interest rate, maybe a little bit higher leverage, or we’ll work with local community banks or credit unions maybe with a bridge to perm product in terms of leverage, call it 65 to 70% loan to cost upfront. Now, once we stabilize, that drops into the forties from a leverage perspective, and usually 40 to 45% leverage because of the increase in value. The way these loans are typically structured is it’s a hundred percent of the construction costs and a, you know, much lower percentage, call it 50% of the acquisition costs, maybe a little bit less.

Ryan:
They, these lenders also require, you know, us to fund interest reserves and, and operating expense reserves upfront. And so we’re raising all of this upfront, we’re capitalizing the deal. And, you know, if all goes to business plan, you know, also with some buffer but if all goes to business plan you know, these should stand on their own. Everything’s raised upfront. We execute on our business plan, you know, our contractors get bank draws they get paid from the bank and then, you know, we open up and the property, you know, starts generating enough income to cover its debt, then we look to do a cash out refinance re you know, recoup our equity and deploy it into our next project. We typically hold, or our business plan is hold for about five years for

Charles:
These projects. Interesting. Yeah, that’s that’s fantastic ’cause it’s, yeah, it is, it is more of a construction process versus a renovation value add process for sure. Yeah. Ryan, thank you so much for coming on today. How can other stores learn more about you and Sage? Yeah,

Ryan:
Certainly. You can go to our website sage investment.com to learn more about us. You can reach out to me atRyan@sageinvestment.group. It’s a different domain. We haven’t switched our emails over yet. Or you can find me on LinkedIn and, and feel free to shoot me a message.

Charles:
Thank you so much for coming on today. We’ll put all those links in the show notes and looking forward to connecting with you here and the near future. Awesome. Thanks So much,

Ryan:
Charles. Thank you.

Links and Contact Information Mentioned In The Episode:

• Sage Investment Group

About Ryan Sudeck

Ryan Sudeck joined Sage in 2023 as the organization’s first Chief Executive Officer. In this role, he works to drive forward Sage’s mission to expand the availability of attainable housing in Washington state and nationally. Ryan oversees finance and operations for the organization while working to ensure a healthy return for all Sage investors. A graduate of Stanford University with years of personal experience in real estate investing, Ryan most recently served as Vice President of Marketplaces at Redfin, and previously led acquisitions across industries at PwC, Samsung, and Amazon.

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