On today’s show we are going to do a walk-through of a property offering memorandum in Arizona.  Let me be clear, I’m not here to disparage any property. I’m simply going to share our perspective of how we would look at the property. 

The property in question is a conversion of a 1960’s vintage motel in Tempe Arizona. The original property had 140 motel rooms with a two story structure. The centre courtyard has amenities including a swimming pool. All of the parking is surface parking around the perimeter of the property. 

When we look at a property, we are looking at the submarket and the specifics of the deal. 

This particular property is located in an area that I would consider to be a lower income area.

Apartments in these neighborhoods have been the subject of ICE raids resulting in deportations. If residents fear being discovered, they will often leave and the question becomes who will rent these apartments? 

This particular property is being advertised as newly renovated. But the truth is, the physical layout of the units means the bedrooms do not have windows. They are tucked at the back of the old motel room design. If they were built today, they would not pass the building code as a legal bedroom. 

The financial model that accompanied the glossy package showed some stellar returns. But unfortunately some of the financial metrics did not seem credible when viewed through our lens. 

There is no way in our opinion that a 70 year old motel converted to apartments would value at over $500 per SF in the open market. 

The sad part is that these types of listings are out there. I never want to see an investor lose money. I don’t want to see a property fall into disrepair and become blight within the community. But things do get old. Once they’re functionally obsolete, the right solution is to demolish and rebuild. Extending the life beyond the useful life is rarely the right answer. 

I’ve had to demolish properties in Philadelphia. It’s sad when that happens.

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