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Sheraton Crescent Phoenix

Ground up, transit oriented development.

Stok Investment Group

Property Overview

Location:

Phoenix, AZ

Number of units:

250

Acres

Square feet:

~300,000

ESG:

Targeting below 80% AMI, zero carbon

Spread to Cap Rate:

200+ bps

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Stok Investment Group

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Our team has been under contract on this hotel for almost two years with the intention to convert to housing. We have a full due diligence file and were most of the way through the rezoning process with the City of Phoenix before the property went into receivership.  The Receiver has since took over the sales process and we pushed paused on any further dry hole costs.

To date we’ve invested almost $500K into entitlements, drawings, pricing and diligence so confident to say, we know this deal inside and out. We are sourcing total equity of $20M and require at least $10M of that prior to the auction date of September 25th.

Please find links to the latest deck and underwriting for this deal where we expect to achieve high teens IRR before any Opportunity Zone tax benefits.

The following dates have been set by the court order sale:

September 16th - bids due
September 25th – auction
October 4th – court approval of sale
November 4th – deal fully consummated by courts

Why we love this deal:

Location, location, location

  • TOD location. 750’ to brand new transit stop and line
  • ~$1B investment by Hines across the street for the redevelopment of the Metro Center Mall
  • Convenient access via Hwy 17 north to $65B TSMC (15 min) and south to Phoenix (10-15 min)

Basis well below replacement costs

  • Going in basis will be below $50/ft for 100 foot, 8 story, concrete core with parking structure and full amenities already built out
  • With a ~$200K/unit all-in basis, we expect this to rent below Class B/C wood framed apartments with limited amenities

Functionality to Convert

  • Easy to convert with demiseable walls throughout and typical double loaded corridor
  • 9’+ floor to ceiling in unit, 345 sq ft room converts easily to studios and several rooms convert easily to 1 BR and 2 BRs
  • 8x8’ glass sliders open to juliet balconies and views of mountains, downtown, Scottsdale, etc.

Underwriting and Tax Efficiency of Opportunity Zone to Convert

  • Conservatively this project underwrites similar to a distressed value add deal with 19.2% IRR and 3.6x multiple over the 10 year hold BEFORE OZ TAX BENEFITS
  • Conservative exit cap assumption of 6% (in 10 years) suggests $330K/unit exit which is similar to recent mid-town Class A sale comps over the last few years
  • Average rent models to $1500/month across all units. ~60% of units are below 80% of AMI and ~90% of units are below 90% of AMI

Deal Structure & Proposed Economics:

GP Commitment: 5% = $1M


LP Commitment: 95% = $19M

  • 70/30 split (LP/GP) over 8% preferred return, GP participates in operating profits to align duration interests
  • Returns Priority: First Preferred Return, then Return of Capital, then Profits Split

Thank you for considering the investment opportunity and supporting our mission to provide upward mobility through attainable, healthy and low-carbon communities.

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