Todd Braun of the Phoenix office of CB Richard Ellis Inc. represented the buyers, Peter Fooshe Jr. and Peter Fooshe III of St. Paul, and seller, Desert Hotel Holdings-Michael Greenwald of Gilbert, AZ. Braun tells GlobeSt.com that the Fooshes used 1031 Exchange money to finance part of the deal. The seller, also the hotel's developer, took back the class C holding from a Texas-based entity that was delinquent on its mortgage.

With an average unit size of 550 sf, the Fooshes decided it made sense to convert the hotel into multifamily use. "The economics as a hotel/motel didn't support this type of pricing," says Braun. "However, the new purchasers felt that by converting the units to apartments, the economy more than justified that price level."

The per unit price was substantially less than the Phoenix average, according to Braun. CBRE considers $40,000 to be the average per unit cost for a class B property and $30,000 to $40,000 for class C. The Pinchot Suites, a deal Braun admits is rare, sold for about $22,815 per unit. With the renovations added in, the top price per unit is just under $26,000 per unit, still $4,000 shy of the low average price point for units in Phoenix.

In converting the property, the plan is to add ranges and update existing kitchenettes as well as some other upgrades. About $1,000 to $3,000 per unit will be spent on the changes for an already well-maintained property. According to Braun, the monthly rental will come in around $600 per apartment.

The hotel is surrounded by commercial establishments and other multifamily properties. It is a solid, class C neighborhood, Braun says.