Workforce housing multifamily conversion located in Orlando, FL adjacent to Disney World, perfectly situated among the target demographic of hospitality and service workers.
Disney is the largest single site employer in the country with 75,000+ employees in the Orlando MSA. Orlando as a whole had a record 75 million visitors in 2018, making it the #1 tourist destination in the U.S. Orlando continues to suffer from an undersupplied housing inventory, while job and population growth have increased.
Adjacent to Disney World, Surrounded by Tourism-Oriented Businesses and Target Demographic: The proposed workforce housing West Bay Village is located adjacent to Disney World and along the entry road to Animal Kingdom. It is 0.8 miles from a similar T2 hotel conversion project called “Maingate Village.” This convenient location should be popular with Disney employees and others working at the area’s tourism-oriented businesses. This workforce is generally earning minimum wage while commuting 45+ minutes to/from work due to lack of local, quality workforce housing. The Sponsor intends to alleviate this problem. The properties are located in the Kissimmee market, with good access to US 192 (Irlo Bronson Memorial Highway), the primary east-west route in this area, while also providing convenient access to I-4 and downtown Orlando just to the north.
Replicating a Proven Business Plan from Another T2 Property Just 0.8 Miles Away: T2 has acquired a former resort hotel asset and is in the process of renovating and converting that property to an apartment community known as “Maingate Village,” just south of the main entrance to Walt Disney World. A total of 343 units are planned in 15 buildings. With a total project budget of approximately $100,000 per apartment unit, this development is underway with 131 units, Phase I, now in lease-up. To date, 123 units have been leased over approximately four months. Management recently instituted rent increases of +$80 on Studios, a strong lease up despite head wind of COVID.
One of the Fastest Growing Counties in the U.S.: Kissimmee is located within Osceola County, which is one of the fastest growing counties in the United States. According to the U.S. Census Bureau, from 2010 to 2019 the county increased its population by 39.8% (8th in growth in US). Additionally, over the past 10 years, the SW/I-Drive submarket, where the Property is located, has accounted for more than 19% of MSA growth during this period.
Strong Market Thesis Meets Demand of the Renter Pool: Amidst a shortage of quality workforce housing, recurring publicity regarding substandard living conditions for Disney personnel, and a glut of hospitality properties in the area, T2 built an investment thesis around providing quality, workforce housing, which caters to Disney personnel and surrounding service professionals via the conversion of select hotels. That thesis remains in place today as T2 continues to build its workforce housing portfolio in the Orlando MSA as well as other markets in the US.
THE BUSINESS PLAN
The Project is a 6-floor, 295-key Baymont hotel which will be converted into a 254-unit multi-family/workforce housing property. The property is situated on a 7.4-acre site, was constructed in 1990, and recently completed several capital improvements – including a new roof – before closing in March 2020 due to COVID-19. The property is located adjacent to Disney World and along the entry road to Animal Kingdom. It is also 0.8 miles from a similar hotel conversion project that T2 has ongoing called “Maingate Village”. T2 has been active in the workforce housing space on a sporadic basis since 2014 but made a concerted effort in late-2019 to build a portfolio of such properties in select markets including Kissimmee. The project was fully entitled in Q3 2020 and the subject property acquisition is expected to take place in Q2 2021. To assist in the execution of the project, T2 is partnering with Davenport, Florida-based Cornerstone Asset Services, LLC. T2 and Cornerstone are also partners on the “Maingate Village” project. Cornerstone is a multi-family leasing and management company that will be retained as property manager for West Bay Village.
2019 Capital Improvements:
In-room renovation entailed electrical rewiring where necessary and some plumbing work as well as texturing, caulking and repainting of rooms
Exterior of all buildings has been painted
Landscaping completely redone: work included creating paved garden area complete with fire pits, new palm trees, a pergola and various tropical plants to add color and create a vibrant atmosphere for our guests
Beach complete with white sand and coconut palm trees and Adirondack chairs has been installed at the front of the property to create a resort feel. A 3-phase fountain installed was also installed in the lake to add to the visual appeal of the property
New pool deck and garden patio furniture has been installed and the pool deck and fence repainted. A music system (amps and speakers) has been installed at pool area
Tiki Bar renovation with new equipment installed – approved for alcohol sales
Meeting room overhaul included new ceiling tiles, lights and window shades. Walls repainted
Business center upgraded
New door signage installation on all floors
Cleaning, maintenance, replacement (when necessary) on all PTAC heating/cooling units
Drapery, linen, bed skirts where needed
Forthcoming Capital Improvements:
Apartment Unit Upgrades
Full kitchens added to each unit (which includes plumbing and electrical upgrades to the property)
New flooring, paint, and cabinets
Upgraded fire sprinkler systems to comply with current building code
100 hotel rooms will be combined into 50 one-bedroom apartment units, and remaining 195 hotel rooms will be converted into studio apartments
Excess maintenance areas will be converted into 9 additional studio units
Common Areas being Remodeled
Reception area
Leasing offices
Coffee bar and common area seating
Fitness facility
Storage units (available to tenants for additional rent)
CONSTRUCTION TIMELINE
The anticipated timeline of applicable project milestones is below. Note that the amount of time between property acquisition and stabilization is estimated to be ±30 months and leasing efforts will be ongoing throughout that time.
THE PROPERTY
The Property is a 6-floor, 295-key Baymont hotel that will be converted into a 254-unit multi-family/workforce housing property. The property is situated on a 7.4-acre site, was constructed in 1990, and recently completed several capital improvements – including a new roof – before closing in March 2020 due to COVID-19. The property is located adjacent to Disney World and along the entry road to Animal Kingdom. It is also 0.8 miles from a similar hotel conversion project that T2 has ongoing called “Maingate Village”. T2 has been active in the workforce housing space on a sporadic basis since 2014 but made a concerted effort in late-2019 to build a portfolio of such properties in select markets including Kissimmee. Disney is the largest single site employer in the country with 75,000+ employees in the Orlando MSA. As frequently written up in various articles, many of the Disney employees earn minimum wage or slightly above while commuting 45+ minutes to/from work due to a lack of local, quality workforce housing. T2’s “Maingate Village”, “West Bay Village”, and other similar projects in the pipeline are anticipated to help in alleviating that problem.
While the subject property is adjacent to Disney World, it is also situated off Highway 192, which is a major east/west thoroughfare in Kissimmee. Less than one mile from the subject property are a Walmart Supercenter, multiple national restaurants, and public transportation. Considering this location, the subject property is expected to attract a tenant mix including not only Disney personnel, but multiple service professionals from the surrounding area.
Based on leasing data compiled to date from T2’s “Maingate Village” project as well as a recent Market Study, the unit mix within the subject West Bay Village project will consist of 350 SF studios (80%) and 700 SF 1-BR units (20%). The studio units will be former hotel rooms that are materially upgraded and modernized while the 1-BR units will entail combining two former hotel rooms. The project has recently been fully entitled to proceed with the hotel to multi-family conversion.
Community Amenities
Outdoor Pool
Fitness Center
Laundry Facilities
Tiki Bar
Storage Units
Coffee Bar
Lounge Area
THE LOCATION
The property is located in Kissimmee, Florida just west of Celebration, Florida. Celebration is a master planned community located near Walt Disney Resort and was originally developed by The Walt Disney Company. The city features a Multi Modal Transportation Hub located between Neptune Road and Monument Streets. This hub includes the Amtrak train station, which is a station stop on the SunRail commuter rail system. There is also a Greyhound bus station. Kissimmee is located within Osceola County, which is one of the fastest growing counties in the United States. From 2010 to 2018 the county increased its population by 37% (5th in growth in US) and in 2017 to 2018 showed an increase of 4.3% (7th in growth in US).
Metro Area Growth -- The Orlando MSA population, at 2,638,858 in 2020, has increased at a rate of 2.4% per year over the past decade, growing by an average of 50,445 persons per year over the past 10 years. Over the next five years, population growth is expected to average 53,877 persons per year (+2.0%) through 2025. Meanwhile, household growth has averaged 17,293 per year over the past 10 years and is expected to increase slightly to 18,906 households per year between 2020-2025. (Marquette Advisors)
Submarket Growth – The SW/I-Drive submarket has a resident base estimated at 302,767 persons and 106,108 households in 2020. This accounts for approximately 11.5% of the MSA population and 10.9% of the household base. Over the past 10 years, the submarket has grown by 9,585 persons and 3,350 households per year, accounting for more than 19% of MSA growth during this period. ESRI projects that the submarket will grow by an average of 10,068 persons and 3,385 households per year between 2020-2025, capturing roughly 18% of MSA growth. (Marquette Advisors)
NEARBY AMENITIES
The table below shows data on the household income distribution throughout the submarket and the MSA. The table shows the estimated number of households by age and by income both for 2020 and projected for 2025. The highlighted data is for the age 25-34 and 35-44 age cohorts, as these are primary renter groups throughout the market. Renter demographics based on leasing to date thus far at the Sponsor’s other hotel conversion property in the area, Maingate Village, confirm this with a median renter age of 37. So far, the median income among Maingate Village renters is approximately $34,430. Based on the current rent schedule at that property ($815 per month for Studio; $1,095 for 1BR and $1,395 for 2BR), these renters are contributing a median of 34% of their incomes toward rent.
The median income is held down somewhat currently due to some renters being presently unemployed and/or qualifying for the apartment via a co-signer. According to a market study by Marquette Advisors, they anticipate that Maingate Village renter incomes will improve along with the economy in the coming weeks and months, and as management pushes rents over time.
The household age and income data shows that incomes are generally somewhat lower in the submarket compared to the metro area. The median household income in the submarket is estimated at $55,470 compared to $58,931 for the MSA. As well, based on the age distribution data, the submarket contains a greater concentration of households in the primary age cohorts (25-34,35-44), as 48% of submarket households are in this age range compared to 37% of metro area households.
Based on the current rent schedule at Maingate Village ($875; $1,100; $1,395) and an allocation of 30% of income-to-rent, the target income range for the subject property is approximately $35,000 to $55,000. This is based on an assumed increase in Studio rents in the relatively short term to around $875 per month at this property, which the Sponsor believes is supportable based on their market analysis. An estimated 20% of submarket households would be “income-qualified” for Maingate Village, fitting this defined income band, compared to 14% of metro area households. Looking at the projected household growth trend for the submarket, the data is also favorable to apartment development, as nearly 50% of the projected submarket household growth is expected to be in the age 25-34 and 35-44 cohorts, compared to about 33% for the metro area as a whole.
DEMOGRAPHICS
RENT COMPARABLES
SALES COMPARABLES
Comments