Ryan Sudeck

CEO at Sage Investment Group | Addressing the housing affordability crisis by converting hotels to homes

[Ryan Sudeck @ryansudeck]

@AlfieJCarter Claude

[The Kobeissi Letter @KobeissiLetter]

US housing affordability is a crisis:

The median annual house payment as % of median income has hit 39.4%, the most since the 1980s.

The rate has skyrocketed by 14 percentage points since 2020 and has surpassed the 2006 Housing Bubble peak of 38.1%.

It is now only below the 47.5% record set in 1981 when mortgage rates were as high as 18%.

Meanwhile, the average rate on a 30-year mortgage has risen by 100 basis points since September, to 7.1%, near the highest since July.

Buying a house has rarely ever been so expensive.

[Ryan Sudeck @ryansudeck]

@chernobelskiy Interested GP!

[MAIA Biotechnology, Inc. @MAIABiotech]

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[Ryan Sudeck @ryansudeck]

Couldn’t agree more - we’re on our 18th hotel conversion to naturally affordable apartments. We can deliver 100-200 units in 6-12 months for ~$100k all in. Biggest hurdle to doing more is the red tape and regulations that prevent us from changing the use from hospitality to residential or place exorbitant fees on us.

[Farzad 🇺🇸 🇮🇷 @farzyness]

The collapsing birth rate is actually way worse than you think.

One of the biggest things I've realized since becoming a father 3 months ago is that I spend an obscene amount of time thinking about the future.

This is because I want my child to have the best possible place to grow up in.

And thus, I spend way too much time looking at how society is functioning today and where the weaknesses are.

What's becoming painfully clear is that everything is broken.

Our Government overspends like crazy and they never tell the truth.

Our corporations are way too bloated, rarely innovate, and they are more than comfortable lowering quality over time while increasing profit margins.

Our Mainstream Media is a national embarrassment and is nothing more than a propaganda machine for the government.

I am now constantly filled with a sense of dread. It feels like a good future is almost impossible given the amount of stuff that is completely broken today.

However - once I start thinking about the past, and compare it to today, I realize that things are so much better than they used to be, so it gives me hope that a better future is possible with enough effort and pain.

But here's the MASSIVE problem - without a child, I would've never felt as motivated as I do now to make the future a better place.

And then it dawned on me that the declining birth rate is not just a simple math problem - it fundamentally de-incentivizes civilization to look forward.

This means that there are less people now - more than ever in recent recorded history - that don't have that child making it painfully obvious how broken everything is, and how desperately we need to make everything better for our children.

Instead, we are distracted by ever-increasing technological wonders that will be maximally optimized to draw your attention away from reality using AI algorithms.

We are distracted by amazing products and services, and incredible destinations to visit.

We are distracted by social media platforms that make it extremely difficult to stop paying attention to them.

We are truly in a very, very, very dangerous place.

We need more people speaking up about things that need to be fixed.

We need more entrepreneurs tackling difficult problems.

We need more public servants that have the people's best interest in mind.

We need so much.

But more important than all - we need more children.

Children are the future, and without them, the future will disappear.

Literally.

--

Thank you @HansCNelson for the inspiration.

[Ryan Sudeck @ryansudeck]

@chernobelskiy Sage Investment Group

We convert hotels to apartments in growth markets across the country. Capitalizing on the distress in hospitality and insatiable demand for naturally affordable workforce housing.

Just started our 17th conversion and have many more in the pipeline.

[Jay Parsons @jayparsons]

The U.S. has added new homeowners nearly 2x faster than we've added new for-sale homes since 2015.

How?

By individual homebuyers outmuscling investors and converting millions of rental homes into owner occupied homes.

Facts > Narrative. We need more housing of all types.

[Ryan Sudeck @ryansudeck]

@nerdalert ORR of 38% in third-line compared to 6-10% for standard of care

[Ryan Sudeck @ryansudeck]

@nerdalert Poster just dropped: https://t.co/7miy1WhTVx

[Ryan Sudeck @ryansudeck]

@danielmwarwick We do hotel conversions, not ground-up construction.

[Ryan Sudeck @ryansudeck]

This 👇🏼. Taxpayer dollars in places like LA and SEA are being used to build affordable housing for nearly $1M per unit. At Sage, it costs us between $70k (in the Carolinas) to $170k (in premium markets like Seattle) per unit. We could deliver units even faster with less red tape.

[Moses Kagan @moseskagan]

What every voter should know about housing policy

1. Rents reflect the balance of supply of apartments and demand for those apartments in a given area. That’s it; there’s no magic. If you want lower rents, you can hope for a recession that destroys jobs and, therefore, demand. Or you can add supply.

2. There is no amount of money that any big city government could feasibly spend that would add materially to supply. This is because, depending on the location, new apartments cost $250,000-1,000,000 to develop… building even a few hundred of those starts to stress any city budget, and many big cities need tens or hundreds of thousands.

3. On the other hand, investors (including pension funds and endowments, insurance companies, rich families, etc.) can collectively **easily** provide enough capital to build as much housing as we need **so long as they are confident they can get a reasonable return**.

To get those investors to fund the creation of the housing our society so desperately needs, we must do two things:

1. Dramatically reduce the time & complexity associated with securing governmental permission to develop housing.

This means reviewing and simplifying the overlapping regulations that constrain housing production: zoning codes, building codes, parking, ADA, etc. But it also means changing the cultures within the relevant governmental agencies from “default no” to “how can we help you?”.

2. Provide certainty around on-going regulation of apartment operations.

The way investors get a return from building rentals is as follows: They hire managers to lease the apartments, collect the rents, pay operating expenses and any mortgage payments, and then send the investors the cashflow that remains.

But governments all over the country have been restricting the manner in which apartment buildings can be operated in all kinds of ways.

For example: Cities have been making it harder to screen tenants, while also making it much harder to evict tenants who don’t pay. You can see why both of those measures are politically popular. After all, who doesn’t want people to get second chances? And who wants anyone to get evicted? But, as a manager, the combination of those two regulations makes it much harder to predict, with any certainty, that the rent will get paid… and that makes it very difficult to get investors to provide capital to create more housing.

Another example: Rent control. Again, I understand why renters love rent control and why politicians want to give it to them. But, if, as has been the case in NY, LA and San Francisco, city governments hold annual rent increases below the rate of growth in the operating expenses of the buildings, the cashflow payable to the investors shrinks… making them much less likely to invest capital in building more apartments.

In conclusion: For ~every other good or service in the economy, we allow the market to function, and the result is that we have a surplus of choice at all price points (think of food or clothes or cars), which is spectacular for the consumer. If we want a surplus of choice at all price points in housing, we need to get comfortable with the idea of allowing the market to provide it.

And that means allowing investors to build rental apartments *and* allowing them to operate those apartments in a manner consistent with making a reasonable profit.

[Ryan Sudeck @ryansudeck]

@davegordon14 Sorry, should have said upfront - we focus on hotel conversions! Naturally smaller unit size, the hotels are typically distressed, and trade at higher cap rates…

[Ryan Sudeck @ryansudeck]

@mu2myoc This is something we've done at Sage - one dynamic is that we've created cohorts when our share price updates to manage dilution, maintain capital accounts, etc. I'd be happy to walk you through the structure, I'm at [email protected].

[Ryan Sudeck @ryansudeck]

@zorbadgreek Congratulations to you and the team, George! How far the team has come since we first conceived of Redfin even having rental listings on the site!

[Ryan Sudeck @ryansudeck]

@moseskagan Thoughts on including hotel-to-multifamily conversions in the really niche asset category? We just started our 17th project…

[Ryan Sudeck @ryansudeck]

@DeItaone Isn’t this due to the fact that wealthy cash buyers are dominating the market, meaning only more expensive homes are transacting? If we looked at like-for-like homes, I believe we’d see price declines. Newly constructed homes are a great proxy & their prices are plummeting

[Ryan Sudeck @ryansudeck]

@RothCRE Interested!

[Ryan Sudeck @ryansudeck]

At Sage, we’re tackling America's housing affordability crisis head-on by converting former hotels into attainable housing and reducing crime rates in the process. Check out the impact we’ve had in our backyard here in WA.

https://t.co/QD9LmwmYjk

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