GUESTHOUSE

Palm Springs Manor - Campus 2

Strategic Desert Expansion Opportunity
$4.3M
Original Ask
Starting point
$3.875M
Negotiated Price
10% reduction
$1.75M
Initial Equity
Closing capital
$2.0M
Future Capital
Renovation phase
Investment Thesis: Acquire 18-suite property negotiated down 10% from $4.3M asking to $3.875M. Zero groupstay competition in Palm Springs market. 2-hour LA proximity captures weekday corporate business. Property cash-flows $164K annually during design/permit phase, funding conversion without dead capital.
Capital Requirements Amount Timing & Detail
Initial Capital (Now)
Down Payment $1,500,000 38.7% of purchase price
Closing/Soft Costs $250,000 Legal, diligence, initial design
Total at Closing $1,750,000 Required immediately
Future Capital
Renovation Budget $2,000,000 Months 6-18 (can be staged/financed)
Seller Financing $2,375,000 61.3% LTV at 5.5% (10-yr I/O)
Total Project Equity $3,750,000 Over 18-month period
Value Creation Amount Detail
Negotiation Savings $425,000 Reduced from $4.3M asking to $3.875M
Below-Market Purchase $1,455,000 18 suites × $80,833 discount ($260K market - $179K)
Financing Advantage $710,000 5.5% vs 8.5% market rate over 10 years
Design Phase Cash Flow $123,000 9 months existing tenants fund planning
Total Value Created $2,713,000 155% of initial equity / 72% of total
Net Operating Income Build (Fully Loaded)
Year Revenue OpEx (35%) NOI
Year 1 (Existing) $368,400 ($128,940) $239,460
Year 3 (Stabilized) $810,000 ($283,500) $526,500
Year 10 (Optimized) $1,080,000 ($378,000) $702,000
GUESTHOUSE

Scenario Analysis

Conservative, Base, and Optimistic Outcomes
Scenario Cap Rate Year 3 Value Year 10 Value 10-Yr Multiple
Conservative
Single asset sale		 6.0% $8,775,000 $11,700,000 2.8x
Base Case
Market transaction		 5.75% $9,157,000 $12,209,000 2.9x
Optimistic
Platform premium		 5.5% $9,573,000 $12,764,000 3.4x
Platform Exit
Institutional buyer		 5.0% $10,530,000 $14,040,000 3.7x
Capital Efficiency Through Staging

Only $1.75M required at closing. Property cash flows $164K annually during design phase, potentially funding part of renovation. The $2M renovation can be staged over 18 months or financed through construction loan. Including all $3.75M, conservative case delivers 2.8x multiple. If renovation is partially funded through operations or debt, returns increase significantly.

10-Year Total Returns by Scenario
Component Conservative Base Optimistic
Operating Cash $3,500,000 $3,500,000 $3,500,000
Sale Proceeds $9,325,000 $9,834,000 $11,665,000
Less: Debt Payoff ($2,375,000) ($2,375,000) ($2,375,000)
Net Returns $10,450,000 $10,959,000 $12,790,000
Multiple on Equity 2.8x 2.9x 3.4x
IRR 14% 15% 17%
GUESTHOUSE

Conversion Strategy

Self-Funding Design & Phased Implementation

Current Configuration

┌─────────────────────────────┐
│  GARAGE    │   CLUBHOUSE    │
│            │   w/Kitchen    │
│  ┌────┐    └───────────────┤
│  │ 4  │         POOL       │
│  │Unit│    ┌────────────┐  │
│  │Bldg│    │            │  │
│  └────┘    │   POOL &   │  │
│            │  COURTYARD │  │
│  ┌────┐    └────────────┘  │
│  │SFR │     ┌──────────┐   │
│  └────┘     │ 6 Units  │   │
│             │  + 6 More │   │
│  RECEPTION  └──────────┘   │
│                             │
│  E MEL AVENUE               │
└─────────────────────────────┘
• 18 units across 6 buildings
• Central pool & courtyard
• Standalone residence
• Commercial kitchen ready

Guesthouse Campus Vision

┌─────────────────────────────┐
│  EVENT   │    THE HALL     │
│  SPACE   │   (F&B/Events)  │
│          └───────────────┤  │
│  GUESTHOUSE #1  │  POOL  │  │
│  ┌──────────┐  ┌────────┐  │
│  │ 6 Suites │  │ LOUNGE │  │
│  └──────────┘  └────────┘  │
│                             │
│  GUESTHOUSE #2 & #3         │
│  ┌──────────────────────┐   │
│  │    12 Suites Total   │   │
│  └──────────────────────┘   │
│  WELCOME CENTER             │
│                             │
│  E MEL AVENUE               │
└─────────────────────────────┘
• 3 Guesthouses (6 suites each)
• Central Hall for dining/events
• Pool as social anchor
• Group-focused programming
Phase Timeline Activities Cash Flow
Design Months 0-6 Plans, permits, marketing $82,000 (funds planning)
Hall First Months 7-9 Convert SFR, activate F&B $41,000 + event revenue
Phase 1 Months 10-12 First 6-suite Guesthouse $60,000 + growing
Full Campus Year 2+ All 18 suites operational $350,000+ annually
Critical Success Factor: Zero Dead Capital

Property generates positive cash flow throughout conversion. Existing tenants fund design phase ($123K over 9 months). Hall opens first to build community awareness and generate F&B revenue. Phased suite conversion maintains occupancy income while testing operations. No period of negative cash flow.

Why This Beats Alternative Investments
Factor Palm Springs Manor Typical Hospitality Deal
Acquisition Price 31% below market Market or above
Financing 5.5% seller, 10-yr I/O 8.5%+ bank, 5-yr amort
Development Period Cash flows $164K/yr Zero revenue 12-18 months
Market Competition Zero groupstay properties Saturated markets
Platform Value Second campus premium Single location discount
NOI calculations include 35% operating expense ratio (utilities, insurance, property tax, maintenance, reserves).
Cap rates: 6% conservative (single asset), 5.75% base (market), 5.0% platform (institutional buyer).
Market financing assumed at 8.5% based on current hospitality redevelopment rates.
Returns exclude potential tax benefits and assume no additional capital improvements beyond initial investment.