Hotel Investment Group based in Mission Valley is transforming a former medical office building in the Birdland neighborhood near Kearny Mesa into $17 million micro-unit apartment complex as a way to diversify its portfolio.
As its name suggests, Hotel Investment Group (HIG) specializes in building and running hotels but the hotel market is susceptible to severe downturns as happened at the beginning of the COVID pandemic so the company decided to go into the apartment market.
“Hotels do well when the going is good, but they almost come to a stop when there’s any trouble,” said Darshan Patel, CEO of HIG. “We are still developing hotels. We’ve taken our foot off the gas pedal slightly when it comes to hospitality.”
HIG owns and operates 18 hotels and apartment complexes throughout California.
Bob Rauch, president of the hospitality company R.A. Rauch & Associates, said the apartment market is less volatile than hotels.
“Multifamily is probably a hot commodity of the month, but it eventually will slow down to linear growth where the hotel industry has more ups and downs. If you get lucky in the hotel industry, you get great returns,” Rauch said.
Starling Place, 7798 Starling Drive, is HIG’s third apartment project in San Diego but with 90 apartments, it’s the first of any size.
The company’s first project was an eight-unit apartment complex in Bankers Hill. It also built a complex of 21 apartments and most recently, one of 34 apartments – both in Old Town.
Patel said the company opted for micro-units because the construction is about the same as building hotels with apartments about the same size as hotel rooms.
Starling Place includes the 28,000 square-foot former medical office building, which has been gutted and renovated, and a 14,000 square-foot new building over a surface parking lot.
The two buildings are seamlessly connected so they seem like one structure, Patel said.
Veda Design Group did the interior design.
Middle income target
Renovation of the original building with 65 apartments should be finished by Dec 1, Patel said, with construction of the new building with 25 apartments finished by Jan. 15.
The location is ideal for micro-apartments because it is near a hospital and freeway interchanges, Patel said.
Likely tenants include traveling nurses, construction workers, students, members of the military and others who are looking for temporary quarters.
The building was 70% vacant when HIG acquired it in 2017, Patel said.
“They were struggling to lease the units,” Patel said.
After buying the property, HIG put off construction “just to ensure what we wanted to do was going to work,” Patel said.
“We were thinking of two ends of the spectrum,” Patel said. “Most multifamily developers do that. They focus on the very low end, affordable housing, or the high end luxury housing.”
After surveying the market, HIG opted to go for the missing middle.
“There was an entire segment of the public that wasn’t being serviced at all. They didn’t necessarily apply for the low income and they couldn’t afford the high end,” Patel said.
The apartments range from 320 square feet to 450 square feet in a mix of 60 studio apartments and 30 one-bedroom apartments.
Monthly rents range from $1,600 to $2,000 for furnished and unfurnished apartments.
Although the interior of the building was gutted, most of the changes to the exterior were cosmetic other than installing new windows.
“The biggest thing when it comes to adaptive reuse, we want to change as little as possible,” Patel said.
Patel said HIG kept community amenities limited to keep rents lower.
“There’s a laundry facility. That pretty much ends the amenities we offer. There is no pool, no clubhouse. There are none of those extras you would expect in a high end apartment building,” Patel said. “We figure instead of making them pay a higher rent for amenities that they are not going to use, why not lower the rents and allow more units to come in?”
Unlike many other complexes, Starling Place will offer flexible lease terms, with a minimum lease of 30 days, Patel said.
“We’re able to target people that are here for a little bit more than transient but not necessarily long term,” Patel said. “If there’s a contractor that is here for a month or two, they can go ahead and rent out an apartment.”
He said company decided to offer short-term leases based on its experience operating hotels.
“We knew there was a need for this type of asset, primarily due to a lot of guests staying in our hotels giving us feedback,” Patel said.
Hotel Investment Group
CEO: Darshan Patel
Headquarters: Mission Valley
Business: Real estate development
Number of employees: 127
Notable: Founded in 1991 by Bhavesh “Bobby” Patel, San Diego-based Hotel Investment Group’s portfolio consists of franchise and boutique hotels, multifamily, and medical office properties throughout California.