Q1 Investor Update: Brownsville Hotel-to-Apartment Conversion Project

In the first quarter, significant milestones have been achieved in our hotel to apartment conversion project in Brownsville, Texas. We successfully completed the installation of a new TPO roof and new air conditioning package units for the main lobbies. Rough-in electrical and plumbing work for the first 40 units is complete, and bathroom shelving has been installed. The event center has been converted into 38 storage units, and the exterior building has been primed and received its first coat of paint. Shipments of key products, including PTACs, sinks, and floor tiles, have arrived on-site, and 40 kitchen cabinets have been assembled and prepared for installation. Additionally, the shower stall walls have been tiled.

Despite temporary project halts due to additional engineering and planning requirements from the city, we have made considerable progress. The city mandated a sidewalk in the front and a dumpster containment area, which required us to temporarily pause construction to accommodate these changes. However, we have successfully worked with city officials and anticipate resuming construction shortly. During this period, we completed all tasks that did not require city approval. Importantly, we have maintained decent occupancy rates with half of the hotel remaining open, which has allowed us to cover operating expenses without dipping into our reserves, keeping us under budget.

We are pleased to report that we have made strategic adjustments to our renovation and leasing strategy that have resulted in significant cost savings. By generating property income and reducing renovation expenses, we project a 10-15% savings over the course of the entire project, barring any unanticipated events. We are on track to complete the first forty units by the end of the summer and the final forty units by the end of the year, positioning us well to stabilize the property as we head into Q1 of 2025.