More companies are exploring conversions from hospitality to multi-family accommodation

Many communities and businesses have struggled to convert empty hotel rooms into housing for populations at risk during the pandemic.

As the hospitality industry continues to suffer and the housing crisis escalates, many people wonder if housing could be a permanent answer to the challenges facing the hospitality industry.

One of those people is Jonathan Needell, President and Chief Investment Officer of KIMC.

KIMC is working on its third agreement for the transition from hospitality to apartments. So far he’s done one in Albuquerque and two in Austin.

Needell believes hotel concepts are on the low end of the quality scale, but in good locations they are ripe for conversions. Currently, some of these hotel assets are facing occupancy issues.

“Now they’re 20% occupied and have started to be turned into higher, more efficient usage offers,” Needell says. “We’re seeing a number of them, and it’s an emerging trend.”

Other groups are also interested in these conversions. Billy Meyer, senior vice president of home loans at Columbia Pacific Advisors, said his team recently submitted a term sheet for a project to convert a hotel to housing in a major metropolitan city.

Meyer believes that it is possible to inject affordable, unsubsidized housing into the market by converting old hotels.

“I think what we’ll see primarily with hospitality is the conversion to multi-family with affordable rent, not necessarily through an affordable housing program,” Meyer said. “It won’t be through the local housing authority or the city or state government. I think there will be pent-up demand.

Needell calls conversions a niche game and says that for the most part those hotel rooms can only be turned into studios if a company does “heavy enough work” and gets the asset “cheap enough”.

“Maybe on the full service side you can do more of a mix of unit types,” says Needell.

Like Needell, Meyers anticipates that hotel rooms will be converted to smaller units. “They will have a lower cost per month, maybe $ 1,000 per month instead of $ 2,000 per month,” he says. “They are nice, new and clean, and they are in a good location.

Needell says extended-stay hotels and older hotels with larger rooms may be able to provide larger units than studios. “Plus, rooms with connecting doors for families still represent a minority of rooms in most hotels,” Needell explains.

If a hotel is located in nearby suburbs or in strong locations, studio conversions can generate adequate demand. The good news is that many hotels are located in areas with high conversion potential.

Needell believes that the depth of the market for these conversions will be based on the economic recovery. The longer things last, the more ripe hotels will be for conversions. “We have six to nine months before low-end hotel occupancy rates recover to the point where pricing makes it more difficult. [for conversions], and only some hotels can do it, ”says Needell.

About Alma Ackerman

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