CONVERTING HOTELS INTO HOUSING
Written by: Cody Carey
As a vice president within Colliers’ Multifamily Advisory Group, Cody Carey works with a team of professionals whose focus is middle-market properties across the country. He brings to the team a holistic perspective of building and maintaining relationships with clients and prospects because of his understanding that putting himself in their shoes is the key to a successful relationship. Cody is working to build Colliers’ multifamily business in Columbus, and works with a highly collaborative, integrated team that is building value for clients. Keep reading to get Cody’s take on the recent trend of hotels being converted into housing.
Why do you think that hotels are becoming a target for affordable housing?
Hotels are becoming a target for affordable housing due to a variety of factors actively taking place in the marketplace. Hotels are already existing structures with infrastructure and strong bones of a building in place whereas new construction is ever increasingly becoming more expensive which in return is driving up traditional market rents. Hotels have been impacted by COVID and were one of the property types that was drastically impacted as the travel industry was collared by the pandemic. Some hotel owners sold in panic while others were forced into foreclosure, thus offering hotels in the marketplace for a significant discount. Without having reinvent the wheel, the existing infrastructure and construction of hotels provide a unique and cost effective way to provide affordable housing through efficiency units and 1 bedrooms. One bedrooms are easily formed by knocking down the walls of two traditional hotel rooms. One of the biggest concerns with construction is how to configure a kitchen and how to capture more than just single individuals as tenants.
When conversions are made, how are they impacting renters?
The impact on renter’s is likely yet to be fully discovered in this emerging opportunistic play. Renters benefit from enjoying newer construction and hotel-like amenities in their everyday living quarters along with affordable rent compared to the existing marketplace. Renters should ultimately save money and enjoy hotel-like amenities with a nice quality living quarters. We have yet to see multiple cycles of this product type performing to remain steadfast but the most impactful portion of this redevelopment strategy is that the developers get rewarded with a higher return meanwhile the tenants are saving money monthly in higher quality living quarters. It will be interesting to see if this product type can sustain any rent growth and what the impacts on tenant stickiness are as we realize multiple cycles of this product type.
Have you seen this in Columbus? Do you anticipate this becoming a trend in the Columbus area?
Personally, I am only aware of one project and one potential project in the City of Columbus that are doing it at scale. In the marketplace, there are active investors within continued interest in finding the right deal to execute on this strategy but Columbus wasn’t as severely impacted as other markets through COVID. I don’t think there is enough hotel supply for it to remain a long-term trend. What seems to be the more long-term trend playing out is that investors are seeking more and more opportunistic plays to construct unique, cost-effective and affordable multifamily housing. In Columbus I’ve had the pleasure of experiencing old office buildings, flex space, retail shops and hotels all being redeveloped into a unique multifamily investment. I’ve heard many older and smaller motels that have transitioned into this type of living quarters as they don’t have significant balance sheets to survive through the lockdowns and slowdown of travel. As long as there is inventory for developers to take advantage of this opportunity, there will be demand to execute in such a fashion. The beauty of this redevelopment play is that it typically hasn’t required public incentives to make it happen. Going forward, as hotels cash flow rebound, we’re going to see this type of redevelopment weed itself out of feasibility.