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Vacant Hotels to Housing: The Real Estate Revolution We Need

The rise of vacant hotels and motels offers a surprising opportunity: converting these underutilized properties into much-needed multifamily housing.

With the housing market facing a severe shortage, this innovative approach provides a win-win solution for developers and communities alike.

Lets explore the data, case studies, and best practices that make hotel-to-housing conversions a game-changer in real estate.

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Why Convert Hotels to Housing?

The pandemic revealed vulnerabilities in the lodging industry, with hotel occupancy rates dropping to record lows.

Even as travel rebounds, stiff competition from short-term rental providers challenges the viability of many hotels.

On the other hand, the housing shortage is at a critical point.

Converting vacant hotels into housing addresses both issues by repurposing spaces for residential use, often at a lower cost than building from scratch.

Key Insight: Converting existing structures can be faster and more cost-effective than new construction, particularly in high-demand urban areas.

What Makes a Good Candidate for Conversion?

Not all hotels are ideal for transformation. The best candidates often include:

  • Extended-stay hotels: These properties often include kitchenettes, reducing renovation costs.
  • Limited-service hotels: They typically require fewer zoning adjustments and renovations than full-service properties.
  • Distressed properties: Lower acquisition costs make these properties attractive for developers.

Key Insight: Properties with existing infrastructure for long-term stays can significantly lower conversion costs.

Case Studies: Success Stories in Hotel-to-Housing Conversions

Several projects highlight how effective these conversions can be:

  • Residence Inn by Marriott in Winston-Salem, North Carolina: This project repurposed an extended-stay hotel into affordable housing units, keeping renovation costs low while meeting local housing needs.
  • Days Inn in Branson, Missouri: The conversion turned an aging property into a mix of market-rate and affordable units, revitalizing the neighborhood.
  • Red Lion in Kissimmee, Florida: Strategically located near major transit, this conversion provides workforce housing, leveraging local and federal financing options.

Key Insight: Successful projects rely on thorough planning, strategic location, and creative financing solutions.

Challenges in Converting Hotels

While the benefits are clear, hotel-to-housing conversions come with challenges:

  • Zoning restrictions: Many hotels are located in areas not zoned for residential use, requiring applications and approvals.
  • Financing hurdles: Developers need innovative funding strategies, including loans, grants, and tax credits.
  • Community pushback: Some neighborhoods resist repurposing projects due to concerns about property values or demographic changes.

Key Insight: Developers must navigate regulatory, financial, and social landscapes to bring these projects to life.

How Much Does It Cost?

Costs vary widely depending on the property and location. Survey data from commercial members reveals:

  • Acquisition costs: These can range significantly based on market conditions and property condition.
  • Conversion costs: Properties with existing infrastructure, like kitchens, reduce costs, while those requiring significant structural changes increase expenses.
  • Rent potential: Converted units often offer market or below-market rents, ensuring affordability while meeting community needs.

Key Insight: Extended-stay hotels with existing amenities like kitchens often provide the highest return on investment for developers.

The Bigger Picture

Hotel conversions are more than a real estate trend they're a critical tool in addressing systemic challenges like housing shortages and underutilized properties.

By creating mixed-use spaces or affordable housing, these projects benefit developers, local governments, and residents alike.

Key Insight: With thoughtful planning and execution, hotel conversions can rejuvenate neighborhoods and provide lasting community benefits.

Conclusion

Repurposing vacant hotels into housing is a win-win for developers and communities, offering innovative solutions to two pressing issues: the housing crisis and underutilized commercial properties.

Whether you're a developer, investor, or community advocate, exploring hotel conversions could open doors to impactful and profitable opportunities. Ready to learn more?

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