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Conversion of Vacant Hotels/Motels for Multifamily Housing
One obvious adaptive reuse of vacant hotels/motels is for multifamily housing. In 2020, the hotel occupancy rate plunged to 37% as the COVID-19 pandemic severely cut leisure and business travel and events. Even as the demand for lodging recovers once normalcy returns, stiff competition from short-term rental providers will continue to challenge the viability of the lodging industry. On the other hand, there is an acute undersupply of housing.
Recognizing that the conversion of vacant hotels/motels is a win-win solution to address the underutilization of hotels/motels and help alleviate the housing shortage, the Commercial Real Estate Research Advisory Board under 2021 Chair Dawn Aspaas and Vice-Chair Beth Cristina recommended that a research be undertaken on the conversion of vacant hotels/motels into multifamily housing to draw some insights and best practices. This report is the result.
NAR Research undertook the research using a two-pronged methodology:
- conduct a survey of NAR commercial members about their transactions that involved hotels/motels that were planned to be converted into multifamily housing; and
- conduct secondary research of hotel/motel conversions from company websites, SEC filings, and county records.
Commercial Member Survey on Hotel Conversion
The NAR Research Group sent out the survey to 75,000 commercial members during February 17–March 19, 2021. There were 1,936 respondents, of which 168 respondents reported they had been engaged in the sale, leasing, development, property management, or appraisal of a hotel/motel to be converted into multifamily housing (including mixed use) during 2018–2020 whether the transaction closed or not. The survey asked respondents who had been engaged in such a transaction to provide additional information on at most three transactions. Respondents provided information on 29 hotel/motel conversions, and in 21 of these cases, the name of the hotel/motel was identified. Respondents provided information on the following:
- the acquisition cost
- type of service offered (full-service or limited service)
- whether the hotel/motel offered extended stays and had kitchens
- conversion cost
- whether the converted unit offered market rent or below market rent units
- rent per room after conversion
- whether a zoning application was required
- sources of financing, loan to cost ratio, and loan rate
Hotel Conversion Case Studies
The secondary research features five case studies where there is extensive project and financial information. Project information was acquired from official various state and local government websites, official developer and architect websites, and local media outlets. The financial information was gathered from official various state and local government websites, official developer websites and SEC filings.
- Residence Inn by Marriott in Winston-Salem, North Carolina
- Days Inn in Branson, Missouri
- Luna Lodge in Albuquerque, New Mexico
- Red Lion in Kissimmee, Florida
- Ann River Motel/Go Ministries in Mora, Minnesota