The coronavirus epidemic has been brutal to the hospitality industry. With business and leisure travel at a crawl, hotels and motels across the country are barely hanging on, and many flat out won’t make it.
The American Hotel & Lodging Association, in fact, recently surveyed its membership and said 71% reported they won’t make it another six months without federal assistance, and that one- third face bankruptcy or could otherwise be forced to sell by the end of this year.
Even when the pandemic ends, how much leisure and business travel will rebound, and when, is anyone’s guess. And it’s a safe guess that there will be a lot of empty hotel space -- entire shut-down buildings, not just vacant rooms -- to be filled.
Some entrepreneurs are already seizing that opportunity -- converting former hotels for use for which there is greater demand, including apartments, senior citizens, and the homeless.
Senior living with a Big Apple kind of view
A couple current examples show what’s happening on either end of the socioeconomic spectrum in regard to that trend.
The first: the $330 million transformation of the former Leverich Towers Hotel into the Watermark at Brooklyn Heights, a project that Real Estate Weekly calls New York City’s first new luxury retirement community in 20 years.
The former gameday home for the Brooklyn Dodgers in the 30s and 40s now offers 275 apartments, including 145 for independent living, 88 for assisted living, and 42 for memory care, the newspaper says.
"The 310,000 s/f property offers more than 50,000 s/f of amenities, including three restaurants, an art gallery curated by nAscent Art, a performing arts stage, multiple wellness venues, a heated indoor pool, a salon and spa, and a rooftop terrace with views of the Manhattan skyline, the Statue of Liberty, and New York City waterways," the article reports.
It doesn’t say what the rent is, but it’s a safe bet it’s more than what it will cost to live at the former Quality Inn near downtown Charlotte, North Carolina, that’s been bought by a ministry for the homeless and will be used as a shelter this winter while it’s being renovated into studio apartments for the chronically homeless, the Charlotte Observer reports.
Some neighborhoods work better than others
Such plans have drawn fire in other places, including San Diego. But the Charlotte property is located near Interstate 77 in a heavily commercial and warehouse district, the kind of neighborhood that seems less likely to draw opposition from residents and other property owners in leafier locales.
Along with amenable neighbors and zoning officials, prospective investors in that kind of venture might also look to grants, incentives, and tax breaks available for affordable housing and similar uses, especially if they’re in opportunity zones and/or make good candidates for a 1031 exchange.
As for senior housing, while that’s not as likely to draw objections as homeless shelters, it seems reasonable to surmise there are a couple concerns there. First is the ability to profitability operate such facilities in the face of tighter regulations and stricter protocols expectable in the wake of COVID-19. Second is the possibility of overbuilding in the market you’re considering.
The Millionacres bottom line
The growing numbers of senior citizens who need, and can afford, choices in living arrangements present opportunity for hotel conversions (the same for abandoned malls, too, for that matter), but how much the market can handle, and how much is involved in converting the facility varies from case to case.
The same goes for converting empty hotels to homeless shelters or permanent apartments for people who need affordable housing.
What does seem fairly certain is that the inventory of such distressed properties in the form of closed hotels is likely to grow, creating an opportunity to repurpose at a reduced price at least in terms of picking up the property in the first place.
Real estate investment trusts (REITs) and other deep-pocketed operations with cash to invest, in both market research and the projects themselves, may be going first here, but alert individual investors may not have to stay on the sidelines for long.