Hotel-to-Multifamily Conversion: What Should We Be Underwriting?

Question

Hey everyone! I wanted to throw a scenario out to the community and get some thoughts from anyone who does adaptive reuse or invests around Greater Cincinnati.

I was recently hired by an investor to run an evaluation to determine the feasibility of converting an extended-stay property into a workforce multifamily asset in the Cincinnati market, right around the Sharonville/I-75 corridor. Extended-stay properties are always tempting for these plays because you already have individual kitchenettes, plumbing stacks, and fire suppression in place, which cuts out a ton of heavy structural rehab. But as we all know, these deals live or die in the due diligence phase.

Right now, I’m deep in the research weeds. On the market side, I'm looking at local Class B and workforce rental dynamics within a three- to five-mile radius. Specifically, I'm comparing current hotel metrics like RevPAR and ADR against average effective monthly apartment rents on a per-square-foot basis to make sure the post-conversion NOI lift actually justifies the deal. I am also looking closely at local demand for households in the 60% to 120% Area Median Income bracket.

On the regulatory side, I'm digging into city codes to see if we can convert by-right or if we'll need a Conditional Use Permit or a full rezoning to High-Density Residential. Parking is another big focus—residential codes often demand more spaces per unit than extended-stay hotels currently offer, which could mean petitioning for a variance. I’m also reviewing recent planning commission meeting minutes across Hamilton County to gauge how friendly local officials actually are to adaptive reuse and density.

Finally, I'm gathering hard data on the submarket's total housing deficit, tracking new build pipelines within three miles, and assessing how the existing 330-to-550-square-foot layouts hold up against local renter preferences for smaller footprint units.

For anyone who has pulled off a hotel conversion or knows the local Cincinnati market well:

If you were reviewing this feasibility package, what other specific metrics, hidden CapEx line items, or operational speed bumps would you want to see analyzed before pulling the trigger? Whether it's utility metering headaches, egress requirements, or local municipal surprises, I’d love to hear what caught you off guard on past projects or what else you’d want to see underwritten.

Appreciate any insights!

Denise Supplee · Answer

You've covered a lot already. One thing I'd also want to understand is the ongoing maintenance side of the property. From my experience, older buildings can come with unexpected maintenance costs that don't always show up in the initial numbers. I'd also want to know how utilities will be handled and whether the property will be easy to manage once it's occupied. Those operational details can have a big impact over time.

Vikram Battalapalli · Answer

Seems like you've got most of it handled to be honest. Just one more thing that I see as an insurance broker with these these hotel-to-apartment conversions is that insurance is the line item that usually gets underwritten last and then surprises people. A few things worth putting in the feasibility package now.

The biggest one is that the risk changes category mid-deal. While you are converting, the building is part vacant and under renovation, so a normal operating policy won't cover it. You want builder's risk plus vacant-building coverage for that time period. Standard property policies carry a vacancy clause that can cut or deny a claim once a building sits mostly empty, and people get caught by it.

Then the permanent side reclasses from hospitality to habitational. Different carriers, different appetite, different pricing, and workforce multifamily gets underwritten on different stuff like roof age, electrical, plumbing, and how far you are from hydrants and a fire station. The extended-stay already has kitchenettes and sprinklers, which actually helps you, so get that documented.

Last thing, your lender will have its own insurance requirements at closing, and mismatched limits or deductibles are a classic reason a done deal stalls at the finish line, so make sure that's all taken care of.

If I were you I'd ask your broker to get a builder's risk quote for the conversion period, and a separate habitational quote for stabilized operations, so the pro forma has real numbers instead of a placeholder. Also happy to talk through anything more if you get stuck.

G. Brian Davis · Answer

You've obviously done your homework. I'd probably spend just as much time thinking through the downside. If the project takes longer, costs more, or lease-up is slower than expected, does the deal still work? That's usually where I like to spend my time

Hotel-to-Multifamily Conversion: What Should We Be Underwriting?

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