Anyone else pivoting distressed hotels into workforce housing?

Question

I’ve been watching the commercial space closely lately, and it feels like we are hitting a tipping point with distressed hospitality assets. Between the crushing debt service from expiring fixed rates and franchisors aggressively pushing Property Improvement Plans (PIPs), a lot of hotel owners are bleeding capital right now.

I have been heavily focused on the adaptive reuse play to solve this—specifically converting underperforming hotels into workforce housing or senior living communities. It is amazing how much the valuation math changes when you stop relying on nightly RevPAR and re-underwrite the asset based on stable, long-term residential cash flow.

It seems like a massive opportunity to bypass the traditional transaction trap and attract institutional buyers looking for alternative multifamily inventory.

For those of you playing in the commercial or value-add multifamily space:

Are you actively looking at hotel-to-housing conversions right now?

If you’ve done one, what was the biggest hurdle you ran into—was it local zoning, heavy capital expenditures for the conversion, or something else entirely?

Would love to hear what you are seeing on the ground and connect with anyone else tackling these alternative plays!

Simmy Ahluwalia · Answer

@Priyanshu Adathakkar - yes, plenty of groups working this adaptive reuse model, and have been for the past 3-5 years.  As with any real estate, you make your $$ on the purchase, so acquiring the asset on a strong basis is key.  We finance conversions, and it's not all "roses and rainbows", lol.  If you don't know what you are doing in this space, then you'll fail.  This is not for everyone, and our lending partners won't finance a group without prior conversion experience and/or hotel owner-operator experience.  But, to your point, there's a huge need for workforce housing and converting independents/outdoor corridor hotels/motels to multifamily can be rewarding if done correctly.

Stuart Udis · Answer

Specific to the workforce housing, I still struggle to find operators who have sound answers on how to address the ongoing management even when units are delivered at an attractive basis. Capex and Opex disproportionately impact this asset class and don't foresee this changing anytime soon. On the surface it may appear like a good strategy but not easy to execute sustainably. Also, hotel assets tend to be comprised of smaller units not necessarily aligned with where the greatest rental housing needs exist in most strong metros where homeownership continues to drag, people work from home more frequently & larger units are more desired.  Even if pursuing smaller units, the way hotel rooms are generally laid out, many lack the natural light for true 1 bedroom + living space units which means you are often combining units and by doing so you are having to replace all mechanicals along with completing layout adjustments.

Jimmy Lieu · Answer

I think there are definitely opportunities, but I'd be very selective. The biggest hurdle I've seen isn't usually buying the hotel, it's making sure the numbers still work after accounting for zoning, building code requirements, fire and life safety upgrades, and the cost of reconfiguring units. Older hotels can also have plumbing, electrical, or HVAC layouts that become expensive once you start converting them to long-term residential use. That said, when you find the right property in the right location, the economics can be compelling because you're often acquiring the building below replacement cost. I've also noticed more municipalities becoming open to adaptive reuse when it helps address housing shortages, although every city approaches it differently. It feels like a niche where thorough due diligence upfront is worth far more than negotiating another few points off the purchase price. Happy to connect and answer any questions you have!

Priyanshu Adathakkar · Answer

I completely agree that adaptive reuse is a specialized niche where deep commercial real estate experience and hands-on execution count for far more than high-level info you can pull from a quick Google or ChatGPT search.

​Seeing that you're affiliated with Red 1 Realty, which operates primarily as a residential brokerage, I'd be curious to know—what has your direct experience been with hotel-to-residential conversions or commercial adaptive reuse projects in the local market? Always interested in hearing about real-world deals and practical insights from local agents.

Michael K Gallagher · Answer

Great thread, appreciate the insights and peak behind the curtain.  Are there any specific things operators that are doing this are changing about the layout of the motel units or about the property as a whole to specifically "convert it" to the new use?  are they looking specifically for properties with amenities like pools etc, or are they seeing more value in the location to the projects? something else all together? pure curiosity mostly.

Priyanshu Adathakkar · Answer

Thank you, and great question, it all depends on the market and asset type. To give you an idea. Currently I am working on a project for a client looking at Suburban Office-to-Multifamily Conversion. The submarket is Central Ohio (Dublin, Worthington, Westerville, Hilliard)

We first established the building specifications - 2-Story, 50,000 Gross Square Feet (GSF), Steel Frame / Slab-on-Grade, 1980s Vintage.

Why? Targeting low-density (1–3 story), 1980s suburban office assets in Central Ohio circumvents the rigorous municipal structural mandates currently hitting high-rise tower conversions. These mid-to-late-20th-century low-rise parks typically feature shallow floorplates (30–45 ft core-to-glass depth), steel frame with composite deck or wood/metal truss construction, wood/steel framing on slab-on-grade foundations, and abundant surface parking that simplifies plumbing trenching and residential conversion layouts.

Here are the specifics for each submarket:

Dublin / Metro Center & Frantz Road Corridors

Asset Class: 2- to 3-story steel-framed buildings built between 1980 and 1987 (e.g., legacy Metro Center low-rise rings).

Structural Profile:
Wide-flange steel columns with open-web steel joists on shallow concrete foundations.

Conversion Feasibility: Highly favorable. Core-to-perimeter depth sits around 35 to 40 feet, allowing for natural lighting in unit layouts (1- and 2-bedroom floor plans) without lightwell excavations.

Worthington / Corporate Exchange Park

Asset Class: 1- to 2-story suburban office/flex buildings constructed between 1982 and 1989.

Structural Profile: Masonry exterior walls with steel joist roof/floor decks or lightweight timber-truss frame on slab-on-grade.

Conversion Feasibility: Low structural complexity. Slab-on-grade allows for saw-cutting for under-slab plumbing waste lines without impacting post-tensioned cables or structural floor decks.

Westerville / Schrock Road & Executive Campus

Asset Class: Low-rise garden-style office parks (1981–1988).

Structural Profile:
Structural steel or heavy timber with wood floor trusses.

Conversion Feasibility: Standard framing simplifies MEP chase penetration. The low height eliminates code triggers for structural shear wall additions or secondary fire stair towers required in 4+ story conversions.

Hilliard / Cemetery Road & Parkcenter Area

Asset Class: Single-tenant and multi-tenant 1- to 2-story office structures built mid-to-late 1980s.

Structural Profile: Wood framing over slab-on-grade or steel frame with non-load-bearing exterior curtain/punch-window walls.

Conversion Feasibility: Surface parking ratios (4:1,000 SF to 5:1,000 SF) provide ample surplus land for utility vaults, amenities, or dedicated resident parking without garage structural retrofits.

Hope this paints a picture of what to look for and how to target

Anyone else pivoting distressed hotels into workforce housing?

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