Converting Hotels to Multifamily

Multi-Family and Apartment Investing
5yFollow

Converting Hotels to Multifamily

Petro B.
Investor · Philadelphia Area · Member since 2020 · 11 posts · 8 votes

It looks like the hotel industry would not fully recover for a long time, so what are your thoughts about converting hotels to multifamily? It seems there could be an attractive entry point in this environment. Concentrating on the extended stay hotels that have studio/1-/2-bedroom units with kitchenette could minimize conversion costs. I guess zoning could be an issue, and specific local market conditions could play an important role (not everyone would want to live next to an airport!).  

1Reply
89 views

Most Popular Reply

Rick MartinPro Member
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y

You are correct @Petro B. and it is already happening. I also see that there is a shortage of housing, and there will be a surplus in commercial office space. Could some of these be converted to living space, al la Tokyo (tall, small square footage living spaces). The world is changing. Who knows for how long. There is a neighborhood in LA that people pay $1.3M to live in, and it borders LAX, an oil refinery, and a sewage treatment plant, so where people are willing to live may surprise you.

2Reply
See this reply in the discussion

22 Replies

Jump to latestLatest
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    @Petro B. has to say on this topic. 

    0Reply
  • Rick MartinPro Member
    Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
    5y

    You are correct @Petro B. and it is already happening. I also see that there is a shortage of housing, and there will be a surplus in commercial office space. Could some of these be converted to living space, al la Tokyo (tall, small square footage living spaces). The world is changing. Who knows for how long. There is a neighborhood in LA that people pay $1.3M to live in, and it borders LAX, an oil refinery, and a sewage treatment plant, so where people are willing to live may surprise you.

    2Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    "what are your thoughts about converting hotels to multifamily?"

    It happens, but usually you need good location and some provision for cooking facilities in each unit (check what code requires).

    0Reply
  • Danny RandazzoPro Member
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    5y

    @Petro B. It’s important to research the hotel average room size compared to multifamily comps in the area. Sometimes hotels have smaller square footage rooms which could impact your ability to convert seamlessly

    1Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @Petro B.:

    It looks like the hotel industry would not fully recover for a long time, so what are your thoughts about converting hotels to multifamily? It seems there could be an attractive entry point in this environment. Concentrating on the extended stay hotels that have studio/1-/2-bedroom units with kitchenette could minimize conversion costs. I guess zoning could be an issue, and specific local market conditions could play an important role (not everyone would want to live next to an airport!).  

    This is a great niche and has been something we have done many times in the past. A lot depends on the type of property and location. There are lots of variations and options so you need to understand the market and demand. Resort areas, college town and some urban locations work well. Some areas you may need to combine rooms to create 1 or 2 bedroom units others suites may suffice. There is a real niche in fully furnished suites in some markets for short term executive rentals. 

    2Reply
  • Matthew Brownrigg
    Realtor · NH · Member since 2019 · 12 posts · 3 votes
    5y

    That is a great idea. I have thought about this myself since the beginning of COVID. It will definitely be interesting to see what hotels are going to do. I know Amazon has hopped into malls, they are buying up the big retail portions in the Simon Malls, so I wonder if hotels would be able to turn into micro-apartments. 

    0Reply
  • Tanner Morrill
    Property Manager · Nashville & Salt Lake City · Member since 2015 · 80 posts · 20 votes
    5y

    Yep, I know a group of investors in Salt Lake City getting into this. Start talking with hotel focused brokers and you might find some deals. 

    0Reply
  • Adam Lacey
    Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
    5y

    @Petro B. I have seen a lot of hotel conversions going on lately. I am currently looking at two properties like this myself, but have never actually done one. It seems like a great idea if you can get it at the right price and it's in an area that could use more mf units.

    0Reply
  • Petro B.
    OP
    Investor · Philadelphia Area · Member since 2020 · 11 posts · 8 votes
    5y

    @Adam Lacey agreed, although I'm looking at this from the passive investor standpoint, so having a very experienced operator taking this on would be a key for me. 

    1Reply
  • Brian Alfaro
    Multifamily Syndicator · Houston, TX · Member since 2018 · 188 posts · 192 votes
    5y

    Seeing a few of these on the market in Houston. The thing you have to be mindful of is the zoning (which isn't an issue here, but is in other areas) and the conversion cost. Some of the experienced convertors we've talked to say getting the buildings up to Fire Code for Multifamily + installing separate electric meters for each unit can be costly (most hotels are not individually metered rooms). It's not for the faint of heart! 

    1Reply
  • JJ MawnPro Member
    Investor · Richmond, VA · Member since 2019 · 5 posts · 3 votes
    5y

    Interestingly enough, the Wall Street Journal published an article on this exact topic a few days after the original post, and included the name of at least one company doing this

    1Reply
  • Julian Sanchez
    Rental Property Investor · Orlando · Member since 2016 · 114 posts · 45 votes
    5y

    @Greg Dickerson

    asking the expert:

    In central and south Florida there are a few Motels and large hotels being liquitated, above a common example of the room layout. What would entail to install a small kitchenette where that separate sink is? 

    What are the greatest difficulties in making these conversions from a full hotel to 50+ multifamily units?

    Thank you much for your input and happy new year to all! 2021 is gonna be the best one yet

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @JJ Mawn:

    Interestingly enough, the Wall Street Journal published an article on this exact topic a few days after the original post, and included the name of at least one company doing this

    Converting the units and adding a small kitchenette is fairly minor especially if you have plumbing access close by. The biggest issue or challenge is often the zoning. 

    1Reply
  • Adam Lacey
    Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
    5y

    @Greg Dickerson do you fund these deals with private capital or do you secure some sort of bridge or construction loan to complete the renovations?

    0Reply
  • Allen Lomax
    Member since 2020 · 18 posts · 16 votes
    5y

    I've been pondering the same. My concern is the metering. Motels do not have individual meters for power or water/sewer. I also expect that one would have to get a very steep discount to go from motel NOI to apartment NOI. One would think though, that with almost zero business over the last 9 months with at least another 6 to 9 months of the same, there should be some pretty steeply discounted motels coming on the market. Does anyone have knowledge of the expected foreclosure rates on motels in the coming months?

    1Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @Adam Lacey:

    @Greg Dickerson do you fund these deals with private capital or do you secure some sort of bridge or construction loan to complete the renovations?

    I typically use acquisition and construction loans form the bank and my own cash depending on the deal. 

    1Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @Allen Lomax:

    I've been pondering the same. My concern is the metering. Motels do not have individual meters for power or water/sewer. I also expect that one would have to get a very steep discount to go from motel NOI to apartment NOI. One would think though, that with almost zero business over the last 9 months with at least another 6 to 9 months of the same, there should be some pretty steeply discounted motels coming on the market. Does anyone have knowledge of the expected foreclosure rates on motels in the coming months?

    You can install sub meters which is not cheap for electrical, RUBS or include all utilities in the rent. Price depends on the market, the property, the seller and or receiver. There are lots of assets going back to lenders right now as some are reluctant to work out the loans. 

    0Reply
  • Jorge De Jesus
    Real Estate Agent · Houston San Antonio Dallas/Ft. Worth, TX · Member since 2020 · 5 posts · 1 vote
    5y

    @Petro B. I like the extended-stay idea better, I actually was considering starting a fund For that purpose

    0Reply
  • Jimmy Cantave
    Miami, FL · Member since 2015 · 154 posts · 38 votes
    5y

    Don’t sound like a bad idea 

    0Reply
  • Frank Hinck
    Rental Property Investor · Minneapolis, MN · Member since 2020 · 540 posts · 285 votes
    5y

    @Petro B.

    Zoning Zoning Zoning. Reach out to the local City Zoning for a gut feel before buying. Will also take a LOT of rebranding to make it not be a “nightly rental”

    0Reply
  • Christopher Passeggiata
    Member since 2021 · 1 post · 0 votes
    5y

    I am part of the top Hotel Brokerage team in the Sate of Florida. I've been working with a lot of multifamily developers who have an appetite for hotel to multi conversions. It a great business model but it comes down to the county (rezoning, impact fees, etc.) and obviously buying the hotel at a low enough per key basis.

    0Reply
  • Priti Donnelly
    Member since 2023 · 26 posts · 13 votes
    3y

    @Petro B. It has been 2 years since your post. At that time it was hard to predict when the hotel industry would be able to recover after the hit. But now, with travel restrictions lifted, including China, tourism numbers are on the rise which is good news for the hotel industry's occupancy rates. I connect foreign buyers with hotels in Japan. If that is of interest, happy to help. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free