Investors transform struggling hotels into apartments

The hospitality industry has been pummeled by the COVID-19 pandemic, and investors are swooping to buy up hotels and reimagine them as rental units instead.

Hotel conversions have become a big business in recent months, the Wall Street Journal reported this week. Its report said that investors are buying up struggling hotels at bargain prices and transforming them into rental units in order to “profit from rising demand for cheap housing from households forced to downsize during the recession.”

Data from Trepp LLC shows that almost 20% of hotels with securitized mortgages in the U.S. are delinquent on their loans, up from just 1.52% one year ago.

“We consider ourselves a building recycling company,” Dan Norville, president of Vivo Living, told the Journal. His company is working on a number of hotel conversion projects in Mesa, Ariz.; South Bend, Ind.; and Winston-Salem, N.C., and also plans to buy another hotel in San Antonio, Texas, next year.

Investors say hotels are ideal for transforming into apartments. Elan Gordon, principal of SHIR Capital, a real estate investment firm, told the Journal that his company has converted dozens of hotels throughout South Carolina and Texas into apartment units. One of the advantages of extended-stay hotels is that they already come equipped with kitchenettes that are built-in.

Still, he said that hotel conversions can be problematic in some cities and towns as they require zoning changes to be made. One of the problems is that some hotel rooms aren’t large enough to be qualified as housing units under most zoning laws, and so legislation has to be adapted.

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