Thinking About An Apartment Conversion for That Hotel? There are Roadblocks Ahead.

With the housing crisis continuing unabated and hotel rooms sitting empty, people have speculated about the potential of using hotels for housing.

Repvblik CEO Richard Rubin thinks there’s going to be as much as 30% to 40% reduction in the asking price of hotels. “You’ve got business hotels, and no one is traveling for business,” Rubin says. “You’ve got affordable, recreational hotels, and no one is traveling for recreation.”

Apartment conversions are thought to be one path forward for hotels. “They can make very compelling cases in terms of the general bones to convert into apartments,” Rubin says. “Generally, we like to use the construction integrity of the existing structure and build within those four walls if possible.”

But turning those rooms into apartments isn’t as easy as it sounds.

The actual process of converting a hotel into an apartment is more akin to an adaptive reuse project than an apartment renovation, according to Chris Potterpin for Repvblik. To make that switch, you’ll need to become familiar with your local planning and code office.

“You are changing uses, and there’s a lot that goes along with it,” Potterpin says. “It’s really important to have the city on board and embracing what you’re doing because you are going to be asking more of them than you typically would if you are doing apartment renovations. Because of the change in use, there’s going to be more code changes than you’re used to.”

Of course, all hotels aren’t created equal. “It’s not a simple formula because it depends on the vintage of a hotel and the style of building,” Rubin says. “Then combine that with what code upgrades you have to do. But generally, we’ve got a price point that we look for.”

The number of stories can also matter in the project. Potterpin and Repvblik just completed and opened a project in Branson, MO, where they converted a Days Inn into an affordable housing complex. With the project, Repvblik worked on six buildings, which was a more manageable project than a high rise.

“You can do the adaptive reuse over time since it is horizontal and not vertical,” Rubin says.

If costs go too high, Repvblik will make cuts.

“We’ve got a scope of work that we look to make sure that we can do,” Potterpin says. “If it goes well above that, then we start eliminating it.”

As with everything in real estate, it is vital to pick the right markets. “You have to look at what markets you’re in, who your target audience is and what your revenue is going to be,” Rubin says. “It is a tough thing to pin down. Pre COVID-19, building new was so expensive that we were looking at alternate ways to put workforce housing in on the market without having to build new or without having to pursue subsidies.”

Rubin says that is one option going forward. “We’re not saying that we’re going to be the panacea to take down every failing hotel in the country,” he says. “We’re just one option that exists. Everyone is suffering at present, and alternative uses are going to be sought throughout the different asset classes.”