Hotels Could Present an Opportunity for Apartment Conversion

Los Angeles is known for being one of the top markets for apartment conversion projects. In other words, dated or out-of-use buildings in Los Angeles are often transformed into apartment units—a highly in-demand asset class in the market. Following the pandemic, which has substantially hampered hotel revenues, hotel properties could become the next favorite asset class for apartment conversion projects.

“Given today’s circumstances and travel restrictions, hotels might make a comeback as the favorite building type to be transformed. And, with work environments changing constantly, office buildings could become the next favorite building type to convert,” Alexandra Ciuntu of Yardi’s Rent Café tells GlobeSt.com.

Following the pandemic, there will likely be a trend toward adaptive reuse projects rather than new construction, particularly under pressure to bring more apartment units to market quickly. “Adaptive reuse is a great way to conserve historic value and development resources in one go. Plus, minimizing new construction has become an integral part of building sustainability,” says Ciuntu. “Beyond reimagining an existing building, developers have the chance of giving back and beautifying communities through conversions.”

There are currently six apartment conversion projects in Los Angeles, according to data from Rent Café. These projects make it possible for apartment developers to increase the supply of apartments. “Even more so through apartment conversions that can bring a great number of units on the market while conserving or even adding historic value,” says Ciuntu.

According to Ciuntu, these projects are actually healthy for the market. “Repurposing leads to preservation, affordable housing, and can even revitalize entire cities to transformative effects in communities across the U.S.,” she says. “Factor in nostalgia, a love for urban history, or just appreciation for older, enduring architecture and it’s easy to understand why such redevelopment projects are welcome.”

The last boom in apartment conversion projects was following the 2008 Financial Crisis during the start of the recovery in 2010. “The most recent boom in residential adaptive reuse occurred in the 2010s, when old structures like warehouses, banks, or churches got transformed into almost 780 buildings with more than 96,500 apartments,” says Ciuntu. “Nationwide, 2017 marked the year with the highest number of conversions ever: 119 buildings with almost 15,500 new apartments.”

In the last two decades, hotels and office building have been the most popular properties for apartment conversion projects, making a good case for it to happen again.