How One Developer Used Distressed Assets to Create Opportunities in Affordable Housing

The pandemic has driven growth in affordable housing demand, but has also created opportunities to augment supply. The distressed asset market, it turns out, is a goldmine of opportunities for adaptive reuse into affordable and workforce housing. Developer Repvblik has already built a pipeline of redevelopment projects, including transforming a Days Inn hotel into a 341-unit affordable property in Branson, MO. The development is the largest affordable project to be developed without federal funding or tax credits.

Discounted distressed assets help make affordable deals—which are notoriously challenging—pencil. “A lot of these asset classes had PPP loans and other federal programs that allowed owners to kick the can down the road,” Richard Rubin, CEO of Repvblik, tells GlobeSt.com. “When it comes to a lot of these programs, they eventually run out of runway. For the properties that don’t have a discernable path forward, there is going to be a lot of lender-owned stock available. It is very clear to see what is happening, and I think a lot of the distress is going to be a bridge for the housing.”

Hospitality and retail have seen the most dislocation, but Rubin says not to discount office space. He expects more distressed office properties to hit the market this year, providing additional redevelopment opportunities. “No one can yet quantify the amount of commercial office space that is going to become available. I think that the wave of those conversions are going to change the landscape,” he says. “We are going to see a lack of relevance in office space. There is going to be a lot of distress in that asset class over the next three to four years.”

These projects aren’t new. Los Angeles, Manhattan and even Portland are exemplary of the potential for adaptive reuse conversion into affordable housing. In fact, the Day Inn conversion project—rebranded as Plato’s Cave—in Branson began in April 2018. What is new is the ample opportunity thanks to an increased market for distressed assets.

While there is opportunity, Rubin isn’t seeing outsized competition for these deals. “There is more competition, but what we do is very specific. Large companies don’t seem to be interested in doing this on a wholesale basis, even on large-scale projects,” he says. Plato’s Cave one-bedroom units lease for $495 to $725 a month, and include all utilities.

There isn’t much difference between redeveloping a hotel, retail or office property, but Rubin says that city support is crucial in making these deals work. “A lot of the projects begin and end with entitlements, so you need to have a city that is going to support these projects,” he says. “There is some form of adaptive reuse ordinance in most cities. Then, you have to determine if these assets are easy conversions.”