The latest solution to the multifamily supply problem: extended-stay hotels. Multifamily investors are finding tremendous opportunity to convert these properties into apartments—an asset class which has continued to experience rising demand.

"The biggest reason for this trend is the confluence of strong demand for apartment units, which is caused by numerous issues that have been percolating for years across the country, and reduced demand for hotel units, which caused mostly by the pandemic," David Reina, a partner in Morris, Manning & Martin LLP's Hospitality Practice, tells GlobeSt.com, noting that extended-stay units are the most commonly converted, not traditional hotel units.

Extended-stay properties are a natural candidate for an apartment conversion, according to Reina, because the layout already supports apartment unit necessities and utilities. "Extended-stay units already have the layout and amenities needed for an apartment unit, namely a suite configuration with kitchen space, so the physical conversion into an apartment unit is less time consuming and expensive," he says. "Also, one of the biggest housing markets right now is work-force housing, and extended-stay units are particularly well suited for that type of housing with a smaller unit size and fewer overall amenities."