Extended-stay hotels are the most recent solution to the multifamily availability dilemma. Multifamily investors are discovering fantastic chances to convert these buildings into flats, an asset type that has seen increased 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, caused mostly by the pandemic,” David Reina, a partner in Morris, Manning & Martin LLP’s Hospitality Practice.
According to Reina, extended-stay buildings are a good option for apartment conversion because the layout already accommodates apartment unit requirements and utilities. One of the most important housing sectors right now is workforce housing, and extended-stay apartments, with smaller unit sizes and fewer total amenities, are particularly well suited for that sort of housing. Multifamily investors, unlike hotel owners, are acquiring extended-stay properties, according to Reina, who says hotel owners often aren’t interested in pursuing these sorts of renovation projects.
“Groups that did both multifamily and hotel deals in the “before times” are best suited for these types of deals because they know how to pick out a hotel or hotel owner that needs to sell, as well as identify assets that will work well as multifamily buildings,” says Reina.
While hotel-to-apartment conversion projects have always existed, nothing of this magnitude has ever occurred before. This opportunity was generated by the pandemic’s manifestations, specifically the shifting of demand and distress in the extended-stay market, which has made conversion deals pencil. While Reina admits that forecasting the future of hotel-to-apartment conversions is difficult, he thinks that demand redistribution is a solid sign of a longer-term trend.