Developers interested in turning old spaces into apartments and other uses must be licking their chops at the news that Sears intends to sell 40 to 50 of its closed stores. But they shouldn’t overlook the hundreds of small hotels and motels that were forced to close during the pandemic and will never reopen.
The Counselors of Real Estate, an invitation-only group of commercial real estate professionals, has named adaptive reuse as one of its top 10 issues for 2021 and beyond due to its promise to reconnect communities, prevent the scourge and promote diversity, equity and inclusion policies.
âThe trend of preserving and showcasing unique, mostly historic assets in the heart of our urban areas, towards a broader neighborhood approach will accelerate in a post-pandemic environment, as pressures on the Housing affordability and remote work models are disrupting the pre-COVID âexperientialâ urban city model, the National Association of Realtors affiliate said.
And noting the high level of vacant housing in the hotel / motel sector, the 1.4 million members of the NAR are themselves asking for a tax credit for developers who convert empty facilities into new housing units. The politically powerful group is the country’s largest trade association.
But several housing-related organizations, especially those dealing with affordable rentals, are ahead of this curve. And more will certainly follow, if those who have attended a National Housing Conference (NHC) sponsored webinar series have something to do with it.
âThe pandemic has created an opportunity for many government agencies and private companies to try out new ideas to address the nation’s affordable housing shortage,â they stressed in a 90-minute session.
One of these opportunities is the conversion of hotel and motel rooms into very affordable housing units, many of which are intended for populations with severe disabilities. While many states and localities have rented spaces in these structures to provide shelter for the homeless, several groups, using a combination of federal, state and local resources, have purchased closed hotels and motels and turned them into permanent housing.
If these local housing agencies with limited resources can do it, so can private developers with high equity, especially those interested in building a portfolio of rental units that house the less fortunate in the country.
As NHC President and CEO David Dworkin said at the launch of the webinars: âThis country will never be a great nation with people living on the streetsâ¦ We have to meet (the needs) more people who cannot afford to rent theirs. “
Too many people “get up in the morning, get out of their cars, wash in someone’s public toilet and go to work every day,” he said. “It’s just unacceptable.”
Converting closed motels and hotels is a plan that works, Dworkin added. âIt’s efficient, effective and incredibly successful. It’s a short term strategy that can be a long term solution.
But the process âhas to be local,â Dworkin continued. âIt has to start at the local level.
It certainly worked in California, where a state-run program called HomeKey has enabled the purchase of a number of hotels and motels that are converted to temporary or permanent rental units. According to Sec. Lourdes Castro Ramirez of the California Business, Consumer Services and Housing Agency, the state has made funds available in 51 different jurisdictions.
To date, the state has provided funding for 94 projects totaling 6,000 units, enough to house 8,300 people. But that’s just a drop in the proverbial bucket in California, where Ramirez said local vendors served nearly 250,000 homeless people last year. About 64 percent of them are individuals, 34 percent are women with children and 10 percent are unaccompanied youth, the state official said.
Perhaps even more striking, every January night nearly 162,000 Californians were homeless.
âIt works, it really works,â Ramirez said of HomeKey, a program the state official said could become a national model. But it would not have been a success with the support of state politicians, health officials and emergency first responders, among others, she added. âWe have taken a collaborative approach. Even philanthropic groups participated.
In March 2020, California launched its first conversion project, Project RoomKey, which offered a “rescue option” to some 42,000 homeless people most at risk of COVID 19. Even though this program continues to provide temporary housing and builds on its success – the state created HomeKey four months later.
HomeKey has responded to the pandemic by helping local jurisdictions buy hotels, motels and other buildings and turn them into temporary and permanent housing. In six months, and using federal and state funds as well as gifts and grants from private entities, awards were given to 51 jurisdictions spanning 120 unique sites.
These awards created some 6,000 units at an average cost of just under $ 130,000 – “under budget and on time,” Ramirez said. And now Gov. Gavin Newsom has offered to budget $ 12.4 billion to tackle homelessness, including $ 3.5 billion for HomeKey.
Two projects in San Diego, both former long-term hotels, illustrate the success of the program. After reviewing 29 possible locations, the San Diego Housing Commission chose a Marriott Residence Inn circa 1913 on the famous Hotel Circle in the central part of town and another Residence Inn in Kearny Mesa in the northwest.
The commission bought the properties in November and started moving in the following month. Today, said President and CEO Richard Gentry, the buildings are 97 percent occupied. The Hotel Circle property, purchased for $ 67 million, has 190 units plus two staff units; the Kearny Mesa building, purchased for $ 39.5 million, has 142 units plus two for staff.
Crown money wasn’t the only funding used to buy the sites, “but it was the catalyst,” Gentry said. The properties âweren’t cheap,â he added, but they were much cheaper than buying a community of apartments. And “they will be used for years to come.”
In Oregon, meanwhile, the state is tackling the homeless problem with Project Turnkey, which aims to add 10,000 units. To date, 17 projects have been approved for a total of 800 units. The program has been a collaborative effort from the start, said Megan Loab of the Oregon Community Foundation, who insisted that real estate experts had been hired “to make sure we were good stewards.”
And in largely rural Vermont, the Champlain Community Trust has purchased six small motels and is in the process of purchasing two more. The first was a 59 unit property that still operates as a motel; the second, a 20-unit apartment building now occupied by people who had lived alone in the woods for a decade, said Trust CEO Michael Monte.
The Land Trust also converted a 113-room hotel into 68 apartments for the homeless and a 28-room suite hotel into a shelter for women victims of domestic violence. And two more hotels are on the drawing board, including a 99-room suite that will be transformed into 78 apartments.
âThey are doors. That’s how we looked at them, âMonte said. âThey were all willing sellers. Now the sellers find us.
During the second webinar, which focused on financing hotel and motel conversions, speakers continued to talk about their successes. For example, Matt Vruggink of Ojala Holdings worked with Fort Worth Housing Solutions to transform a dilapidated 121-room hotel into 119 efficiency units.
Ojala is a private developer who describes itself as an opportunistic real estate agency dedicated to identifying overlooked niche opportunities. FWHS is a government agency with a portfolio of 40 properties containing nearly 6,700 affordable units that are offered at discounted rents to eligible people.
Vruggink said his company reviewed 150 properties “before focusing” on what was an extended stay hotel in Home Towne, but is now known as Casa de Esperanza. The city used a grant from the Cares Law to purchase the property and partnered with Ojala to make the major renovations, including new appliances and furniture, that were needed.
The place opened 120 days after construction began and is now fully occupied. âWe didn’t depend on the government to do it,â Vruggink said.
A leader in the conversion efforts, the Community for Supportive Housing (CSH), is looking to create similar partnerships, according to Mercedes Brown, who is the head of the group’s hotel-accommodation initiative.
While CSH primarily provides research, programs, articles, data, profiles, cases and evaluations to “help local communities maximize their assets,” Brown said his national organization also has the capacity to undertake modest projects and wish to work with “serious and experienced people”. developers who are also culturally sensitive.