Evaluating a Hotel

Hotels have been converting into multifamily already. But it got the renewed impetus in the US after the recent pandemic. Everyone knows how badly the hospitality industry suffered during this time, with hotel stays reducing drastically. Many of them were not performing well even before this situation occurred. While hotels are reopening with the relaxing covid-led restrictions and rules, most may still struggle to recover. Also, it may take at least two to three years more to have the same level of profit. On the one side, demand for hotels is dwindling, and on the other, multifamily housing is witnessing higher demands than ever. It is more relevant for the niche workforce housing.

Earlier, developers wanted to build Class A properties to recover the high building costs through expensive rents. Too much attention on this led to a short supply of affordable housing options. Today, the demand for workforce housing is peaking, and a broken hotel can take advantage of this. Since they generally have kitchens, baths, living rooms, and others, conversion costs are lower. Of course, the property has to be convertible. If you are planning to take a plunge into this market, here are some suggestions.

The two-step conversion process

Maxwell Drever informs that you have to spot a distressed or underperforming hotel in an area where this type of housing has demand. The next step includes transforming them into multifamily. You can find a hotel through banks or short sales. Once you obtain the desired property, you will need to create a detailed plan for its conversion. It would focus on all types of renovation needs. As the units get ready, you can lease them and refinance them after some time. You can rely on this converted workforce housing unit for cash flow. Or, you can later sell it to another buyer also.

It can seem like a simple process, but you need experience with this. Only a trusted or experienced developer can ensure the successful execution of the project. It becomes necessary to work with experts because you will deal with a specific model and repurpose it for some other requirements. They can guide you to find low-rise hotels, buy them for an affordable rate, and renovate different sections to make the property best fit for workforce housing.

A thorough evaluation process

Before purchasing a hotel, you would want to ensure that the hotel is suitable for the multifamily housing market. To understand this, you have to understand the locality’s macroeconomic environment. Know its employment rate, income, population density, and demographics. Analyze the current and future demand for workforce housing in the area and how competitive it can be. State and local codes are the other critical considerations. Plus, you also have to estimate the cost of this investment. To be precise, you would have to study different aspects, such as property and market feasibility, site suitability, financial model, highest and best use scenario, etc. At the same time, you need to be aware of the potential risks concerning project complexity, cost and time, zoning, cashflows/value, etc.

While risks tend to be an integral part of any business, you can prepare for them with a mitigation strategy. As for correct evaluation, you can consult specialists or professionals.

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