As economy and budget hotels are nearing the end of their economic life, some properties are finding new capital for renovations from buyers seeking to convert properties to residential use.
We have compiled a sample list of hotels that have gone through this metamorphosis, illustrated at the bottom of this article. These transactions reflect the following range of prices per room.
Price Per Key for Hotel to Residential Conversions
Source: HVS
We want to caution buyers, particularly municipalities that may not be savvy hotel buyers, not to overpay for these assets, as these dated hotels should be available at a relatively good price. Municipalities, city managers, housing authorities, and the like should partner with a firm like HVS to negotiate the best possible deal.
The upside of a residential conversion can be significant, particularly for a budget hotel operating at a below-market occupancy and average room rate whose owner is paying a significant portion of the limited rooms revenue to maintain a brand affiliation that is not providing much benefit.
Not only could a struggling lodging property transition to a much higher occupancy with residential use, but the buyer could also eliminate significant brand affiliation and other overhead costs.
Of course, an important box for a buyer to check before considering a project like this is confirming that this type of conversion is legally permissible by the zoning designation, building codes, and other local regulations, among other factors. A feasibility analysis should also be undertaken once a renovation project cost has been determined.
Latest Residential Conversions
Source: HVS
If you are in the market for a lodging property to convert to residential use, I urge you to contact HVS to help you with the acquisition of your property. We have experts who can assist you in avoiding the pitfalls that can turn a good idea into an unfortunate outcome.
Rod Clough: As President of HVS Americas, Rod oversees strategy execution for HVS throughout its 40 Americas locations. Rod’s tenure with HVS spans over 25 years, during which time he has played an important role in growing the company from a few locations across the Americas to 40. In a typical year, Rod’s group consults on over 2,500 existing or proposed hotels and resorts, and in 2021, he oversaw the 568-hotel Extended Stay America appraisal portfolio. In 2003, Rod founded the firm’s sister appraisal division, U.S. Hotel Appraisals, which completes roughly 1,000 hotel appraisals annually. Rod is a founding owner/partner of HVS Mexico-Latin America, and he re-launched the firm’s U.S. Brokerage and Capital Markets division in 2018. Rod is a Designated Member of the Appraisal Institute (MAI) and a licensed real estate broker. Furthermore, Rod is proudly Latino and gay, and his firm is welcoming of all races and colors, sexual orientations, ages, genders, and gender identities. Once associates join HVS, they tend to stay due to the extraordinary culture Rod has inspired, a culture defined by the ideals of balance, connectivity, efficiency, collaboration, honesty, integrity, kindness, and excellence, among others. Rod resides in northern Colorado where he and his husband Jeff are raising their daughter, Rory. Contact Rod at (214) 629-1136 or rclough@hvs.com
Koby Kearney is an associate with the HVS Denver office. Koby started his career in hospitality in 1998 in Vail, Colorado, and held various positions, including Front Desk Manager and Reservation Manager, at several resorts in the area. He has over ten years of experience as a General Manager at several brands throughout the hotel industry. He is a Certified General Manager with Wyndham, Choice Hotels, and Radisson. Before starting his position as an analyst at HVS Denver, Koby spent five years with the HVS Asset & Hotel Management division, working as a General Manager of the Country Inn & Suites Greeley. He graduated from Colorado State University in May 2011 with a Bachelor of Science in Business Management. Contact Koby at (970) 988-4382 or kkearney@hvs.com
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