The need to add workforce housing units across different cities and regions has gained momentum, despite some resistance from certain corners. The housing market offers two stark housing opportunities in the form of luxury homes and affordable housing says Maxwell Drever. Luxurious apartments or houses occupy urban and suburban regions demanding high rental charges to compensate for their construction costs. On the other side, affordable structures, or more precisely, workforce accommodations, target people with 60 to 120% of medium income.
Some regions suffer from a tremendous supply gap in the latter case. For example, think of Southern California, where rents increase at a higher speed than the salaries of the middle-income groups, limiting their access to decent housing. The same situation is facing other American states too. Various factors can be responsible for such a crisis. But real estate developers like Maxwell Drever show the way to deal with this long-pending housing issue. They direct attention to broken or distressed hotels/ motels for this purpose.
Adaptive reuse of hotels for affordable workforce housing
The hotel occupancy rate slipped down to 36.7% in December 2020 from 66.1% during the same period in 2019. It also dented revenue by almost 60% per empty room. There is hope that things will be back on track by 2024, but it is still a long wait for many that cannot survive the lull. For them, converting to multifamily or workforce housing can be an opportunity. The developers can repurpose these structures for the middle-income population to rent them at affordable rates while allowing hotel owners to add a new income stream.
It will not solve the low stock of affordable housing at once, but rundown or closed hotels can revive their earnings. At the same time, essential workers get to live nearby their workplace peacefully, says Maxwell Drever.
Why is hotel or motel conversion a good idea?
Many hotels cost approximately USD$50,000 per room, but conversions can bring it down to USD$25,000 per room. People show more interest in full-service rooms with a kitchenette. However, standard rooms also see significant demands because the middle-income group needs affordable options for longer stays. And anything with basic amenities and lower rentals can meet their daily needs and pockets. Since almost every hotel already has some infrastructure in place, they usually require tactful upgrades or modifications to fit into the new mold, avoiding major material and building costs.
The real estate developers believe that workforce housing investment can be safe against recession and pandemics. Some investors started working on their projects as soon as they realized that the demands for luxury multifamily homes were diminishing. After COVID-19, their confidence in this housing market segment grew bigger as the communal concepts took center stage. There is no doubt that the real estate marketplace needs plenty of innovative solutions. To meet its rapidly increasing middle-income housing needs. Hotel and motel conversion is just one aspect of this process.
If your hotel business doesn’t show improvement, you can take this route. To secure yields and contribute to the social impact at the same time.