Hotels continue to be a popular target for investors looking to convert them to other real estate classes, but there’s still plenty of competition for hotel deals overall and a limited amount of time to make these deals work.
The prospect of converting hotels to other uses, such as luxury apartments, affordable housing and senior living, is not new, but the practice has gained steam since the start of the pandemic.
The pandemic has created a challenging operating environment for hotels, and even now as the industry’s recovery has accelerated, some owners are struggling with profitability, said Geraldine Guichardo, global head of research, hotels and director, Americas living research, at JLL. In other cases, the owners put off capital expenditure projects, and they can’t afford the investment now as their hotels have gone through further wear and tear.
Some owners find they can’t continue to own their properties, and alternative investors offer an attractive opportunity to them, she said.
The U.S. is undergoing a national housing crisis, with an estimated undersupply of 5.5 million units, she said. The pandemic brought this issue to the forefront and reinforced the fact that both governments and private firms need to look for solutions to enhance the housing supply.