And yet there’s the rub. Rising land and construction costs have added pressure to the program, GAO researchers found. To illustrate, they cite a 60% rise in land prices from 2012-2019 coupled with a more-than-doubled cost of homes from 1998-2021.
Given such dynamics, hotel conversions into multifamily complexes are increasingly being viewed as a viable alternative. Seattle-based mortgage broker Frances Nguyen – a mortgage loan advisor at NEXA Mortgage and founder of Frances Nguyen Group – extols the virtues of hotel conversion, particularly in today’s volatile environment.
Hotel conversion projects
The reasons Nguyen loves hotel conversion run the gamut from altruistic ideals to sheer profit motive. “One of the reasons why I love buy and hold real estate – especially hotel conversions – is that there’s so much appreciation involved with this,” she said. “We can get cash flow, we can get appreciation and we can also get the tax benefits with projects like this.”
ROI is one element that makes such projects appealing, she said. “Return on investment is so much greater with hotel conversions versus buying an apartment building and rehabbing it,” she said. “The other reason I love hotel conversions is that it’s so much cheaper to find a hotel you can convert into multifamily versus trying to build it from the ground up with construction costs, development and so forth.”
Recently having completed a 145-unit hotel conversion project in Tacoma, Wash., she also sees value in the idea of adaptive reuse space in areas where affordable housing is especially acute. “There’s such a shortage of housing here, and what we’re doing is creating homes and opportunity for people who cannot afford housing,” Nguyen said. “So, we’re increasing the inventory supply and helping people into homes.”
