SPECIAL REPORT
residential or coworking spaces , this strategy can be problematic .
“ We thought we would see dramatically more conversions from hotels to other uses over the last 18 months , but what we have found is that with the cost to convert and the time to convert , economically it does not make sense to change the use ,” EOS ’ Burns says . “ We have seen time and time again that owners come to the conclusion that hotels are worth more if they wait for a recovery than if they actively explore another use .”
Nee agrees . He has seen developers turn assets into senior living , assisted living and lowincome housing . Between the costs to convert and the difficulty forecasting returns , “ we have seen those same developers not go back into that space ,” he adds .
Florence , South Carolina-based developer and manager Raines has adapted several existing structures , including a steel factory in Asheville , North Carolina , and learned some hard lessons along the way . “ There ’ s a lot of destructive testing — for plumbing systems , for example — and you have to make sure you have a healthy contingency to get those done ,” says Raines Managing Partner Grey Raines . During Raines ’ s first conversion project , more than a decade ago , the contingency fund was exhausted within a month . Tax credits on rehabilitation of historic structures might ease the budget pressure , but the timeline for completing a project is often longer than with a traditional renovation .
It ’ s crucial , Raines and Reid agree , to bring specialized experts on board . “ Some of these characterful buildings have issues , and the important thing is working with people who have worked on buildings like that before ,” Reid says .
But , Raines notes , “ the adaptive reuse world has a lot of consultants who want to fee you to death . You need to make sure they deliver and be tough on pricing .”
At the end of the day , the outlook for conversion opportunities remains strong .
“ I think in 2022 there will be a lot of distressed properties ,” says Choice ’ s Nee . “ The opportunity will be investing in distressed hotels and repositioning them to maximize revenues .” He expects new construction projects to ramp up this year as well , especially as supply chain snarls untangle .
For Raines and others , traveler demand is driving interest in conversions . “ Anyone looking to go back to 2019 — it isn ’ t going to happen ,” he says . “ Right now , it ’ s about buying assets that embrace the new mix of travelers .”
Clarion Point has been a primary vehicle for Choice Hotels International select-service conversions .
64 hotelsmag . com May 2022