While it has felt like the world was falling apart at times during the past year and a half, the real estate industry realized a tremendous amount of growth and opportunity. One of those opportunities is hotel conversions, which have become one of the most exciting investment trends to garner attention. While this particular investment strategy is not new to some, converting and renovating hotel product to multifamily is seemingly fueling growth out of the coronavirus recession as an investment strategy.
First-generation hotels are a natural fit — typically offering studio, one- or two-bedroom units with kitchenettes in strong markets for conversion. These properties offer a new, reasonably-priced option to those who desire to live in a renovated apartment without the heavy price tag that is often associated with a newly-built community. Investors and developers alike see a clear advantage in hotel conversions as a more affordable alternative to developing from the ground up. Through our market analysis engagements we are seeing that this model also holds great potential for the student housing sector.
How to Assess for Potential
Older hotels fall lower on the quality scale, so thorough due diligence will be necessary and should include the consideration of structural needs and cost. Beyond the physical state of the hotel itself, other questions to address include:
- What student demographic would this project attract?
- What rental rates do you believe could be achieved?
- What is the proximity of the hotel to campus?
- If the hotel is located further away, what does the route look like for residents if they were to drive, bike or walk?
- What other product surrounds the hotel?
- And will the hotel’s unit mix generate demand from the target student demographic?
There are many moving parts and elements to consider while analyzing a hotel conversion to student housing. Utilizing a student housing consultant with an extensive operational background and market expertise helps clients mitigate risk and enhance value.
Campus Advantage was recently engaged to perform two market analysis and feasibility studies for a client out of Utah that specializes in hotel conversions. The analysis included recommendations on best use for the conversions between multifamily and student housing. After 60 days of thorough research on each specific location and opportunity, we found that one product would work better as multifamily while the other product would work well for student housing.
The hotel’s proximity to campus, unit mix, unit sizes, bed count, existing floor plans, absorption capture ratio and current market conditions were taken into consideration as the recommendation for a boutique-style off-campus student housing product was made.
Successfully converting a hotel into student housing involves a great deal of analysis, meticulous attention, partnership with a student housing expert and time, but its results can prove to be highly profitable.
—Theresa Sopata is vice president of business development and client relations at Campus Advantage.