Hotel-to-apartment developments filling affordable housing gap

Emerging real estate trend is a win-win for investors, tenants

An interior shot of the Woodson, a hotel-to-apartments conversion being undertaken in Phoenix by Chamberlin & Associates.
An interior shot of the Woodson, a hotel-to-apartments conversion being undertaken in Phoenix by Chamberlin & Associates.
Chamberlin & Associates
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It’s no secret Phoenix is booming. From its population to its job market, the city is growing at an almost unheard of rate, experts say.

That growth, however, has created plenty of problems for affordable housing. Rental rates are high and homebuilders can hardly keep up with the demand, leaving inventory sparse and the need for more affordable housing. Developers are getting creative to fill the gaps in the market, with many now purchasing struggling hotels and turning them into multifamily housing projects.

Phoenix-based Chamberlin & Associates is one local group taking part in the emerging commercial real estate trend with four such Valley projects in the works and some under contract in other states. With Chamberlin’s developments, everything is included at a fraction of the cost of a typical apartment — from Wi-Fi to cable and resort-style amenities.

“Someone can move in and pay an affordable price with everything included,” said Flor Aparicio, vice president at Chamberlin. “It’s rapidly expanding due to that fact. For the investment part, it’s a lot better buying an existing community.”

Ms. Aparicio said it is a win-win situation for all since investors simply have to rezone and redevelop an existing structure and tenants have access to a more affordable place to live. She said developments can run an average of $12,000 to $15,000 per hotel room, with the goal of 100 units per project.

On of Chamberlin’s projects is The Woodson on 2420 W. Thomas Road in Phoenix. A former Vacation Inn, The Woodson now will offer residents the choice of studios, one-bedroom and two-bedroom apartments with amenities such as a clubhouse, pool and a pet play area. Construction is about 80% complete, though pricing is not yet available.

The company looks at location, traffic, pricing and more when considering sites to redevelop. Zoning, however, can be tricky, according to Ms. Aparicio. While some hotels are zoned for multifamily housing, others are not, dragging out the development process.

“Zoning is actually what takes the longest to approve,” she said. “That is a huge playing factor, a lot of them cannot even be converted. This is a newer trend and it takes a long time to go through the process. We actually started a year and a half ago with the first one and we’re not even done yet.”

Rick Padelford, a certified commercial investment member and a commercial agent with Realty Executives, said the trend is relatively new for Phoenix in the last year, but not so much in other parts of the world.

According to Mr. Padelford, these adaptive-reuse projects are taking off in places like New York City, Texas, South Carolina and in parts of Asia. He also pointed to a Mesa Ramada Inn being developed into apartment homes by developer Vivo Living as a local example.

“Affordable housing is a big issue, this is one way to address it,” said Mr. Padelford. “Rental rates have shot up significantly over the last two, three years. This is an opportunity to provide more affordable housing.”

In addition to filling the need for more affordable housing, he sees the trend as an opportunity for the struggling hospitality industry, hit the hardest by the COVID-19 pandemic. Additionally, the reuse projects cost 20% to 30% less to develop than most Class A apartment buildings going up across the Valley.

“It’s just smart,” said Mr. Padelford. “Why not use existing product? It’s a lot cheaper than building from the ground up.”

But not everyone is on board. Neighborhoods are often concerned about additional traffic and parking needs, as hotels are often more vacant than apartment buildings, he said. They often need to be located in close proximity to public transit to help stymie traffic issues and keep neighborhoods running smoothly.

Mr. Padelford said Phoenix developers are always looking for new, creative ways around the city’s housing problems, pointing to the Paradise Valley Mall project and Culdesac, the car-free neighborhood being constructed in Tempe, as two examples of adaptive reuse and local innovation.

But don’t expect the Valley’s real estate boom to slow anytime soon.

“I think it’s going to moderate,” said Mr. Padelford. “It’ll probably slow down a little, give everyone a chance to catch their breath. I don’t think it’s going to hit a wall anytime soon.”

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