It’s a tough time to be a contractor or a person searching for housing in New York.
Lumber and material costs are handcuffing builders and contractors all over the country. The National Association of Home Builders estimates that the rising cost could add up to $24,000 to the price of a new build. Additionally, Hudson Valley is now officially a housing hot spot for those leaving New York City in the wake of the pandemic. The average asking price for homes in Kingston sits at $297,500, or $202 per square foot according to Realtor.com. That’s a whopping 32% higher than last year – pricing out a lot of Hudson Valley natives, but comparatively, it’s a steal for city dwellers used to two-bedroom apartments that are four times as pricey. So, this material cost explosion, coupled with a lack of available housing puts construction companies and potential buyers (or renters) in precarious financial positions. One possible trend on the horizon we want you to keep on your radar? Repurposing hotels and motels into coveted multifamily housing. Let us explain.
It probably comes as no shock to you that the hotel industry experienced the most devastating year on record in 2020.
Travel restrictions meant historically low occupancy, massive job loss, and hotel closures across the country. According to a report by the American Hotel and Lodging Association, many industry challenges persist in 2021, so it anticipates that travel will not return to 2019 levels until 2024. And even as the hotel industry begins to slowly recover from the short-term decline in demand during the pandemic, its long-term recovery will likely depend on how the industry will compete with hosts that offer short-term rentals and home-sharing through companies like Airbnb. Locally, Hutton Brickyards in Kingston has recently been transformed from a former brick manufacturing property into a riverfront resort with private cabins, a spa, restaurant, and events space. While this is an example of a hotel expansion rather than multifamily housing conversion, it reflects the growing consumer trend (especially among millennial travelers) toward authentic and localized experiences, through lifestyle hotels and experiences. The Hutton Brickyards project captures the essence of repurposing underutilized spaces in Hudson Valley and providing revitalization, revenue, and value.
The National Association of Realtors recently completed a revealing research study.
It surveyed groups that were already pursuing hotel/motel conversions across the country. According to study findings, in 65% of hotels/motels converted into multifamily housing, the rent was either 100% below market rate or a mix of below-market and market rate. Private investors are the main financiers of hotels/motels being converted into multifamily housing, accounting for 27% of the source of funding of transactions reported by NAR members. Local banks are the next largest source of funding, and government financing accounted for 7%. Affordable housing developers also provide financing. Federal financing is available to developers who convert hotels into below-market-rate units, such as the Low Income Housing Tax Credits (LIHTC) and the Home Investment Partnership Program (HOME).
Ultimately, the redevelopment of properties within Hudson Valley could range from a straightforward to a complex redevelopment with an assortment of public-partnership arrangements or purely private redevelopment.
Of course, zoning can pose a significant challenge when converting a hotel/motel to multifamily housing, but one approach may be to acquire extended-stay hotels/motels as they have more traditional kitchens or kitchenettes. Simply put, you can take advantage of properties that already have good bones. Working with local government and neighborhood residents throughout each phase of a project to meet zoning regulations and address neighborhood concerns would be essential to the success of any future property conversion. Beyond the variety of services we perform for our clients at RBT, we aim to pass along useful, relevant information to help our communities succeed, grow and prosper. As we continue to dedicate time and resources to helping our construction clients achieve success, we look forward to connecting with you and your team.