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As Many As 8,000 American Hotels Might Be Gone By October

Hard times for the hotel industry mean lost revenue, lost jobs and thousands of rooms in properties nationwide that might close permanently. So what to do with the millions of square feet that will free up?

Hotel sign

Some closed hotel rooms could economically be converted into multifamily housing, according to an Altus Group note, specifically discussing the Canadian hotel market, which has experienced its own extreme stress recently. 

"While the hospitality sector struggles, demand for multi-family housing — including affordable, market rental, seniors and student housing — remains relatively robust," the note said. "Converting hotels into multi-family housing can help to meet this demand by enabling owners and investors to quickly move supply into the market."

Entrepreneurs have been converting hotels into apartments and other uses for years, but the coronavirus pandemic could create added impetus for the trend.

Los Angeles-based Repvblik has several such projects in the works in the Midwest, Building Design & Construction reports. One of its projects is the conversion of a Days Inn in Branson, Missouri, into 341 units of affordable housing, at $15K to $20K per unit to do the work.

"City councils look positively on these types of developments because they help to ease the housing and economic needs of residents," the Altus Group note says. "There is also a growing track record of conversions that demonstrate how to successfully deliver these projects."

The pandemic has hit the U.S. hotel industry hard, though there was a slight bounce in early summer. Occupancy, average daily rates and revenue per available room, or RevPAR, were all up in June compared with May, hotel industry data specialist STR reports, but all are still at their lowest levels on record for June.

Hotel profitability picked up slightly in June compared with May and April, STR also said, but the metric is still down massively (by 105.4%) compared to June 2019. Some full-service properties are breaking even at 50% occupancy, while some limited-service properties can do so at 45% occupancy.

Even so, as many as 8,000 hotels might close by the end of September, American Hotel and Lodging Association President and CEO Chip Rogers told Northstar Meetings Group. "Right now, many hotels are struggling to service their debt and keep their lights on," Rogers said.

In New York, for example, as many as 25,000 hotels might permanently close because of the pandemic, The Wall Street Journal reports, though without an estimate of the number of properties that might close. Still, that many rooms would be about 20% of the entire NYC area hotel market.

Contact Dees Stribling at dees.stribling@bisnow.com