Investment Outlook: Distressed Hotels and Adaptive Reuse for Senior Living

by Chris Finlay, Chairman and CEO, Lloyd Jones LLC and Lloyd Jones Senior Living

 

The hotel industry, which was already somewhat overbuilt, has been one of the hardest hit by the COVID-19 pandemic. Even with phased reopening, occupancies and revenues are still at unprecedented lows.

The financial distress may be too great for hotels to overcome, and hotel owners are reviewing their portfolios to determine which hotels will require too much capital to carry them through the duration of the downturn. The potential wave of distressed hotels coming to market presents opportunities for conversion of select hotel properties into senior housing.

At Lloyd Jones, we believe that the acquisition of distressed hotels in the limited-service and full-service asset class hold the best opportunities for conversion into 55+ and independent living senior housing.

A limited-service hotel, which often includes amenities such as a pool and fitness center but lacks a full restaurant, is ideal for conversion to a 55+ age-restricted multifamily community. Full-service hotels, which often have those amenities plus a lounge, meeting space, and sit-down restaurant along with a commercial kitchen, are best suited for conversion into amenity-rich, independent-living communities.

We believe there is an opportunity to acquire distressed hotels at very attractive prices and repurpose them into senior housing. For investors in the senior housing sector, there are myriad benefits to adaptive reuse of hotels compared to building from the ground up.

Economies of cost

Rising land costs and scarcity of available land make it more difficult to find an ideally located site. With adaptive reuse, you have more flexibility to put the right community in the right place. In our experience, even with the cost to renovate the hotels, adaptive reuse is still less than 80 percent of the cost to build from the ground up.

Speed to market

To build a 55+ or independent-living community from the ground up can take approximately 18 months. Not to mention, with new construction comes higher risk, due to the longer permitting, approval, and building process. Lloyd Jones’ team of experienced senior living professionals plans to turn around adaptive reuse hotels for conversion within about nine months.

Competitive advantage

Because the cost to develop and repurpose an existing property is far less than constructing a new asset, rents can remain much more competitive. The traditional newly constructed senior-living community commands very high rents. In most cases, target demographics are limited to the top five percent of households in terms of income that live within a five-mile radius of the community. Hotel conversions become a more affordable option that broadens the demographic to, say, the top 25 percent of households.

From our perspective, adaptive reuse enables us to deliver a great quality environment for 55+ and independent living communities at a much better rent to the consumer, while also offering tremendous appeal to the investor: lower risk, lower cost, excellent return at a very competitive price. Overall, we believe the return will be as good or better than brand-new construction.

For more insights and the investment outlook on adaptive reuse in senior housing, contact Chris Finlay, Chairman and CEO, Lloyd Jones LLC and Lloyd Jones Senior Living.

 

 

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