Converting Hotels to Senior Housing: Risky, or Rewarding?

In the early 1900s, hundreds of hotels cropped up along popular train routes that have since fallen by the wayside with the advent of highways and air travel, but rather than leave them vacant, some senior housing developers are looking to repurpose the buildings for assisted living facilities.

While they started as short-term dwellings for wealthy train riders during the railroad boom, they’re now being converted into long-term housing for the latest trend—the aging Baby Boomer generation, 10,000 of which are reaching retirement age each day.

Many hotels, in theory, fit the bill for conversion into an ALF: they’re already divided into units, and most already have private bathrooms.

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However, there is a considerable amount of time and money that needs to be invested into renovating an old building into a senior living residence, and there are many challenges that can appear along the way, according to Richard Westin, CEO of Berkely, Calif.-based Agemark Corporation, which specializes in converting historic hotels into ALFs.

“There are always surprises when you’re dealing with historic buildings,” says Westin, adding that it’s almost always simpler to start from scratch and build new, especially because when doing so, a developer has a much firmer grasp on the costs that will be associated with a project. For existing, older structures, developers have to deal with all of the “unknowns,” says Westin, going on to name some of the common challenges.

“You might be dealing with asbestos, or a floor that’s rotten down four stories’ worth,” he says. “Or, the electrical system needs to be totally revamped… there could be other structural issues.” Additionally, sometimes the rooms are just too small to comply with assisted living standards.

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Hotels are “great conversions, but sometimes just don’t make sense,” according to Mike Collins, president of Senior Care Realty, LLC.

“The hotels that are older vintage models have small rooms with narrow doorways and inaccessible bathrooms,” he says. “The big issue you run into is ADA and accessibility issues for mobility needs that senior housing residents have. There also has to be a good mix of common space for residents.”

With these challenges in mind, the timeframe for these types of projects, in Westin’s experience, is typically about a year, with an average cost of about $4 to $5 million. It’s longer than new construction, he says, because of the “you never know what you’re getting into” factor.

Because the old hotels are often considered historic preservation buildings, it’s important to comply with associated rules, but it can also provide an opportunity for preservation grants and tax credits, according to Westin.

“There are tax benefits associated with taking a historic property and rehabilitating it—you could get millions of dollars of tax credits, or more,” he says, adding that in his companies experience, they were typically able to recover about 25% of expenditures in the form of tax credits.

“It can be a very profitable thing,” he says.

And, considering that these hotels have often been abandoned and are sitting vacant, they can usually be acquired fairly cheaply, Westin says, citing an example when his company bought a 100,000 square foot building for just $10,000. And with the average historic building containing about 75 rooms, most of which are single-bed units, a cheaply-acquired conversion project could end up as quite the reward.

Written by Alyssa Gerace