Want to own an apartment building? Buy a distressed hotel for pennies on the dollar

Real estate developers are buying distressed hotels for bargain prices and converting them to more lucrative and much-needed affordable housing.

Communities are desperate for more affordable housing, but the cost for developers is just too high. Land, labor and materials were pricey before the coronavirus pandemic, and they are even more so now.

That is why some creative developers are now turning to hotels – and it appears to be a match made in real estate heaven.

The stay-at-home culture of the pandemic has hit the hotel sector hard. The share of hotels behind on their mortgages rose to just over 18% in December, up from less than 2% a year ago, according to Fitch Ratings. Hotels are suffering even more than retail real estate.

But that creates an opportunity for investors, like David Peters in Minneapolis, who is buying distressed hotels at bargain basement prices, and converting them to affordable apartments.

“Apartments around here, you might pay $120,000 a door, and we can purchase these hotels probably $30,000 to $40,000 a door, and maybe put $10,000 a door into the renovations,” said Peters.

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