Jun 6, 2022 - Real Estate

Developers in Phoenix are trading hotels for housing

Illustration of an old style hotel keychain and key.
Illustration: Lindsey Bailey/Axios

Developers and government agencies are converting older metro Phoenix hotels into permanent housing in a new trend experts hope will help make a fast dent in the Valley's severe housing shortage.

Why it matters: Arizona is short at least 270,000 units of housing, according to the state's housing department.

  • Hotel conversions are cheaper and faster than building new housing complexes.

State of play: These conversions typically create housing that is more affordable to people with low-wage jobs, seniors on fixed incomes or people who previously experienced homelessness.

  • The former downtown Mesa Ramada by Wyndham which is now Vivo on Main offers studio apartments where rent starts at $980 a month.
  • The now-closed Best Western Plus by Arizona Mills Mall will soon become "modestly priced" rental housing for people priced out of Tempe's core, according to investors.

Show me the money: Federal pandemic-relief funds have allowed Phoenix, Tempe and Maricopa County to purchase hotels to convert to long-term affordable housing.

Traditional investors and developers are also finding it profitable to tap into this market.

  • Thomas Brophy, research director at Colliers, said that between the cost of land, materials and labor, you can't build a new multifamily housing project in metro Phoenix for less than $450,000 per unit.
  • Suraj Bhakta, who has helped convert about 20 Valley hotels into housing through hospitality brokerage firm NewGen Advisory, said developers often can buy older hotels for around $100,000 per room. Even after remodeling costs, they still come out way ahead.

What he's saying: "At the end of the day, those are billions of dollars for those guys and they can add that many more units into the marketplace," Bhakta told Axios Phoenix.

Hotel conversions are here to stay, Bhakta said.

  • The trend caught fire in tourism-heavy states like Arizona that are short on housing and long on old, underutilized hotels, but has since spread throughout the U.S. as a fast and affordable way to add housing to hot markets, he said.
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