Financial distress among hotels during the pandemic and high development costs have created opportunities for senior living hotel conversion projects, with multiple companies engaged in such projects this year.
Though hotel reuse projects are typically one-off opportunities, there are companies looking to acquire and repurpose hotels as part of their growth strategies. Two in particular, Lloyd Jones and Solvida Development Group, have made hotel reuse a core part of their plans to meet the middle market in a scalable way.
Through a mix of acquiring hotels on a low basis and repurposing them for senior living, Lloyd Jones and Solvida believe they can create communities with resident rates that are $500 to $1000 lower than the rest of the market. In fact, Denver-based Solvida is making hotel conversions its entire business strategy, with a specific aim on serving the middle market, according to President Jim Vogel.
Miami-based Lloyd Jones and Solvida are not only joining the trend, they are testing its scalability with more than 10 similar hotel conversion projects planned over the next four to five years, according to Tod Petty, the real estate developer’s vice chairman of senior housing.
Another company engaged in the hotel reuse trend is Integracare, which is converting a hotel in Solomons Island, Maryland, to an independent living, assisted living and memory care community.
While that is the company’s only such project, CEO Larry Rouvelas said difficulty with development is making those kinds of opportunities more attractive to companies like his.
“New-build projects that used to pencil now don’t because of construction cost escalation,” he told Senior Housing News. “By definition, that creates the opportunity for conversion.”
Hotel conversion niche evolves in 2022
The senior living industry watched closely at the outset of the pandemic as the hospitality industry, particularly hotels, took blow after blow. In the months and years that followed, industry stakeholders swooped in and converted those distressed hotels into senior living communities. Fast-forward to 2022, and there are multiple such projects coming together from a handful of industry players.
For example, Southfield, Michigan-based Group 10 Management in 2021 announced it would reposition a Holiday Inn & Suites near Detroit into an independent living community; and Greenbrier Development is repurposing a long-vacant hotel and convention center near Cincinnati into a senior living community with St. Elizabeth Healthcare and Brandicorp LLC.
As Rouvelas pointed out, escalating construction costs have made such projects more attractive in 2022. But not every hotel project is suitable for a conversion.
Integracare, for instance, is avoiding deals involving “boxy, high-rise hotels,” as the buildings’ room size, footprint and layouts make senior living conversion projects harder to accomplish. In Maryland, the company is converting a hotel spanning just three stories, which Rouvelas said is a much more manageable size.
In the end, he doesn’t see hotel conversions as driving the company’s growth strategy. But he does believe he will “look at more hotel conversions as a result of this experience.”
Like any real estate asset, location is of utmost importance when undertaking a hotel conversion deal, according to Lloyd Jones Senior Vice President of Development Michael Hass.
Hass — who joined Lloyd Jones when it acquired his previous company, Drive Development Partners — is aiding the company as it selects sites for upcoming hotel projects. He still sees many opportunities to acquire and convert hotels at this juncture in 2022, but “it is harder than we thought,” and requires a keen eye for detail, he added.
When seeking a site for a new project, Hass and the team and Lloyd Jones look for hotels with 150 to 300 rooms that can be adapted for residential use. The key is to find properties where units can be combined — something both Lloyd Jones and Integracare are doing in their respective hotel projects.
Lloyd Jones also looks for properties with suitable space to create a new dining venue, and common areas that can be better utilized for older adults. The company’s team also heavily weighs proximity to retail and other lifestyle-related amenities, Hass said.
Despite the effort and experience, there are still kinks in the hotel conversion model left to work out. For example, while it is “not a proven theory,” the company is trying to figure out how to keep a hotel operational while it converts units to senior living.
“Perhaps we could minimize the cash-flow bleed of a vacant building sitting there while we do a bunch of renovations,” Hass said.
The Lloyd Jones model
Although Lloyd Jones has a unique model — and every hotel conversion project is different, for that matter — the company’s efforts are instructive for the rest of the industry.
The company has an overall goal of converting hotels into middle-market senior living properties, and the company is doing that in a handful of projects around the country.
Lloyd Jones believes it can pay between $30,000 and $60,000 per unit for a hotel and convert it into a fully equipped, middle-market senior living community with costs at about $100,000 per unit.
Using that strategy, Petty said the company can set monthly rates at $500 to $1,000 less than the wider market.
By converting hotels to senior living communities, Petty said operators can maintain services and amenities due to the fact that the development started at a lower cost basis. And that gives the company an advantage over its competitors, Petty said.
“Most people attacking the middle market right now, they can’t increase rent, they can’t refresh the building and they can’t add programming,” Petty told SHN. “In that strategy, all they’re doing is cutting services.”
Demand for the middle-market is no secret, given the baby boomers and their financial circumstances. And while the industry has in recent years looked to serve that market in a bigger way, leaders with both Solvida and Lloyd Jones still see plenty of opportunities on the horizon.
Petty — a baby boomer himself — believes that people in this demographic are ultimately frugal when it comes to senior housing, and are more likely to forego the costs associated with high-end luxury senior living communities in favor of a community with smaller rooms, but similar programming.
“They don’t want to spend their [children’s] inheritance in a senior housing community – they want to give it to their children,” said Petty.
Several projects underway exemplify the companies’ approach.
Solvida Development Partners is converting a Lexington, Kentucky-based hotel into an assisted living and memory care community that will open sometime in the second half of 2023, according to Vogel. When it’s completed, the communities will be home to 135 senior living units – 115 for assisted living units and 25 for memory care.
Previously part of the now-infamous Helmsley Hotel chain, the hotel, Ramada Wyndham, is located in Lexington, Kentucky, which Vogel said is a city with the right demographics for that kind of project.
“We know that demand in Lexington is extremely strong,” Vogel told SHN. “We like secondary markets that tend to be less saturated.”
Solvida, founded less than two years ago, plans to repurpose at least 10 more hotels into senior living communities in the coming years, but the Lexington community will be its first.
Solvida tapped Lloyd Jones to operate the community. The two have a strong relationship and Lloyd Jones has “been heavily involved every step of the way,” said Vogel.
When it comes to finding suitable hotels for future conversions, “you’re fishing and hunting all the time,” Petty said. “We have an entire team that’s monitoring every hospitality asset coming on to the market.”
Hass said he has been combing over possible hotel targets that was, including a Texas-based hotel which was dropped from a national chains’ portfolio that Lloyd Jones is currently evaluating for acquisition.
Lloyd Jones is currently in the underwriting phase of acquiring the hotel, which is not on the market. Chris Finley, Lloyd Jones’ Chairman and CEO, was already connected with the hotel’s management company, and that is how the deal ended up on his desk.
Sniffing out distressed assets doesn’t end with hotels, however. Hospitals may also provide a potential opportunity in the future. And to that end, Petty said he is in discussions with the owner of a small acute care hospital that has been sitting vacant for six years.
“And everyone is looking at it and saying, ‘well we can’t put a hospital here,’ I’m not looking at it that way,” he said. “I’m looking at how we can go in and remodel it into an assisted living community at $500-$1,000 less per month.”
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