Hotel occupancy rates took a historic plunge during COVID, hitting an all-time low of 22% in April 2020. Rates slowly began to show signs of recovery, rising to around 50% over the summer and settling at 41% in the off-season. Now, as one of the country’s largest commercial real estate lenders Walker & Dunlop reports their hospitality portfolio at 70% forbearance, the relative winners and losers of the hospitality industry in the COVID era are beginning to shake out. While we expect well-positioned U.S. hotels to bounce back quickly post-pandemic, some less-competitive assets likely won’t be able to hold out for widespread vaccination and the return of the travel industry. At the same time as many hotel rooms sit empty, the affordable housing crisis continues. In 2016, Harvard researchers found that nearly half of renters spent more than 30% of their income on rent, and the pandemic has only exacerbated the problem. The National Low Income Housing Coalition estimates at least an additional 7.2 million affordable housing units are needed nationally. But there is a unique solution to both problems at hand. The intersection of these two imbalances has created the opportunity to give distressed hotels a new life and add much-needed affordable housing units to tight markets—hotel to multifamily conversions.
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