Turning old hotels into new housing

COVID-19 has hit the tourism industry hard. Will more Ontario developers consider turning hotels into homes?
By Josh Sherman - Published on Jul 24, 2020
Summers & Co. and the CPPI Group turned Oshawa’s 90-plus-year-old Hotel Genosha into 86 apartments. (Courtesy of Krim Design)

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Richard Summers’s experience converting Ontario hotels into rental housing dates back nearly 15 years. That’s when, alongside Khanna Holdings, he took the historic Oshawa House hotel and fashioned apartments out of it. “Revitalizing the old stuff, that’s the stuff that needs to be done,” he says.

In the years that have followed, the developer and CEO of Summers & Co. has continued to find new uses for old buildings, most recently transforming the 105 suites in Oshawa’s 90-plus-year-old Hotel Genosha into 86 apartments. The project, dubbed 70 King and completed this past October in partnership with the CPPI Group, is the sort of endeavour that could become increasingly popular, as hotels have been hit hard during the public-health crisis.

But, while building-industry watchers say more hotels may see new life as permanent dwellings, thereby adding housing supply in markets around the province, how much of an impact this would have on affordability remains unclear. “It’s still early days,” says Qaisar Mian, a senior director at real-estate consultancy Altus Group who specializes in hospitality and seniors’-housing markets.

In a recent note co-authored by Mian, Altus Group says the pandemic has created the “optimal” time for hoteliers to consider readapting their buildings for either rental apartments or seniors’ or student housing. What that means for housing affordability varies from place to place, Mian says: “It’s difficult to say at this stage. However, depending on the size of the market, it may move the needle in terms of affordability. In secondary markets, even a 100-units addition can make a big difference.” He adds, though, that “on a broader macro level — no, this is not the solution that’s going to solve the problem of housing affordability.”

The hotel-conversion movement isn’t exactly new — it predates the COVID-19 pandemic and the rise of Airbnb, Mian says. About a decade ago, before the popular short-term-rental app took a big bite out of the hotel industry by providing a platform for property owners to list short-term rentals, there was already a shortage of land in prime locations. Often centrally located, hotels were ripe for redevelopment, and, he says, COVID-19 may simply speed up an ongoing trend: “I expect there will be cases coming out of this where it just makes sense.”

Mian says that, in his experience, seniors’ housing has represented the bulk of hotel conversions in Ontario. Demand from an aging population — according to the most recently available Statistics Canada census data, in 2016, seniors outnumbered children in Canada for the first time on record — is part of it. But he also notes that, from a business perspective, operating a seniors’ home is more like running a hotel than like renting out units in an apartment building. And then there is what he calls the “physical aspect” — how hotels interiors are typically designed. Apartments tend to be larger than hotel suites, which are more comparable to what one might find in a retirement home or student residence. “From a cost perspective, it can be not as attractive to combine suites to make larger [rental] units,” he says. “That drives a lot of the decision making as well.”

Niagara-based developer Sedona Communities Inc. took on its first seniors’-housing project, Chapel Heights, after buying the Peninsula Inn hotel in February 2019. The hotel’s layout leant itself to a seniors’-housing arrangement, says Mary Ellen Spear, principal owner of Sedona and Pioneer Elder Care Inc., which is also involved in the project. “We felt it would work very well for retirement and assisted care,” she says, adding that the hotel’s built-in amenities, which include a pool, a gym, a dining room, and a coffee shop, made the property a particularly good fit.

For a retirement community in which meals are served in a common dining room, the lack of a full kitchen in every suite is less of a challenge than it would be for rental apartments. The conversion of the five-storey building, which residents are expected to begin occupying next month, did cost in the ballpark of $5 million, says Spear — but she estimates that’s still cheaper than what it would have cost to build something from scratch.

Spear says there’s a chance the pandemic could produce more projects similar to Sedona’s: “I’m not in a position to guarantee anything like that, but I could definitely see that it may be a very good possibility — that’s for sure.”

Although retirement homes cater to a specific segment of the population, they can still influence housing affordability in general by releasing supply; people tend to fund their transition to private, long-term care by selling their homes. “Basically, the sale of their primary residence, it does then free up that home for a new family,” Mian explains. “Building retirement homes does help with that.”

But Diana Petramala, senior researcher at Ryerson University’s Centre for Urban Research and Land Development, in Toronto, warns that hotel closures could actually have negative impacts on affordability — and on the provincial economy as a whole. “I worry about the negative knock-on effects to not having enough hotel rooms for tourism,” she says. “I don’t know how long they’re going to be closed, but I’m assuming it’s not going to be forever.” Areas reliant on tourism — which contributes 4.4 per cent of the province’s GDP, according to the Ministry of Heritage, Sport, Tourism and Culture Industries — create jobs for lower-income households, she notes, and, if more hotels were to disappear, existing long-term rentals could be lost to Airbnb.

Petramala also says, of apartments established in former hotels, “I don’t think they’re going to be affordable,” adding that hoteliers would likely be inclined to consider creating luxury suites. (Summers, though, adds that luxury units can have the benefit of freeing up cheaper housing as people upgrade to new suites.)

In the short term, some municipalities are using hotels to house vulnerable populations while public-health and housing crises unfold in tandem. The City of Toronto has leased at least 17 hotels since mid-March — when Ontario declared a state of emergency — in an effort to provide temporary housing for those relying on an overwhelmed shelter system. More than 1,700 people experiencing homelessness have been set up in hotel suites during the pandemic, a move city staff suggests helps with physical distancing. “The hotels are not permanent housing,” a spokesperson for the city’s housing division tells TVO.org via email.

Although Ontario tourism hot spots, such as Niagara, continue to face challenges with travel restrictions, physical-distancing rules, and a travel-weary public, Summers suggests that the pandemic isn’t a death knell for the hospitality industry. “Some people may lose it and sell it, and the people who buy them will still operate them as hotels,” he says. “The hotel demand will come back — we’re creatures of habit.”

Ontario Hubs are made possible by the Barry and Laurie Green Family Charitable Trust & Goldie Feldman.

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