A growing group of real estate investors are building a business around a once-niche strategy: buying aging hotels and turning them into housing.
What began as occasional adaptive reuse projects has evolved into a more defined investment play as older hospitality assets collide with rising renovation costs, refinancing pressure and a persistent shortage of workforce housing. Developers and opportunistic real estate investors are increasingly exploring ways to reposition aging hotel properties, especially those facing expensive brand-mandated upgrades or mounting capital needs.
Some well-known real estate players are circling these opportunities. Firms like Extell Development Company, Lightstone Group and Peachtree Group have pursued repositionings or adaptive reuse strategies involving hospitality assets, while investors like Hawkins Way Capital have explored conversion opportunities tied to multifamily demand.
Their participation suggests the strategy is moving beyond isolated redevelopment plays and into a recognizable investment lane.
The opportunity has become compelling enough that some investors have launched a dedicated platform to pursue it.
GoodHomes is one of them.
Founded by siblings Leila (Feldman) Rosenberg and Adam Feldman along with a group of real estate partners, GoodHomes focuses on acquiring underperforming hospitality properties and converting them into workforce housing. The platform has also been reportedly linked to their father, developer Ziel Feldman, the former head of New York-based HFZ Capital Group.
Two trends converge
Rosenberg notes the hotel-to-housing opportunity was easy to spot – if you knew where to look.
“Coming out of the pandemic, we were seeing two major trends collide,” she says. “On the hospitality side, a wave of distressed hotels was hitting the market – independent operators were struggling to keep the lights on, facing expiring franchise agreements, expensive property improvement plans (PIPs) they couldn’t afford and maturing debt with limited refinancing options. Many of these owners had no viable path forward.”
Rosenberg cites the hotel sector’s massive wave of debt maturities, with industry reports estimating roughly $48 billion in hotel CMBS loans coming due in 2025 and 2026 alone. Much of this debt was refinanced during 2020 to 2022 at rates between 3 percent and 4.5 percent, but today’s borrowers are looking at debt costs north of 6.5 percent, representing an increase in carrying costs of 40 percent or more.
“For many owners, particularly those operating older, independent properties, the math simply doesn’t work anymore,” Feldman adds.
At the same time, demand for housing that middle-income households could afford was intensifying. Higher costs have not only prevented many from homeownership, but they’ve forced much of the ground-up development pipeline to concentrate on luxury units.
The trend is being further reinforced by capital markets pressures, notes Brian Connolly, founder and CEO of feasibility platform Feasibly. He believes traditional hotel repositioning strategies have become more difficult to execute due to rising operating costs and tightening financing conditions.
“It is a perfect storm of both,” he explains, noting that average room rates are only expected to grow by 1 percent, while the projected inflation rate is 2.4 percent. “Turning a hotel into apartments makes a lot more sense when the property is struggling to attract guests and make a profit, especially since housing offers much more reliable, steady income.”
A new investment lane
For GoodHomes, identifying viable conversion candidates starts with the asset’s physical characteristics, in addition to the economics behind it.
The company tends to target assets with 100 rooms or more that boast efficient layouts and existing amenities that can be repurposed for residential use. Extended-stay hotels are particularly attractive, Feldman adds, because their existing plumbing and mechanical systems make kitchen conversions easier and more cost-effective.
Naturally, location is also important. GoodHomes targets properties near stable employment anchors where workforce housing demand tends to remain consistent. This includes hospitals, universities, manufacturing facilities and military bases.
GoodHomes Groton in Connecticut, for example, is situated near the Naval Submarine Base, General Dynamics Electric Boat and Pfizer’s global research headquarters. Formerly the Groton Inn & Suites, this conversion project received immediate interest.
“We were able to stabilize the property very quickly because the demand was already there,” Rosenberg says. “That concentration of demand – combined with an extremely tight rental market with sub-3 percent vacancy – meant we achieved full occupancy within three months of launching, with market rents coming in 15 percent above our pro forma assumptions.”
Behind this strategy and company is a founding team with experience across development, acquisitions and real estate investment. The siblings both come from real estate backgrounds, while their father previously led HFZ through a series of high-profile development and repositioning projects before shifting his focus toward more opportunistic real estate plays such as adaptive reuse.
For investors like the Feldmans and others, the appeal of this conversion strategy ultimately comes down to fundamentals. Older hospitality assets often require millions of dollars in upgrades to remain competitive, while affordability demand outweighs supply across many markets.
“An independent hotel built in the 1970s or 1980s simply can’t compete with a brand-new Marriott or Hilton property down the road, especially when the cost to renovate to current brand standards is prohibitive,” Feldman says. “Meanwhile, on the demand side, the housing crisis continues to deepen.”
This combination has created new questions for aging hotels. Some may need to determine whether they can remain in the lodging business at all, while others may need to consider whether their highest and best use now lies elsewhere.
“We expect a lot more money to flow into these conversion projects,” Connolly says. “The days of easy growth in the hotel business are officially over.”
Still, we know what happens when one hotel room door closes…
“With new hotel rooms being built faster than people are booking them and profit margins continuing to shrink, flexible investors will aggressively go after struggling properties,” he continues. “This shows that while investors are worried about how traditional hotels will perform – especially budget hotels – they are very excited about the opportunity to take an outdated commercial building and turn it into much-needed housing.”