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Hotels being repurposed for high-end apartments, social housing and more, giving renters more options

February 18th, 2013 · 9 Comments

I started out doing a quick, simple story about the trend I’ve noticed locally of smaller hotels being converted to either higher-end rental apartments or social housing.

As it turns out, it’s a national trend, according to the CBRE report that was issued while I was in the middle of researching this story.

But an aspect I found that was just as interesting: the problems that renters are experiencing with owner-investors renting out condos, which makes new apartment stock a precious commodity.

Housing commentators frequently talk about investor-owned condos as though they’re the same thing as purpose-built rentals, when it comes to assessing the size of a city’s rental housing stock.

But as became very clear to me when I researched this story, people renting from investor-owners feel a lot more insecure about how long they’ll get to stay.

When hotels like the PaPa revert to rentals, tenants benefit


Published Monday, Feb. 18, 2013 04:00PM EST

Last updated Friday, Feb. 15, 2013 05:55PM EST

Susanne Brunetzky just wanted a reasonable place to rent in downtown Vancouver.

But the transplanted Torontonian soon found she had two basic choices. She could get an older apartment in a dedicated rental building or a more high-end, modern apartment being temporarily rented out by an investor-owner.

“If you want something nice here, you must rent from a landlord who is speculating,” the 48-year-old graphic designer said. That kind of situation is nerve-wracking, Ms. Brunetzky said, knowing that she might be asked to leave if the market turned and the owner decided to sell.

Then she heard about the PaPa – a 1960s, one-time glamour hotel on Vancouver’s bustling Robson Street that was converted last year to rental apartments. She signed up right away.

“I have the control over this as long as I’m a good tenant,” Ms. Brunetzky said.

That’s the same choice made by Joanne and Bill Moffatt, a Victoria couple who needed a place to live in Vancouver during the work week for Bill’s job as a financial-services executive. The Moffatts weren’t interested in buying, because the market seemed too iffy. Renting was the preferred option.

Those tenants are benefiting from a small tectonic shift among hotel properties in Vancouver, as owners of some smaller, less-profitable hotels look at other uses for their buildings.

Besides the PaPa (formerly the Pacific Palisades), two other mid-range hotels in Vancouver – a West End site currently leased to Coast Hotels and the former Plaza 500 across the street from City Hall – have also seen the owners apply for city permission to convert their buildings to apartments in the past two years.

That’s part of a trend being seen across Canada. A CBRE report released last week said that about $437-million worth of hotel deals that took place last year were real-estate acquisitions by organizations looking to convert them to other uses. That accounted for 40 per cent of all the hotel sales for the year.

It’s not just at the high end, either, that hotels are being repurposed.

The City of Vancouver bought a Ramada Hotel on the Kingsway commuter route last fall for $15.9-million, with a plan to turn it into small social-housing apartments. Two more, the former Biltmore in Mount Pleasant and the former Bosman Hotel in downtown Vancouver, have been leased out long-term for social housing.

“You’ve got smaller hotel operators with vacant hotels. They were all waiting for the 2010 Games to make money,” says Gary Pooni, a development consultant who has handled several inquiries and applications from hotel owners looking to convert.

But the 2010 bubble never expanded to their businesses, hotel visits have gone down since then, and Vancouver has seen four large new hotels open in the past two years.

So, as occupancy rates have sunk among the smaller, less central hotels and the demand for rental in expensive Vancouver has risen, the teeter-totter has tipped to the point where long-term rental makes more sense, Mr. Pooni said.

In the case of the Pacific Palisades, the previous owner didn’t do the conversion himself. Instead, he sold it for $46-million to a company that has a long history in the rental business.

“…What we saw was a building with good bones,” said Andrew Abramowich, president and CEO at Austeville Development Group, which spent two years and $20-million rehabilitating the two towers. “This is a long-term investment for us.”

It helped that the hotel complex, originally built as apartments when it opened in 1966 and converted to business-hotel suites in the 1970s, already had units large enough to become studios and one-bedrooms without moving any walls. Austeville renovated the L.A.-style buildings to show off their modernist touches and added some extras: a swish laundry room with floor-to-ceiling windows, intended as a hangout; meeting rooms; a rentable guest suite; and workshops on topics such as bicycle maintenance for tenants.

The hotel now has 234 suites, with studio rents starting at $1,315 a month and one-bedrooms at $1,550. About two-thirds of the apartments have been rented since the buildings opened last July.

But even though hotel conversions might look like an attractive option – no major rezoning to go through, a building that’s already constructed – both developers and city planners say they aren’t slam-dunks.

The City of Vancouver has been aggressively encouraging developers to build rental. But that hasn’t meant a free ride for any hotel owners looking to convert. That’s because the city is also concerned about maintaining its stock of hotel rooms.

“Hotels are really important, not just for tourists but for business,” says Kevin McNaney, the city’s planning director. There are currently about 13,000 rooms in 82 hotels. That’s a good level the city wants to maintain, he said.

When his department started getting a rash of calls two years ago about hotel conversions, he did a study to figure out what the city’s line should be.

The conclusion: It would consider conversions, but only on a case-by-case basis. Many hotels exist in commercial-only zones, so they wouldn’t be likely candidates. For the rest, Mr. McNaney said, it would depend on whether there were other hotels coming onstream to keep up the numbers.

Mr. Pooni and Mr. Abramowich also said hotel conversions can trigger any number of demands from the city for changes to reflect the residential use. Mr. Abramowich had to widen bathroom doors in every suite for better accessiblity. The number of required parking spots might change.

But whatever the complications, the city’s renters appear to be grateful that some new options are opening up.

Cities across Canada saw rental construction plummet after the federal government phased out tax breaks and write-offs in the 1970s for people investing in or operating purpose-built rental buildings.

In Vancouver, the situation has been particularly dire, as competition from condo developers is so strong that rental construction dropped to near zero in the past 20 years. That’s even though any economist or labour-force analyst will say that cities need to have a good stock of rental properties to serve residents who need to be mobile.

People like the Moffatts.

“Rental gives you flexibility. It just didn’t make sense to buy in this market,” Bill Moffatt said. “Here, it was easy to walk in and we appreciated the quality of the building and having on-site management who seem to be competent and caring.”

As good as a hotel, but better.


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