Hartford Business Journal

7 HARTFORDBUSINESS.COM | OCTOBER 18, 2021 Deal Watch By Terry Corcoran tcorcoran@hartfordbusiness.com T he pandemic has significantly slowed business travel, which has battered the hospitality industry, especially hotels. And with business travel not expected to return to pre-pandemic levels until 2025, many hotels continue to experience near record- low or below-average occupancy rates, forcing some to close. But developers who see opportunity where others see despair are snatching up shuttered hotels and converting them into apartments. Although the practice began a few years ago, it blossomed during the pandemic. Numerous conversion projects are proposed or underway in Connecticut, including hotels in Hartford, Farmington, Manchester and Meriden. In addition, a Stamford developer recently converted a Stratford hotel into luxury apartments complete with a dog park. A hotel conversion is much cheaper than building an apartment complex from the ground up — about $60,000 to $70,000 per unit compared to $150,000 to $200,000 per unit in a metropolitan area, according to BBG Real Estate Services. Although the converted Connecticut apartments will rent at market rate, the practice in other states addresses housing needs by creating affordable living spaces in areas where rents are high. Hartford conversion In Hartford, the Axela Group of Waterbury partnered with Shelbourne Global Solutions LLC, the city's largest commercial property owner, on converting the former Red Lion Hotel at 50 Morgan St., into luxury apartments overlooking Dunkin' Donuts Park. The Axela-Shelbourne partners paid $22 million for the Morgan Street property and are investing another $8 million in the 18-story building. The previous owner renovated the top eight floors into 96 units, over 80% of which are rented. One-bedroom units rent from $1,375 to $1,450. Yitz Rabinowitz, vice president at Axela, said they are focusing on the building's amenities and common areas so they can showcase them to prospective tenants before renovating apartments on the remaining floors. There is a gym and pool. They're also creating a common work space area and working on getting a restaurant/ bar for the facility. "The biggest challenge is that the size of a hotel room can be 275 to 400 square feet and you can't just have all studio apartments. You need a healthy mix of units," Rabinowitz said. He said most hotel conversions involve buildings from the 1960s to 1980s, which require code compliance updates. But older buildings also have their advantages, he said. "Older hotels like this have very good bones," Rabinowitz said. "A lot of multifamily and commercial buildings built in the 1970s are built very well." Homewood Suites, the former Hotel Bond on Asylum Street in Hartford, is also being converted into apartments. Michael Freimuth, executive director of the Capital Region Development Authority, said the pandemic's impact on the hospitality industry and the demand for housing are fueling the conversions. "There is a national 're-think' as to how to proceed with many of these properties and the conversion to housing is high on the chart," Freimuth said. "In part, this is because the multifamily market is the strongest sector of the real estate industry now. But also, under- performing hotels can be relatively economical to convert to alternative uses like residential that may even allow a switch back at some future date." Challenges a developer faces in a hotel conversion include deciding whether the structure allows for it, determining if it makes financial sense, and clearing any legal hurdles, including land-use regulations. Luxury conversion Empire Residential of Stamford converted an old hotel in Stratford into luxury apartments complete with a fitness center, indoor pool and outdoor dog lounge. The units rent at market rate, from $1,400 to around $2,000. Anthony Kolich, principal and co-founder of Empire Residential, said some aspects of a hotel conversion are expensive but that, generally, the buildings make great apartments. "The biggest challenge is the separation of utilities. You must do that so tenants can be responsible for their own electric bills," Kolich said. "But having the amenities of a hotel is a huge plus for an apartment complex." The Stratford complex, dubbed Empire 225, is located at 225 Lordship Blvd., close to Interstate 95. Kolich and his partner Jamie Heffernan purchased the property for around $4 million, part of a $14 million investment in converting 149 hotel rooms into 69 apartments. "There are a lot of advantages to acquiring a hotel in the suburbs," Kolich said. "Typically, the hotels are on large parcels that can be subdivided and used for other purposes." He said leasing slowed during the pandemic but is going so well they're considering adding a second apartment building to the property. They already built a 120,000-square- foot self-storage facility behind the apartments. Other projects In Farmington, developer Jason Schlesinger of CLP Farmington LLC is converting the former Farmington Marriott hotel at 15 Farm Springs Road into a mixed-use apartment complex. Schlesinger plans to transform 381 rooms into 225 luxury apartments ranging from studios to three bedrooms. CLP Farmington paid $10.5 million for the property while borrowing $20 million for the purchase and renovation. Like most developers, Schlesinger will make use of hotel amenities as plans call for renovating the hotel's Continued on page 8 Long-term Stay Developers turn hotels into apartments as pandemic batters hospitality industry Developer Yitz Rabinowitz inside The Millennium, a former hotel at 50 Morgan St. in Hartford, that his company, the Axela Group, is converting into apartments in partnership with Shelbourne Global Solutions. Anthony Kolich PHOTO | STEVE LASCHEVER

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