As a growing number of hoteliers are buckling under the weight of the Covid-19 crisis, one small development firm is offering some owners an exit strategy in the form of adaptive reuse.
Established in 2004, the real estate development firm Repvblik has long specialized in converting distressed commercial properties into affordable-apartment buildings, with the vast majority of its early projects based overseas. The group turned its focus to the U.S. roughly six years ago, targeting former hotels, but found limited success stateside.
"We were unsuccessful during our first few years in the U.S.," said Richard Rubin, founder and CEO of Repvblik. "People were very circumspect. They couldn't understand our model, which is effectively the creation of workforce housing through adaptive reuse, without a reliance on federal funding."
In 2018, the company finally landed its first U.S. deal, purchasing a vacant, 423-room Days Inn in Branson, Mo.
According to Rubin, Repvblik didn't expect to make its U.S. debut in "a very small submarket in the Midwest," but the group knew "it was extremely important to get that first deal done and developed so that people could see the concept worked."
Construction wrapped on Repvblik's Branson project earlier this year, and the former Days Inn has been reborn as a 341-unit apartment building called Plato's Cave, featuring a mix of studios and one-bedrooms as well as amenities like a communal clubhouse and gym. Rents run from $495 to $725 per month, inclusive of all utilities. To qualify for an apartment, a tenant's monthly household income must equal around 60% to 120% of the area median income.
"The demographic we target isn't poor enough for subsidized housing, but they're not rich enough to afford the top-tier inventory [that's close to where they work], neither as homeowners nor as tenants," explained Rubin.
Fast-forward to the present day, and Repvblik is seeing a surge in interest from embattled hotel owners across the country. Rubin estimates that the group is doing cursory underwriting on around 30 potential hotel projects per week. Hotels reaching out to the company range from economy and midmarket properties all the way to full-service hotels.
"As far as the hospitality sector is concerned, people have just run out of options," said Rubin, citing this year's record low occupancies. "We're being offered hotels that have just been built and have no path to being occupied, and we're also being offered hotels that were doing poorly before Covid and now have no business."
The firm's pipeline currently includes developments in the 130- to 400-key range in markets such as Kansas, Ohio, Michigan, Alabama, California and Oklahoma. Rubin said he expects additional projects to be added soon.
"It's not that there will never be a comeback for hospitality, but people are definitely realizing that it's going to take a long time for that to occur," said Rubin. "Things aren't just going to quickly snap back into place. And no one can have a business model based on little to no business."