Hotel owners switch focus to residential

Published December 29, 2020 by Carol Hazard

Hit hard by the economic effects of the coronavirus, the hotel industry isn’t expected to fully recover until 2023 or 2024. Meanwhile, several hotel properties, including two in Northern Virginia, are being redeveloped into more profitable residential units.

Sunburst Hospitality won approval in October 2020 to convert the 187-unit Arlington Court Suites Hotel into one- or two-bedroom apartments or condos. Also, a former Crowne Plaza Hotel in Alexandria is being converted into condos.

Built in Arlington in 1962, Arlington Court Suites saw occupancy drop to 20% in 2020, says Martin Walsh, an attorney with Walsh, Colucci, Lubeley & Walsh who represents the owner.

Expect to see more of the same, industry experts say. Not only are some hotels being repurposed, but projects in the development pipeline are being abandoned or slowed.

“It will be a very long, slow recovery,” says Eric Terry, president of the Virginia, Restaurant, Lodging and Travel Association. “A lot of companies have adapted to Zoom meetings as opposed to traveling.”

The hotel industry finished strong in 2019 but tanked in 2020, with occupancy falling nearly 40% nationwide, according to STR Inc., a division of CoStar Group. The industry is expected to regain only 66% occupancy in 2021.

Virginia is following a similar pattern, with the exception of Hampton Roads, where summer tourists kept hotels afloat, Terry says. Crystal City experienced the sharpest decline in hotel occupancy in Northern Virginia.

Hotel occupancy in Arlington has dropped 57% year to date. “We are expecting a fairly slow return to normal until the virus situation can be mitigated,” says Emily Cassell, director of Arlington Convention and Visitors Service. “Demand will return as soon as people feel safe to travel.”

In the meantime, Cassell’s department is shifting the focus of hotel marketing from group meetings to visitor travel, where more opportunity is seen.

Marc McCauley, director of Arlington Economic Development’s real estate division, says three hotel projects were recently approved by the county board. But they were all pre-COVID-19.

Survival of existing hotels hinges primarily on the age of any given property, with older hotels being targeted for other uses, Terry adds. Debt service lenders are working with hotel property owners, providing financial relief — but only temporarily.

In November 2020, the American Hotel & Lodging Association forecast that 71% of hotels wouldn’t survive until May 2021 without federal assistance.

In Virginia this year, the lodging industry will see more hotel sales and possibly foreclosures, Terry predicts. However, “in 2023, we will get back to more normal levels, but maybe with less inventory.”