Why is it so difficult to turn a Colorado hotel into supportive housing?
(Colorado Newsline) Hotel conversions have become a popular idea to increase Colorado’s supply of supportive housing for people exiting homelessness, but there is an open question regarding this strategy’s long-term viability.
The idea to convert unused hotels into housing isn’t new, but it’s getting more attention at a time when Colorado’s housing becomes increasingly unaffordable for workers earning low incomes.
As of July, the state’s median home price climbed to $542,500, an increase of 32.3% compared to July 2019, before the pandemic began, according to the Colorado Association of Realtors. Over the same four-year period, federal data shows that rates of homelessness across the state have increased by 7.5%, and unsheltered homelessness has surged by 44%.
Cities stretching from Denver to Colorado Springs and Durango have all experimented with hotel conversion projects to provide more housing for people exiting homelessness. And it’s easy to see why, given all of the state and federal money that is available for these projects.
For example, the 2023 federal omnibus spending package included $116 million for Colorado projects, including $4 million to help the Colorado Coalition for the Homeless acquire and convert the Clarion Hotel on West 48th Avenue in Denver. Colorado Proposition 123, which passed in 2022, is also expected to generate hundreds of millions for affordable housing projects as well.
But while these buildings provide a temporary reprieve from homelessness for many, some experts say there are some kinks that need to be ironed out before the projects can become a long-term solution.
Two aspects that make hotel-to-supportive-housing projects challenging are the initial due diligence required for the properties and nonprofit financing challenges, according to Monica Martinez, the executive director of the nonprofit The Fax Partnership.
Martinez told Colorado Newsline that most of the hotels that are targeted for conversion were built in the 1980s, and those properties require a significant amount of physical inspection so that they can become functional shelter sites as soon as possible.
The Fax purchased the Sand and Sage and The Westerner motels on East Colfax Avenue in Denver for roughly $4.5 million in October 2022 and is currently working to upgrade the motels before they reopen as 37 supportive housing units on Oct 1. That work includes widening door frames and bathrooms in rooms for folks who need ADA accommodations. Crews are also completely gutting some of the rooms and replacing drywall, carpets, and utilities like hot water heaters.
Tunde Shodipo, who is overseeing the conversion for The Fax, told Colorado Newsline that the nonprofit is spending about $40,000 for each ADA room it renovates and about $15,000 for every other room.
Martinez added that more challenges arise after the decision is made to buy a specific property. The Fax previously tried to purchase the Ahwahnee Motel and La Vista Motel on Colfax for the same purpose, but Martinez said the nonprofit wasn’t able to move as fast as the private investors that it was competing against.
One reason why The Fax couldn’t move as fast is that it is more difficult for nonprofits to put together what’s called a “capital stack” to acquire properties than it is for private investors. A capital stack refers to the different types of funding sources that make up a real estate deal. For example, private investors often negotiate in cash while nonprofits and government agencies negotiate with tax dollars and grant funding, which Martinez described as “slow-moving.”
The capital stack that The Fax brought with it to buy the Sand and Sage and Westerner included funds from Colorado Housing and Finance Authority, national nonprofit Enterprise Community Partners, Denver’s Department of Housing Stability — known as HOST — and the Colorado Division of Housing, according to a press release. For comparison, the investors that bought the Ahwahnee and La Vista motels made all-cash offers with a 45-day closing period, terms that Martinez said The Fax simply couldn’t match.
“When nonprofits or governments are moving to acquire something on the market, they will always be at a competitive disadvantage because of their deliberative processes,” Martinez said. “There are a lot of checks and balances.”
Local permitting processes, building codes, and land use regulations can also create challenges for conversion projects because many of them don’t contemplate this kind of work, according to Eva Henson, the city of Durango’s housing innovations manager.
Durango partnered with Indiana-based development company TWG Development in May to convert a 120-unit Best Western motel on U.S. 160 into housing units that will serve people making 30% to 60% of the area’s median income, or between $21,000 and $40,000 annually.
One issue that the crew has run into is that the Durango Fire Protection District required them to upgrade the hotel’s fire suppression system to meet the building standards for permanent supportive housing, Henson said. That required TWG to “rip open the walls” to replace the system and increased the overall cost of the project, she added.
The project also faced delays while officials navigated the Colorado Department of Transportation’s access permitting process, which they were required to do because the hotel is located near a highway, Henson said.
“Each community is navigating these projects differently, but I think the outcomes are very meaningful,” Henson said, adding that each project helps establish a replaceable model for other cities.
Martinez said the Sand and Sage and Westerner properties ran into a similar issue. She said The Fax had to rezone both properties into a single parcel to comply with Denver’s zoning code. On top of that, there is a billboard on the Sand and Sage property with a lease until 2028.
Martinez added that The Fax decided to hold the property for about five years instead of the initial two-year holding period they initially contemplated because of that lease. After it expires, the nonprofit plans to tear down the motels and build a new 100-unit supportive housing complex with a library potentially anchoring a ground-floor retail space.
Denver Mayor Mike Johnston’s emergency declaration on homelessness includes a provision to speed up the regulatory process for conversion projects, but the results of which have yet to bear fruit. For instance, Denver’s city council approved the purchase of the Stay Inn on 38th Avenue in January, but HOST spokesperson Derek Woodbury confirmed that the conversion project has yet to begin.
A similar story can be told about the Clarion Inn, which the Colorado Coalition for the Homeless purchased in June. There isn’t a similar statewide emergency order that could impact projects in other jurisdictions either.
“Homelessness in America is a growing crisis and we need to deploy as many strategies as we can to address it,” Martinez said. “To do that, we need to rethink our land use policies and our built environment.”
Despite the challenges, there are a few examples of successful hotel-to-supportive-housing conversions that could serve as models for other projects around the state. One of the oldest examples is Joshua Station, a two-year transitional housing program for families experiencing homelessness in Denver’s Lincoln Park neighborhood.
Joshua Station was converted from the old Motel 7 on Yuma Street and opened in 2002. The program offers families a range of services, from early childhood education to life skills and mental health counseling. Since it opened, 100% of the families that have entered the program have exited into long-term stable housing, according to the website of Mile High Ministries, which operates the facility. There are also 25 families currently living at Joshua Station.
Another example is Fusion Studios, a 139-unit apartment complex in Denver’s Park Hill neighborhood that is owned and operated by the Colorado Coalition for the Homeless. The property was converted from an old Quality Inn and Suites on North Quebec Street and officially opened in January 2020. CCH Vice President Cathy Alderman told Colorado Newsline that many of the residents have lived at the property since it opened. Fusion Studios also includes wraparound services such as having case managers on site and a full-service food pantry.
“These projects are a great way to bring new housing units online at half the cost of ground-up construction,” Alderman said. “And there’s a big opportunity to do more of this kind of work that wasn’t available before.”