Luna Lodge, in Albuquerque, NM, is the quintessential Route 66 motel.
A kitschy, neon sign with an arrow points to the parking lot that’s lined by three square Pueblo Spanish Revival buildings with flared stucco hoods over the doors. The 1949 property was even placed on the National Register of Historic Places in 1998 “as one of the best examples of a largely unaltered tourist court remaining along New Mexico Route 66.”
But despite its iconic status, the motel fell into disrepair over the decades. The dilapidated, boarded-up building became a magnet for criminal activity.
Then Luna Lodge got a new lease on life. In 2013, the renovated building once again began welcoming people into its rooms. But they weren’t just passing through. The former motel had been converted into 30 affordable apartments for low-income and disabled tenants.
As more and more travelers have turned away from classic motor lodges and hotels in favor of spacious Airbnbs with all the comforts of home, many of those old way stations have been left behind. While many have been demolished, others linger on in varying states of neglect. But over the past half-decade, a growing segment of city governments, nonprofit organizations, and developers have been reclaiming these structures to transform them into apartments and condos to meet a growing need for housing.
There were about 16,000 motels open for business in 2012, representing just 27% of the 61,000 operating during their heyday in the 1950s, according to Mark Okrant, author of “No Vacancy: The Rise, Demise and Reprise of America’s Motels.” The number has dropped even further over the past six years.
“Motels developed a negative reputation that has carried along for the past 40 or 50 years: They are regarded as anything from cheap to honky-tonk, a place to go for a one-night or one-hour stand,” says Okrant.
In decades past, these properties, many of which are located on prime commercial arteries, would have been turned into shopping spaces. But with the rise of e-commerce (thanks, Amazon), that’s no longer practical.
“People are starting to think, ‘What do I do with this thing?’”says KC Conway, an economist at the commercial real estate group CCIM Institute.
Fading hotels become luxury condos, apartments
Converting motels and hotels into residential buildings makes good business sense. After all, they’re often located in or near tourist destinations, or places where people live and work—and where there’s a shortage of housing.
In booming Atlanta, what used to be a Hawthorne Suites extended-stay hotel was completely overhauled into luxury apartments in late 2016. The Metro, as it’s called, features 200 units topping out at $1,550 for 1,154-square-foot, two-bedrooms with new HVAC systems, stainless-steel appliances, and quartz countertops.
Plus, the property has a pool, tennis court, and multiple fitness centers.
“It was totally renovated inside and out,” says manager Montecchia Walker. The complex has maintained about a 93% occupancy rate since it debuted.
Some properties that don’t boast the larger, apartmentlike units typical of an extended-stay hotel are getting upgraded to attract younger renters.
In Eagle, CO, a bedroom community on the outskirts of the infamously expensive ski resorts of Vail and Beaver Creek, K Real Estate Development picked up a struggling AmericInn right off Interstate Highway 70. It then turned the inn into a millennial haven called The House. Units start at $1,360 a month, a couple hundred more than the going rate for a one-bedroom in the housing-strapped area. The first 10 tenants moved in in December.
While the basic configuration of the rooms was untouched (concrete walls and precast concrete floor decking made big changes nearly impossible), the studios and one-bedroom units come fully furnished. They even have new kitchenettes featuring a sink, fridge, and hot plate.
Areas that formerly catered to hotel guests have been converted into community spaces. Hammocks and exercise equipment now sit over what was once an indoor pool, and there are plans to start group yoga and fitness classes. The old sauna now offers a station to wash dogs or mountain bikes. And the former check-in area has been converted into a lounge with comfy couches.
“The idea is you only sleep in your room and you have all this other space to hang out,” says co-owner Kelly Herzog. “It’s a built-in community.”
Former motels can make great vacation homes
On the New Jersey shore, savvy developers have been buying up old motels from owners who want to retire. These properties are now being reimagined as condos for urbanites who’d like a summer house—but can’t fork over the $1 million needed to get a single-family house on the beach.
“Developers are finding that it’s easier to find 10 buyers who want to spend $200,000 on a condo than one buyer who wants to spend millions on a large motel they’d have to operate,” says Realtor® Nathan Colmer, who’s with the Van Dyk Group in Long Beach Island, NJ.
For as little as $129,000, beach-home seekers can pick up a small one-bedroom with pool access just blocks from the famous dunes in Seaside Heights, NJ. They boast low homeowners association fees and few restrictions on owners renting out the units.
“A single-family in the same location would cost $2 million,” says Colmer.
But while these beachside retreats are a relative steal, the vast majority of them are not designed for folks who want to live in them year-round. They tend to have kitchenettes, and most are open to residents only from April through the fall.
“For the most part, these are strictly summer destinations,” says Colmer.
Motel conversions can add some much-needed housing stock
Turning old motels into housing can also add inventory to markets where there simply aren’t enough homes to meet demand.
In Eagle, The House’s co-owner, Herzog, had learned that the surrounding Vail Valley is about 4,000 housing units short of what’s needed to accommodate its workforce. So when a friend in real estate told her an underused lodge would be coming onto the market, she jumped on it.
What’s happening in Vail Valley is similar to many other desirable real estate markets. The share of renters considered severely rent-burdened—spending 50% or more of their monthly income on rent—increased by 42% between 2001 and 2015, according to a 2018 study by the Pew Charitable Trusts.
Now, builders are finally putting up homes again after a long, postrecession slump. However, the high cost of land and materials, and the nationwide construction worker shortage, has prompted the majority to focus on higher-end developments, where they can capture greater profits. Converting existing motels into new housing is an appealingly affordable option for developers as well as tenants.
In the notoriously expensive San Francisco Bay Area, the formerly blighted Islander Motel in Alameda was turned into a complex of 62 affordable studios in 2013. Dubbed the Park Alameda, the community offers numerous green building features and a community garden for local workers making between 20% and 50% of the median income in Alameda County. The rent of $300 to $785 is well below the area’s median $2,208 for a studio.
For the homeless and disabled, these adaptive reuse projects have been a godsend. Low-income motel conversions have been sprouting up across the U.S., from the Gulf Coast of Florida to a 101-room former Budget Inn in Sacramento, CA. Old Route 66 landmarks like Luna Lodge and its nearby sister property, the Sundowner, have been transformed into peaceful sanctuaries for folks making less than half the local median income. A quarter of the units have been set aside for formerly homeless tenants and those with special needs.
These homes have helped many of their residents get back on their feet.
Though the residential conversion of failing motels is growing, there’s still a long way to go until it catches on nationwide. Banks don’t fully understand the concept, so many of the big players are reluctant to write loans on these conversions. City zoning and local building ordinances need to be rewritten.
And in some areas, these affordable housing projects have spawned backlash from local communities such as Pine Hills, FL, where One Stop Housing is proposing to convert the formerly crime-ridden Magnolia Inn and Suites into 214 studios that would rent for $750 a month. The company has been buying up old motels and turning them into apartments across the state. But some members of the community don’t want low-income housing in their backyard.
While Herzog considers herself lucky for having some innovative members on her city council in Eagle, it took more than a year to change the zoning from commercial to residential.
“It seems like a logical way to help with the housing issue if you can find the right spot,” says Herzog. “You don’t have to go out and rebuild something; you’re using what’s already there.”