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LONDON: Hotels are now increasingly being set-up to attract to draw an elderly crowd.

This fall, the Boston University Graduate School of Hospitality Management will add a Concentration in Senior Living. The program will integrate BU’s comprehensive hospitality curriculum with innovative and forward-thinking senior housing programming and will balance business-oriented disciplines with courses in resident life experiences.

According to Senior Housing Global Advisors Principal Mel Gamzon—who has been a prolific investment real estate adviser in the senior housing space for the past four decades—it’s a sign of the times. The pandemic has accelerated interest in adaptive reuse of hotels to senior housing.

We recently caught up with Gamzon for an in-depth conversation about how, when and why these two sectors can collaborate.

You’re seeing opportunities emerge for senior housing and hospitality investors to collaborate. What opportunities for conversion are you seeing and why?

Gamzon: While the conversion of hotels into senior housing communities has been slowly evolving over the past several decades, it is the pandemic that has accelerated the recognition that adaptive reuse of select lodging facilities may be part of a new reality for the hotel industry.

The lodging sector has been severely damaged by COVID-19-related impacts, and the financial losses in many instances are massive. Just consider current and imminent CMBS loan defaults. The numbers are staggering. The American Hotel & Lodging Association revealed that unemployment in the space is at 18.9 percent. The association projects that half of the nation’s hotel rooms will remain empty through 2021. With business travel not expected to normalize until possibly 2024—and the leisure sector making a slow but measured recovery—hospitality lenders, investors and operators have begun considering viable repositioning alternatives, including senior housing.

So where are the opportunities for collaboration with senior housing professionals? Assuming that extensive due diligence is initiated at the start of the acquisition and planning process, there are multiple product types and approaches available, ranging from the acquisition of underperforming hotels to the purchase of sites that have been selected or approved for hotels or mixed-use ventures.

What are the synergies that make it ideal and/or possible to adapt hospitality assets into senior housing assets?

Gamzon: Like the hospitality sector, senior housing also faces challenges that emanate from the pandemic. Fortunately, our industry addressed critically important issues throughout last year with the result that steady progress is being made in the recovery process. Because of innovation at all levels, the emergence of new technology solutions, refined operating models, a patient attitude from the lending and investment community, and the recognition that senior demographics are generally strong, we will likely see an industry resurgence to a new normal over the coming 12-30 months or so.

In terms of synergies with the hotel and lodging industry, this is an ideal time to ramp up the discussion on how the sectors can align. The fundamentals are obvious. Both sectors are grounded in business models where the caliber of the operations is fundamental to the value proposition to the customer and investors. The integration of quality staff into well-conceived real estate is the key to their success.

However, according to AHLA, while the hotel sector is projected to add 200,000 new operational jobs in 2021, the total number of employees is 500,000 lower than the industry’s pre-pandemic employment level of 2.3 million. Likewise, the senior housing space struggles with staffing issues. Looking at this challenge, besides care-related employees, we find that there is compatibility between the skill sets of hospitality and senior housing personnel.

What conditions need to be in place for a successful conversion to senior housing?

Gamzon: Generally speaking, both asset types require high visibility locations in prime markets. Newer, underperforming hotels may have somewhat similar overall building floorplates. For example, they may have 150 to 200 rooms that can be adaptable to residential use, dining facilities that can be modified and common areas to re-program for an older clientele. “Wellness programming” is a key term in both sectors and can provide a profitable approach to reusing hotels.

Newer properties may be easier to convert. Corridors are wider to accommodate seniors with mobility issues and also meet building code requirements. HVAC and other building systems, and rooms or suites may be easier to reconfigure especially with wood and frame construction. And, more importantly, technology systems already within these hotels may be convertible to communications and telehealth systems.

What does the new graduate school curriculum mean for both industries?

Gamzon: These sectors will grow through increasing their cadre of well-educated, young professionals. Reflecting the growth potential of both industries, colleges such as Boston University recognize the need for vibrant new talent. This fall, the BU Graduate School of Hospitality Management will add a concentration in senior living. The program will integrate their comprehensive hospitality curriculum with innovative and forward-thinking senior housing programming that highlight the balance between business-oriented disciplines and courses in resident life experiences.

What will the new senior housing models look like, and how are they adaptable to the reuse of hotels?

Gamzon: The pandemic has accelerated the need to refine development and operating models—all of which, in some format, could enhance the feasibility to convert hotels into senior housing. The senior housing industry is focused on platforms that enhance “new reality” market acceptance, reduce overall development and operating costs to create more cost-efficient senior living alternatives, and ultimately produce investment returns that are consistent with investor expectations. We are finding that altering senior housing business models is costly and no easy endeavor in light of more stringent investor and lender underwriting requirements.

In large part because of the pandemic push, well-capitalized and forward-thinking senior housing operatives are thinking outside the box to create value-add business platforms. As I mentioned earlier, technology at all levels has become a priority for capital allocation. For those who continue to embrace the old ways of doing business, many will likely falter and could become adaptive reuse targets themselves.

The senior housing industry is evolving dramatically from embracing a predominantly caregiving orientation and expanding its vision towards the huge Baby Boom generation that will descend on the sector. So while many independent living models are actually melding and becoming more like assisted living “light,” a growing number of industry operatives are also focused on preventive health and wellness programs where the mantra “growing younger” will replace “we will care for you.”

In either direction, there are opportunities for the adaptive reuse of hotels and motels. Whether it be urban infill or other prime locations, investment opportunities will become increasingly prevalent going forward.

Can you give us a couple of examples of successful conversions?

Gamzon: Two noteworthy hotel conversions to senior housing communities that had been in the planning phase for several years opened last fall. Exemplifying the higher end of the New York metro market is the conversion of Leverich Towers, a 16-story, 1928 hotel that has been transformed into The Watermark at Brooklyn Heights, a 275-unit independent, assisted living and memory care rental community. Enhanced wellness-oriented amenities within a resort style environment exemplify the possibilities for hotel conversions.

While the numbers are staggering at a total cost of $330 million or $1.2 million per unit, the economics on paper seem to make sense for their equity partners and operator. Rents range from $8,500 to $19,500 per month. I firmly believe that there is more to come in major markets including New York City where hotel lenders and investors are seeking viable reuse solutions for their struggling hotel assets.

Then there is the adaptive reuse of a 170-room former Residence Inn by Marriott in New York City’s Long Island that has been converted into The Residences at Plainview, a 114-unit all independent living senior community. The astute developer Capitol Seniors Housing and its institutional investment partner recognized the opportunity for a wellness-focused project. The venture was completed at a total cost of approximately $285,000 per unit—way below what it would cost to build from scratch with an extensive common area amenity package. At stabilization, this property will fetch a premium value.

So the pandemic has, in some respects, been a silver lining for the adaptive reuse of hotels?

Gamzon: For sure, the pandemic has been a stimulus that is inspiring hotel conversions. With that said, while the adaptive reuse of hotels continues to grow in importance, it is not for everyone. There are lots of design and construction details, programmatic re-alignments, budget complexities and licensing for assisted living and memory care. The message is abundantly clear. With proper guidance and realistic expectations, there can be substantial investment returns. Let’s also keep in mind that these are not easy ventures, and the margin for error is limited.