Empty Hotels Find New Life as Governments House the Homeless

(Bloomberg) -- Local governments looking to house the homeless during the pandemic have been turning to hotels -- an effort that has helped a U.S. lodging industry that couldn’t sell about a billion rooms this year.

From Michigan to Texas, communities across the U.S. have used hotels as part of their response to the pandemic, according to the Urban Institute. Now, as federal money for those efforts runs out, some are ramping up plans to make the properties part of their permanent effort to get people indoors despite criticism from local residents.

One of the boldest examples is in the Seattle area, where county officials aim to spend roughly $350 million to convert hotels into long-term housing for the homeless.

“This is an opportunity no one could have seen coming a year ago,” said King County Executive Dow Constantine, who spearheaded the effort. “We want to capitalize on it.”

Housing the homeless in hotels isn’t a new idea. New York City has long rented hotel rooms to shelter people, and it faced controversy in recent months when a hotel on the Upper West Side became a shelter.

Still, efforts to purchase properties are accelerating during an unprecedented public health crisis that’s curtailed travel and battered the lodging industry.

Sales Surge

In the first nine months of this year, as hotels transactions plummeted, governments accounted for 1.2% of all hotels purchased in the U.S., more than 11 times the rate of the prior five years, according to data from Real Capital Analytics Inc. California alone has parlayed $600 million into a statewide effort called Project Homekey.

Homeless advocates across the U.S. have argued that purchasing the properties is a more cost-effective and faster way of providing homes than building new facilities. Even so, some hotel owners are getting paid well for their properties.

Extended Stay America Inc., for instance, sold a property in Milpitas, California, last month for $65 million, or $445,200 a room, according to research from Robert W. Baird & Co. That’s similar to what the company got when selling another of its hotels in downtown Austin a few years ago.

One challenge for governments is that they’re often looking to buy extended-stay properties with kitchens and other amenities that are useful when converting them to housing, said Michael Bellisario, an analyst at Baird. Those have held their value better during the pandemic than some other types of properties, such as business-oriented hotels near convention centers.

“A lot of these extended-stay properties are generally the better performing hotels,” Bellisario said. “They’re being sold at a premium.”

Seattle Plan

King County, which includes Seattle, was at the center of the first coronavirus outbreak in the U.S. The area has struggled for years with rising homelessness and officials there, concerned that Covid-19 would spread rapidly in the region’s crowded shelters, quickly decided to move hundreds of people into hotels that were leased by the county and operated by nonprofits.

Armed with fresh data about how the effort prevented people from catching the virus, and provided myriad other benefits, the county is now looking to buy properties as soon as possible. Officials expect to create about 1,500 housing units, funding the purchases by selling bonds backed by a 0.1% increase in sales tax.

“We want to move forward with this immediately,” Constantine said. “We have been approached by hotel owners who are on the ropes and looking for a way out.”

Onkaar Dhaliwal contacted King County this year as the virus ground travel to a halt, seeking to rent out the Red Lion hotel in Renton, Washington, that he co-owns. The county leased it in April as a part of its initial Covid-19 response, housing more than 200 people.

“My business partner and I, we’ve been through economic recessions,” he said. “But, obviously, this has been the hardest.”

On a recent afternoon, residents wandered through the Red Lion’s lobby, which had been cleared of furniture to promote social distancing. The rooms are modest, but represent an important change of setting for some. Al, a 68-year-old with shaggy salt-and-pepper hair who asked that his last name not be used to protect his privacy, said he liked the quiet and safety of his new accommodations.

He lost his housing in September 2019 when a developer bought the property where he’d been living in Seattle. He landed at a downtown shelter, where he had two backpacks with clothes and medications stolen. He was moved to the motel in April, as the county tried to spread people out because of the virus.

Facing Pushback

The county’s efforts to house the homeless in hotels has already generated controversy. The Renton City Council passed emergency legislation Monday to limits where and how shelters can operate, requiring residents at the Red Lion to move eventually. Another motel that the county bought nearby, and is using as a quarantine site for people exposed to Covid, has also been criticized.

Even so, homeless advocates in the county who have long argued for moving away from crowded shelters are hopeful the experiment will win over enough people, even when the pandemic is over.

“It would be wholly inappropriate to return to the crowded shelter operations we were running before,” said Daniel Malone, the executive director of the Downtown Emergency Service Center, the Seattle nonprofit that operates the Red Lion. “They’re just not appropriate for the needs that we’re serving.”

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