Some Calgary hotels hope to fill 80% vacancy rate by converting to affordable housing

The Calgary Hotel Association says with a historically high vacancy rate of 80 per cent, it knows of at least eight hotels considering converting their buildings to affordable housing to bring in some money while addressing a critical need in the city.

"There is low demand in certain parts of the city for hotel space by guests and there is simultaneously a high demand or need for Calgarians in search of affordable housing," said Sol Zia, executive director of the association.

Zia said the pandemic and the subsequent "shaming of travel" is further devastating an industry already hard hit by Calgary's economic woes.

He said in consultation with some local hotel owners, he came up with a list of eight owners who said they would consider partnering with non-profit agencies to convert their buildings to affordable housing units — whether it was through a sale or a leasing agreement.

Zia shared that list with the city last fall, which in turn passed it on to the province and to some non-profit housing providers.

So far, Zia said, there's one deal in the works between the Holiday Inn on Macleod Trail and the Calgary Dream Centre, which is a few blocks away from the hotel.

The Dream Centre and the Holiday Inn both declined to comment on the deal because the funding is still pending.

In the meantime, the Dream Centre plans to ask city council if it can redesignate the property to allow it to be used for affordable housing.

The list of hotels emerged as the federal government announced the Rapid Housing Initiative (RHI), a $1 billion Canada Mortgage and Housing Corporation (CMHC) program designed to fund the construction of 3,000 affordable housing units across the country.

The federal agency has already provided half of that amount, or $500 million, to several cities across the country, including Calgary.

Calgary received $24.6 million in December to pay for three projects and create 176 affordable housing units this year.

Now, the Dream Centre and other non-profits in the city are hoping to see their affordable housing projects approved and funded by the CMHC. The remaining RHI funds will be released by the end of March.

Previous hotel deals

Silvera for Seniors was one of the three Calgary organizations awarded the RHI money in December. It received $15.5 million to purchase the Lakeview Signature Hotel in northeast Calgary, which was previously a Marriott, and convert it to 120 affordable housing units.

Silvera, an organization that has been providing housing for older adults for decades, said it's the first hotel it has purchased.

"These opportunities are rare, but they are gold in our sector for affordable housing to be able to quickly address the clear urgency for affordable housing," said Arlene Adamson, CEO of the organization.

Adamson said hotels are ideal for these types of conversions because of their floor plan and heating structures. She said it will still need extensive renovations, but said the biggest challenge with this project is time.

Agencies that receive RHI funding have one year to complete their project.

"Make no bones about [it], we're going to be running quickly to make sure that we can execute as per the funding requirement. Twelve months is not a lot of time," said Adamson.

Horizon Housing purchased a hotel in southwest Calgary last summer with money it received from a private donor. It plans to build 62 units that will include a range of housing from affordable to near market value.

It has finished some of the renovations, including the two-bedroom units and is now starting to lease those out. Horizon expects to be completely done by spring.

The head of Horizon Housing said hotels are a great option for non-profits looking to build affordable housing.

"And if we can, to encourage partnerships — whether it's acquisitions or some sort of a long-term leasing model — I think it's all really worthwhile to look at, because let's just get this economy going, because that's good ultimately for everyone," said Martina Jileckova, CEO of the organization.

No fire sales

Avison Young is one of the commercial realty companies representing some of the non-profits interested in building more affordable housing by accessing the RHI funds.

A company spokesman said despite the tough economic times the hotel industry is facing in Calgary, there are no fire sales to be had.

"The interesting thing is the value of apartment buildings is skyrocketing right now, because it's still perceived as a fairly safe investment … yet the price of hotels has not started to come down despite the fact that, you know, they're probably considered [a] considerably riskier asset class right now," said Chris Howard, vice president capital markets group with Avison Young.

"So we're not awash in opportunities with hotels to acquire."

Howard said he expects hoteliers are hanging onto their properties in the hopes demand will return.

He said leasing is an option that is being presented, but most of the non-profits he works with want to purchase a building because they are trying to provide a permanent solution.

Plus, Howard said conversions require a significant financial investment by the non-profits, whether it's for renovations or permitting approvals.

"To just think that after a year, you would convert and go backwards, back to a hotel, you can certainly identify that that's a lot of work for not a forever housing solution," Howard said.

The head of the local hotel industry said any potential leasing opportunity would be a short-term or medium-term opportunity because ultimately the hotelier would want to remain the property owner.

But Zia doesn't think these particular hotels plan to revert back when the economy rebounds. He said there are so many new builds underway, also around the core, that will replace what's lost.

"The Dorian is one, the Westley is under construction right now, so there is new inventory coming in that will help address the needs when the new convention centre opens," said Zia.

The City of Calgary considers a family or individual to be in need of affordable housing if it spends 30 per cent or more of its income on shelter, and earns less than 65 per cent of Calgary's median household income.

Based on this definition, more than 100,000 Calgary households are forecast to be in need of affordable housing by 2025.

A spokesperson for the mayor's office said the city could see as many as 5,100 new affordable homes completed over the next three years, but this still would not meet Calgary's need for affordable housing.