Would you pay $1,000 for a converted motel room? Micro-apartments come to Tri-Cities

Nearly two years after a controversial Portland firm began buying Tri-City hotels and motels, the first tenants have moved into rooms transformed into micro-apartments.

Fortify Holdings Inc. reports renters moved into The Alegre, formerly the Rodeway Inn, in Pasco in March after getting its occupancy permit from the city for one of the old motel’s three buildings.

“The Alegre, is open and leasing units,” said Rob Jacobs, regional manager for Fortify, which has invested about $50 million to bring its micro-apartments to the Mid-Columbia. Jacobs said Fortify projects in Richland and Kennewick will welcome tenants in the coming months.

Fortify, which has a multi-state portfolio of hotels-turned-apartments, introduced itself to the Tri-Cities in 2021 when it began a $38.1 million buying spree that netted more than 800 rooms at six local properties.

It closed deals for two in Richland, two in Pasco and two in Kennewick between July 2021 and March 2022. The hotels closed and the company began working to secure approvals and permits from the three cities.

One property, a former Motel 6 in Kennewick, is being used as temporary farmworker housing rather than micro-apartments, which leaves about 700 units being converted.

Transforming hotel rooms into studio apartments cost nearly $12.7 million, according to building permit reports from the three jurisdictions.

Rental rates

The addition of that many apartments to the Tri-Cities market has the potential to relieve a longstanding shortage of places to rent.

Few in the housing industry were willing to comment publicly on Fortify and its micro-apartment business model.

One advocate for people struggling with addition and homelessness said it had not tracked Fortify. With rents starting at about $1,000 or more a month, Fortify’s properties are out of reach for his agency’s clients.

A Fortify spokesman said the properties are accepting applications from all tenants, but it was not clear if it would accept renters who rely on vouchers.

Its local properties were not listed in a U.S. Department of Housing and Urban Development housing database.

According to its marketing materials, Fortify focuses on repurposing underused hotels into workforce housing for renters overlooked by traditional new construction.

The Tri-Cities has a longstanding shortage of homes for sale and for rent. Any new units offer relief.

“It is filling a much needed niche in housing,” said Colin Hastings, executive director for the Pasco Chamber of Commerce.

Riverfront, Clover Island

Fortify is almost as well known locally for the properties it did not buy as the ones it did.

Its bids for the Riverfront Hotel, formerly the Shilo Inn in Richland, and the Clover Island Inn in Kennewick, both failed because they sit on land leased from the city of Richland and the Port of Kennewick, respectively.

The Richland deal fell through when the city cautioned Fortify it would pursue legal action if it tried to operate the property as anything other than a hotel.

The Clover Island deal collapsed when the Port of Kennewick said it wouldn’t sell the land, which Fortify argued it needed to justify the $20 million it intended to spend on the conversion process.

Jacobs provided an overview of Fortify’s ongoing “adaptive reuse” efforts in the Tri-Cities. More units will be move-in ready in coming months, he said.

Market impact

Fortify’s impact on the housing market is blunted by the slow trickle of units reaching the market. As of mid-March, only 30 or so had the occupancy permits needed before people can move in.

But 700 to 800 units, depending on what happens at one Kennewick site, is a potential game changer for the Tri-Cities because it offers options to renters interested in small, studio apartments.

The apartment vacancy rate for Benton and Franklin counties stood at 2.4% at the end of 2022, according to a fourth-quarter survey conducted by the Washington Center for Real Estate Research at the University of Washington. The survey sampled more than 12,000 local units.

The average unit was 900 square feet and rented for nearly $1,300 a month.

The one bedroom vacancy rate was 2.7% and the average rent was about $2,150. For two-bedroom units, the vacancy rate stood at 4.8% and the average rent was $1,350.

Fortify’s move to take five properties and 700 rooms out of the hotel inventory is also significant to the tourism industry.

Visit Tri-Cities reports there were 3,670 hotel rooms in the market in 2022 and that both occupancy and revenue rose that year compared to 2019, the last healthy year before the COVID-19 pandemic.

Occupancy rates rose 12% between 2019 and 2022, according to the annual tourism report.

Tri-City properties

The Alegre, formerly the Rodeway Inn, 1520 N. Oregon Ave., Pasco, has 109 units in three buildings. People have started to move into the one building with an occupancy permit.

Jacobs expects to get permits for the remaining two sites by May. Leasing has been “busy,” he said.

Fortify paid $3.8 million for the property in July 2021, according to public records. The renovations were valued at $2.2 million in a building permit application.

The Alegre is advertised with monthly rents of $995 and $1,145.

The Franklin, formerly the Best Western Plus Columbia River, 1515 George Washington Way, Richland, has 204 units for lease and a full-time property manager, who said interest is solid.

Tenants have not started to move into the sprawling former convention hotel because it does not have an occupancy permit from the city of Richland as it wraps up a renovations valued at $3.2 million.

Jacobs anticipates move-ins by late March, but that could be optimistic. City officials confirmed they are waiting for Fortify to request a final inspection.

The city said it can’t estimate when it will issue the permit until Fortify completes construction work and requests the inspection. The final inspection could spark the need for additional work to comply with building codes.

“We won’t know anything until they make the request for the final inspection,” it said.

Fortify paid $15 million for the hotel in a deal that closed in July 2021.

The $3.2 million conversion is easily the most ambitious of its Tri-City projects thanks to the property’s collection of meeting and conference rooms, offices, indoor pool courtyard, spa and more.

Jacobs acknowledged it was a challenge, but said the company’s Portland owners were attracted by demand for housing, as well as its location near Kadec Regional Medical Center, Washington State University Tri-Cities and Hanford-related employment centers.

“There are a lot of employers, and it is a unique asset,” he said.

The meeting and convention space will be transformed into a fitness center and coffee bar, as well as a child play area.

Most of the property is reserved for tenants, but several spaces will be open to the public.

The Bella Vita Kitchen and Bar opened in one restaurant space in 2022. A second is planned at the property. Jacobs said the details are not yet public.

Fortify is advertising The Franklin with monthly rents of $1,195 to $1,495.

The Q, formerly the Quality Inn, 7901 W. Quinault Ave., Kennewick, is under construction, according to Jacobs. He anticipates pre-leasing will begin in April, though it was not clear when move-ins will happen.

Kennewick building permit records indicate Fortify is spending $3 million to convert its 132 rooms into studio apartments and is adding a coffee bar at the 63,102-square-foot property.

Fortify paid $7.1 million for the property in July 2021.

The Q units are advertised with monthly rents of $1,150 to $1,425.

The Clark, formerly the Loyalty Inn, 1801 W. Lewis St., Pasco, is under construction, with pre-leasing set to start in late spring, according to Jacobs.

Fortify, through STK Hosford South LLC, paid $2.5 million for the 160-unit property in September 2021. Pasco authorized the conversion to a single-room apartment project a little more than a year later, in 2022.

The project value was estimated at $775,000, according to a construction permit application filed with the city.

Asking rents were not available

The Meriwether, formerly the Days Inn, 615 Jadwin Ave., Richland has 97 rooms. It is under active construction, with preleasing set to start by mid-2023, according to Jacobs. The project is valued at $3.5 million.

Fortify secured early approval for the project in June 2021 when the Richland City Council voted to lift a 500-square-foot limit for apartments in the area, citing the need for more residential units in downtown.

Fortify paid $3.9 million for the property in September 2021.

Asking rents were not available.

The Kennewick, formerly Motel 6/Studio 6, 2811 W. Second Ave., Kennewick. Fortify resubmitted a permit to convert the 135-unit motel into studio apartments to the city of Kennewick August 2022 but shifted its plans.

The motel is licensed by the Washington Department of Health to provide temporary worker housing and is operated by Evergreen Agricultural Services LLC, which provides temporary staffing, temporary employees, contract labor and farm labor work crew services in Oregon and Washington.

Fortify paid $5.85 million for the property in March 2022.