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What to Know Before Pursuing a Change-of-Use


The pandemic created the opportunity for change-of-use redevelopment projects, such as extended-stay hotels transforming into apartment communities and retail space changing into warehouse and distribution facilities.

While demand has been redistributed, achieving a change-of-use isn’t always easy. David Reina, who has seen several hotel-to-multifamily conversions, recently spoke to, indicating that zoning is the top consideration for investors pursuing these deals. “When contemplating a change-in-use, the first consideration for a buyer is whether it will require a re-zoning or some similar approval from a governmental agency. In a number of urban jurisdictions, existing zoning may allow for hotel or multifamily use, with the change from one to the other requiring no approval or only an abbreviated or of-right application process—that is ideal.”

There are also instances when re-zoning approval is required, according to Reina. “Depending on market dynamics and whether the relevant zoning board or city council has indicated its support of adding housing units, it might still be a good deal,” says Reina, advising that investors in this situation would need to engage land-use counsel that has experience and a positive history with the zoning board. 

On the financing side, Reina says, “You’ve got to work with a lender who understands what is happening with the change-in-use, and that there may be a short period of time from closing on the purchase to when the asset is up and running as apartments. Most loans will also include a small construction component to fund renovations.”

Conversion deals inherently come with extensive due diligence as compared to a standard deal or redevelopment project. “Sellers are also much more sensitive about confidentiality in these deals,” says Reina.

Read the full article here.