Developers converting Tucson offices, hotels into apartments

As investors continue to snap up existing apartment complexes around town, several developers are creating new dwellings by converting hotels, offices and even churches into living spaces.

Tucson leads the state in apartment conversions, and both office and hotel properties on the market are being touted with that potential use in mind.

The conversion of the former Benedictine Monastery into a 292-unit complex put Tucson in the top spot, and interest in that conversion is growing as the housing shortage has pushed rents up nearly 50% in some parts of the city since the start of the pandemic.

“There’s no stop for conversions in Tucson as two hotels are undergoing redevelopment and are on their way to deliver about 200 more apartments,” says a report by RentCafe’s analysis of Yardi Matrix data. “On a national level, hotels remain one of the most popular building types for conversion, with 3,575 apartments coming from this niche in just two years.”

Tucson hotels undergoing transformation into apartments include Hotel Tucson City Center, 475 N. Granada Ave., and Days Inn Hotel, 665 N. Freeway.

The Motel 6, at 1025 E. Benson Highway, sold earlier this year, and new owners are considering adding apartments.

And the recently listed Grand Luxe Hotel, 1365 W. Grant Road, is being marketed as a potential apartment complex.

“This is an ideal opportunity for either an owner/operator or for an alternative use investor looking to repurpose this to a more productive use,” Jigar Desai, with NewGen Advisory brokerage firm, said of the west-side property. “The city is in full support for these conversion projects due to Tucson’s severe housing shortage.”

The housing shortage, coupled with people working from home has fueled interest in turning office space into apartments.

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Although there has been some return to the office, many employees have negotiated an indefinite remote work schedule.

“Not all buildings are equally threatened by the work-from-home revolution,” said Doug Ressler, manager of business intelligence at Yardi Matrix, which compiles market research for real estate professionals and investors. “Larger office buildings in abandoned central business districts are better suited to conversion than the often smaller office complexes distributed around the suburbs.”

One example in downtown Tucson is the once planned mixed-use high-rise with offices at 75 E. Broadway, across the street from the Tucson Electric Power building.

That plan has been scrapped, Rio Nuevo board chairman Fletcher McCusker wrote in Trend Report 2023 Predictions.

“Rio Nuevo and Pima County will work together to solicit new private sector interest other than office,” he said, “given the post pandemic utilization of high-rise office buildings.”

The cooling off of new home construction, coupled with higher interest rates has tightened the housing market in the Tucson area and resulted in people renting for longer periods of time.

This will entice developers to repurpose hotels and offices into apartments so renters may soon be living in a former motel or bank building — sans room service or ATM.