Turning hotels into housing
During the pandemic, cities all across the country turned hotel rooms into emergency housing for people who were living outdoors. Now, some states are doubling down on that model by providing funding to nonprofits to turn motels into shelters and supportive housing. The Community Development Corporation of Oregon in Gresham recently got a grant from the Oregon Community Foundation to do just that.
Our guests are Brad Ketch, chairman of the board of Rockwood CDC and Nan Roman, the president and CEO of the National Alliance to End Homelessness, which has looked at hotel conversion projects across the country.
This transcript was created by a computer and edited by a volunteer
Dave Miller: Last month, Oregon Governor Kate Brown signed House Bill 3261 into law. It makes it easier to turn hotels and motels into long term affordable housing for people who lost their homes in wildfires or who are otherwise unhoused. It follows an earlier bill signed by the governor in November, which allocated $65 million for a similar goal. These projects are moving a lot faster than the regular snail’s pace of government bureaucracy. They’ve already gotten underway in 15 cities across the state.
The most recent is in Gresham. Two weeks ago, the Rockwood Community Development Corporation got a $7 million grant from the Oregon Community Foundation to convert a 75 room motel into supportive housing. And Oregon is not alone. California pioneered this model during the pandemic. Other states are trying it as well in Oregon and around the country. I’m joined by Brad Ketch, CEO of Community Development Corporation of Oregon and Nan Roman. President and CEO of the National Alliance to end Homelessness.
Can you give us a sense for the need that you see within the part of East Multnomah County that you serve, which is both East Portland and Gresham.
Brad Ketch: We’ve focused on Gresham, Fairview, Troutdale and Wood Village...that part of East Multnomah County that is outside the Portland boundary. Solutions in these areas are not the same solutions available in Portland. When I refer to East Multnomah County going forward, it’s going to be about those four towns. East Multnomah County has been under-invested for a long time. And one of the statistics that just really jumped out at us,
The Reynolds School District which sits across from these four cities, is tracking 1000 students who are homeless. That’s why we made a hotel with 75 rooms available right in that school district.
Miller: But I imagine that’s just one specific population of people experiencing homelessness among others. That’s just one identified through the school district.
Ketch: It gives you an idea of how big, and how vast the scope of this problem is.
Miller: How did you choose this particular former motel? How did this deal come together?
Ketch: It’s not unlike a lot of other real estate deals out there, in that you kind of work it until something happens. It wasn’t even the first hotel that we went after, but it is the one that we were able to close and we’re delighted with it. I’m learning that the market for hotels, at least in Oregon, is a little tight in that there is not a lot of product for sale.
Miller: Just to be clear, you’re not paying money to a hotel or motel owner to put people up for the night. You actually purchased this property and you’re transforming it.
Ketch: That’s the remarkable thing about Project Turnkey. It actually makes it an asset that is permanently owned and controlled by the nonprofit. Now we have a $6 million, almost $7 million 75-room hotel that’s free and clear and will be used for housing forever.
Miller: Can you give us a sense for the scale of this nationwide?
Nan Roman: The scale of people purchasing hotels and motels for housing homeless people?
Miller: Yes, which as I understand, was pioneered by California and now has taken off in Oregon and other places. How big a deal has this become?
Roman: It’s become quite a significant deal. California’s Project Home Key initially invested about $800 million in federal, state and philanthropic funds to purchase hotels and motels over a very short period of time last year, between September and December. The constraint was that they were federal stimulus funds which had to be used by the end of the year. They ended up with about 6000 units, not entirely hotels and motels, but primarily hotels and motels.
Governor Newsom is asking for $7 billion to continue that program statewide in California. The reason is because 1) how quickly those units got put up. Typically California adds about a quarter of the 6000 units to the affordable housing stock every year. 2) the cost is so much lower. The first unit they purchased averaged about $150,000 for unit construction. New construction in California is multiples of that amount.
All of this started for two reasons. One is that during the pandemic, a lot of people experiencing homelessness, especially unsheltered people that needed to be in quarantine or isolation were placed in hotels and motels because hotels and motels at that time were empty. It was kind of a twofer...good for the hotel and motel and good for people as well. It seemed to solve a lot of problems.
Second, although maybe not in Multnomah County, in many parts of the U. S. there is available stock in a certain strata of hotels and motels. Some work done by McKinsey & Co. indicates that there’s likely to be hotel and motel stock available in affordable categories into 2023.
Miller: Interesting, because that was one of the things that I was wondering about. This seemed like a kind of perfect opportunity, a terrible situation creating a perfect opportunity real estate-wise. Nobody was staying in motels or hotels in April of 2020, and there might be some willing sellers. I assume that particular business case would sort of evaporate in the coming months as public life resumes and more people travel again. Are you saying that for the coming years there could still be available properties that cities or counties or states could purchase?
Roman: That’s right. What we were looking at was all the larger cities and how much stock they had, what their stock was, how many units they had and whether those units had increasing or decreasing incomes. Also, if their income had dropped below by more than 20%, McKinsey’s idea was that they would likely be available. There are also other kinds of investors looking at those properties. Although they are not available everywhere, it’s projected they will be available until 2023, but in shrinking quantities.
On the basis of that, and the kind of work that Home Key did, we were able to get $5 billion into the American Rescue Plan Act for acquisition of properties for homeless people as well as rental assistance and services. So I think that federal funding will also spur more programs like this
Miller: I want to go back to something that Nan Roman mentioned. Nationwide or certainly in California, it was a lot cheaper to retrofit existing rooms in a hotel or a motel. The price per unit to do that would be to have new, purpose built, affordable housing spaces. What does that money look like in East Multnomah County?
Ketch: It’s a no brainer. If you do the math, we acquired at about $89,000 per door. It’s a nice building and needs no renovation. It is a safe and quality place for families and individuals to be. If we had had to build that from scratch, including land acquisition costs, it easily would have been three times that, and taken years if you could even get it done.
The only downside is it’s a hotel room and perfect for its initial use, which is a shelter for families and individuals coming in from other situations. It’s not a long term place and we’ll actually get, later this year or maybe by the end of the year, into phase two. Phase two will convert these rooms into studio apartments by putting in a small kitchenette and changing the furniture. And the math there isn’t scary either, maybe $8,000 to $10,000 per room. You’re still all under $100,000 for a studio apartment in Multnomah County.
Miller: One of the things that we’ve heard over and over, and we’ve talked about services and housing options for people experiencing homelessness, is that it’s one thing to get a chunk of money for a physical space. It’s another to have money for ongoing support necessary to really help people get out of homelessness. Whether that’s mental health counseling or substance abuse treatment or job counseling or, you know, different kinds of help with life skills. Will you have money for supportive services?
Ketch: That’s a great question. and one that we wrestled with the Oregon Community Foundation before they made the grant and we accepted the grant. I compliment them for being extremely thorough and thoughtful about not just getting 17 or 18 hotel deals done around Oregon but thinking about is it done in an inequitable way or is it sustainable? Is the nonprofit going to be able to afford to provide wraparound services in a quality way? How are we going to feed people? We worked with them on all of those issues and they did provide $100,000 of operating funds, which is about three weeks worth of operation. We’re out raising other funds. One of the things that’s very helpful is the Biden administration has changed the rules for FEMA to reimburse operators like us for some of the expenses.
We’re fortunate in Multnomah County that the county and other agencies do have dollars available to provide supportive services for folks that are in shelters like ours. The constraint in the whole system in Multnomah County is the physical doors and the beds. It’s not as tough on the wraparound services portion of the puzzles. So this really does free up significant new assets or brings in a significant asset to Gresham and others are kind of coming around us to help make it funded.
Miller: In California, different cities have been giving different messages over the last nine months or so about the future of this program. Back in November, San Francisco and Oakland and other cities or counties were talking about ending the hotel rental program and transitioning to other models. Los Angeles said more recently that they’re going to be keeping their program going through this coming September and then after that, seemingly going to be ramping it down. Is this overall approach winding down nationally or ramping up?
Roman: No, what’s happening is that the programs that temporarily housed people for isolation and quarantine purposes in hotels and motels are ramping down and FEMA will reimburse them through September 30th. Communities are starting to move people out of those facilities in anticipation of that September 30th deadline.
Not all hotels and motels are available for purchase either. On the other hand, there’s this new source of money for acquisition through the home program that came in the stimulus bill which is providing the capital to acquire properties. There are three parts to making it work. One is the acquisition funds, the capital to buy the building. The second is that even for people with extremely low incomes, like homeless people who basically have little or no income, you still need operating funds for the unit, even if you don’t have any debt on the building. Just to operate it, you need rents and they don’t have money to pay rent. Thus you need rental subsidies.
We also got $5 billion in emergency rental subsidies in the last stimulus bill, targeting homeless people. There are other rental assistance kinds of funds available. But there’s also a lot of stimulus money that’s devoted to services. There’s a lot proposed in the new stimulus bill, including $400 billion for home and community based services programs. We don’t know if we’re going to get that or get that much. There are service dollars out there. The challenge is putting all these pieces together is difficult, especially when everyone’s bandwidth is a bit low at the moment, given what we’ve gone through in the past year.
Miller: When are you expecting people are actually going to be in this former motel?
Ketch: Right now we are putting the finishing touches on our policies and procedures. We’re hoping that within the next few weeks we’ll be opening our doors. Those doors will be opened through partnership with other nonprofits in the Gresham, Troutdale Fairview, and Wood Village areas who have direct relationships with many of these families and individuals. We won’t be having like an 800 number for intake. It will actually be done through partner agencies, probably 8 to 10 of them who will make it more personal for each of the families that they help place into the hotel .
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