Michigan, long an oasis of decent homes at attractive prices, is feeling the national housing squeeze. Costs are skyrocketing, and the supply of units is not growing fast enough to meet that demand.
Alex Cartwright, a Mackinac Center Board of Scholars member and former economics professor at Ferris State University, has a plan. As principal at HotelShift, Cartwright converts former hotels into multifamily housing. The business substantially boosts the number of homes in an area, but many zoning bureaucracies, local politicians, and community activists resist expansion of the real estate market. Cartwright joins The Overton Window Podcast to discuss the promise of new housing, the prospects for a hotel shift in Grand Rapids, and the challenges posed by NIMBY opposition.
“When I saw an arbitrage opportunity in the real estate space, I wanted to create a business around it,” Cartwright tells Mackinac Center Director of Research Michael Van Beek. “Apartments are very expensive because there’s a lot of demand for them. And they’re increasingly difficult to build for a variety of reasons. Interest rates are high, as are construction and labor costs. Material costs are high. So it’s difficult to build new housing that’s affordable.
“At the same time, there’s a lot of distress in the hotel world, especially if you look at older hotels. At some point in time, a hotel’s not worth remodeling anymore. The Marriott or Hilton or Holiday Inn brand that was originally on the hotel just goes on a new property up the street, and the 30-year-old hotel maybe slips from being a Marriott to being a Super 8, and then it’s a Travelodge, and then it’s a mom-and-pop-branded hotel no longer associated with the franchise. There’s not a lot of demand for those, not a lot of lenders who are comfortable with those. It’s a difficult business to operate: very labor intensive, small margins, and hence those buildings can be purchased very cheaply.”
HotelShift seeks to spin these distressed properties into housing opportunities.
“If we can buy those buildings cheaply and change the zoning to multifamily, those buildings are often in great locations where rents are high, they’re near where people work, they’re near major highways and transportation hubs,” says Cartwright. “They can become great apartment complexes, and we can afford to rent those apartment complexes out at rates that are very competitive because we bought the hotel very cheaply. Hotels already have a bathroom in every room. They already have individual HVAC systems in every room. They’re meant to hold a lot of people. The architecture is very akin to a multifamily building already.”
Cartwright emphasizes that converting hotel space is “really just a zoning change” and generates housing at a fraction of what it would cost to build new units from scratch. The increased supply could help younger Michiganders who are being priced out of entry-level housing. He points to Denver, Colorado, where HotelShift purchased a 310-room Holiday Inn close to Stapleton Airport. “Adaptive reuse” officials in the Mile High City have supported the project. In Michigan, the company is looking for a project in the Grand Rapids area, where locals have been “very friendly.” But that is not the case in every community.
“There’s just a lot of, let’s call it, NIMBYism or Not In My Back Yardism,” Cartwright says. “Folks are very much against development of any kind in a lot of cases. They want their neighborhood to continue to look the way they remember it looking and feel the way they think it should feel. It’s difficult to convince cities that we need to have more multifamily buildings in general.
“There’s a real prejudice against people who live in apartments: They’re not going to be part of the community. They don’t care about the long term. They’re not paying property taxes, or the owner of the building is paying property taxes. They’re overrunning the schools and using the public services, and they’re not good long-term citizens. But number one, there’s not a lot of good data to back this up. And number two, I don’t know that philosophically it even matters. People just don’t want more stuff to be built. The way the neighborhood is now is the best possible case. That’s how they remember it for the last 20 years that they’ve lived there. ‘Please don’t change my neighborhood.’”
This opposition often appears in the form of stringent zoning restrictions. Cartwright praises Texas, where a state law gives freer rein to people who want to convert structures to housing. But while wide coverage of the national housing crisis has made some politicians receptive to creating more units, opposition to affordable housing remains stiff.
“Leaders of major municipalities have said to me, ‘I am a hard no on affordable housing,’” says Cartwright. “I’m honest about it, but I’m very careful to keep using the word ‘workforce housing,’ not capital-A ‘affordable housing,’ which in real estate communicates that it is somehow directly subsidized by the government. But these are folks who maybe work at the Amazon warehouse; they’re managing retail stores; they don’t have a lot of disposable income, but they’re not on government assistance. That’s who’s living here. Most times I can get the city on board with that. But you talk anything related to affordable housing, no matter what they say in public, they’re terrified of it. That’s a bad word to the city planners.”
Listen to the full conversation on The Overton Window Podcast.
