Flipping Hotels for Sale in Chicago in 2022
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 9/14/2023.
The COVID-19 pandemic and all of its variants devastated the hospitality industry at large, with hotels for sale in Chicago hit especially hard. Simply put, business travel has always been at the core of the hotel industry, with companies giving expense accounts to their internal road warriors. But with business travel at lower numbers than ever before, hotels are having to cut back expenses or even sell outright.
This is a golden opportunity for real estate developers and investors looking to grab hold of commercial real estate for a great price. It's a firesale-type of era, where Chicago hotels for sale can unlock huge profit centers for savvy investors.
The unique landscape of Chicago's urban core means that, as hotel operators have made the decision to sell, CRE developers have the chance to turn the space into affordable housing for professionals desperate for a new space to live in long-term.
Why Do Hospitality Businesses Do Poorly During an Economic Recession?
There are multiple reasons why hospitality businesses do poorly during times of economic decline. The first is that the high-end of hospitality is saved not just for the affluent, but for corporate travelers who can simply place the expense on a company card. But when businesses tighten up by reducing corporate travel, the hospitality industry loses that revenue almost entirely.
Hospitality businesses will eventually come out of the economic slump, but they may need government assistance and aid to truly rebound. Nonetheless, the depression phase of the hotel business cycle warrants the purchase and conversion of hotels for sale in Chicago as well as other commercial buildings in the area.
The Basics of the Hotel Business Cycle
In order to understand the trouble that hotels were in at the onset of the pandemic, it's important to look at the business cycle at large. There are a few points to keep in mind in the process, and they are listed below. The hotel business cycle has some unique points in that the industry at large follows the standard economic cycles but gets ahead of the market, meaning a hotel in the depression phase of the business cycle is going to be ahead of a depressed market. This gives business analysts and researchers insight into the market.
- Expansion. This is where new hotels get built and hotel chains typically perform acquisitions. A profitable, prosperous time.
- Peak. This is where the market is at its height, with hotels enjoying the stability of great profits and exposure from other market activities, like previous mergers and acquisitions.
- Contraction. This is where things get tight, and hotels begin to look at reducing expenses due to falling revenues.
- Trough. This is the lowest part of the cycle, and hotels feel the pinch the worst because recovery from the trough phase takes longer than in other industries.
The hotel industry rises and falls, and the economic downturn is not a permanent feature. The government will intervene in order to keep the downturn from impacting other industries as well as affected workers.
Why Flip a Hotel for Sale in Chicago?
Given the troubles the hotel and hospitality industry in Chicago faced at the onset of the pandemic, it might sound odd that there are multiple opportunities to flip hotels for sale in Chicago. But history has proven that, just because one industry is facing struggles, another industry may yield overlooked opportunities. And yet, the city's tourism industry is continuing to pick back up in 2023.
The pandemic and the ensuing rise of the work-from-home movement has left professionals with the desire to move, as their companies are more lenient on remote work. This means that they can find a new space and take advantage of not having to live so close to their job in order to cut down on the infamous Chicago commute, giving developers and investors profitable opportunities to flip hotels for sale in Chicago into multifamily housing units and/or office spaces.
The city of Chicago is open for work, tourism, and just plain old local fun. Chicago residents are flocking downtown to be around all of their favorite activities, which has led to a huge spike in demand. Chicago's multifamily housing market is hot right now, which means investors are in prime position to benefit as well as serve the local community at large.
One perk of a hot multifamily housing market is the chance for savvy investors to increase cap rates compared to before. As professionals gain freedom through remote work, they are willing to pay a premium to live where they want, rather than what they've had to settle for in the past.
The tourism industry in Chicago is making a comeback, but with the remote work revolution and professionals responding to the talent demand by seeking new opportunities, commercial buildings for sale in Chicago should draw commercial real estate investors.
The Nation's Affordable Housing Crisis
The call for affordable housing isn't just in Chicago; it is a nationwide problem that the entire country is discussing. Simply put, rising home prices and interest rates have squeezed out long-time professionals who are still trying to save for a home. But the picture of affordable housing in Chicago and in Illinois as a whole is still bleak:
- 442,175 low-income households exist in Illinois at the time of the 2019 survey from the National Low Income Housing Coalition.
- 68% of renter households in Illinois experience extreme cost burden, meaning they are spending more than 30% of their income on housing costs.
- In 2019, there was a gap of over 268,000 homes for renters that would be considered affordable. With the pandemic in full swing, that number is surely higher now. This gap reflects that there would need to be over 268,000 more homes available for rent on the market than what was available in 2019.
Commercial real estate investors can step in to serve their communities as well as their own personal portfolios by providing the affordable housing that's desperately needed. By investing in the community with affordable housing by purchasing and converting commercial buildings for sale, the gap is reduced and people can get back to their normal lives after being affected by the pandemic.
Everything goes hand-in-hand within an economy. When professionals of all income levels have safe and affordable housing, they can focus on their jobs as well as have money left over to actually participate in the local economy. Keeping those dollars in-community is extremely important for long-term economic health in Chicago as well as in Illinois as a state.
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