Is it a Motel or an Apartment Building?

Question

So this news story has been on the headlines over the past week or so.  It has me scratching my head a little bit.

What's the difference between a "Motel" and an "Apartment Building"?

I think as investors, we all understand what the new investor is trying to do with the building.  I mean, as an investor, I can certainly see the room for improvement for running it as a "Motel" and I also see the opportunity to monetize it as an "Apartment Building.  I also understand the concern about raising "rent" on 200 tenants which the low income folks and homeless advocates are concerned with, but I want to understand this more from a business perspective.

As an investor, if I were to buy a "Motel", I would have to insure the building on the basis that these are short-term rentals.  I would also have to charge motel visitors the applicable lodging tax for their stay.  My overhead would consist of providing daily maid service, furniture, laundry, etc., etc.  Additionally, I would need a business license from the city to operate as a "motel".

As an investor, if I were to buy an "Apartment Building", I would have to insure it on the basis that these are long-term rentals.  There would be no applicable lodging tax and my overhead would only consist of maintenance on the property.  I could choose to provide coin-op laundry service to the residence.

From a business perspective, how does a "Motel" get away with renting rooms for 5 years?  I'm presuming that for $29/night ($200/week per the article) they are not providing the amenities that a "motel" would normally provide like maid service, furniture, laundry, etc.

Bill S. · Answer

Account Closed said the definition of tenancy vs guest is based on the duration of the stay. I think it's 30 days in Colorado based on all the Airbnb regulations.

If you wanted to punk the new owners, you should have the place tested for Meth. My guess is the every single "apartment" would test positive.

Ryan Murdock · Answer

I have experience with a similar situation in Maine. A lot of it, like most everything else, boils down to local ordinances. In our case we can rent nightly or weekly up to 28 days before "tenancy" laws come into play. Once you pass the 28 days of occupancy the "guests" become "tenants" and a new set of rules applies.

There are a few factors involved but in a nutshell in <28 days we can kick them out, call the police, change the locks etc pretty much at will. On day 29 and beyond, if we want to remove someone who has now become an actual "tenant" we must follow the standard FED process and evict them in court as you would any other rental unit here. There are some code and fire safety requirements that come in to play when differentiating short term weekly rentals from long term "apartments" but that's a whole different story.

I'm guessing Colorado laws are different so this will be an interesting story to watch.

Joel Owens · Answer

There are some apartment buildings I have sold to clients before where they operate more like a hotel and rent is collected weekly. You have to get the rent from those tenants as they get paid each week or the money will typically be gone on booze,women,drugs,cigarettes (whatever the vice is to help them forget about their situation). Not all tenants in the lower income bracket are like that for sure but many if you asked them do not want to live that way and would prefer their life was better they just do not know how to get there or they have made bad choices that keep them from getting there.

Joe Hughis · Answer

Account Closed - I guess the most generalized differentiation would be the legal zoning for the property as well as the required amenities, build-out specifications and legal responsibilities to the tenant/guest.

Account Closed · Answer

It is interesting...and to @Linda Weygant - I used to sublette photo studio space from the very first person to move into the Taxi Building in Rhino before everything took off.  I couldn't afford to pay for the space and the other photographer (who photographed many of the radio and television celebrities in town) packed up and bought a store front in Louisville.  This was about 6 or 7 years ago.  Amazes me how quickly things have changed around here.

This building is old, but that area of Colfax has some historic significance (even Jack Kerouac has history there).  It will be interesting to see what they do with the building...I would be disappointed to see it torn down.  I moved to Colorado in 1992 from Los Angeles and that side of town had a lot of character back then.  I can remember being in Quixote's bar (it's been moved a few times since) and the owner would climb on the roof and dump confetti in the ventilation system to rain down on all the patrons.  It was a fun place....similar to El Chipoltepec downtown...run down places with a lot of history.

Here's a history of Colfax as published by the Denver Post in 2006

Thanks @Ryan Murdock for the explanation.  I guess that makes sense and I'm sure there are fire and safety issues as it is.  As a Motel owner, I'm not sure how I would manage the situation.

Ryan Murdock · Answer

@Ed E.

It's a pretty good racket if you can find the balance. Long-term monthly tenants tend to be steadier and the turnover is less. Weekly rentals equate to more turnover but the weekly rates are higher and often more attainable for the paycheck-to-paycheck folks even though they end up paying more overall. We have tenants at the particular property I'm referring who have been paying the weekly rate for years. They have the option to go monthly but they choose not to for various reasons.

Linda Weygant · Answer

I think @Joel Owens hit the nail on the head.  Real estate is crazy in Denver now and more than likely the owners want to redevelop the land.  Me and my partner were recently in downtown Denver looking up at all the brand new sky scrapers.  The number of buildings greater than 10 stories - even downtown - could be counted on 2 hands with fingers left over when I was a kid.

We had an entire commercial warehouse district on the north side of the baseball stadium that has been almost completely demolished and now trendy multi-use (art studios on the bottom floor, apartments above), 10-20 story buildings have gone end with a trendy new name (River North, in case you're wondering what area you should have bought in 8 years ago).

We predicted that all buildings less than 5 stories on the northern end of downtown would all be demolished and gone in the next 5 years (doesn't take a crystal ball to see that).

This particular building isn't downtown.  It's in an area way out east of town that used to be known for hookers and drugs.  (My mom, when I was 16:  Linda, wipe off some of that makeup and go change your clothes.  You look like you're going to East Colfax).  It still is, to a certain extent, but less so.

It still doesn't help explain how the owners were able to do this. A 5 year residency converts to a pretty strong tenancy, even here in Colorado where the landlord/tenant laws are at a happy medium (somewhere between California and Texas).  The fact that it's got press and social services are involved tells me it's pretty legit though.  Otherwise, there'd be a protest (we like to protest here) and such.

Joel Owens · Answer

I can't say for sure but being a commercial real estate developer and looking at the cars whizzing by it looks like an attempt to have most of the tenants leave the building so they can demolish it and build something else.

Owners if they are smart have already calculated and know that these types of tenants cannot afford such a rate. They did not mention the area was rent control so appears initially like the owners can try that type of strategy.

That building is very old. It would seem faster to tear it down and build new especially if density per acre has increased and they can go higher in units.

Would be interesting to look at the tax record and see what the owners paid for the property or how long they have owned it.

Linda Weygant · Answer

Following.  I saw this news article had many of the same thoughts, but I have no solutions or ideas.

Is it a Motel or an Apartment Building?

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