ETI Blog

Inside Chicago's Hotel-to-Apartment Conversion Wave, the Deals Moving Forward and the Ones Headed to Foreclosure

Hotel-to-apartment conversions now account for more than 37 percent of all adaptive reuse projects nationally, and they delivered more than 9,100 new apartments in 2024 alone, a 46 percent jump over the year before. Chicago is a real part of that story, with multiple hotel conversions moving through construction and approvals right now. But the city is also home to a handful of hotel conversions that never made it past the proposal stage and are now headed to foreclosure instead. Both halves of that story matter if you are working in this space.

The Streeterville Deal Moving Forward

At 201 East Walton Place, Churchwick Partners bought the 221-room Sonesta Extended Stay hotel near North Michigan Avenue and is converting it into 221 apartments: 110 studios, 80 one-bedrooms, and 31 two-bedrooms, delivered in a phased buildout. The existing 72-vehicle parking garage stays in place, and the plan adds a lounge, fitness room, coworking space, dog run, and small outdoor terraces. The team is targeting zoning approval this fall, with the hotel scheduled to close in December. This is what a hotel conversion looks like when the financing and the approvals line up.

A $179 Million Bet on a Former Bank

Not every conversion in this wave is a pure hotel play, but the same adaptive reuse logic applies. The former Harris Trust and Savings Bank complex is undergoing a $179.2 million residential conversion that will deliver 345 mixed-income units. Projects like this show that the capital chasing adaptive reuse in Chicago right now is not limited to hotels specifically. It is chasing any large existing building with the right bones for residential conversion.

Why Hotels Convert Faster Than Offices

Hotels and apartment buildings share more structural DNA than offices and apartments do, which is exactly why hotel conversions tend to move faster. Both hotels and apartments are built around individual units arranged along a corridor, with centralized mechanical systems, shared common areas, and existing parking. A hotel room already has plumbing roughed in for a private bathroom, electrical sized to be metered room by room, and HVAC designed for individual climate control. None of that exists on a standard open office floor, where a developer is often starting from a blank slate on interior plumbing and unit division.

That head start is real. Converting hotel rooms into studio and one-bedroom apartments can be completed in 6 to 18 months, compared to the 2 to 4 years a ground-up building usually takes. Retrofitting the plumbing to meet residential code, rather than hotel guest room code, usually runs $2,500 to $5,000 per unit. Hotel plumbing was sized for occasional guest use, not full-time residential water and waste demand, and aging pipe systems sometimes need full replacement rather than a simple reconfiguration.

Not Every Conversion Makes It

The Gale Chicago, formerly the Raffaello Hotel at 201 East Delaware Place, tells the other side of this story. Pebb Capital proposed converting much of the 170-room building into 140 apartments while keeping 56 hotel rooms back in 2023. The plan never advanced through Chicago's approval process. The mortgage matured in late 2025, the owner defaulted, and Pebb is now surrendering the property in a roughly 27 million dollar foreclosure action.

The Gale is not alone. The Hilton Suites property on the Magnificent Mile in the Gold Coast has also gone through foreclosure and is now being marketed by JLL specifically as a residential redevelopment candidate, with the argument that the zoning is already in place to support it. In River North, Quadrum Global is foreclosing on the Godfrey Hotel over an 88 million dollar debt stack, a situation that also threatens the EB-5 investors tied to the original financing. Chicago's downtown hotel market still has not fully recovered from the pandemic in some submarkets, and that weakness is exactly what is pushing some of these buildings toward conversion and others toward the courthouse steps instead.

What Separates the Deals That Work

The difference between the Streeterville project moving forward and the Gale sitting in foreclosure is not the building. It is execution. The projects that succeed lock down zoning and community approval before committing serious capital, rather than announcing a plan and hoping the approval process cooperates later. They also plan realistically for the systems work: which floor plates can actually support a clean residential unit split, where the plumbing retrofit is a straightforward reconfiguration, and where it requires a full system replacement that changes the budget significantly.

On adaptive reuse and multifamily conversion projects, a contractor who understands both hotel construction code and residential building code catches those cost differences during preconstruction, not six months into demolition. That difference in timing is often what separates a project that delivers on budget from one that ends up back on the market.

What This Means for Developers and Investors

For developers evaluating a hotel acquisition with conversion potential, treat the zoning and approval timeline as the real risk, not the construction itself. The construction side of a hotel conversion is genuinely faster and more predictable than ground-up multifamily. The approval process is where projects like the Gale get stuck.

For investors watching this space from the outside, the foreclosures happening right now are not necessarily a sign the conversion thesis is wrong. Distressed hotels heading to foreclosure are, in a lot of cases, becoming available at a basis that makes the next owner's conversion math work better than it did for the previous one.

What Comes Next

Expect more of both stories through the rest of 2026. More hotel conversions will move forward, following the Streeterville model of locking down zoning early and phasing construction around an existing structural head start. And more distressed downtown hotels will end up in foreclosure, some of which will become the next round of conversion opportunities once they trade to new ownership at a lower basis. For Chicago multifamily, that combination is quietly adding real new housing supply to a market that badly needs it.

Considering a Hotel-to-Apartment Conversion?

Hotel conversions move faster than ground-up construction, but only when the plumbing, electrical, and unit-split decisions get made correctly in preconstruction, not discovered mid-demolition.

If you are evaluating a hotel acquisition or already working through a residential conversion, we would like to walk the building with you before the budget gets locked in.

If you are working on a hotel-to-apartment conversion in Chicago, walk it with us. Request a walk