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Former Element hotel looks to bounce back from explosion with conversion to short-term apartments

  • A miniature Christmas Tree lays on the ground outside the former Element Hotel in Lebanon, N.H., on Wednesday, March 31, 2021, more than a year after the Christmas Eve 2019 explosion that damaged the building. Owner David Leatherwood is proposing to turn the building into micro-housing units that might serve traveling nurses or other hospital employees from the nearby Dartmouth-Hitchcock Medical Center. (Valley News - James M. Patterson) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

  • A package delivery notice hangs from a sign for the former Element Hotel in Lebanon, N.H., on Wednesday, March 31, 2021, more than a year after an explosion that damaged the building. Owner David Leatherwood is proposing to turn the building into micro-housing units that might serve traveling nurses or other hospital employees from the nearby Dartmouth-Hitchcock Medical Center. (Valley News - James M. Patterson) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

  • The former Element Hotel in Lebanon, N.H. is developing a plan to convert the structure into “micro-housing,” ( Valley News - Jennifer Hauck) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

  • Lebanon Fire Chief Chris Christopoulos, right, looks over the scene of a three-alarm explosion at the Element Hotel with Lebanon Police Chief Richard Mello, center, and Lt. Richard Smolenski in Lebanon, N.H., on Tuesday, Dec. 24, 2019. (Valley News - Jennifer Hauck) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

Valley News Business Writer
Published: 4/3/2021 9:43:28 PM
Modified: 4/3/2021 9:43:27 PM

LEBANON — The high-profile building along Route 120 formerly known as the Element Hotel is assuming a new identity.

It’s been closed since a Christmas Eve explosion and fire in 2019 crippled its mechanical system, and the owner of the building near the Centerra business park is developing a plan to convert the structure into “micro-housing,” targeting recent hires at Dartmouth-Hitchcock Medical Center and elsewhere who are in the process of relocating.

The move is being described as a way to address the Upper Valley’s chronic shortfall in housing for recent transplants, as well a solution to repurpose the 120-room hotel which, like the hospitality industry everywhere, has seen its business imperiled by the COVID-19 pandemic.

“There is clearly a need in the Upper Valley for an interim housing solution, a place where newly hired employees can stay for 30, 60 or 120 days while they look for a permanent residence,” said David Leatherwood, a principal in Norwich Partners, which owns the Element. “The No. 1 obstacle to recruiting is housing. Someone loves the pitch. They love the area. Then the pressure is on to find immediate housing, they can’t find it, and then they don’t come. We lose that employee.”

The Upper Valley has faced a housing shortage for decades, prolonged by the 2007-09 recession that prompted a slowdown in residential construction and, more recently, exacerbated by a yearlong pandemic that has bottlenecked building materials and supplies. Rental vacancy rates in New Hampshire have steadily declined from 5.2% statewide in 2009 to 1.7% in 2020, while building permits for single- and multi-family residences still remain far below their pre-recession peaks, according to New Hampshire Housing.

Despite the economic blow from the pandemic, however, the Upper Valley has seen some encouraging signs for new housing stock.

In White River Junction, real estate developer Mike Davidson is repurposing a 43,600-square-foot building on South Main Street into a mixed-use complex that will include 52 apartments, expected to be completed by summer. Roger Shepard, owner of the Quality Inn at Quechee Gorge on Route 4, has filed an application with Hartford to subdivide his property and convert four multi-unit buildings from “motel efficiency” units to single-family dwellings that would add a total of 16 apartments.

And in Lyme, residents at Town Meeting last month approved an amendment to the zoning code that is designed to promote the building of senior housing in town by loosening density restrictions to attract developers.

“There is a high percentage of Lyme’s population that is 62 and over,” said John Stadler, chair of the Lyme Planning Board, and the new zoning allows for greater density (up to 10 dwelling units per lot), among other relaxations, for projects built in the central part of town near the Lyme green. Stadler said one developer, whom he declined to identify, has already approached the town to discuss one project.

But Lebanon is where the largest concentration of new housing is popping up, as hundreds of new apartments are anticipated in the coming years on Mount Support Road, Bank Street, Spencer Street and Mechanic Street in addition to the recently opened 153-apartment project built behind the Element.

The building will be repurposed to fill a specific need in the market by providing “interim” housing to newly relocated employees to the Upper Valley while they search for a permanent abode, according to Leatherwood. The change involves seeking a variance from “hotel” to “residential” as hotels are zoned for “transient” occupants while a residential designation accommodates long-stay occupants.

Leatherwood said he foresees occupants of the former Element — a new name hasn’t been decided yet — ranging from residents, technicians and traveling nurses working at DHMC to newly hired employees at Hypertherm, Fujifilm Dimatix and the cluster of tech companies in the office park of Centerra.

Although DHMC is already in the process of reviewing submitted proposals to build a 350- to 400-unit apartment complex on a 40-acre site the health care provider owns on Route 120, it still is excited about the role a converted Element hotel could play in housing its workforce, said Dave Duncan, vice president of facilities management at DHMC.

“The proposed plan to modify the Element hotel to short-term micro-housing is an innovative way to address the region’s housing shortage. As construction on the Patient Pavilion at DHMC progresses, the potential housing at the Element is one of the types of opportunities that we will be exploring to meet the housing needs of the staff we continue to recruit,” Duncan said in a statement via email.

To a degree, Leatherwood’s plan for the Element building is also a pivot away from traditional hospitality, given how the pandemic has, in his words, “decimated” the hotel business.

“Most analysts are saying the hospitality industry won’t be coming back until 2024 or 2025, and then that will be only at 2019 level before the pandemic,” Leatherwood said.

Opened in 2014 at a cost of about $20 million, the Element always “struggled” with occupancy, Leatherwood said, performing below the level of Marriott’s Courtyard and Residence Inn hotels, also owned by Norwich Partners.

“The brand just never took off,” he said.

The building was damaged when an electrical fire and nearby propane leak sparked an explosion and sent 10 people to the hospital with non-life-threatening injuries.

The rooms — which all include kitchenettes while some are larger suites with living rooms — will likely rent for between $1,500 to $1,900 per month, according to Leatherwood, compared with the $130 to $180 per night that was charged as a hotel room. Norwich Partners can afford to rent the units at a lower per-month rate than as it did as a hotel because they will not have the overhead of a housekeeping and front desk staff.

In addition, a higher expected monthly occupancy rate will be a more reliable income generator than a lower daily occupancy rate.

“Operating costs are significantly lower for micro-apartment operations, so they are much more profitable to operate,” Leatherwood explained. “The top-line revenue gulf is not as great as it may seem at first glance. Hotels may get $130 per night but they are only occupied about 62% of the time. Apartments are occupied 94% to 100% of the time.”

Leatherwood said the hotel’s insurance “mostly” covers the “several million” in costs to repair the mechanical system destroyed by the fire, so that’s not an issue. Rather, he said, the hotel has a mortgage coming due and lending institutions, given the anemic prospects of the hospitality issue, have frozen financing on hotel projects.

“We’d either have to refinance with the existing lender or go out into the market for a new lender, neither of which is an option,” he said.

But lenders are open to residential projects, so longer-stay residential housing ill make it easier to secure financing, Leatherwood said.

Other than upgrading the kitchen ventilation system, Leatherwood said the hotel does not require any physical alteration. Norwich Partners is working with a “regional apartment developer” — which he declined to identify — that might also become an equity partner in the former Element.

Contact John Lippman at jippman@vnews.com.




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