LEBANON — City zoning officials rejected a request this week to allow long-term rental housing in the former Element hotel on Route 120, saying the change would create too many residences in the mixed-use development.

The Zoning Board of Adjustment voted, 4-1, on Tuesday to deny a zoning variance to Hanover Place Apartments, a 120-room hotel in Altaria Business Park that currently provides short-term rentals of up to 184 days.

Many of the hotel’s residents are traveling medical workers employed temporarily at nearby Dartmouth Hitchcock Medical Center.

The hotel owners, AAM 15 Management, a private equity firm based in Massachusetts, had asked the board to set aside the 184-day restriction so that tenants could stay in their apartments for a longer duration.

A variance was needed to change the building’s classification from a hotel to a residential dwelling because 120 units — 88 studio apartments and 32 one-bedroom apartments — would exceed limits on residential density.

The hotel is located in a 15-acre mixed-use development that is zoned to only permit 34 dwelling units. The development already has an apartment building with 33 units.

The hotel’s proposal had support from administrators at Dartmouth Health, who said that the hospital’s ability to recruit and retain staff requires the availability of housing.

“Longer-term leases will help to ensure our employees have a safe, convenient living situation close to our facilities,” David Duncan, system vice president of facilities management at Dartmouth Health, wrote in a letter to the Zoning Board.

But board members said they could find no evidence that the current zoning regulations placed a hardship on the property owners — which is a necessary condition to grant an exception.

“You have to (show) that the building is somehow unique or has a special condition” that results in a hardship, Jeremy Katz, the board’s vice chairman, to the hotel’s representatives. “And I don’t see that there is a special condition on that property.”

Tuesday’s meeting was a continuation of public hearing that began on Dec. 4.

The property owners argued at the Dec. 4 hearing that 15% of the hotel units are typically vacant, which they believe would be significantly reduced if the units were leased long-term.

In its written conclusion, the Zoning Board stated that 85% occupancy is excellent by hotel standards.

“There is no hardship in having an 85% occupancy,” the conclusion stated.

The board also found that reclassifying the property would cause a hardship on the city, which would lose revenues from the room and meals tax if the building was no longer a hotel.

The state collects a tax of 8.5% on all room rentals of 184 days or less, and 40% of the revenues go to municipalities. The amount received by each municipality is based on population.

Tony Librot, chief operating and financial officer at AAM 15 Management, said on Wednesday that he had no comment at this time about the board’s decision.

Katz, along with Chairman William Koppenheffer and board members David Newlove and Jennifer Barkley, voted to deny the variance.

Board member Paul McDonough cast the lone vote in support of the variance.

“The (reclassification) isn’t going to change the intensity of activity in the area. It’s going to pretty much remain the same,” McDonough said at the Dec. 4 hearing.

The Element opened in 2014 at a cost of about $20 million in the first phase of Altaria Business Park, a development approved in 2011 for hotel, residential, office and retail uses. The building closed after a Christmas Eve explosion and fire in 2019 crippled its mechanical system.

In 2021, the Zoning Board permitted the hotel owner, David Leatherwood, to reopen the hotel for short-term rentals.

AAM 15 Management, who purchased the hotel in May 2022 for $17.6 million, has continued provide rentals on a short-term basis.

Patrick Adrian may be reached at padrian@vnews.com or 603-727-3216.