Enticed by stronger demand and easier financing for new hotel projects, some downtown-area Detroit developers are ditching their plans to build apartments or condos and are instead creating more hotel rooms.

Real estate insiders say this trend does not signal any end to residential construction in greater downtown, but rather the superior outlook right now for new hotel projects. Hotel occupancy and nightly rates in downtown have been at near-record highs and the city continues to experience a mini-building boom of "boutique" hotels.

Still, these recent flips from residential to hotels could indicate an approaching ceiling in new demand for the most high-end downtown apartments and condos. The market in Detroit for $900,000-plus condos and $2,800 per-month rents does exist, according to the local experts, but may only be so deep.

“People found out that you can’t really sell at those large numbers of (high-end condo) units," Sue Mosey, executive director of nonprofit Midtown Detroit Inc., said in a recent interview. "And a lot of those projects, you have to pre-sell a good 50% of the units before you can get under construction. So the cost of carrying these projects for a long period of time, while you’re trying to sell at these high prices, will oftentimes just bury a project."

At least three planned developments this year have made midcourse corrections from all or mostly residential units to some or mostly hotel rooms:

Bedrock's Hudson's site project at 1208 Woodward in downtown.

Ford's renovation of Michigan Central Station off Michigan Avenue in Corktown.

A formerly proposed 83-unit luxury condo building at 600 W. Lafayette, now a planned 154-room Cambria Hotel.

A fourth development, Gabriel Houze at 305 Michigan Ave. in downtown, which was originally planned as apartments, will instead open as an extended-stay hotel.

The year-to-date hotel occupancy rate in downtown Detroit is running about 69%, or just 1 percentage point lower than a year ago, likely because of the 2019 openings of the Shinola Hotel and The Element at the Metropolitan hotel, according to Michael O'Callaghan, executive vice president of the Detroit Metro Convention and Visitors Bureau.

In 2009, the occupancy rate was well below 50%, even with fewer hotel rooms available than today.

The average nightly rate is now $174, or $2 more than last year, he said.

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Real estate experts say it is often easier now for developers to obtain construction financing for a hotel in Detroit than a speculative residential or office tower. Not counting the four mentioned developments, there are a half-dozen or so new hotels in various stages of planning or construction in greater downtown.

"The hotel market for financing must be more favorable, based on the number of new projects in the pipeline for hotels," said AJ Weiner, a managing director with commercial real estate firm JLL. “Downtown has become a regional hotel destination, whereas in the past, say, Southfield or Troy would have been the go-to places to stay for any meeting you might have.”

Apartment developer takes pop-up approach

Houze Living, a development company belonging to metro Detroit businessman Joe Barbat, has opened three all-new apartment developments in Detroit since 2015 — the 58-unit Regis Houze, 116-unit Briggs Houze and 100-unit Philip Houze — and purchased and renovated the 410-unit Jeffersonian Apartments, now known as Jeffersonian Houze.

The firm is taking a different approach to its fifth project, Gabriel Houze on Michigan Avenue in downtown, which fills a building that formerly housed an Archdiocese of Detroit administration office.

Gabriel Houze was redeveloped to be a 125-unit residential complex, but is set to open in November as a 125-room extended-stay hotel, according to a company spokesperson.

This type of arrangement, often called a "pop-up hotel," is increasingly common in some cities as a way for owners of new apartment buildings to make money from their empty units while getting leases. The owners typically partner with pop-up hotel companies such as WhyHotel for a period of months until they finally get enough apartment leases.

More:Pop-up hotels? Yeah, that’s a thing now

A Houze Living spokesperson said in an email that "strategy and timeliness" is why the company decided to open Gabriel Houze as a hotel.

Ford eyes hospitality

Ford Motor Co. originally planned to put several floors of residential housing in Detroit's long-empty Michigan Central Station as part of the building's ambitious $350 million top-to-bottom redevelopment, set for completion in 2022.

But the automaker told reporters in May that it no longer anticipates housing at the top of the tower, but rather something concerning "hospitality," such as hotel rooms, meeting rooms or food and beverage.

Ford has yet to announce any additional details.

"The floor plans in the tower are not optimal for residential, so we are exploring the feasibility of hospitality on the top floors," Ford spokeswoman Christina Twelftree said in an email. "We see this as a good way to activate the space throughout the week and make it accessible for everyone to enjoy."

Hotel at Hudson's

Businessman Dan Gilbert's real estate firm Bedrock announced plans in 2018 for an all-residential skyscraper as part of its redevelopment project for the former J.L. Hudson department store site in downtown.

Last month, Bedrock said it was adjusting its plans for the future skyscraper tower to make it partly a hotel. That adjustment could lower the ultimate height of the tower, once expected to be taller than the Renaissance Center.

Andrew Leber, Bedrock's vice president of hospitality, said last week that the company's residential properties in the city are going strong, but Detroit is very underserved when it comes to hotels and there is an opportunity to meet some of that need with the Hudson's project.

He said business at the new Shinola hotel, which opened in January and which Bedrock developed, has exceeded initial projections.

"It isn’t because we want to get out of the multifamily (residential) business," Leber said.

No announcement has been made on the number of hotel rooms that could be in the Hudson's site tower or a possible hotel brand. The completion date for the entire development was recently pushed back a year to 2023.

Cambria rather than luxury condos

The Ashton Detroit was announced in 2016 as a future 11-story building with 83 luxury condos. But after failing to meet lenders' requirements to pre-sell at least 50% of the condos to get construction financing, the project's development team switched gears and decided to build a 154-room hotel on the site instead.

Plans now call for a Cambria Hotel on the site. Construction crews broke ground for the revamped project several weeks ago. A lead developer declined comment last week for this article.

"We decided to make a shift and respond to the market," one of the developers, Eric Means of The Means Group, said earlier this year.

Editor's note: A previous version of this story was unclear about the future of Gabriel Houze on Michigan Avenue in downtown Detroit. This version of the story is correct.

ContactJC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.