How Do You Convert a Commercial Property into a Profitable Boutique Hotel?

Converting commercial buildings into boutique hotels has emerged as one of the most lucrative niches in real estate investing, especially for properties sitting vacant or underutilized in urban cores. The strategy combines the cash flow potential of short-term rentals with the scalability of hospitality real estate, creating a unique investment vehicle that can generate impressive returns while revitalizing neglected commercial spaces.

In a recent episode of The Real Estate Investing Club podcast, host Gabe Petersen sat down with Andrew Llewellyn, founder of Super Stays, to break down exactly how he’s building a boutique hotel empire through commercial conversions. Andrew’s journey from ice cream shop owner to hospitality entrepreneur offers invaluable lessons for investors looking to enter this space.

Quick Answer: Converting commercial properties into boutique hotels involves purchasing underutilized commercial buildings (typically offices or mixed-use spaces), gutting the interior to create 4-8 residential-style units with hotel-grade amenities, and operating them as high-end group accommodations targeting corporate retreats and upscale bachelor parties. Investors can expect 50% profit margins with $200,000+ annual net income on a $1.5M all-in investment.

What Makes Boutique Hotel Conversions Different from Traditional Airbnb Properties?

Boutique hotel conversions operate at a fundamentally higher level than typical short-term rentals by focusing on consistency, service quality, and full property buyouts for groups rather than individual room rentals.

Andrew Llewellyn’s first conversion, the Swepson Guest House in Louisville, demonstrates this distinction perfectly. While most Airbnb operators focus on individual units, Andrew transformed a 10,000-square-foot commercial building into five units with 15 bedrooms and 10 bathrooms—all designed to be rented as a cohesive property.

The operational philosophy differs significantly from traditional vacation rentals. “If you walk into a Choice hotel, even the lowest end hotels like a Holiday Inn Express, you know the product you’re going to get nationwide,” Andrew explained. “We tried to bring that level of consistency that you see at a national brand to our place.”

This means every detail matters. No beds smaller than queen-size. No beds tucked into closets. Full containers of shampoo, not half-used bottles. Fresh batteries in every remote. Clean corners without dust. These operational standards separate boutique hotels from the inconsistent quality many guests experience with traditional Airbnbs.

The service model also differs fundamentally. While turnkey rental properties typically operate hands-off, boutique hotel conversions offer concierge-level planning services. Andrew personally greets most guests during check-in, spending 20-30 minutes walking them through the property. “The guests really love seeing the guy that built the place and owns the place,” he noted.

However, the operation remains lean through strategic automation. “If we can’t do it from a keyboard, we won’t do it,” Andrew shared. “We don’t actually have staff here while the guests are here.” Instead, trusted vendors provide specific services like private chef experiences or bourbon tastings, maintaining the boutique experience without the overhead of full-time hospitality staff.

Who Are the Most Profitable Customer Segments for Boutique Hotel Properties?

The most lucrative customers for boutique hotel conversions are corporate groups booking weekday retreats and bachelor parties for men aged 28-40, both of which prioritize privacy, quality, and are less price-sensitive than traditional leisure travelers.

After experimenting with various customer segments, Andrew identified two primary revenue drivers that transformed his business model. During weekdays, corporate retreats dominate bookings. These typically involve executive teams seeking private venues for strategic planning sessions away from traditional office environments.

The corporate setup is particularly clever. Andrew converts the third-floor dining area into a makeshift conference center, moving furniture to create presentation space around a 75-inch TV. “It becomes almost a conference center that you can do presentations on,” he explained. Companies appreciate having private accommodations where each team member gets their own bedroom throughout the property, unlike traditional hotel room blocks.

One national customer—a company selling petroleum pellets for plastic manufacturing—uses the property regularly for sales entertainment. “They’ll bring their buyers in and entertain them on the Kentucky Bourbon Trail for three nights,” Andrew shared. “We do all the planning for them and it’s a pretty cool setup.”

For weekend revenue, Andrew targets a specific bachelor party demographic that many hospitality operators overlook. “We love guys that are 28 to 40, not the 28 and below rager,” he clarified. “Those guys are shopping on price. We don’t really like people that shop on price.”

This distinction is critical. Younger bachelor parties often seek the cheapest option and may not respect the property. However, late-twenties to early-forties groups typically have disposable income and appreciate quality accommodations. As Gabe noted from personal experience, “Getting married later in life is awesome because you have money and you can just go out in style and do your bachelor party in style.”

The pricing strategy reflects this positioning. Full property buyouts range from $2,500 to $3,000 per night during regular seasons. However, during high-demand events like Kentucky Derby weekend, rates can reach $17,000 to $20,000 per night—demonstrating the revenue potential when targeting the right customers in the right markets.

What Are the Real Numbers Behind a Successful Boutique Hotel Conversion?

Andrew’s first boutique hotel conversion cost $1.5 million all-in ($950,000 purchase plus $550,000 renovation) and generates $400,000 in gross revenue with $200,000 in net income annually—representing a 50% profit margin and approximately 13% cash-on-cash return.

The purchase itself was opportunistic timing. Andrew acquired the 10,000-square-foot building for $950,000 during peak COVID uncertainty when the previous owner “just really wanted to get rid of it.” This represented a significant discount compared to typical commercial valuations in downtown Louisville.

The renovation budget of $550,000 was originally allocated for converting the space into a wholesale bakery. When city regulations blocked that use, Andrew pivoted to residential conversion, creating two additional apartment-style units on the first floor to complement an existing Airbnb unit on the top floor.

The financial performance demonstrates strong unit economics. With $400,000 in annual gross revenue across five units (15 bedrooms total), that’s approximately $80,000 per unit or $26,666 per bedroom annually. After operating expenses, the property nets $200,000—a 50% profit margin that far exceeds typical cash flow real estate investments.

These numbers become even more impressive during peak events. Kentucky Derby weekend alone can generate $17,000-$20,000 for a single weekend—representing roughly 5-10% of annual revenue in just two nights. This event-driven revenue potential is unique to hospitality real estate in destination markets.

For context, Andrew’s second project in Louisville provides additional data points. He purchased an 18,000-square-foot office building for approximately $1 million after it sat on the market for 500 days. The renovation budget for this property is $3-4 million, creating eight four-bedroom units plus common amenity spaces. While financial projections weren’t discussed, the larger scale should deliver even stronger returns with economies of scale in operations.

How Do You Find the Right Commercial Building for Hotel Conversion?

The ideal commercial-to-hotel conversion property has been on the market 400+ days, has problem tenants or vacancy, sits in an urban core with tourism drivers, and can be acquired at a significant discount to replacement cost—typically buildings sellers view as problematic rather than valuable.

Andrew’s acquisition strategy focuses on identifying properties other investors overlook or actively avoid. His second Louisville project exemplifies this approach perfectly. The 18,000-square-foot building had been listed for approximately 500 days—well over a year—before Andrew made his move.

The building embodied multiple characteristics that scared away traditional buyers. Built in the 1970s with brutalist architecture, it featured “no windows, just like a dungeon,” as Andrew described it. The aesthetic alone eliminated many potential buyers seeking move-in-ready or easily marketable space.

More problematically, the building housed tenants on verbal leases paying half the market rate. For most investors, inherited problem tenants represent a dealbreaker. For Andrew, this was an opportunity. “That’s my kind of problem,” he noted, recognizing that difficult tenancy situations create negotiating leverage and suppress property values.

The tenant situation required legal action. “We knew we were going to eviction court,” Andrew acknowledged. Despite attempts to work cooperatively—providing six months’ notice and connecting tenants with realtors—one tenant had to be taken nearly through the full eviction process before vacating. This willingness to handle difficult situations is essential for investors pursuing distressed commercial properties.

Location remains critical for hotel conversions. Both of Andrew’s properties sit in downtown Louisville, where he serves on the board of the downtown Louisville partnership. This positioning provides proximity to bourbon tourism, corporate offices, and event venues that drive demand for his target customer segments.

The acquisition strategy also considers structural flexibility. Andrew’s second building will undergo a complete gut renovation down to the four exterior walls, with stair towers and elevator systems relocated to building exteriors to recapture interior floor space. This level of transformation requires buildings with solid structural bones but flexible interior configurations—typically older office buildings built before modern open-plan designs.

What Construction and Design Strategies Maximize Boutique Hotel Returns?

Successful boutique hotel conversions prioritize creating self-contained residential-style units with hotel-grade consistency, avoiding beds smaller than queen-size, maximizing usable floor space through creative layouts, and building common areas that support group gatherings and corporate functions.

Andrew’s design philosophy starts with basic hospitality principles that many Airbnb operators ignore. “We don’t have anything smaller than a queen bed,” he emphasized. “We didn’t put any beds in closets.” These seemingly simple decisions prevent the common frustration Andrew jokes about internally: “Planner Pete forgot to check the size of the beds. Yeah, you can fit two guys in a bed, but it’s a full.”

The unit configuration focuses on creating true private bedrooms rather than maximizing bed count through shared spaces. At the Swepson property, five units contain 15 bedrooms and 10 bathrooms—averaging three bedrooms and two bathrooms per unit. This provides the privacy corporate guests and bachelor party groups demand while maintaining the property’s premium positioning.

For his second project, Andrew is implementing more sophisticated space optimization. By relocating “the two stair towers and the elevator tower to the exterior of the building,” he’ll recapture significant interior floor space that would otherwise be lost to circulation. This allows the 18,000-square-foot building to accommodate eight four-bedroom units plus substantial common areas.

Common areas serve dual purposes in Andrew’s designs. The basement level of the new property will feature “a conference center, game room, chef’s kitchen, common area in a speakeasy style.” This creates a revenue-generating event space while providing the group gathering areas that differentiate boutique hotels from traditional coliving properties.

The third-floor space at Swepson demonstrates functional flexibility. By keeping furniture mobile, Andrew can transform the dining area into a corporate presentation space with a large dining table positioned in front of the 75-inch TV. This adaptability allows the same square footage to serve different customer segments without permanent modifications.

Construction budgets favor simplicity over luxury in structural elements. “These are pretty easy to build out since they’re effectively just apartments,” Andrew noted about his $3-4 million renovation budget for 18,000 square feet. That works out to approximately $167-$222 per square foot—reasonable for hospitality-grade finishes when you’re not building full hotel infrastructure like commercial kitchens or extensive lobbies.

How Do You Operate a Boutique Hotel Without Traditional Hotel Staff?

Lean boutique hotel operations leverage automation for guest communications, personal touches from ownership during check-ins, and a curated network of trusted vendors who provide specific services on-demand rather than maintaining full-time hospitality staff on property.

Andrew’s operational model challenges the assumption that hospitality requires extensive staffing. His guiding principle is simple: “If we can’t do it from a keyboard, we won’t do it.” This keeps overhead minimal while maintaining service quality through strategic human touchpoints.

The check-in process provides the primary human interaction. Andrew personally greets most guests, spending 20-30 minutes walking them through the property. “The guests really love seeing the guy that built the place and owns the place,” he explained. This ownership presence creates a memorable experience that differentiates the property from corporate hotel chains while requiring minimal time commitment.

During guest stays, the property operates largely autonomously. “We don’t actually have staff here while the guests are here,” Andrew noted. Instead, pre-screened vendor partners provide specific services when requested. Private chefs, bourbon tasting guides, and other experience providers come on-site as needed, each operating “at a super high level” based on Andrew’s prior vetting.

This vendor model solves a critical challenge in remote real estate investing—delivering high-touch services without full-time employees. The vendors handle their own scheduling, billing, and service delivery. Andrew simply maintains the relationships and makes introductions to guests who want additional experiences.

Guest communication leverages AI to maintain responsiveness without constant manual effort. Andrew uses AI “not to actually message the guests, but to feed us the response. That way we can copy, paste, and then adjust instead of having to think through the mechanics of it every time.” This allows personalized communication at scale without sacrificing quality or speed.

Cleaning services operate on a similar model. When guests request daily cleaning—uncommon for most short-term rentals but expected in boutique hotels—Andrew sends in trusted cleaning vendors. “We always make sure we’re invisible to the customer,” he explained, meaning guests receive services without seeing operations or staff disrupting their experience.

The technology stack supports this lean model. Automated messaging handles pre-arrival instructions, check-in details, and common questions. Keyless entry systems eliminate coordination around physical key handoffs. Online booking and payment processing run continuously without human intervention.

What Marketing Strategies Drive Bookings to Boutique Hotel Properties?

Effective boutique hotel marketing combines AI-powered lead generation that monitors forums for target keywords like “bachelor party [city name],” active social media presence enhanced by AI content creation, and strategic relationship building with corporate event planners and tourism organizations.

Andrew’s most innovative marketing tactic leverages AI for proactive lead generation. “We’ve got some keyword search filters out there on forums that if it catches like ‘Bachelor Party Louisville,’ it’ll send us the link to that,” he explained. “That way we’re not having to surf the internet all day and just what we want is coming to us.”

This approach flips traditional marketing on its head. Instead of broadcasting messages hoping to reach interested parties, Andrew’s system identifies people actively planning relevant events and alerts him to engage directly. When someone posts “bachelor party Louisville” on Reddit, wedding forums, or social media, Andrew receives notification and can respond with a personalized message about his property.

Social media content creation benefits from AI assistance in the background. Like many real estate investors using AI, Andrew employs it to support content creation rather than fully automate it. This maintains authentic voice while increasing content volume and consistency.

Relationship building through community involvement provides organic marketing opportunities. Andrew serves on the board of the Downtown Louisville Partnership, which “handles development, tourism, events for people that live in Louisville to come downtown.” This positioning gives him direct access to corporate event planners, tourism boards, and development organizations that can drive group bookings.

The corporate retreat business relies heavily on repeat customers and referrals. Andrew mentioned a national customer that regularly books the property for sales entertainment trips. These relationships develop through excellent service delivery rather than advertising—corporate bookers typically work with proven vendors rather than searching for new options each time.

Search engine visibility matters for direct bookings that avoid Airbnb platform fees. While Andrew didn’t detail his SEO strategy, maintaining a dedicated website (swepsonguesthouse.com) allows direct bookings and showcases the property’s unique features through professional photography and detailed descriptions.

Video content provides emerging opportunities. Andrew is documenting his second property renovation week-by-week on YouTube, currently with three or four weeks of content published. “You never know what you’re gonna get with renovations like that,” he joked, inviting viewers to “watch a guy suffer.” This behind-the-scenes content builds audience interest while positioning Andrew as a transparent expert in boutique hotel development.

What Are the Biggest Mistakes to Avoid in Boutique Hotel Conversions?

The most critical mistake in boutique hotel conversions is failing to “keep a ton of meat on the bone” in underwriting—investors must assume worst-case scenarios because construction delays, cost overruns, and operational challenges will inevitably eat into margins that appear safe on paper.

When asked about lessons learned from deals that went sideways, Andrew delivered a stark warning: “Make sure you keep a ton of meat on the bone and you underwrite that thing so that you can almost be sloppy, but don’t be sloppy because everyone else around you probably will be and they’re gonna eat the meat off that bone for you.”

This philosophy acknowledges a fundamental reality of real estate development—unexpected problems are not unexpected, they’re guaranteed. Construction timelines extend. Contractors discover hidden issues requiring additional work. Material costs increase. Permitting takes longer than anticipated. Each of these individually manageable problems compounds to erode profit margins.

The warning applies particularly to new investors entering boutique hotels from other real estate niches. Someone successful with multifamily properties or self-storage facilities may underestimate hospitality’s operational complexity and renovation challenges in older commercial buildings.

Cash reserves deserve special attention. Beyond conservative underwriting, investors need substantial cash readily available for unexpected expenses. Andrew’s experience with tenant evictions on his second property illustrates this—carrying costs continued for months while working through legal processes to gain possession. Without adequate reserves, this delay could have created financial distress.

Operational assumptions require similar conservatism. New operators often overestimate occupancy rates, underestimate maintenance costs, and fail to account for seasonal demand fluctuations. Andrew’s property benefits from strong demand during Kentucky Derby and bourbon tourism seasons, but investors in markets without clear demand drivers face more variable performance.

Vendor quality and reliability pose hidden risks. Andrew’s model depends on trusted partners delivering consistent service for private chef experiences, bourbon tastings, and other add-ons. If a vendor performs poorly, it directly impacts guest satisfaction and reviews. Building this network takes time and careful vetting—new operators can’t assume they’ll immediately replicate established vendor relationships.

Regulatory compliance represents another common pitfall. Andrew’s original bakery plan was blocked by city regulations, forcing his pivot to residential use. Zoning laws, building codes, fire safety requirements, and hospitality licensing vary significantly by jurisdiction. Assuming a commercial-to-residential conversion will be approved without thorough pre-purchase due diligence can prove costly.

How Can New Investors Get Started with Boutique Hotel Conversions?

New investors should start by joining commercial real estate education groups like Tyler Cauble’s program, focusing intensely on one specific hotel niche and location rather than diversifying, and seeking distressed commercial properties in tourism-driven urban cores where they can add hospitality operations expertise.

Andrew emphasized that educational communities provide the fastest path forward. When asked for real estate recommendations, he immediately cited “Tyler Cauble’s real estate group out of Nashville for East Coast guys that’s about just getting into commercial real estate.” However, he added a crucial caveat: “Tyler’s great, but it’s the people in the group that he’s curated. I can’t tell you how valuable that is.”

This distinction matters. Joining a program for the curriculum misses half the value. The peer network—other investors executing similar strategies, solving similar problems, and sharing deal flow—accelerates learning and success more than any course material. These relationships provide real-time feedback on underwriting, contractor recommendations, vendor connections, and operational advice.

Focus represents Andrew’s single most important piece of wisdom. When asked what advice he’d give his younger self, he stated simply: “Don’t forget that the most important word in the English language is focus.” He elaborated on the tendency toward shiny object syndrome: “When you focus in, you get down to one specific niche, you get good at it and you get the operations tuned in and everything just works better.”

This applies both to asset class selection and geographic focus. Rather than pursuing portfolio diversification across multiple property types and markets, new investors should master one conversion model in one city before expanding. Andrew’s commitment to downtown Louisville exemplifies this—he even serves on the Downtown Louisville Partnership board to deepen his market expertise and relationships.

Starting small allows skill development without catastrophic risk. Andrew’s first conversion happened accidentally when his bakery plans fell through, but the 10,000-square-foot building proved manageable for a first project. His second project at 18,000 square feet represents reasonable scaling rather than a dramatic jump in scope or complexity.

The path from traditional real estate to boutique hotels requires bridging operational knowledge gaps. Andrew’s background running ice cream shops and a bakery actually prepared him well for hospitality operations. “It definitely set me up to manage tenants and real estate really well,” he noted about dealing with teenage employees and their drama. Investors without hospitality experience should consider partnering with operators or starting with property management to build operational chops.

Market selection should prioritize tourism drivers and event calendars. Louisville works for Andrew because of bourbon tourism and Kentucky Derby. Other markets might have different attractions—college towns for student housing and parent weekends, business hubs for corporate retreats, or outdoor recreation destinations for adventure groups. The key is selecting markets with built-in demand generators rather than trying to create demand from scratch.

Key Takeaways: Your Boutique Hotel Conversion Action Plan

Converting commercial properties into boutique hotels offers exceptional returns for investors willing to combine real estate development skills with hospitality operations. Andrew Llewellyn’s success with Super Stays demonstrates that this strategy works even for investors without traditional hospitality backgrounds.

The model requires specific ingredients to succeed. Target distressed commercial buildings in tourism-driven urban markets where sellers face obvious problems like difficult tenants or challenging architecture. Structure deals conservatively with “tons of meat on the bone” in your underwriting to survive inevitable cost overruns and delays.

Operationally, focus on creating hotel-grade consistency rather than typical Airbnb quality. Target corporate retreats during weekdays and upscale bachelor parties on weekends rather than competing on price for leisure travelers. Build a lean operation that leverages ownership involvement for key touchpoints, automation for communications, and vetted vendors for specialized services.

Most importantly, focus intensely on mastering one market and one conversion model before expanding. Join educational communities for the peer network rather than just the curriculum. And remember that boutique hotel success comes from solving other people’s problems—both the sellers who need to unload troubled properties and the guests seeking elevated group accommodation experiences.

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