A Portland company has run into two big snags in its plan to convert prominent Tri-City hotels into microapartments catering to working professionals, retirees and everyone in between.

While Fortify Holdings LLC has closed several local purchases, its plans for the Riverfront Hotel in Richland and the Clover Island Inn in Kennewick hinged on buying not only the buildings, but the land they sit on, which is leased from public entities.

The Riverfront, formerly the Shilo Inn, occupies a site leased from the city of Richland. Clover Island’s site is leased from the Port of Kennewick.

Fortify offered to purchase both sites, saying it needed to own the land to justify investing in updates. Both entities turned it down and it intends to pursue both building purchases anyway.

Established in 2018 by a group of homebuilders, Fortify focuses on multifamily residential properties. It pivoted mid-pandemic to hotel/motel conversions, seeing an opportunity in strong demand for housing across the Pacific Northwest.

It has purchased several area hotels to convert. But the Riverfront and Clover Island properties drew an unusually strong public response because of the public land ownership and unique waterfront locations.

The company believed the opportunity they represented overcame the challenge of not owning the land beneath them, said Rob Jacobs, Fortify’s Tri-City-based regional manager.

“We saw a great opportunity to create more housing in a market that desperately needs it and to be an economic catalyst with both the Riverfront Hotel and the Clover Island Inn,” he said.

Fortify’s projects are financially independent of one another, and the company does not use tax credit financing. Units are leased at market rents, meaning they are not low-income or subsidized.

Jacobs said it expects its Tri-City properties to operate at about 95% capacity, in line with its more traditional apartment communities.

Jacobs confirmed it intends to pursue the hotels even if the land isn’t sold. It is working with Kennewick authorities to determine how to operate within zoning codes. Richland, in contrast, cautioned it that the terms of the 1961 land lease prevent it from converting the Riverfront, formerly the Shilo, into apartment rentals.

Richland’s elected leaders discussed the potential land deal in private in 2021. But the Port of Kennewick commission discussed the matter in open session in January, offering a clearer view of its thinking.

Commissioners were intrigued by Fortify’s $20 million vision of refashioning the aging hotel into a residential and visitor destination. They said they want to work with Fortify on a land lease that will satisfy it.

But in the end their hands were tied by the Clover Island Master Plan, said Tim Arntzen, executive director. The guiding document is unambiguous: The port will retain ownership, save for the site it sold for a U.S. Coast Guard Station.

The plan, adopted in 2021, was developed through a lengthy public process that cost about $250,000.

The Kennewick commission voted 2-1 to reaffirm its policy of not selling land on Clover Island. Commissioners Skip Novakovich and Ken Hohenberg voted to affirm the commitment not to sell land but said they want to continue working with Fortify.

Commissioner Tom Moak too was intrigued that a private company wants to implement some of the ideas in the master plan.

“In the eight years I’ve been on the commission, we haven’t had anyone other than the port and public partners willing to invest (in Clover Island),” he said.

The Richland council discussed Fortify’s offer in executive session in late 2021,

While it took no public action, the council notified Fortify in writing on Dec. 21, 2021, that it would not accept the offer to purchase the land. The letter attempts to strike a conciliatory note, but cautions Fortify against converting the Riverfront into apartments. That could be a breach of the terms of the 1961 lease that controls use of the land and its zoning.

“(T)he city encourages Fortify Holdings LLC to give careful consideration to its future actions concerning 50 Comstock Street. Again, the city council welcomes Fortify’s investment and development interest in the city of Richland, and looks forward to the redevelopment of the properties Fortify has already acquired,” it said in a letter signed by former Richland Mayor Ryan Lukson.