A common dilemma that many hotel investors face is the decision between renovating an existing lodging facility or building a new one from the ground up. Here's a look at the advantages and disadvantages of renovation and new construction for hotel stakeholders.
Advantages of Investing in New Hotels
- Modern Aesthetics - Guests will likely be more intrigued by modern design than a renovation of an old structure. With modern architecture comes more efficient floorplans, a safer environment, and more innovative design.
- More Appealing to Business Travelers - Business travelers typically spend more money to stay in a new hotel, which may seem more comfortable, safer, and more up-to-date with building codes.
- Leaner Business Model - Newer hotels have fewer maintenance expenses because they are designed to be more durable and efficient. These concepts of sustainability were not as prevalent in the last century in hotel construction.
- Better ROI - A new hotel has a better chance of attracting high bidders looking to invest in the hospitality industry.
Disadvantages of Investing in New Construction
- Longer development time - The design planning for a new hotel takes 6-18 months due to ironing out details among attorneys, engineers, and architects. Once these parties reach decisions on new construction, it can take another 16-24 months to complete the project.
- Revenue delays - The more a contractor faces construction hurdles, the longer it will take before the venture generates income.
- Government restrictions - Stakeholders may need to work with local leaders, which slows down development.
Advantages of Investing in Existing Hotels
- Existing track record of performance - New owners can hit the ground running with an existing hotel that already attracts regular business. It's simply a faster path to revenue.
- Lower development costs - Construction material costs are always fluctuating and can be expensive during a period of supply shortages.
- Less development time - Existing hotels may not require much renovation if they've been properly maintained.
- Existing loans - When you purchase an existing hotel, it's possible to pick up where the former owner left off on the same loan.
Disadvantages of Investing in Existing Hotels
- Infrastructure not up-to-date - Building codes have changed so much; it may be too expensive to catch up with current requirements.
- Potentially fewer branding opportunities - Existing hotels have already created brand experiences for guests who may be uncomfortable with change.
- Lower resale value - If you're in the business of flipping hotels, investing in an old hotel will likely be less profitable from a trading standpoint.
- High maintenance expenses - You'll usually face higher maintenance costs with older structures due to long-term wear and tear.
Investors must weigh all the factors before deciding to invest in new hotel construction or renovating an old hotel. Building codes have significantly evolved over the last quarter-century, which factors tremendously for investors. Contact
Nikki Fox at ParkWest General Contractors to learn more about the pros and cons of investing in new or old hotels.
