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Hotel Development Insider

  • zcooper25

Adult legos.....I'm in! And, be careful what you read.....

Is there a worse pain that stepping on a logo in the middle of the night? If you've ever experienced this pain, you'll know what I'm talking about. When I first read the below article, I had nightmarish flashbacks to times in which I've stepped on one of these inconspicuous torture devices.

We've all heard of the new trends in modular construction and how developers are utilizing this approach for new properties. There are many benefits (along with drawbacks) to utilizing modular construction practices. From a recent article posted on Yahoo Finance, some of the benefits include:

  • High-speed, low cost construction

  • Built in a controlled environment

  • Marriott wants 40% of their new franchise hotels to be built using modular construction and is offering developers $250,000 CASH incentives to those that do.

The above are good points and modular construction is definitely going to increase in the future. However, there are some misleading statements in these type of articles, as they tend to be written/edited by those pushing certain agendas. My main disagreement is this section, which clearly shows the research is jaded and/or being produced by someone not familiar with the industry.

"Marriott will open AC Hotel New York NoMad — the world’s tallest modular hotel, with 168 rooms and 26 floors — in New York City by the end of 2020. Developers secured a $65 million construction loan for the project, according to reports. The project would have cost about $100.8 million with traditional methods, according to the HVS Global Hospitality Services hotel cost development survey. The average cost to construct a hotel is $600,000 a room, the survey said. Modular construction costs 30% to 50% less that traditional construction methods, according to an ADMARES representative."

Sorry for all of you AC Hotel fans, but that property and brand is not a "Luxury" hotel. According to the HVS study, $600k per key is the development costs for luxury brands. AC Hotels are a Select Service (Upscale) hotel, (some would stretch it and say Full-Service - Upper Upscale), on par with other Marriott properties such as Element, Springhill Suites, Courtyard, etc. Here's a link to a description of each Marriott brand:

From the HVS data survey cited in the article, Select-Service properties Total Hotel Development Costs are $221,000 per key, where Full-Service are $318,000 per key. For the AC Hotel example above, that would mean the total cost would be in the $37.1 to $53.4 million range.

Now, I'm not saying traditional construction would have been cheaper in this particular project in NYC. Building anything in that market is wildly expensive and I'm sure the property acquisition costs were extremely expensive. If they're investing $65 million, I guarantee that modular construction was the best option from a development standpoint. We, the reader, simply do not have enough data to determine which is the best approach.

All I'm trying to say is that when we're evaluating new and trendy methods/processes, we need make sure the information presented is unbiased and correctly relayed.



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