New Hotel Development in Office Space Conversions

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | March 15, 2010

The benefits of developing, building and opening a new hotel from the ground up in an urban, downtown metropolitan area are many. Closeness to attractions, whether they are major retail centers or sporting venues, and proximity to hubs of business and tourism are just a few examples of the benefits. However, metropolitan markets present significant barriers to entry for ground up development and construction of a new hotel. These barriers can prohibit and delay a project, which in turn can present significant added cost and unbudgeted expense for new hotel development projects.

The reasons for time delays and added costs are many, and include, among others, the following:

  • Extensive permitting and zoning process:
    When considering new hotel development, it can take anywhere from two-to-seven years (including appeals) to get the go-ahead from the City just to begin building. It can and does take years to receive the appropriate approvals from permitting, zoning and other real estate licensing agencies for the construction and development of a new site and use such as a free-standing hotel. Factoring in a two-to-seven year pipeline merely to get the approvals to begin construction on a new hotel development is standard.

  • Longer lead times lead to higher costs:
    Longer lead times make it much more difficult to predict and anticipate costs for construction, beyond planning for a reasonable rate of inflation and other straight-forward factors. For developers who began working on permitting and zoning for a new development two-to-seven years ago, how many would have anticipated that the cost of gasoline, for example, would have risen to the level it has today? Recently, we've seen the costs of construction increase 20-50% on some development projects. It's very difficult to forecast the costs of construction when you're working with a two-to-seven year advance timeline to secure appropriate permits and zoning approvals. The longer it takes to receive permitting on a project, the higher and more expensive the costs are bound to become to build the project.

  • Uncertain demand:
    Longer lead times also make it more difficult to predict demand. It's difficult to predict demand for a new hotel development, two-to-seven years into the future. Neighborhoods may change and new developments, including other hotels, may open in the same area. While you're waiting for approvals, the area around your site may not only change considerably, but also the customer you are hoping to serve may change as well.

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.