Building a hotel now cheaper than buying one

October 24, 2011 11:15AM

Building a hotel in New York City may be cheaper than purchasing one, Bloomberg News reported, as demand from investors helps drive hotel property prices through the roof. According to hotel consultancy firm Lodging Econometrics, New York developers are planning to open around 50 new hotels in the city before 2013 and 68 more by 2014.

“Right now, it can be cheaper to build,” Bruce Ford, senior vice president of sales at Lodging Econometrics, told Bloomberg. “Most developers would argue that it’s better to open a hotel in 2013 than in 2012, but in New York City, a market that leads the cycle, next year should be good.”

Manhattan hotels have sold for an average of $505,157 per room so far in 2011, up from $344,799 in 2010 and $413,644 in 2009, according to data from research firm Real Capital Analytics. Companies such as DiamondRock Hospitality and Hidrock Realty, on the other hand, are building hotels for just $300,000 to $450,000 per room.

“As long as a new build is around $400,000 to $500,000 a key, you can build all day long in New York because it’s in line or below what you would pay for an existing building,” hotelier Ian Schrager said in an Oct. 7 interview with Bloomberg. [Bloomberg]