Building new-construction real estate has traditionally been viewed as a risky endeavor. Lenders reflect this opinion with higher equity thresholds and more expensive interest rates. However, the recent trend in new commercial development gives us the evidence to rebut this opinion. There are investors and developers who strongly believe the rewards of developing new-construction hotels right now outweigh the risks.
Our legal and land-use experts have studied the real estate market and believe that new-construction hotel assets are the safest bets right now. Newer hotels often boast the latest designs and modern layouts which enhance guest experience. Not only do major hotel brands prefer to see their latest designs, they often protect it— offering area of protection and financial incentives to develop their latest prototype. Don’t forget to consider substantial cost savings in maintenance expenses and energy cost when you have a new-construction hotel asset.
New-construction hotels offer amenities that older hotel designs just can’t match. With the recession over and a strengthening economy ahead of us, business travelers are back in full force and traveling often. It is important to remember that corporate travelers are not price conscious first clients, meaning they don’t have a strict budget for overnight accommodations. Corporations don’t mind spending $15-20 more to keep their employees comfortable in a newer hotel.
New-construction hotels often become high priority targets for institutional investors like REITs and funds. Institutional investors demand the highest quality properties for long-term core holdings. Investing into real-estate that is also appealing for REITs often translates into a very handsome premium at time of disposition.