Hotels are straightforward. They provide a safe, comfortable resting place for people away from home.
It’s a rudimentary idea on the surface, but behind the veneer it’s clear that hotel construction projects have many moving parts. The key to success is optimizing a wide array of hotel construction costs associated with these projects.
As an experienced hotel and housing construction firm, we’ve put together these tips for owners considering a new hotel project.
Understand hard costs in hotel construction
Construction materials, equipment and labor make up the hard costs owners incur on a construction project. You’ll pour most your construction investment into these costs, so it pays to be thorough in the search for cost saving solutions.
5D Macro-BIM is a key estimation tool that can help. This software combines three-dimensional CAD capabilities with an exhaustive database of construction materials and their costs. It helps hotel owners fine-tune design and construction decisions, saving money where savings can be found and providing opportunities to redirect those savings elsewhere on the project.
Where a hotel is built can lead to cost savings, too. Some municipalities and states work together to spur economic development by waiving state sales taxes on construction materials purchased in-state. At The Korte Company, it’s our job to know whether this is on the table for your project. We’ll also help you navigate potential negotiations with local officials if costs can be saved through the creation of other tax incentives or local business districts.
Note, however, that saving money on construction materials on the front end should be weighed against overall lifecycle cost analyses. Committing to higher-quality, higher-cost materials may be a better business decision in the long run.
Labor costs are also complex. We’re currently facing a skilled labor shortage across the construction trades. Finding enough workers to keep work moving is the primary challenge. To make sure this cost component stays under control, you’ll want a contractor who can guarantee they’ll attract and retain the necessary skilled labor force for the duration of the project.
With six decades in business and 3,000-plus projects under our belts, The Korte Company has ample experience identifying and implementing the best mix of cost saving measures.
Maximize soft cost management
These costs are not directly related to getting a building off the ground, but they’re still critically important. They include:
• Construction permit fees payable to the applicable jurisdiction.
• Legal fees associated with property acquisition and any other proceedings related to construction.
• Survey costs and engineering fees.
• Architectural design fees.
• Construction project insurance premiums.
• Applicable local and state taxes.
It’s a lot to keep track of from an administrative standpoint, and mistakes or non-payments can be costly. At best, you might owe a fine that could have been avoided. At worst, your project could be legally halted.
Owners concerned about the administrative aspect of a hotel construction project should consider the Design-Build method of construction. Not only does it save time and money, it streamlines project administration by keeping all aspects of a project under one roof. That eliminates headaches and can lead to reduced soft costs compared to other methods.
Weigh your hotel construction financing options
Hotel construction projects are paid for in different ways depending on who the owner is. It might be a big-time nationwide hotel brand, a partnership of regional developers eyeing a franchise opportunity or a local independent owner.
Whatever the case, securing construction financing will play a big part of the early stages of a project. Many financing options are available, and not all construction loans or other financing schemes are created equal. It pays to weigh your options carefully.
You can learn more about matching your long-term business goals with the right construction financing package by reading our guide to financing your construction project.
Consider operational costs ahead of time
Normal operating costs don’t kick in until after we leave a site. But some decisions made even before groundbreaking can help you run your hotel as efficiently as possible.
Operational costs include:
• Electrical, water and sewage utility bills.
• Guest room supplies and other regular purchases like food.
• Employee wages, non-wage benefits and training costs.
Electricity is the most prominent of these costs. It’s no surprise that high-consumption facilities like hotels try to control these costs. Your construction partner can help.
Choosing energy efficient systems and building materials goes a long way toward reducing utility costs and minimizing a hotel’s demand on the power grid. High-efficiency climate control units and good insulation work together to keep guests comfortable without breaking the bank. Smart hotels are slowly gaining in popularity, too. Room key-activated smart systems connect each guest room to a central computer system that lets guests control their environment when they’re in the room but goes into an “energy saving” mode when they’re not.
In certain circumstances, hotels can also reclaim wastewater. Potable water is required by law for food handling, bathing and other water-intensive tasks in hotels. But recycled “gray water” can be used in place of fresh water for some non-critical cleaning and landscape management.
Choose diligence: Design-Build for hotel construction
If what we discussed above is any indication, making the most of your hotel construction investment is no easy task. That’s why a partnership with the right Design-Build firm sets owners up for success from day one.
The Korte Company has delivered hotel construction projects across the U.S. for a wide variety of customers. And despite the uniqueness of every hotel project we take on, our approach stays the same: Stay on-budget, finish on schedule and find ways to innovate—no matter what.
You can see that approach in practice on these showcase hotel construction projects. And as you consider your next hotel build, get familiar with the wide range of construction financing options at your disposal. Our guide to construction project financing will help you secure the financing package that makes the most sense for you.
Todd Imming is Chief Marketing Officer for The Korte Company, a nationally-recognized Design-Build firm with over 3,000 projects completed across 44 U.S. states.