How Much Money Do I Need to Build a Hotel? Complete Cost Breakdown

A comprehensive guide to hotel construction costs, from budget properties to luxury resorts, including land, construction, financing, and hidden expenses

By Clear House Lending Team | Published February 2, 2026 | 10 min read

Building a hotel is one of the most capital-intensive commercial real estate ventures you can undertake. Total project costs range from roughly $10 million for a modest limited-service property to well over $100 million for a full-service or luxury hotel. Understanding these costs in detail is essential before approaching lenders or investors.

This guide breaks down every major cost category, explains how hotel type and location affect your budget, and provides realistic ranges so you can plan your development accurately. Whether you're evaluating a 60-room extended-stay concept or a 200-room full-service destination, you'll find the financial framework you need.

Hotel Construction Cost Overview (2026)

Understanding Per-Room Construction Costs

The most common metric for hotel development budgeting is cost per room, which captures the total development cost divided by the number of guest rooms. This metric allows meaningful comparisons across properties of different sizes and types.

What Per-Room Cost Includes

Per-room cost is a comprehensive figure that encompasses:

• Land acquisition: Site purchase, closing costs, and site preparation
• Hard construction costs: Foundation, structure, building envelope, MEP systems, finishes
• FF&E (Furniture, Fixtures, Equipment): Guest room furnishings, lobby furniture, back-of-house equipment
• Soft costs: Architecture, engineering, permits, legal, accounting, financing fees
• Pre-opening expenses: Staff hiring, training, initial marketing, soft opening costs
• Contingency reserves: Typically 10-15% for cost overruns

Factors That Increase Per-Room Costs

Several variables can push your per-room costs toward the higher end of ranges:

Location: Urban and coastal markets command premium land prices and higher construction labor costs. Building in Manhattan, San Francisco, or Miami can double or triple per-room costs compared to secondary markets.

Building Type: High-rise construction (8+ stories) costs significantly more per square foot than low-rise wood-frame or mid-rise construction. Podium construction (retail/parking below, hotel above) adds complexity and cost.

Amenities: Full-service hotels with restaurants, banquet facilities, pools, fitness centers, and spas require substantially more space and specialized construction than limited-service properties.

Brand Standards: Luxury brands like Four Seasons, Ritz-Carlton, and St. Regis require premium finishes, larger room sizes, and extensive amenities that drive costs to $500,000+ per room.

Union Labor: Projects in union-heavy markets face higher labor costs and potentially longer timelines.

Typical Hotel Development Cost Distribution

Understanding how your budget allocates across categories helps identify where costs can be optimized and where they're essentially fixed.

Land Acquisition (10-15% of Total)

Land costs vary dramatically by market. In secondary markets, you might acquire a suitable hotel site for $1-3 million. In prime urban locations, land for a 150-room hotel can exceed $15-25 million.

Key Considerations:

• Visibility and access from major roads
• Proximity to demand generators (business centers, airports, attractions)
• Zoning allowing hotel use
• Utility capacity and infrastructure
• Environmental conditions

Land costs as a percentage of total development tend to be higher for limited-service hotels (where construction costs are lower) and lower for luxury properties (where construction costs dominate).

Hard Construction Costs (50-55% of Total)

Hard costs include all physical construction: site work, foundations, structural systems, building envelope, mechanical/electrical/plumbing (MEP), interior finishes, and common areas.

Current Construction Cost Ranges (2026):

• Limited-service hotels: $180-$250 per square foot
• Select-service hotels: $250-$350 per square foot
• Full-service hotels: $350-$500 per square foot
• Luxury hotels: $500-$800+ per square foot

For a 120-room select-service hotel averaging 600 square feet per room (including common areas allocated), hard construction costs would range from $18 million to $25.2 million.

FF&E (8-12% of Total)

Furniture, fixtures, and equipment represent a significant and often underestimated cost category.

Guest Room FF&E (per room):

• Budget/economy: $8,000-$12,000
• Limited-service: $12,000-$18,000
• Select-service: $18,000-$28,000
• Full-service: $30,000-$50,000
• Luxury: $50,000-$100,000+

Public Area and Back-of-House FF&E:

• Lobby furniture and fixtures
• Restaurant and bar equipment (if applicable)
• Meeting room furnishings
• Fitness center equipment
• Pool furniture and equipment
• Kitchen equipment (full-service)
• Laundry equipment
• Maintenance equipment

For franchise properties, FF&E must meet brand standards exactly. Substitutions require approval and may void your franchise agreement.

Soft Costs (10-15% of Total)

Soft costs cover professional services, permits, fees, and other non-construction expenses.

Architecture and Engineering: 4-6% of hard costs

• Architectural design and documentation
• Structural engineering
• MEP engineering
• Interior design
• Landscape architecture

Permits and Impact Fees: Highly variable by jurisdiction

• Building permits
• Plan review fees
• Impact fees (traffic, schools, parks)
• Utility connection fees
• Environmental permits

Legal and Accounting: 1-2% of project cost

• Entity formation
• Contract negotiation
• Franchise agreement review
• Tax planning and compliance

Third-Party Reports: $50,000-$150,000

• Market feasibility study
• Appraisal
• Environmental assessment
• Geotechnical report
• Traffic study

Financing Costs (3-5% of Total)

Construction loan interest and fees represent a significant cost category.

Interest Reserve: During 18-24 month construction plus 6-12 month ramp-up, you'll pay interest without operating income. Budget 6-8% interest on average outstanding balance.

Loan Fees: Origination fees (1-2%), commitment fees, inspection fees, legal fees for loan documentation.

Bridge Financing (if needed): If permanent financing isn't immediately available at stabilization, bridge loan costs add to total financing expense.

Pre-Opening and Contingency (8-12% of Total)

Pre-Opening Expenses (2-4% of project cost):

• Staff recruitment and training (60-90 days)
• Marketing and advertising launch
• Opening inventory (linens, supplies, amenities)
• Technology setup (PMS, POS systems)
• Soft opening operations

Contingency Reserve (10-15% of hard costs):

• Construction cost overruns (nearly universal)
• Timeline delays
• Design changes during construction
• Material price escalation

Underfunding contingency is one of the most common mistakes in hotel development. Markets conditions, supply chain issues, and unforeseen site conditions regularly cause 10-20% cost increases.

Total Project Cost by Hotel Type and Size

Let's examine specific examples across hotel segments to illustrate realistic total budgets.

Economy/Extended Stay Hotel (60-80 rooms)

Profile: Brands like WoodSpring Suites, Motel 6, or independent economy properties.

Budget Breakdown (75-room property):

• Land: $1.2 million
• Hard construction: $4.5 million
• FF&E: $750,000
• Soft costs: $900,000
• Financing costs: $450,000
• Pre-opening/contingency: $700,000
• Total: $8.5 million (~$113,000/room)

Limited-Service Hotel (90-120 rooms)

Profile: Hampton Inn, Fairfield Inn, Holiday Inn Express, Comfort Inn.

Budget Breakdown (110-room property):

• Land: $2.0 million
• Hard construction: $9.0 million
• FF&E: $1.65 million
• Soft costs: $1.8 million
• Financing costs: $900,000
• Pre-opening/contingency: $1.65 million
• Total: $17 million (~$155,000/room)

Explore our hotel and motel financing solutions for limited-service development.

Select-Service Hotel (120-150 rooms)

Profile: Courtyard by Marriott, Hilton Garden Inn, Hyatt Place.

Budget Breakdown (140-room property):

• Land: $3.5 million
• Hard construction: $17.5 million
• FF&E: $3.5 million
• Soft costs: $3.2 million
• Financing costs: $1.5 million
• Pre-opening/contingency: $3.3 million
• Total: $32.5 million (~$232,000/room)

Full-Service Hotel (150-250 rooms)

Profile: Marriott, Hilton, Sheraton, Hyatt Regency.

Budget Breakdown (200-room property):

• Land: $8.0 million
• Hard construction: $42.0 million
• FF&E: $8.0 million
• Soft costs: $7.5 million
• Financing costs: $4.0 million
• Pre-opening/contingency: $7.5 million
• Total: $77 million (~$385,000/room)

Full-service properties include restaurants, bars, room service, meeting/banquet facilities, and often pools, fitness centers, and business centers. These amenities significantly increase both construction costs and operating complexity.

Luxury/Resort Hotel (200-400 rooms)

Profile: Four Seasons, Ritz-Carlton, St. Regis, Waldorf Astoria.

Budget Breakdown (250-room resort):

• Land: $25.0 million
• Hard construction: $100.0 million
• FF&E: $25.0 million
• Soft costs: $18.0 million
• Financing costs: $12.0 million
• Pre-opening/contingency: $20.0 million
• Total: $200 million (~$800,000/room)

Luxury properties require exceptional locations, premium finishes throughout, extensive amenities (spa, multiple restaurants, pools, golf), and significantly larger guest rooms and public spaces.

Learn about vertical construction financing for complex hotel development projects.

Down Payment and Equity Requirements

Understanding how much cash you need upfront is critical for project planning. Equity requirements vary significantly by financing source and borrower experience.

Minimum Equity by Loan Type

SBA 504 Loans (10-15% equity):

• Lowest down payment option for owner-operated hotels
• Limited to $5-5.5 million SBA portion
• Requires owner to operate the property
• Best for limited-service hotels under $15 million total cost
• $15 million project = $1.5-$2.25 million equity required

Conventional Construction Loans (20-30% equity):

• Standard requirement for experienced developers
• Higher leverage (80% LTC) available with strong track record
• First-time developers typically need 30%+
• $20 million project = $4-6 million equity required

CMBS Construction Loans (25-35% equity):

• For larger projects ($25 million+)
• Non-recourse options available
• Stricter underwriting, longer timeline
• $50 million project = $12.5-17.5 million equity required

Mezzanine Debt Structures (10-15% true equity):

• Senior debt (60-65% LTC) + mezzanine (15-20%) + equity (15-20%)
• Higher overall cost of capital
• Maximizes leverage for experienced developers
• $30 million project = $3-4.5 million equity required

Use our commercial mortgage calculator to model different financing scenarios for your hotel project.

Sources of Equity Capital

Beyond personal funds, hotel developers utilize various equity sources:

Partner Investors: High-net-worth individuals or family offices seeking real estate returns. Typical structure: 70-80% investor equity, 20-30% developer equity, with preferred return to investors.

Private Equity Funds: Institutional capital for larger projects ($50 million+). Require proven development track record and established operator relationships.

EB-5 Immigrant Investor Program: Foreign investors contribute $800,000-$1,050,000 each in exchange for green cards. Can fund 20-40% of project equity for qualifying developments.

Opportunity Zone Investment: Projects in designated zones can attract investors seeking tax benefits, potentially reducing equity cost of capital.

Hidden Costs That Catch First-Time Developers

Beyond the major cost categories, several expenses frequently surprise first-time hotel developers.

Franchise Costs

Initial Franchise Fee: $50,000-$100,000+ depending on brand tier

Ongoing Royalties: 4-6% of gross room revenue

Marketing Fees: 2.5-4% of gross room revenue

Reservation System Fees: 1-3% of revenue booked through brand channels

Property Improvement Plans (PIP): If acquiring an existing franchise, PIP costs can range from $5,000-$30,000 per room to meet current brand standards

Over a 20-year franchise term, total franchise costs can exceed 50% of room revenue. Factor these into your operating proforma carefully.

Interest Carry During Construction and Ramp-Up

Construction takes 12-24 months with no revenue. After opening, hotels typically require 18-36 months to reach stabilized occupancy. During this entire period, you're paying construction loan interest.

Example: $20 million construction loan at 9% interest

• Average outstanding balance during construction: $12 million
• 18-month construction interest: $1.62 million
• 12-month ramp-up interest (full balance): $1.8 million
• Total interest carry: $3.42 million

Operating Losses During Ramp-Up

New hotels don't achieve profitable operations immediately. Model realistic ramp-up:

Year 1: 45-55% occupancy, operating losses likely Year 2: 55-65% occupancy, breakeven or slight profit Year 3: 65-75% occupancy, stabilized operations

Budget 6-12 months of operating shortfall coverage (difference between actual revenue and debt service plus operating expenses).

Property Tax Reassessment

Properties are reassessed upon completion at new market value. Annual property taxes on a $25 million hotel might run $400,000-$600,000 depending on jurisdiction, a significant ongoing expense to include in your proforma.

Brand-Required Renovations

Franchise agreements require periodic renovations (typically every 6-8 years) to maintain brand standards. Budget 5-10% of initial FF&E costs annually for an ongoing renovation reserve.

Cost Reduction Strategies

While hotel development is inherently expensive, strategic decisions can optimize your budget:

Value Engineering

Work with your architect and contractor to identify cost savings without sacrificing quality or brand compliance:

• Alternative structural systems (wood-frame vs. steel where code permits)
• Standard vs. custom millwork
• Comparable but less expensive finish materials
• Efficient building layouts minimizing corridor space
• Standardized room configurations reducing construction complexity

Market Selection

Secondary and tertiary markets offer significantly lower land and construction costs. A select-service hotel costing $30 million in a gateway city might cost $18-22 million in a growth market with similar demand fundamentals.

Brand Selection

Luxury and upscale brands require higher construction standards and larger rooms. Limited-service brands allow more efficient construction and lower per-room costs while still commanding strong rates in appropriate markets.

Phased Development

For larger projects, consider phasing:

• Phase 1: Core building with 60-70% of rooms
• Phase 2: Additional rooms once Phase 1 stabilizes

This reduces initial capital requirements and construction risk, though it increases overall per-room costs.

Financing Your Hotel Construction Project

Understanding how much money you need is only half the equation. Securing that capital requires navigating complex financing markets.

Preparing Your Financing Package

Lenders require comprehensive documentation:

Personal/Entity Financials: Tax returns (3 years), financial statements, liquidity verification, real estate schedule

Project Documentation: Site control, zoning verification, environmental assessment, architectural plans, construction budget, development timeline

Market Analysis: Third-party feasibility study, competitive set analysis, demand driver documentation, 10-year operating proforma

Team Credentials: Developer resume with hotel experience, contractor qualifications, operator agreement, franchise approval

Typical Financing Timeline

• Pre-development: 3-6 months (site control, feasibility, preliminary design)
• Financing application: 2-4 weeks to prepare complete package
• Underwriting: 45-75 days for lender analysis and third-party reports
• Commitment and closing: 30-45 days from approval

Total timeline from concept to construction loan closing: 6-12 months for experienced developers, potentially longer for first-time hotel developers.

Working with Clear House Lending

Hotel construction financing requires specialized expertise. At Clear House Lending, we've financed hundreds of hotel projects ranging from 50-room limited-service properties to 300+ room full-service destinations.

Our Hotel Financing Solutions

SBA 504 Loans: Lowest down payment option for owner-operated hotels

Conventional Construction Loans: Competitive rates for experienced developers

Construction-to-Permanent: Single-close financing eliminating refinance risk

Bridge Financing: Flexible solutions for complex projects

Start Your Project

Ready to move forward with hotel development? Here's how to begin:

1. Initial consultation: Contact our team to discuss your project concept and financing needs

2. Preliminary analysis: We'll review your project summary and provide feedback on feasibility and likely financing terms

3. Term sheet: Qualified projects receive preliminary terms within 7-10 business days

4. Full underwriting and closing: Well-prepared applications close in 60-90 days

Don't let financing uncertainty stall your hotel development plans. Contact Clear House Lending today to discuss your project with an experienced hotel financing specialist.

Whether you're building a 60-room extended-stay or a 200-room full-service hotel, we can structure financing that works for your project, timeline, and experience level. Apply now to get started.

Tags: hotel construction costs, hotel development budget, hospitality financing, hotel building costs

Category: Construction Lending Guides

Last Updated: February 2, 2026