Quote:
Originally Posted by Chubbs Peterson
Arch + Eng, I saw you say this could be costing ownership $10k-$20k. That is a small number compared to the price tag on this thing. Could sell upwards of $300 million($600k/room) if their plan is to sell. Westin at liberty place sold for $492k per room in 2010 soo $600k/room is feasible. An extra year of digging at $20k per day is only $7.3 million in extra costs. As long as the RE market stays hot in Philly which I think it will, the project is worth it for the developer to push through.
Also, if they are holding for the long term, I've seen that developers usually look at "development yield" (Proforma NOI divided by Total Costs) to see if a project is feasible. These additional costs don't affect yield substantially enough to stop building because of how large the numbers are. Initial yield is NOI/costs. Say the project costs $240 million. Hotel avg noi in the US is $20k per room, so $10 million for the W. Initial yield equals 10/240 = 4.16%. If it took an extra year like before, Initial yield equals 10/247.3 = 4.04%. The change is minimal. Also, those are are made up numbers to prove a point, I don't know what the actual projected costs and projected year 1 NOI are.
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Keep in mind that that's a
daily cost, though. Small daily costs can add up. (That's similar to how Walmart makes money: small margins sum into massive profits at volume.)
If this project is 100 days behind schedule (for the sake of argument) at a cost of $20k/day, that's already $2 million in additional cost. If sold for $300 million, those extra labor costs come out being 2/3rds of a percent of the final sale price. Not a large amount relative to the final price, to be sure, but certainly not insignificant either.
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