Renovation & construction
Reconstructing a Building for a Hotel: Budget Lines to Expect
Construction work is only part of a hotel's budget: next to it stand the ICIO tax, the requirements of the chosen category, furniture and equipment, launch and a reserve. The lines, in order.
The budget for reconstructing a building for a hotel is made up of more than construction work. Added to it are design and supervision, the construction tax, the cost of meeting the chosen category's requirements, furniture and equipment (FF&E and OS&E), the hotel launch and a reserve. In my worked example the works themselves are about 64% of all the money going in. The licensing track is covered separately, in the article on reconverting a building into a hotel; here it is only money.
Which lines make up the budget
- Works (PEM, presupuesto de ejecución material, the material execution budget). Structure, façade, building services, finishing of rooms and common areas.
- Design and supervision. The architect, engineers, technical supervision, the safety coordinator.
- Construction taxes and fees. ICIO and the municipal licence fee.
- Category requirements. Lifts, common-area space, air conditioning.
- FF&E and OS&E. Furniture, equipment, tableware, linen.
- Launch (pre-opening). Recruiting and training staff, booking systems, marketing before opening.
- A reserve for the unforeseen.
- Holding costs during the works. The property earns nothing: interest, IBI, insurance, security.
The list is general, and I could not reliably confirm figures for lines 5, 6 and 8 from open sources. That is why the article has no market prices per key or per square metre: they are taken from the designer and the operator for a specific building.
How much ICIO is
ICIO (impuesto sobre construcciones, instalaciones y obras, the tax on construction, installations and works) is calculated on the material execution cost of the works, excluding IVA, fees, designers' fees and the contractor's profit. The municipality sets the rate, but it cannot exceed 4% (art. 102 TRLRHL), and the tax is paid from the start of the works. I did not confirm Barcelona's rate and bonificaciones (reliefs) from the official text: check the current ordenança fiscal on the Ajuntament's website. The example below takes the 4% ceiling.
How the hotel category changes building costs
The category sets a technical minimum, and in an old building it is expensive. Under Annex I of Decret 159/2012 (DOGC text of 5.12.2012, check the current version):
| Requirement | 4* | 3* | 1* and 2* |
|---|---|---|---|
| Guest lift | from three levels | from three levels | from four levels |
| Service lift | from three levels | from four levels | not specified |
| Common areas, m² per place | 2 | 1.5 | 1–1.2 |
| Room air conditioning | yes | yes | yes (2*), no (1*) |
In an old building without a lift, this may mean cutting a shaft into the existing structure. On the lift rules see the article on installing a lift. Choosing the category is a financial decision, not only a marketing question.
What about the guarantee on construction defects
Ten-year insurance under the LOE (seguro decenal) is mandatory for buildings whose main use is housing (disposición adicional segunda). For a hotel the law does not itself impose this duty, but the bank, the operator contract or the general contractor may require it. What exactly is for an abogado to decide. More on the insurance in the article on seguro decenal.
Worked example, not a forecast
The assumptions are mine, not market data: 40 rooms, works (PEM) 5 M€, design and supervision 10% of PEM, ICIO at the maximum rate of 4%, FF&E and OS&E 30,000 € a room, launch 5,000 € a room, reserve 10% of the sum of works, design and FF&E.
| Line | Amount |
|---|---|
| Works (PEM) | 5 M€ |
| Design and supervision | 500,000 € |
| ICIO | 200,000 € |
| FF&E and OS&E | 1.2 M€ |
| Launch | 200,000 € |
| Reserve | 670,000 € |
| Total excluding the building purchase, IVA, licence fees and holding costs | 7.77 M€ |
The works are 64% of the total, and the whole budget in the example comes to about 194,000 € a key, before all the lines not included. The figures illustrate the structure, not the price of your project.
Where budgets most often diverge
First: an old building reveals the unknown only after the structure is opened up. The reserve and the sequence of works are described in the article on the contingency reserve. Second: capacity of the building services. If the building cannot carry a hotel on electricity and water, the cost rises; see the check of services capacity. Third: approval times. Each month without income on a loan adds interest, and licence timelines are covered in the article on licence timelines in Barcelona.
Who this calculation does not suit
It does not suit you if the building has not been studied in a technical report: then PEM is a guess. It is also no good for a property where the PEUAT zone is unknown: without the right to a hotel the budget is meaningless. IVA on the works depends on the company's status, and the answer on recovery is in the article on IVA and renovation. DNPI's hotel projects are described on the hotel strategies page.
Questions and answers
How much does it cost to reconstruct a building for a hotel?
There is no single price: it depends on the building, the category and the scope of works. I could not confirm market per-key figures from open sources, so calculate the budget from the designer's survey and estimate.
Is the purchase of the building part of the reconstruction budget?
No, it is a separate line together with the purchase taxes. The reconstruction budget is calculated on top of the building's price.
How much is ICIO for a hotel?
A maximum of 4% of the material execution cost of the works (art. 102 TRLRHL). Which rate Barcelona applies, confirm from its current ordenança.
Is seguro decenal needed for a hotel?
The law makes it mandatory for housing. For a hotel the duty may arise from the contract or the bank's requirements.
