Your 300-square-foot hotel room might be worth more than a house

As a Texas transplant living in New York City, I'm frequently reminded by my well-meaning mother that my rent is more than my parent's mortgage.

"And you don't even have a garbage disposal!"

It's true, rent in New York — and many other cities in the U.S. and around the world — can often cost more than a monthly mortgage payment elsewhere. But you might be surprised to learn that the average hotel room could be worth more than a house when a hotel is sold.

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When a hotel, big or small, goes up for sale there are a lot of factors that play into determining the final sale price. Some of those are obvious, right? A hotel on Fifth Avenue in Manhattan will certainly be more expensive than a hotel in Manhattan, Kansas. And then there are other complexities that drive up the price, such as how much money the hotel actually makes, if it has amenities like a spa or Instagram-worthy rooftop bar and how big or small those rooms are.

For most folks, the price of an entire hotel is probably a mystery, but how would you feel if I told you that a single hotel room is oftentimes worth more than an entire house? And if we're talking about a top-tier luxury hotel, a single room can be worth more than a couple of houses — not to mention a luxury sports car to park in the garage.

For the first quarter of 2022, the hospitality consulting firm LW Hospitality Advisors reported that there were 128 single hotel sales over $10 million. Those combined real estate deals added up to $7.9 billion and included about 26,000 hotel rooms with an average sale price per room of $306,000.

Yes, those 26,000 hotel rooms average out to a whopping $306,000 per room, or about $5,000 less than the typical home value in Dallas, which is $310,959 according to Zillow.

This is a pretty simplistic way to look at that number, and a handful of high-end, high-demand properties can easily skew the average. But it's nonetheless fun to imagine checking in to a hotel where your individual hotel room, as a single piece of real estate, could be worth more than the home you grew up in. It's even more fun to see how that stacks up from hotel to hotel and city to city.

Luckily, LWHA's Major U.S. Hotel Sales Survey breaks down individual sales so we can take a closer look at the average sale price per room of individual properties that recently sold.

In Massachusetts, for example, the 671-key Encore Boston Harbor sold for $1.7 billion dollars in a "sale-leaseback transaction" between San Diego-based Realty Income and Wynn. For this deal, Realty Income paid over $2.5 million per unit, or more than three times Zillow's reported typical home value in Boston ($728,730).

Another mind-boggling statistic for this agreement is that Wynn, which will continue operations of the resort, will pay at least $100 million in rent each year (with gradual increases over time) for a 30-year initial term. (Mom, if you're reading this, how does that compare to your mortgage?)

And in Austin, Host Hotels & Resorts acquired the popular Kimpton Hotel Van Zandt, located near rowdy Rainey Street, for $242 million, or $759,000 per unit, a "new watermark for the Austin Metropolitan Area," according to LWHA. That's more than an 800-square-foot condominium in a downtown high-rise or a 1,686-square-foot three-bedroom, three-bathroom house that's on the market for $750,000.

One particularly exciting sale was the brand-new W Nashville, which sold to Xenia Hotels & Resorts for $328.7 million. That works out to be about $950,000 per unit, another record sale. In Music City, those dollars could get you a 2,716-square-foot house with four bedrooms, four bathrooms, marble showers and more space than I'd know how to fill.

But in contrast, one major New York City sale didn't quite pull the numbers you might expect for the third-largest hotel in the city by room count. Host Hotels, which bought the Kimpton in Austin, sold off the Sheraton New York Times Square for $356 million. With 1,780 rooms, that equates to about $200,000 per key, according to LWHA. Considering that shoebox apartments in New York can easily sell for over half a million (or more, like this luxury 568-square-foot studio currently on the market for $1.5 million), you could argue that $200,000 a room is a pretty good deal.

Sure, I'm comparing apples to oranges here, but the hotel industry is a big business and these numbers highlight that even as the pandemic had a huge effect on travel, there's still money to be made. And beyond hotels being sold to new owners, there are also hundreds of new hotels in the pipeline waiting to open (and eventually be sold).

I may not personally be in the market to buy a hotel, but knowing that my next hotel stay could be in a room that's worth more than the house I someday hope to own — fingers crossed! — I know I'll be looking to compare what that cash could buy me wherever I'm visiting. (And praying it could at least afford me a garbage disposal.)