What is Price Per Key in Commercial Real Estate?
In hotel construction and acquisition, price per key is a metric that compares the amount of money spent on building or acquiring the hotel to the amount of rooms, or keys, in the hotel. To determine price per key, simply use the formula below:
Total Hotel Construction or Acquisition Cost/Total Number of Rooms (Keys) = Price Per Key
For example, if a hotel costs $25 million to build or acquire and has 250 rooms, the price per key would be calculated like so:
$25,000,000/250 = $100,000 Price Per Key
How Lenders and Investors Use Price Per Key
Just like other important hotel financial metrics, such as RevPar (revenue per available room) and ADR (average daily rate), both lenders and investors use price per key to determine the viability of a potential investment. In general, price per key is compared to similar hospitality properties in the area. If, at the same (or very similar) ADR or RevPar, a hotel's price per key is considerably higher than comparable properties, it may be overpriced. However, if a hotel's price per key is lower than similar properties with a comparable ADR and RevPar, it could underpriced, and therefore, a potentially lucrative investment.