The Hotel Investor Playbook Ground-Up Boutique Hotel Development in San Francisco - High Risk, Higher Reward? | Mike Demson E22
Mar 18, 2025
Mike Demson, an experienced hotel investor, shares his journey into developing boutique hotels in San Francisco. He delves into finding undervalued properties and maximizing financial returns by increasing density and lowering construction costs. The conversation highlights the balance between innovative design and operational efficiency, focusing on creating memorable guest experiences. Mike also discusses his second project in Sonoma, including plans for expansion and a partnership with IHG's Vignette Collection, providing valuable insights for potential hotel developers.
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Fire-Sale Site Near Fisherman’s Wharf
- Mike bought a former restaurant/warehouse near Fisherman’s Wharf that a previous developer failed to make work.
- He negotiated a fire-sale price after redesigning the plan to increase density and cut construction complexity.
Design Changes Unlock Value
- Redesigning entitlements and value-engineering the build can turn an unprofitable plan into a viable project.
- Increasing density from 12 to 16 rooms and switching foundation methods materially changed the deal math.
Low Build Cost, High Exit Value
- Mike estimates construction at about $350/sq ft for the 16-room project and projects a post-stabilized value north of $11M.
- Low build cost plus high ARRs drives a large spread between project cost and exit value.