The former Courtyard by Marriott on West Bay Road in Grand Cayman is being demolished rather than rebuilt.
The property has been closed since sustaining substantial water damage from Hurricane Rita in November 2008.
Plans originally called for the property to reopen after renovations, although the relaunched hotel was not expected to be a Courtyard.
Dart Realty purchased the 232-room property across the road from Seven Mile Beach in January 2011.
Developing a new resort on the site outweighed the efficiency of rebuilding the damaged hotel, according to Dart Realty.
The new hotel will have between 200 and 245 rooms and could open in late 2015. Follow Gay Nagle Myers on Twitter @gnmtravelweekly.