Hotel Feasibility Studies: When SBA Requires One, and Why the Pipeline Decides the Answer

Two questions bring most people to this page, so both get answered before anything else.

Does an SBA loan for a hotel require a feasibility study? Frequently, yes. Hotels and motels are special purpose properties under SBA's own classification, and the requirement most commonly attaches to new construction, to a start-up operation, to a change of use or repositioning, and to any transaction where the projections are not supported by the property's own operating history. A lender's internal credit policy can require one independently of anything SBA mandates. The study must be prepared by a qualified third party with no financial interest in the transaction closing.

What decides whether the hotel works? Not the demand analysis. Almost every hotel feasibility study concludes that demand exists, and in a market worth building in, it does. What decides the outcome is supply, and hotels are the one commercial asset class where forward supply is published two to three years in advance.

That second point is the organising insight of this article, because it produces a discipline most studies skip: the subject must be underwritten against the market as it will be once the pipeline lands, not against the market as it performs today. A hotel opening in three years will never once face the supply that produced the occupancy figures in its own feasibility study.

This article sets out the feasibility half of a hotel assignment. How demand is built from generators rather than from population. How the published pipeline is weighted and absorbed. How the revenue build works, and why the ramp fails differently here than in any other asset class. What the flag actually costs, which is roughly double what most pro formas carry. How coverage is tested. And how the credit routes.

It then carries the appraisal analysis as the supporting half.

The finding that changes the underwriting: the pipeline is published, and so is your business case

Forward hotel supply is visible in a way that office, industrial and retail supply is not. Franchise approvals, brand development announcements and construction financing all leave a paper trail, and commercial databases aggregate it into a quarterly register showing projects under construction, starting within twelve months, and in early planning, by market and by chain scale.

Two consequences follow, and the second is the uncomfortable one.

First, supply risk is knowable. A study that models the subject against today's competitive set has made an avoidable error, because the register was sitting there. The correct treatment is to absorb the credible portion of the pipeline into supply before computing the subject's stabilised occupancy.

Second, and this is the part sponsors do not like: the same data is available to everyone. If the market genuinely supports a new hotel, it supports more than one. Every brand's development team, every competing sponsor and every consultant is reading the same demand series. A market attractive enough to justify your hotel is, on identical evidence, attractive enough to justify the competitor that will open six months after you do.

So the risk in a good hotel market is not weak demand. It is that the demand is visible, and visible demand calls forth supply. The feasibility study that justifies your project is functionally the business case for the next one.

What that does to the numbers

Take a market with a competitive set of 1,240 rooms running at 71 per cent occupancy. That is a strong market and it is the number a sponsor will quote.

Now weight the pipeline by phase, because not every announced project gets built and the probability rises sharply as a project advances:

*Illustrative. Phase weightings should be calibrated to published conversion rates where available rather than assumed.*

Add the subject at 130 rooms. Supply at stabilisation is 1,661 rooms, against 1,240 today. Grow demand at 2.5 per cent a year for three years and the arithmetic lands here:

The market grew. Demand grew. And market occupancy fell nearly eleven points, because supply grew faster.

The subject at fair share stabilises at 60.3 per cent. Even at a 110 penetration index, which is a good outcome for a new asset, it stabilises at 66.3 per cent, not the 71 per cent the sponsor extrapolated from today's market.

That six-point gap is the whole deal. It is the difference between a comfortable coverage ratio and a covenant breach, and it was available in a published database before anyone broke ground.

Conversions are supply too

One refinement that catches people out. A competitor re-flagging from an independent to a national brand adds no rooms to the market and will not appear in a supply count. It adds a reservation system, a loyalty base and a renovation, and it will take share from the subject.

Conversions have become a large share of brand growth precisely because they are faster and cheaper than new build. A supply analysis that tracks only room count will miss the competitive event entirely.

When SBA requires a feasibility study, in more detail

Because this is the question that brings most sponsors here, it is worth setting out properly.

The triggers. A third-party study is generally required where one or more of the following applies:

• New construction, where there is no operating history to project from
• Start-up operation, including an existing building being converted to hotel use
• Special purpose property, and hotels and motels appear on SBA's own list
• Change of use, repositioning or rebranding, which is a change of business rather than a change of owner
• Projections not supported by historical operations, which covers most acquisitions where the buyer's pro forma exceeds the seller's actuals
• The lender's own credit policy, independent of any agency requirement

Who may prepare it. A qualified, independent third party with demonstrated competence in hotel market analysis. Independence is the operative test rather than the label: a study prepared by a party with a financial interest in the transaction closing is not a third-party study however it is titled, and that includes a broker, the franchisor's development team, or an affiliate of the sponsor.

What it must contain. At minimum a defined competitive set, a demand analysis, a supply analysis including the pipeline, projected occupancy and average daily rate with penetration reasoning, and financial projections through stabilisation.

What it is not. A feasibility study is not an appraisal and does not conclude a value. It concludes whether the project is feasible and on what assumptions. Where an SBA going-concern appraisal is also required, that is a separate engagement with separate competency requirements, and the appraisal section below sets out what it will test.

Demand analysis: build up from generators, not down from population

A hotel trade area is not a radius. Demand is quantified by inventorying the specific generators around the site and estimating the room nights each produces, then summing them. This is the demand build-up method and it is the clearest single marker separating a real study from a template.

The segments

Commercial and business transient. Major employers, office parks, corporate headquarters, hospitals and medical campuses, industrial and logistics facilities, government installations. Quantified generator by generator: who visits, how often, for how long. Midweek-weighted and rate-resilient.

Group and meeting. Convention centres, corporate meeting space, universities, and social and fraternal events including weddings. Quantified from the convention centre's booking pace and room-block history, plus whatever meeting space the subject itself proposes. The hardest segment to underwrite because it books forward and can evaporate.

Leisure and transient. Attractions, seasonal draws, sports tournaments, and pass-through highway traffic. Weekend-weighted, more rate-elastic.

Contract and crew. Airline crew blocks, construction crews, extended project workforces. Contractually committed base demand that stabilises occupancy and drags average rate.

A worked build-up

*Illustrative. Each generator must be named and sourced.*

Unaccommodated demand is the part sponsors like and reviewers distrust, so it needs quantifying rather than asserting. It is identified from compression nights, meaning nights on which the competitive set runs effectively sold out and rate spikes, implying demand that was displaced or priced out. Count the sold-out nights in the market data and estimate the displaced room nights from them. Do not assert latent demand without that arithmetic.

Segment mix is a credit characteristic, not a description

Two hotels in the same building with different segment mixes are different credits.

The segments have recovered at different rates and to different levels since 2020, with leisure recovering first and strongest, business transient following, and group recovering latest and unevenly by market.

The underwriting consequence is direct: a group-heavy pro forma in a market where group has not returned to its prior level is carrying a demand assumption the market is not currently supplying. Test the segment mix against the segment's own trend, not against total market demand.

The revenue build

Occupancy, rate and the two indices

RevPAR is occupancy multiplied by average daily rate, and the two move independently. A hotel can raise rate while losing occupancy and end up flat.

For a prospective hotel you cannot observe share, so you project two indices against the competitive set and defend both:

• Occupancy index. A well-located new build with a strong flag typically opens below fair share and rises toward or through 100 by stabilisation, often settling modestly above 100 because it is the newest product in the set.
• Rate index. Slower, and this is where studies overreach. A new hotel almost always opens at a discount to its eventual stabilised rate, buying occupancy and accumulating reviews before pushing rate. A pro forma showing the subject leading its competitive set on rate in year one is a red flag, and a reviewer will treat it as one.

Project the two on different curves. A single blended ramp overstates year one and year two RevPAR.

The other operated departments

Food and beverage. Full service, upper upscale and convention hotels run real F&B operations with real margins. Most select-service and midscale hotels run breakfast at or near a loss and treat it as a cost of selling the room. Projecting full-service F&B margins onto a select-service pro forma is a common and material error.

Meeting and banquet. Profitable where group is a core segment, negligible in interstate limited service.

Parking, spa and resort fees. Meaningful in urban and resort settings. Note that resort and destination fees have drawn regulatory attention on undisclosed and drip pricing, so revenue leaning heavily on non-disclosed fees carries a regulatory risk to that line.

Extended stay as a distinct model. Lower operating cost per occupied room, since there is limited or no F&B and lighter stayover housekeeping, and longer stays reduce turnover cost. The result is a higher house profit margin at a generally lower rate, with demand skewed to project, relocation, insurance displacement and medical. For a lender the attraction is that the cash flow is steadier, which underwrites better against fixed debt service than a higher but more volatile transient stream.

Net rate, not gross rate

A material share of bookings arrives through online travel agencies at commissions well above the cost of the brand's direct channels.

Two hotels with identical average daily rate can therefore realise materially different revenue depending on channel mix. The study should model channel mix and report net rate, because gross ADR is the number that flatters and net ADR is the number that services debt.

Ramp, and the failure that is the mirror image of every other asset class

A new hotel takes roughly three years to reach stabilised performance. Debt service begins immediately.

That combination produces a failure mode unlike anything in the rest of this series. In most asset classes the danger is decline. Here the asset is ramping upward the whole time, and the danger is that stabilisation arrives after the money runs out.

*Illustrative.*

The cumulative shortfall across the ramp is $565,000, and that is what the interest reserve has to fund. If the reserve was sized on a two-year ramp, or on an optimistic year-one occupancy, it exhausts before the hotel gets there and the sponsor funds the gap or defaults.

A one-year slip in the ramp costs more than a ten per cent miss at stabilisation. A fourth ramp year adds roughly another $150,000 of shortfall; a ten per cent revenue miss at stabilisation costs about $118,000 of annual NOI. The timing risk is larger than the performance risk, and it is the one that gets less attention.

So the ramp assumption and the reserve sizing are a single question, and an aggressive ramp is dangerous even in a strong market, because it under-sizes the reserve that protects the deal.

Seasonality

Resort and leisure markets swing hard, convention markets swing with the booking calendar, urban commercial markets less so. The consequence is a working capital requirement set by the trough rather than the annual result, and a coverage ratio that can clear annually while breaching monthly. Model it monthly and show the credit committee the trough.

Cost structure: the flag costs about twice what the pro forma says

The fee stack

The headline royalty is the first layer of the brand cost and roughly half of it. A franchisee also pays a brand marketing or programme fund contribution, a loyalty programme charge, reservation and central booking fees, and technology and system fees, each disclosed separately in the franchise disclosure document.

*Illustrative and directional. The stack varies by brand, by contract vintage, and by whether a given fee is assessed on rooms revenue, on total revenue or on loyalty-member revenue. Report the actual figures from the current disclosure document for the brand in question rather than treating the doubling as a constant.*

Put that against a hotel with $3.2 million of rooms revenue. The headline royalty is $176,000. The all-in brand cost is $390,400. The gap is $214,400 a year, which is larger than the entire FF&E reserve on a property of that size.

A pro forma built on the royalty rate has understated the largest controllable expense line by an amount that exceeds its whole capital reserve. This is the single most common material error in hotel acquisition underwriting, and unlike most modelling errors it is checkable in ten minutes against a public document.

The rest

Labour. The dominant cost story since 2021, and at some properties the binding constraint on service level and therefore on achievable rate: a hotel that cannot staff cannot sell the rate its product would otherwise command. Whether that is still binding depends on the current market and should be tested rather than assumed.

Insurance. A step-change line in coastal, wind-exposed and wildfire-exposed markets rather than an inflation line. Carry a market-specific figure.

Property tax reassessment on sale. The buyer's pro forma built on the seller's historical tax line is overstating NOI, often materially. On a change of ownership the assessment commonly resets toward the transaction price.

Management fees. A base fee on total revenue plus an incentive fee against a profit hurdle. The structure matters: brand-managed carries the highest fee load and the least owner control, third-party management separates the flag from the operator, and owner-operation removes the external fee but requires operating capability the sponsor must actually have.

The property improvement plan. On acquisition or licence renewal the brand issues a required capital scope to bring the property to current standard. This is a capital obligation on top of the purchase price, and the debt has to fund it. The true acquisition basis is purchase price plus PIP plus the reassessed carrying cost, and a deal underwritten without all three is underwritten on the wrong number.

The reserve, as a capital plan rather than a percentage

The appraisal treats the FF&E reserve as a smoothed percentage of revenue, which is the right tool for a valuation. For a feasibility study it is the wrong tool, because it tells you nothing about when the money is actually needed.

Size the reserve against the property's real position in each component cycle:

The difference this makes to coverage is not small:

*Illustrative, for a property two years from a full renovation. A property that has just completed its cycle would show the opposite distortion.*

A flat percentage over-reserves a freshly renovated hotel and badly under-reserves one approaching its cycle. The second error is the expensive one, because it arrives at the same time as the PIP.

Coverage and sensitivity

The definitions

Conventional and SBA practice tests EBITDA over total debt service, with SBA underwriting centred on a minimum of 1.15 times.

Under USDA's rule at 7 CFR Part 5001, replacement capital expenditure is deducted from EBITDA before the ratio is taken. Hotels are the one asset class in this series where conventional practice already does most of that work, because the FF&E reserve is a standard deduction. The gap between the two definitions is therefore narrower here than in marinas or bowling. It is not zero, and it widens exactly when the cycle-based reserve exceeds the flat percentage, which is when the property is approaching renovation and least able to absorb the difference.

Hotel credits also carry tighter conventional terms than most commercial property: lower leverage, higher minimum coverage, and a minimum debt yield above what stabilised multifamily or industrial would face, all of it a direct consequence of cash flow that reprices daily.

Sensitivities that mean something

The pipeline landing in full. Not a revenue haircut. Take the weighted pipeline to 100 per cent of announced and recompute market occupancy. If the deal only works when a third of the pipeline fails, say so plainly, because that is what the sponsor is betting on.

The ramp running a year long. As shown above, this is the largest single risk in a new build and it is a timing risk, not a performance one.

Rate index at parity rather than at a premium. Strip the penetration premium and see what the credit looks like at fair share.

Group not returning. For a group-dependent property, remove the group segment's assumed recovery and hold the rest.

The PIP arriving early, at licence renewal rather than at the modelled date.

Channel mix shifting toward the higher-commission channel, holding gross rate constant and watching net rate fall.

Break-even, stated as occupancy

The most useful single output: the hotel covers at 1.00 times at 58.4 per cent occupancy holding rate, and at 1.25 times at 66.1 per cent.

Set that against the stabilised projection of 66.3 per cent computed earlier, once the pipeline was absorbed, and the headroom is two-tenths of a point. That is a sentence a credit committee can act on, and it is considerably more informative than a sensitivity table showing the deal survives a ten per cent revenue decline.

Programme routing

SBA 7(a). The primary channel for hotel acquisition, and hotels are among the largest categories of SBA lending by dollar volume, precisely because they are owner-operated businesses attached to real estate. Special purpose classification raises the equity requirement and triggers the feasibility study discussed above.

SBA 504. For ground-up construction and major renovation, funding the real property and long-lived components. Does not fund working capital, which for a hotel in ramp is a real requirement and has to be solved separately.

USDA Business and Industry under 7 CFR Part 5001. Available for hotels in rural areas under the population threshold, which covers a great many interstate and small-market properties. Larger loan sizes than 7(a). The stricter coverage definition applies.

Conventional, CMBS and hotel specialist lenders. Tighter than other commercial property on every metric, for the reasons above.

Gap capital. Immigrant investor funding and property-assessed clean energy financing both appear in hotel development, the first historically in larger full-service projects and the second in both new build and the recapitalisation of stalled ones. Both have their own eligibility and structural constraints and neither is a substitute for a workable base case.

Where hotel projects fail

New supply arrived during the ramp. The dominant failure, and the most avoidable, because the register was public.

Rate penetration was assumed above the competitive set from year one, with no product or location justification.

Group demand was assumed at a level the market no longer supports.

Construction cost overran a fixed loan amount, with the sponsor funding the gap or the project stalling.

The interest reserve exhausted before stabilisation. The distinctive hotel failure: a fundamentally sound asset that ran out of runway.

The PIP arrived at renewal or on transfer, unfunded.

The franchise agreement did not transfer. The flag does not automatically convey on sale. The brand can decline the buyer or condition consent on a PIP, and a hotel that loses its flag loses its reservation system and loyalty demand at once.

Channel cost eroded net rate while gross rate looked fine.

Labour unavailability capped service and therefore rate.

The brand cost was underwritten at the royalty rate, understating the largest controllable expense by more than the reserve.

What the appraisal will test

The feasibility study establishes whether the project works. The appraisal establishes what it is worth, and hotels are where that second question is hardest, because the profession has spent four decades arguing about how to answer it.

Why hotels are the hardest going concern

Every special-purpose property blends real estate with operation. Hotels do it more completely than any other asset class.

A hotel's income comes from selling rooms nightly at prices that change daily, through distribution channels the operator does not own, under a brand the owner licenses rather than owns, managed by a company that may be a third party, using furniture and equipment that wears out on a defined cycle.

None of that income is attributable purely to the building. But the building is the collateral, and for property tax purposes the real estate is the only taxable component. So the allocation question, meaning how much of the value is real property, how much is FF&E and how much is business, is unavoidable and consequential.

The three components are real property, being land and improvements; tangible personal property, being furniture, fixtures and equipment, guest room furnishings, case goods, soft goods, kitchen and laundry equipment and technology systems; and intangible personal property, being the brand or flag, the reservation system, assembled workforce, customer relationships, and the assembled going concern itself.

Two methods, one long argument

The appraisal profession has two recognised methods for separating these components, and they have been in open dispute since the 1980s.

The Rushmore Approach was developed by Stephen Rushmore, who founded Hospitality Valuation Services, later HVS, in 1980, and set out in a 1978 monograph and a 1983 appraisal textbook that reshaped how hotels are valued. The business component is separated by deducting management and franchise fees from the hotel's stabilised net income, on the reasoning that these fees are what the market charges for the business services being provided, so removing them removes the income attributable to the business. The personal property component is handled by deducting a reserve for replacement along with the actual value of the personal property in place, with separate adjustments for periodic replacement, the return of FF&E, and for yield on the investment in personal property, the return on FF&E.

The Business Enterprise Approach makes the same management and franchise fee deductions, then goes further. It also subtracts business start-up costs, and excludes value attributable to the franchise flag itself along with various residual intangibles. The BEA is substantially more aggressive in attributing value to the non-real-property components. Applied to the same hotel, it produces a lower real property value, which is why it has found favour with property tax representatives, since a lower real property value means a lower assessment.

The gap between the two methods is not marginal. In one documented comparison of the same property, the business enterprise approach produced a real-property-only value of roughly $10.0 million against the Rushmore Approach's $16.6 million. Same hotel, same income, same effective date.

The double-counting rule

The technical heart of the dispute was addressed squarely in a New Jersey tax case, and the principle established there is the single most useful thing an appraiser or a lender can know about hotel FF&E treatment.

It is permissible to deduct a reserve for replacement, and either a return on FF&E or the actual value of the FF&E in place, but not both.

Deducting a return on FF&E from income and deducting the invested capital from value counts the same asset twice. As the court put it, there may be legitimate differences of opinion about the appropriate rate of return on capital invested in FF&E, or about the extent of depreciation, but allowing both deductions is double counting.

For anyone reviewing a hotel appraisal, this is a checkable item. Look at how FF&E is handled. If the report deducts a return on FF&E from the income stream and subtracts the value of FF&E in place from the capitalised result, the real property value is understated and the error is identifiable.

Why the courts are split, and why lenders should care

The Rushmore Approach was for many years consistently applied by appraisers and widely accepted by courts, which established it as the leading methodology in hotel property tax valuation.

That consensus has weakened. More recent decisions have gone the other way. At least one court has rejected an assessor's use of the Rushmore Method on the basis that deducting management and franchise fees alone failed to adequately remove intangible value, reasoning that brand, customer relationships, workforce and other business components are not part of the real estate and must be addressed separately. Similar rulings have followed in Florida and elsewhere.

The lending implication is the one that matters here, and it is under-discussed. The dispute is usually framed as a property tax argument, because that is where the money is fought over. But the allocation question is identical to the one SBA requires in a going-concern appraisal: how much of this hotel's value is land and building, how much is equipment, how much is business.

Widespread adoption of the more aggressive approach would materially reduce the real property values derived for hotel mortgage loan appraisals. A method that assigns more value to intangibles assigns less to collateral, and collateral is what the lender advances against.

So a hotel owner arguing for a low real property value in a tax appeal is arguing, in a different forum, for a lower collateral value on their own asset. Those positions are not always reconciled, and a lender reviewing an appraisal alongside a tax appeal file may notice.

The reserve and the flag, from the valuation side

Hotels consume their furniture and equipment on a defined cycle, with soft goods every six to seven years, case goods longer, and systems on their own schedule, and the reserve for replacement is how that consumption enters the valuation. Industry practice expresses the reserve as a percentage of total revenue. A reserve at 5% of total revenue sits at the high end of industry standards; lower figures are common and are a function of the hotel's age, condition, chain scale and position in its renovation cycle.

The reserve is not optional and its level is not arbitrary. A hotel appraisal with no reserve, or a token one, overstates net income and therefore overstates value. A hotel that has deferred its renovation cycle needs a larger reserve, not a smaller one, because the spend is imminent rather than distant.

On the flag, the brand delivers demand through the reservation system, loyalty programme and brand recognition, which is why hotels pay for it. The franchise agreement is a contract with terms: remaining term, transferability on sale, the approval process for a new owner, and the fees payable all affect value. The property improvement plan is the item most often underweighted, and a hotel purchased with a $2 million PIP due in year one is not the same asset as an identical hotel that has just completed its renovation cycle. Where a hotel is unbranded, the question inverts: what would it cost to obtain a flag, and what demand is the property foregoing without one?

Sales comparison and cost

Sales comparison in hotels is usually expressed as price per key, and it is genuinely useful as a reasonableness check. Its weakness is that a per-key figure aggregates real property, FF&E and business value into one number, so comparing per-key metrics without adjusting for the components is comparing going-concern prices, not real property values.

The cost approach has limited weight on operating hotels and more on proposed ones. Its usefulness is in testing whether the income-derived value exceeds replacement cost, which for a construction loan is the question the lender is asking anyway. Where a proposed hotel's prospective value falls short of its development cost, the project has a value gap.

Where hotel appraisals go wrong

• FF&E double counted. The error the New Jersey court identified, and it is still made.
• Reserve for replacement omitted or understated, particularly on properties with deferred renovation.
• PIP ignored. A pending capital obligation treated as though it did not exist.
• Comp set poorly defined. Penetration analysis is only as good as the competitive set, and a flattering comp set produces flattering indices.
• Allocation method unexplained, so the conclusion cannot be tested.
• Departmental analysis absent, with revenue and expense modelled in aggregate.
• Prospective values without a credible ramp. A proposed hotel reaching stabilised occupancy immediately on opening.

What a lender is reading for

On the feasibility side

• Is demand built up from named generators, or derived from population?
• Is unaccommodated demand quantified from compression nights rather than asserted?
• Is the pipeline absorbed into supply, weighted by phase, before the subject's stabilised occupancy is computed?
• Does the analysis account for conversions, which add competition without adding rooms?
• Are occupancy and rate indices projected on separate curves, with the opening-year rate discount modelled?
• Is the interest reserve sized against the cumulative ramp shortfall, and tested against a ramp running a year long?
• Is the brand cost the all-in fee stack or just the royalty?
• Is the reserve built from the property's actual position in its component cycles?
• Is net rate reported alongside gross rate?
• Is break-even stated as an occupancy percentage against the post-pipeline projection?

On the appraisal side

• How is FF&E handled, and is anything counted twice?
• What is the reserve for replacement, and does it reflect the property's actual position in its renovation cycle?
• Is a PIP pending, and has its cost been deducted?
• Which allocation method was applied, and is it explained? Particularly on an SBA going-concern assignment where separate values for land, building, equipment and intangibles are required.
• Does the penetration analysis use a defensible competitive set?
• Does the real property value stand on its own, meaning, if this flag were lost and this operator left, what would the building be worth?

Hotels are the asset class where the going-concern allocation problem is at its most acute, and where the profession has spent forty years arguing about the right answer without reaching one. That is not a reason to avoid the question. It is a reason to expect an appraisal that states which method it used, applies it consistently, and does not count the same asset twice.

The feasibility discipline has a matching asymmetry. The hardest question is not whether demand exists, because in a market worth building in it does, and a study can always prove it. The hard question is what the market will look like when the building opens, and unlike almost every other asset class, that answer is already published. The failure is rarely that nobody could have known. It is that nobody looked.

For the cross-asset framework, demand regimes, valuation methods and reviewer tests, see the 2026 Feasibility Methodology Atlas.

Frequently asked questions

Does an SBA loan for a hotel require a feasibility study?

Frequently. Hotels and motels are special purpose properties under SBA's classification, and the requirement most commonly attaches to new construction, to a start-up operation, to a change of use or repositioning, and to any transaction where the projections are not supported by the property's own operating history. The lender's own credit policy can require one independently. The study must be prepared by a qualified third party with no financial interest in the transaction closing.

Who can perform a hotel feasibility study for SBA?

A qualified, independent third party with demonstrated competence in hotel market analysis. Independence is the operative test rather than the label: a study produced by a broker, by the franchisor's development team, or by an affiliate of the sponsor is not a third-party study however it is titled.

What is the difference between a hotel feasibility study and a hotel appraisal?

A feasibility study concludes whether the project works and on what assumptions. It does not conclude a value. An appraisal concludes a value and, on an SBA going-concern assignment, allocates that value between real property, furniture and equipment, and business value. They are separate engagements with separate competency requirements, and a lender on a construction deal will usually need both.

How do you project occupancy for a hotel that does not exist yet?

By projecting an occupancy index and a rate index against a defined competitive set, and defending both. A well-located new build with a strong flag typically opens below fair share and rises toward or through 100 by stabilisation. Rate ramps more slowly than occupancy, because a new hotel almost always opens at a discount to its eventual stabilised rate.

Why does the construction pipeline matter so much for hotels?

Because forward hotel supply is published two to three years out, which is unusual in commercial property. A hotel opening in three years will never face the supply that produced the occupancy figures in its own feasibility study. A market running at 71 per cent today can stabilise near 60 per cent once the credible pipeline lands, and that difference is usually the whole deal.

What does a hotel franchise actually cost?

Considerably more than the headline royalty. Add the brand marketing or programme fund, the loyalty programme charge, reservation and central booking fees, and technology and system fees, and the all-in cost commonly runs to roughly double the royalty rate as a share of rooms revenue. On a mid-sized hotel that difference can exceed the entire annual FF&E reserve, and it is checkable against the brand's franchise disclosure document.

*Prepared by UnionMetric Appraisal & Feasibility. This article describes general appraisal practice and summarises a contested methodological debate; case outcomes vary by jurisdiction and the summaries here are not legal advice. Valuation standards are periodically revised; confirm current requirements before relying on any detail. Last updated: 2026-07-31.*

*Feasibility methodology, demand and pipeline arithmetic, fee stacks, reserve schedules and worked examples in this article are illustrative planning frameworks and require calibration to the subject market and property. Franchise fee structures vary by brand and contract vintage and should be read from the operative franchise disclosure document. Loan programme parameters change and should be confirmed against the operative agency guidance at the date of application.*