Key Financial Metrics We Model
Hotel feasibility analysis requires metrics that do not exist in other commercial real estate asset classes.
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RevPAR (Revenue Per Available Room) is occupancy multiplied by ADR. It is the primary top-line performance metric that SBA and USDA underwriters evaluate against STR competitive set data.
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GOP and GOPPAR. Gross Operating Profit measures hotel profitability before fixed charges, management fees, and debt service. GOPPAR (GOP Per Available Room) is the most accurate measure of hotel operating performance because it captures both revenue and expense efficiency on a per-room basis.
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Flow-through rate measures the percentage of incremental revenue that converts to incremental profit. Strong hotels achieve 50% to 60% flow-through on rooms revenue. This metric is critical for stress-testing: it determines how sensitive profitability is to revenue declines.
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DSCR (Debt Service Coverage Ratio) is the ratio of NOI to total annual debt service. SBA lenders typically require a minimum DSCR of 1.15x to 1.25x for hotel loans. Our models project DSCR under base-case, upside, and downside scenarios with sensitivity testing for occupancy and ADR declines.
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Break-even occupancy identifies the minimum occupancy level at which the hotel covers all operating expenses and debt service. This metric directly answers the underwriter's core question: how much can demand decline before the project fails to service its debt?
Hotel Development Cost Benchmarks
Hotel construction costs vary dramatically by chain scale, market, and project scope. Current median per-room development costs by category:
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Limited-service: approximately $167,000 per room. Midscale extended stay: approximately $169,000 per room. Select-service: approximately $223,000 per room. Upscale extended stay: approximately $265,000 per room. Full-service: approximately $409,000 per room. Luxury: approximately $1,060,000 per room. Overall median across all categories: approximately $219,000 per room.
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Construction cost inflation has moderated from 8% in 2022 to approximately 3.6% as of early 2025 per the Turner Building Cost Index, but elevated material and labor costs continue to compress development feasibility in many markets. Our studies calibrate project cost assumptions against these benchmarks and evaluate whether the proposed budget is realistic for the targeted chain scale and market.
Franchise Requirements and Property Improvement Plans
Most SBA and USDA hotel borrowers pursue franchise affiliations with major hotel companies. Understanding franchise economics is essential to accurate feasibility analysis.
Major hotel companies (Marriott, Hilton, IHG, Wyndham, Choice, Best Western) require their own market feasibility evaluation before granting franchise approval. This brand-mandated assessment operates independently from the lender-required feasibility study, though our SBA/USDA-compliant studies are frequently accepted by franchise development teams as supporting documentation.
For hotel acquisitions and conversions, the franchise company issues a Property Improvement Plan (PIP) specifying required renovations to meet current brand standards. PIP costs typically range from $8,000 to $50,000 per room depending on the brand tier, property condition, and scope of required upgrades. PIP costs have increased 30% or more above pre-COVID levels due to elevated material and labor costs and increasingly stringent brand standards. Our feasibility studies model PIP costs as part of the total project budget and evaluate their impact on DSCR and return metrics.
Institutional-Grade Data and Methodology
MMCG hotel feasibility studies draw on the same data infrastructure used by major hotel companies, institutional investors, and national lenders:
STR (CoStar Benchmarking) for STAR Report data, competitive set performance analysis, and market-level supply and demand metrics. CoStar for commercial real estate market analytics, comparable transaction data, and supply pipeline tracking. ESRI ArcGIS Business Analyst for trade area demographics, consumer expenditure profiles, and drive-time analysis. Placer.ai for mobile location analytics, visitation patterns, and competitive cross-shopping behavior. RMA Annual Statement Studies for NAICS-specific financial benchmarks (NAICS 721110: Hotels and Motels). State and local tourism data from convention and visitors bureaus, destination marketing organizations, and departments of economic development.
Every projection in our studies is traceable to its source. We do not rely on borrower-supplied assumptions, anecdotal evidence, or unverifiable estimates.
Hotel Feasibility Study Cost
Hotel feasibility study fees typically range from $6,000 or more, depending on market complexity, property size, number of revenue streams (rooms, F&B, meeting space, spa), STR data requirements, and the scope of analysis required by the lender. Select-service and limited-service hotels in well-documented STR markets tend toward the lower end. Full-service hotels with food and beverage, meeting space, and multiple demand segments, or properties in markets requiring primary research to supplement limited STR data, fall at the higher end.
MMCG applies the same institutional-grade methodology and analytical rigor found at leading global hospitality consultancies. Our pricing, however, is structured for the SBA and USDA lending market, ensuring that hotel developers and their lenders receive premier-quality analysis without the $20,000 to $50,000 or more fee levels charged by firms whose primary clients are institutional investors and major hotel companies.
Every engagement receives a fixed-fee proposal. No hourly billing, no scope creep, no surprises. Our standard fee structure is 50% upon engagement and 50% upon delivery and positive lender or CDC review and acceptance of the completed study.
Explore Related Feasibility Studies
MMCG produces independent feasibility studies across every major commercial real estate asset class. Our hospitality methodology shares analytical foundations with several adjacent property types. Resort, lodge, and outdoor hospitality operators should review our glamping and short-term rental feasibility study. Developers evaluating hotel-to-senior-care adaptive reuse can explore our assisted living feasibility study, which addresses conversion feasibility for aging hospitality assets. Food and beverage components within hotel operations are analyzed with the same revenue-center methodology applied in our restaurant feasibility study. Extended-stay and residential suite concepts share occupancy dynamics with our multifamily feasibility study. Hotels financed through SBA 504, the single largest category of SBA hotel borrowers, should review our SBA feasibility study requirements. Rural tourism and destination lodge projects in USDA-eligible areas are covered under our USDA feasibility study program page.
For a detailed overview of our feasibility methodology across all property types and lending programs, see our bankable feasibility study framework.
Speak Directly With the Author of Your Study:
Michal Mohelsky, J.D., | Principal | mmcginvest.com
Contact: michal@mmcginvest.com
Phone: (628) 225-1110
Hotel Feasibility Study
Why Hotels Require Specialized Feasibility Analysis
Hotels are among the most analytically complex asset classes in commercial real estate. Unlike static commercial properties, a hotel is an operating business where revenue fluctuates daily based on occupancy, rate management, seasonal demand patterns, and competitive dynamics. This operational intensity means hotel feasibility analysis requires a fundamentally different methodology than retail, industrial, or multifamily feasibility.
SBA lenders classify hotels as special-purpose properties under SOP 50 10 8, triggering mandatory third-party feasibility analysis for virtually all SBA 7(a) and 504 loan applications. The SBA 504 program requires a 15% equity injection for special-purpose properties (20% if the borrower is also a startup), and the combined special-purpose and startup designation can push required equity to 20% or more. Hotels receive additional underwriting scrutiny because they are operating businesses with variable revenue, not passive real estate with contractual rental income.
USDA Business and Industry guaranteed loans are available for hotel projects in eligible rural areas (populations under 50,000), with loans up to $25 million and 60% to 80% federal guarantee. The feasibility study requirements under 7 CFR Part 5001 apply to all USDA-guaranteed hotel projects.
Beyond regulatory compliance, the feasibility study serves a critical practical function: it provides lenders with independently constructed, STR-validated projections that evaluate whether the proposed hotel can achieve stabilized occupancy and generate sufficient cash flow to service its debt obligations in a market where RevPAR growth, new supply, and demand segmentation drive every financial outcome.
What Our Hotel Feasibility Studies Include
Every MMCG hotel feasibility study is engineered to address the full spectrum of analytical requirements that credit committees, SBA loan reviewers, USDA Rural Development offices, and franchise approval teams evaluate.
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STR data and competitive set analysis. Smith Travel Research (now CoStar Benchmarking) STAR Reports form the empirical foundation of every hotel feasibility study. We define the competitive set, analyze historical occupancy, ADR, and RevPAR performance, and calculate penetration indices: Market Penetration Index (MPI), Average Rate Index (ARI), and Revenue Generation Index (RGI). An index score of 100 represents fair market share; scores above 100 indicate the subject hotel is projected to capture more than its proportional share of demand. SBA and USDA underwriters specifically require STR-validated market data.
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Demand segmentation and generator analysis. Hotel demand is not monolithic. Our analysis segments demand into its component sources: corporate and commercial travelers, leisure and tourism, group and meeting business, government and military, extended stay, and construction or project-based demand. Each segment is quantified independently, with growth trajectories modeled against identified demand generators: major employers, hospitals and medical centers, universities, military installations, convention centers, tourism attractions, and infrastructure projects. Diversified demand across multiple segments is a critical underwriting criterion for SBA and USDA lenders.
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Supply pipeline analysis. We evaluate every hotel in the competitive market, profile the existing supply by chain scale and brand, and analyze the development pipeline: projects in planning, under construction, and recently opened. Net supply growth directly affects the subject hotel's projected market share. National hotel supply growth has slowed to approximately 0.5% to 0.8% annually, but individual markets vary significantly.
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RevPAR, ADR, and occupancy projections. Our financial models project Revenue Per Available Room (RevPAR), Average Daily Rate (ADR), and occupancy through the stabilization period (typically Year 3 to Year 5) and across a ten-year forecast horizon. Projections are calibrated against STR historical performance, competitive set penetration indices, and identified demand growth drivers. National benchmarks provide context: U.S. hotel occupancy currently averages approximately 63%, ADR approximately $159, and RevPAR approximately $103.
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Hotel-specific financial modeling. Hotel financial projections follow the Uniform System of Accounts for the Lodging Industry (USALI) framework. Our models project departmental revenue and expenses (rooms, food and beverage, other operated departments), undistributed operating expenses (administrative, marketing, property operations, utilities, IT), management fees, franchise fees, property taxes, insurance, and FF&E reserve contributions. The result is Gross Operating Profit (GOP), Net Operating Income (NOI), and debt service coverage analysis (DSCR) under base-case and stress-test scenarios.
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Franchise economics evaluation. For branded hotel projects, we model the full franchise fee structure: initial franchise fees ($30,000 to $100,000 or more), ongoing royalty fees (4% to 6% of room revenue), marketing and reservation system fees (2% to 4%), and loyalty program fees (0.3% to 6.2%). Total franchise-related costs typically aggregate to 10% to 14% or more of room revenue. Our analysis quantifies the revenue premium that brand affiliation delivers relative to these costs and evaluates whether the proposed brand is the optimal positioning for the subject market.
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California, 94108
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