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Residence Inn Boca Raton – Hotel Financial Case/Feasibility Study

  • Writer: MMCG
    MMCG
  • 2 days ago
  • 23 min read

Residence Inn Boca Raton, 525 NW 77th St, Boca Raton, FL
Residence Inn Boca Raton, 525 NW 77th St, Boca Raton, FL


Executive Summary

  • Property & Brand: The Residence Inn by Marriott Boca Raton is a 120-room upscale extended-stay hotel built in 1988 and last renovated in 2009 It sits on a 4.26-acre site near I-95, featuring two-story residential-style buildings with suites and amenities (pool, fitness center, sport court, 24/7 market, and a 651 SF meeting room). Its location in Boca Raton’s Northwest corridor provides easy interstate access and proximity to corporate offices and leisure demand generators.

  • Current Sale & Value: The property is currently under contract for $14.25 million (about $118,750 per room), reflecting a cap rate around 9.16% on a stabilized net income basis. This pricing is well below recent luxury and lifestyle hotel trades in the area (which have ranged from $409k to over $1M per key), indicating a value-add opportunity. Notably, the hotel was marketed via an auction process with a low initial asking price of $4.5M, underscoring a motivated sale and competitive bidding dynamics.

  • Financial Performance: In 2023 the hotel achieved 75% occupancy with an effective gross income of $4.80M. Operating expenses were high at 82.8% of revenue, resulting in a Net Operating Income (NOI) of $827K (about $6,900 per room) and net cash flow of $635K after capital reserves. This marks a steep NOI decline from 2021–2022 levels (when NOI averaged ~$1.5M/year) due to lower revenue and cost inflation. The 2023 EBITDA margin (~17%) is below typical upscale hotel benchmarks, suggesting margin expansion potential through revenue growth and cost control.

  • Loan & DSCR: The asset is encumbered by a $10.36M loan originated in early 2020 (maturing March 2030). The loan carries a 4.2% fixed interest rate and is now amortizing (no interest-only period remaining). As of 2023, the balance is about $9.40M, and the NOI debt service coverage ratio (DSCR) stands at 1.36×, indicating adequate but thin cash flow coverage. Prepayment is subject to yield maintenance through late 2029, effectively locking in the financing unless assumed by a buyer. This below-market interest rate debt could be an attractive assumable financing for a new investor, although the yield-maintenance prepayment penalty is a consideration in any sale prior to Q1 2030.

  • Market Outlook: The Boca Raton hospitality submarket has shown robust performance coming out of the pandemic. Trailing-12-month occupancy is 68.2% with Average Daily Rate (ADR) about $239, yielding RevPAR of $163 (9.2% YoY growth). However, RevPAR growth is forecast to flatten or decline modestly by late 2025 as pent-up leisure demand softens and hotels face pricing pressure. The market’s long-term fundamentals remain solid – Boca Raton is a high-end, supply-constrained submarket with diversified demand (corporate offices, university, and resort leisure) – but new supply (~490 rooms under construction) and rising cost of capital temper the near-term outlook. In the “Upscale” chain segment, hotels operate around ~72% occupancy with ADR in the mid-$150s, so the subject property’s recent 75% occupancy is above par while its ADR (estimated $140s) trails peers, highlighting room for rate growth.

  • Investment Thesis: From an investor’s perspective, the Residence Inn Boca Raton offers a value-add opportunityto acquire a Marriott-branded asset at a basis (~$119k/key) well below regional averages. The going-in cap rate (high-9% on stabilized earnings) is notably above prevailing cap rates for South Florida hotels, suggesting upside if earnings rebound. The property’s extended-stay format and strong location near Interstate 95 and corporate demand drivers should facilitate stable occupancy. Key upside will come from driving ADR and RevPAR closer to the upscale segment norms and rebalancing the cost structure (the 83% expense ratio in 2023 leaves significant potential for improved operating efficiency. Assuming the new owner can implement renovations (the hotel is 15+ years post-renovation) and modernize operations, the feasibility analysis indicates potential to restore NOI to ~$1.3M+ (the 2022 level) or higher over the medium term, which would yield a healthy stabilized return on investment. The following report sections provide a detailed analysis of the property, loan, market, and financial projections supporting this conclusion.




1. Property Overview

Residence Inn Boca Raton is an upscale extended-stay hotel located at 525 NW 77th Street in Boca Raton, Florida. The property consists of 120 suites in a low-rise, campus-style layout (two stories across several buildings) set on a 4.26-acre site. Developed in 1988 and last renovated in 2009, the hotel carries the Residence Inn by Marriott flag, benefiting from Marriott’s global reservation system and brand standards for long-term stay products. Each guest unit is a studio or one-bedroom suite with a full kitchen, targeting business travelers on extended assignments, relocating families, and leisure guests seeking apartment-style accommodations.


Facilities & Amenities: The hotel offers amenities expected of the Residence Inn brand and competitive upscale hotels. These include a heated outdoor swimming pool and sun deck, an on-site fitness center, and an outdoor Sport Court (multi-use sports area) for guest recreation. For food & beverage, the property features a 24-hour market pantry in the lobby and provides complimentary hot breakfast daily (a brand standard for Residence Inn). While it does not have a full-service restaurant, each suite’s kitchen and nearby dining options mitigate this. The hotel also has 651 square feet of meeting space, suitable for small meetings or events, and guest laundry facilities on-site. Ample surface parking is available around the buildings. Overall gross building area is approximately 76,514 SF (around 637 SF per guest room, reflecting the suite layouts and common areas).


Location & Access: The property is strategically positioned just off Yamato Road near the Interstate-95 (I-95) interchange, providing excellent regional connectivity. It sits in the Park of Broken Sound area, a commercial hub with several corporate offices and industrial business parks. Major companies in Boca Raton such as Office Depot, ADT, and Tyco Integrated Security have offices in the vicinity, contributing to lodging demand. Florida Atlantic University (30,000+ students) is also a demand driver in the market, located roughly 5 miles south. In terms of proximity, the hotel is ~3 miles from Boca Raton Executive Airport and ~28 miles from Fort Lauderdale-Hollywood International Airport, making it convenient for both private and commercial air travelers. The immediate surroundings include other commercial hotels (mainly smaller limited-service properties) and mid-range dining options along Yamato Rd and Congress Ave. Leisure travelers are within a 10-15 minute drive of Boca Raton’s beaches and downtown, though the Residence Inn’s primary appeal is to those seeking longer stays or suite-style accommodations slightly removed from the tourist center.


Competitive Position: Within the Boca Raton lodging market, the Residence Inn competes in the upscale extended-stayniche. Its direct comps include other extended-stay brands (e.g., Hilton’s Homewood Suites or Hyatt House, if any in the area) and upscale select-service hotels for shorter stays (e.g., Marriott Boca Raton, Hilton Boca Raton Suites). The property’s strengths are its apartment-like rooms and Marriott branding, which capture long-term corporate demand and loyalty program members. Its limitations are the age of the property (the last major renovation was in 2009, and competitive hotels built or renovated more recently may offer more modern decor and technology) and limited F&B/meeting facilities relative to full-service hotels. Nonetheless, the Residence Inn benefits from high guest satisfaction in the extended-stay segment and relatively low operating costs (no restaurant or extensive services) which can support strong profit margins in stabilized years. The two-story layout (no elevators needed for most rooms) and exterior entrances are convenient for guests (especially for long stays or those with pets), though this suburban design may be less appealing to some than a newer high-rise hotel. In summary, the property is a well-located, branded extended-stay hotel with solid fundamentals, poised for an update to remain competitive in the Boca Raton market.



2. Loan Analysis

The Residence Inn Boca Raton is encumbered by a 10-year permanent loan originated in early 2020 (March 2020). Key terms of the existing debt are as follows:

  • Original Principal: $10.36 million, provided in 2020 (likely via a CMBS/conduit execution for acquisition financing). The loan was used by the current owner (Waterstone Hospitality, per news reports) to purchase and renovate the hotel in 2020bizjournals.combizjournals.com. It was securitized in a CMBS pool in 2021, indicating it’s a non-recourse mortgage with standard conduit terms.

  • Interest Rate & Structure: Fixed interest rate of 4.20%, which is very favorable relative to today’s interest rates. The loan had either a brief interest-only period or began amortizing immediately; currently no interest-only period remains, so the loan is fully amortizing. The debt service is based on a 25–30 year amortization schedule, resulting in annual debt service of approximately $610K–$630K (implied by the DSCR on 2023 NOI).

  • Current Balance: Approximately $9.40 million as of Q1 2025. Over five years, about $0.96M of principal has been repaid, reflecting amortization. The NOI DSCR is 1.36× for 2023file-efrf73fcwcx2owpudasvg1, meaning the $827K in NOI covered the annual debt service ~1.36 times. This is a deterioration from prior years (DSCR was ~2.5× in 2021–2022file-efrf73fcwcx2owpudasvg1 when NOI was higher), but still above the typical 1.20× threshold for default. However, the downward trend in DSCR could raise lender concern; indeed, hospitality loans with DSCR under 1.4× often get added to watchlists. The loan is performing (no payment default), but the cash flow cushion is modest. If 2024–2025 operations remain at 2023 levels, DSCR would hover around 1.3–1.4×, indicating limited ability to withstand further NOI declines without breaching covenants.

  • Maturity: The loan matures in March 2030 (10-year term from 2020). The amortizing balance at maturity is projected to be around $8.5M, barring early payoff. Given the yield maintenance prepayment penalty in effect through December 2029, the borrower is effectively “locked out” from refinancing or prepaying without a significant penalty until roughly 3 months before maturitysec.govstreetinsider.com. Yield maintenance requires the borrower to compensate the lender for lost interest if paid off early; in this case, any sale or refi prior to late 2029 would incur a prohibitively expensive fee. This structure is common for CMBS loans and ensures the lender (or bondholders) receive the contracted yield.

  • Implications for Sale: For a buyer of the Residence Inn, there are two main options: assume the existing loan or pay it off with penalty. Assuming the loan could be attractive since the 4.2% rate is well below current market rates for hotel debt (which might be 6–7%+ in 2025). An assumption would require lender approval and the buyer meeting credit standards, but it avoids the yield maintenance cost. The trade-off is the loan has a fixed schedule and matures in 5 years, so the buyer would need to refinance by 2030. Alternatively, if the buyer secures new financing, the purchase price effectively must cover not just the $9.4M balance but also the yield maintenance penalty (likely several hundred thousand dollars or more, decreasing as the loan approaches maturity) – which may explain the auction’s low starting bid (to net out encumbrances). It is likely that bidders factored this in, and the winning bidder at $14.25M will either assume the loan or has priced the transaction to account for the prepay cost. From an investment standpoint, the in-place financing is a double-edged sword: it provides cheap capital but limits flexibility. Lenders in 2025 are conservative on hotels, so assuming the loan might be the only viable path to finance the deal at a reasonable cost. The feasibility of this acquisition is thus enhanced by the assumable debt’s low rate, though the upcoming maturity means any business plan must consider a refinance or sale by 2030.


3. Sales and Valuation Context

The Boca Raton hotel market has seen a bifurcation in asset values, with trophy resorts commanding record prices while older select-service hotels trade at more modest per-room figures. The Residence Inn’s pending sale at $14.25M ($118,750 per room) falls in the latter category and appears to be an opportunistic/value-driven transaction. Below is a comparison of the subject property’s pricing with recent hotel sales in the Boca Raton area:

  • Subject Property (Residence Inn Boca Raton, 120 rooms): Under contract for $14.25 million ($118.8k/room) at a cap rate of 9.16%. This cap rate is based on a normalized net cash flow ($1.3M) that the hotel achieved in 2022. On the actual trailing 2023 NOI of $827K, the cap rate would be ~5.8%, indicating the buyer is pricing in a return to more stable earnings. The low price per key reflects the property’s age and needed renovations, as well as the fact that it’s an auction scenario (often yielding below-market initial bids). At $119k/key, the pricing is roughly 30% below the Hampton Inn Boca Raton sale (see below), despite the Residence Inn being an upscale Marriott product – a sign of its distressed cash flow and possibly a quick-sale situation.

  • Eau Palm Beach Resort & Spa (309 rooms, Luxury): Sold in Aug 2024 for $317M, which is $1.025M per key. This oceanfront 5-star resort (previously a Ritz-Carlton) set a high-water mark for Palm Beach County hotel sales. Its pricing reflects its ultra-luxury status, beachfront location, and recent renovations (opened 1991, renovated 2021). The buyer (a Larry Ellison-backed firm) paid for a “trophy” asset, intending further enhancements. While not directly comparable to the Residence Inn, this sale underscores the huge value gap between luxury resorts and limited-service hotels in this market.

  • The Ray Hotel Delray Beach (141 rooms, Upper Upscale lifestyle): Sold in Sept 2024 for $57.7M ($409k/room). The Ray is a boutique Curio Collection by Hilton that opened in 2021 in nearby Delray Beach. It features multiple F&B outlets, rooftop amenities, and a trendy design. Its $409k/key price reflects the high construction cost and strong performance of this new asset in a prime downtown Delray location. The transaction included the buyer assuming an existing loan Compared to the Residence Inn, The Ray’s far higher value per room highlights the premium investors place on newly built, high-rate hotels. It also suggests that investors are willing to pay ~$400k/key for quality upscale assets in Palm Beach County, whereas the subject is trading at roughly 30% of that value, owing to its older, suburban profile.

  • Hampton Inn Boca Raton (94 rooms, Upper Midscale): Sold in July 2024 for $15.5M ($165k/room). This is a limited-service hotel (Hampton by Hilton) built in 1996, located not far from the Residence Inn (Yamato Road corridor). It was in stable condition and caters to similar corporate transient demand. Its sale at $165k/key provides a closer value benchmark for select-service hotels in Boca Raton. The Residence Inn’s $119k/key is about 28% lower, which can be attributed to its extended-stay format (often slightly lower RevPAR than a transient hotel), older physical condition, and possibly the circumstances of the sale (auction distress or seller motivations). If the Residence Inn were valued at the same per-room price as the Hampton, it would be over $19M; thus, the contracted $14.25M price suggests the buyer is obtaining the asset at a discount to prevailing market metrics, likely in exchange for taking on renovation needs or operational upside risk.

  • (Other Comparable) Oasis Hotel Boca Raton (90 rooms, Midscale): Sold in Sept 2024 for $10.4M ($115.6k/room). This is a smaller, older midscale property (1960s vintage). Its sale further underscores that midscale/transient hotels in the area trade around $100–$120k/key. The Residence Inn, while a stronger brand than the Oasis, is in the same ballpark on price, reinforcing the notion that its current performance issues have positioned it among lower-tier assets in valuation.


Cap Rate Perspective: Market cap rates for hotel assets in South Florida vary widely by quality and cash flow stability. High-end resorts often trade at cap rates in the 5–6% range or even lower (as they are often purchased for strategic/trophy value), whereas select-service hotels might trade around 8%–9% cap rates on stabilized NOI. The Residence Inn’s 9.16% cap (on 2022 cash flow) is on the high end of the range, implying a perceived higher risk or upside needed. It suggests that investors require a higher yield to compensate for the property’s recent volatility in income and the aging product. It’s worth noting that cap rates have been rising as interest rates increased – a trend reflected in 2024’s hotel sales. Investors are underwriting more conservatively, and the Residence Inn’s pricing aligns with that sentiment: it offers an immediate high yield but only if the new owner can navigate it back to previous NOI levels.


Auction Dynamics: The fact that the offering was marketed with an initial $4.5M asking (bid) price hints at an auction platform strategy (e.g., Ten-X or RealInsight Marketplace). These auctions often list a low opening bid to attract maximum interest and create a competitive bidding environment. The Residence Inn saw bidding drive the price up to $14.25M, which indicates there was considerable interest and multiple bidders, given the final price is more than triple the opening bid. This outcome reveals that investors recognized the intrinsic value above the teaser price. It also means the sale process was expedited and price discovery was transparent – factors that can sometimes lead to a slightly lower price than a traditional marketed sale if bidders factor in needing quick hard money deposits or limited due diligence time. Nonetheless, achieving $118k/key for a 35-year-old select-service hotel is a solid result in the current climate and suggests investor confidence in the asset’s upside.


In summary, the valuation context for the Residence Inn Boca Raton indicates that at $14.25M, the property is being acquired at a favorable basis relative to peers, albeit recognizing its shortcomings. The new owner is effectively paying a mid-2010s price for a Marriott hotel in a prime South Florida submarket – a potentially compelling investment if they can reposition or improve the asset. The sales comparisons show a wide gap between top-tier and average hotel assets: the subject is much closer to midscale values than luxury, reflecting its current state. This pricing upside (buying below replacement cost and below market averages) forms a key part of the feasibility: it provides a margin of safety and room for value creation through capital improvements and better management.


4. Financial Performance Analysis

An analysis of the hotel’s recent financial statements (2019–2023) reveals the operational trends and challenges impacting feasibility. The Residence Inn’s income statements for 2021 through 2023 (actual full-year results) are summarized below, highlighting a strong rebound in 2021–2022 followed by a setback in 2023:

  • Occupancy and Rooms Revenue: In 2023, occupancy was 75.0% (down from 80.0% in 2022 and 85.2% in 2021). The hotel sold roughly 32,850 room-nights in 2023 out of 43,800 available. Room revenue in 2023 was $4.704 million, an 8.2% decrease from $5.124 million in 2022. The lower occupancy primarily drove this decline, as average daily rates remained relatively flat (implied ADR in 2023 was about $143, compared to $146 in 2022). Other income (mostly pet fees, parking, or market pantry sales) contributed an additional $99.6K, keeping total Effective Gross Income (EGI) at $4.803 million for 2023. In comparison, 2022 EGI was $5.221M, so 2023 saw an 8.0% drop in total revenue year-over-year. Versus 2021, however, the 2023 EGI was up about 2.3% (2021 EGI was $4.695M), indicating that 2022 was an outlier peak year for this property.

  • Operating Expenses: Expenses rose significantly in 2023, compounding the revenue decline. Total hotel operating expenses were $3.976 million in 2023 up 7.2% from $3.708M in 2022 and up 26% from $3.154M in 2021. This cost growth was driven by several factors:

    • Labor and Departmental Costs: Rooms departmental expenses (housekeeping, front desk, etc.) increased to $1.077M, slightly above 2022 despite lower occupancy, reflecting wage inflation pressures. Similarly, property operations & maintenance and utilities costs rose in line with inflation and possibly deferred maintenance catching up (Repairs/Maintenance $336K in 2023 vs $263K in 2022).

    • Fixed Expenses: Property taxes jumped to $246K (up from $191K in 2022) likely due to assessed value increases, and insurance costs spiked to $517K (up from $509K in 2022 and $415K in 2021). Florida insurance premiums for hotels have been rising post-pandemic, contributing to higher fixed costs.

    • Sales & Marketing: Notably, Advertising & Marketing expense dropped to $164K in 2023 from an unusually high $587K in 2022. The 2022 marketing spend appears abnormally large – perhaps a one-time branding campaign or group business acquisition cost – and its normalization in 2023 actually helped reduce total expenses. Excluding this line, other expenses increased more sharply, indicating underlying cost inflation elsewhere.

    • Other: An “Other Expenses” line was $85.7K in 2023, up from negligible amounts in prior years. This could include one-time costs or miscellaneous admin expenses.


    Overall, expense ratio (Operating Expenses as % of EGI) ballooned to 82.8% in 2023, whereas it was 71.0% in 2022 and ~67% in 2021. In other words, the hotel’s GOP margin shrank from ~33% in 2021 down to ~17% in 2023 – a major profitability squeeze. This is partly due to the revenue dip, but primarily reflects cost escalation. For an extended-stay hotel, which typically should run efficiently, an 83% expense ratio is high; it suggests either some inefficiencies or temporary issues (e.g., high contract labor costs, over-staffing during demand fluctuations, or maintenance projects) that a new operator could potentially address. A feasibility study would flag this as an area for improvement: bringing the expense ratio back down to ~70% could nearly double the NOI from the 2023 level.


  • Net Operating Income (NOI): As a result of the revenue and expense dynamics, 2023 NOI plunged to $827,191, compared to $1.513M in 2022 and $1.541M in 2021. That’s a 45% drop year-over-year and roughly half of the pre-pandemic stabilized level. The NOI per room in 2023 was about $6,890, which is quite low for an upscale hotel (in 2022 it was $12,610 per room). The swing in NOI is attributable to both demand softening (especially in the second half of 2023, likely) and the aforementioned cost issues. It’s possible that 2022 benefitted from some unusual tailwinds – for instance, higher post-COVID travel demand or special contract business (some Florida hotels saw government or emergency housing contracts in 2021–22 which boosted occupancy) – and that business did not repeat in 2023. Additionally, Hurricane Ian in late 2022 might have temporarily driven demand (though that affected the Gulf Coast more). Regardless, the hotel’s profitability in 2023 underperformed expectations, raising questions that any investor or lender will examine closely. The ability to rebound toward 2021–2022 NOI levels is central to the feasibility of this investment.

  • Capital Costs and Net Cash Flow: The hotel sets aside a capital reserve (for FF&E replacement) of $192,135 in 2023 (roughly 4% of revenue, a typical amount). After this reserve, the Net Cash Flow (NCF) in 2023 was $635,055. In healthier years, 2021’s NCF was $1.353M and 2022’s $1.305M. Thus 2023’s cash flow available for debt service dropped by ~$670K compared to the average of the prior two years – explaining the DSCR compression discussed in the loan analysis. Notably, the NCF DSCR for 2023 was only 1.04× when counting the capital reserve, essentially breakeven after fully funding replacement reserves. This indicates that without improvement, the property would not cover its debt and capital obligations adequately, underscoring the need for a performance turnaround.

  • Year-Over-Year (YOY) Changes: To summarize the YOY performance: 2022 was a strong year (revival of travel post-COVID) with 80% occupancy and $1.51M NOI, but 2023 saw a regression. Revenue fell 8%, operating costsrose ~7%, and NOI fell 45%. Occupancy dropped 5 percentage points, and while ADR held around $145, the RevPAR decline and cost surge hit the bottom line hard. Versus 2021, 2023 revenues were slightly higher, but expenses were up substantially, yielding lower NOI. This volatility suggests that the Residence Inn’s performance is sensitive to demand swings and cost controls. It may lack the rate premium or efficiency that some competitors have, leaving it vulnerable in a softer market. However, it’s important to note that even the 2023 results still produced a positive cash flow and a modest debt coverage – the hotel is operationally viable, just underperforming its potential. The investor’s goal will be to identify whether 2023 was an anomaly (e.g., temporary market dip or mismanagement) or a “new normal.” Our analysis leans toward it being a correctable dip, given the broader market remained strong in 2023 (Boca’s overall RevPAR was growing). This implies the property perhaps lost some share or had specific issues. New ownership and fresh capital (for renovation and marketing) could recapture lost occupancy and allow more aggressive pricing.

  • Per-Key Metrics: For additional context, on a per-room basis, 2023 EGI was approximately $40,000 per room, OpEx $33,135 per room, and NOI $6,893 per room. By contrast, in 2022 those figures were $43,500 revenue, $30,900 expense, and $12,610 NOI per room. These metrics illustrate how much profitability room there is if performance is restored – each room was contributing over $12k in NOI when well-run, versus under $7k now. An investor might project that with renovations and better revenue management, the hotel could achieve $45k+ EGI/room at a stabilized 75–80% occupancy and push NOI/room back to around $10k, which for 120 rooms would be $1.2M NOI. At the purchase price, that would be an 8.4% yield – still healthy and likely improvable further with rate growth. Thus, the feasibility looks reasonable if such improvements are plausible.


In summary, the financial analysis identifies the cause of recent underperformance (lower occupancy and higher costs in 2023) and suggests that there is substantial upside if the hotel’s operations can be optimized. The property has demonstrated an ability to generate over $1.5M in NOI (in 2021 and 2022), which is nearly double the 2023 level. Capturing that upside will be crucial. Key recommendations would include: investing in property renovations to justify higher room rates, re-aligning staffing and expenses to an extended-stay model (possibly the 2023 cost spike indicates some inefficiency), and aggressive sales efforts to maintain high occupancy without heavy discounting. Additionally, given the extended-stay nature, pursuing more long-term corporate contracts or group blocks (e.g., for training groups, relocation clients) might stabilize occupancy. The feasibility study thus indicates that, while current cash flows are subdued, the hotel has the potential to return to a stronger earnings profile seen in prior years – which is likely the basis for the buyer’s valuation at a 9% cap on higher NOI. The financial trajectory will depend on both market conditions and asset-specific improvements, as discussed next in the market context.


5. Market Context and Outlook

Boca Raton is part of the broader Palm Beach County hospitality market, which is known for its affluent clientele, leisure appeal, and growing corporate base. Understanding the submarket performance and trends is essential to assess the Residence Inn’s future prospects. Key points about the Boca Raton hotel market and the upscale segment include:

  • Robust Recent Performance: Over the 12 months through April 2025, Boca Raton hotels achieved 68.2% occupancy and an average ADR of $239.23, resulting in RevPAR of $163.09. This represents a 9.2% YoY increase in RevPAR, driven by a 4.1% gain in occupancy and 4.9% increase in ADR In short, the market had been on an upswing, recovering strongly from the pandemic impact. Boca Raton’s RevPAR growth outpaced many U.S. markets, thanks to limited new supply and the area’s appeal to both leisure and business travelers. Transient demand (individual leisure/business travelers) has been particularly strong – comprising over 80% of total demand in this submarket. The Residence Inn likely benefited from this trend through 2022, given its occupancy peaked at 85%. However, its drop in 2023 suggests it underperformed the market (which still saw occupancy gains). This could indicate increased competition or a shift in demand patterns that the subject hotel didn’t capture (perhaps losing some transient demand to newer hotels).


  • Forecast Softening: Looking ahead, industry forecasts and CoStar analytics anticipate a mild pullback in performance in late 2024 and 2025. Despite the recent gains, pricing power is expected to erode and occupancy gains to level off. Specifically, CoStar projects a “marginal decline” in 12-month RevPAR by year-end 2025 in Boca Raton. The rationale is a combination of factors: weakened domestic leisure travel (the post-COVID travel surge is normalizing) and broader economic headwinds potentially limiting corporate travel. Indeed, some Florida leisure-centric markets have seen a softening as pent-up demand dissipates. For Boca Raton, heavily reliant on leisure and individual business travel (rather than large conventions), this means occupancy might slip a couple of points and ADR growth might flatten. We might expect occupancy to stabilize in the mid-60s% (for the market overall) and ADR growth to be flat or slightly negative in real terms as hotels compete more on rate. For the Residence Inn, this macro outlook underscores the importance of capturing market share: even if the pie doesn’t grow as fast, the subject hotel can still improve its slice by outperforming competitors in service, renovations, or sales effort.


  • Upscale Segment Performance: Within the Palm Beach County market, upscale hotels (the category of the Residence Inn) generally trail the luxury/upper-upscale resorts in ADR but can achieve solid occupancies. An upscale hotel in this area might typically run around 70–75% occupancy at a $150–$160 ADR, yielding RevPAR around $110–$120. (By comparison, luxury/upper-upscale properties like beachfront resorts run lower occupancy, 65–70%, but at ADRs of $300+.) The Residence Inn’s actual 2023 ADR ($143) is below the upscale average, reflecting its older product and extended-stay rates, while its occupancy 75% is in line or slightly above what many upscale hotels achieve. This suggests that the property has been competing on volume (occupancy) but perhaps at the expense of rate. A feasible improvement strategy is to renovate and reposition it to command a higher ADR closer to the $155 submarket upscale average, even if it means a minor occupancy trade-off. The extended-stay nature means it can also push for longer stays with negotiated rates to ensure a base level of occupancy.


  • Competitive Supply: Boca Raton has a limited hotel supply (~8,000 rooms total) and high barriers to new development, but there is some new supply coming online. Currently, four hotels (≈490 rooms) are under construction in the greater Boca Raton area, which will increase inventory by about 6%. Notable projects include the Mandarin Oriental Boca Raton (164 rooms, luxury, opening 2025) and the Gulfstream Hotel in Lake Worth (Tribute Portfolio, 90 rooms, upper-upscale, opening 2025). Additionally, a WoodSpring Suites (122 rooms, economy) and a Holiday Inn Express (110 rooms) are being built in the wider area. While these new hotels target different segments (ultra-luxury, budget, etc.), they do contribute to increased competition. For instance, the Mandarin Oriental will be a ultra-high-end product likely capturing the wealthiest leisure travelers, and the Tribute Portfolio is a boutique that could draw some upscale leisure/business travelers. The Residence Inn, being an extended-stay, doesn’t directly compete with a luxury resort, but if overall demand growth doesn’t keep pace with supply, even an extended-stay can feel pressure (especially if new hotels do aggressive marketing or rate promotions during ramp-up). The good news is Boca Raton’s supply growth has been modest historically (only ~1% per year in 2018–2023 on average) and the new projects, while notable, are not all in the immediate vicinity of the Residence Inn. The economy and midscale additions (WoodSpring, Holiday Inn Express) might even feed some transient spillover demand to the Residence Inn if those lower-priced hotels fill up, or conversely pull some price-sensitive guests away. Overall, supply risk is something to monitor but not a dire threat given the market’s strength and diversified demand.


  • Demand Drivers: Boca Raton’s hotel demand is a mix of leisure and corporate, with a tilt toward leisure in recent years. The city’s beaches, golf courses, and luxury shopping attract tourists and affluent weekenders, while its corporate parks and headquarters (like Office Depot) generate steady weekday business travel. Florida Atlantic University also brings university-related demand (parents, events, etc.). The Residence Inn, specifically, likely draws from project-based corporate extended stays (consultants, relocations), groups like sports teams or training groups that prefer suite accommodations, and leisure families who want extra space. During the pandemic, extended-stay hotels outperformed due to essential workers and long-stay guests, and that trend has normalized but the segment remains resilient. Looking forward, investor sentiment in Boca Raton remains positive due to its affluent demographics and high barriers to entry. The submarket is seen as a “preferred destination for institutional and high-net-worth investors” in hotels – meaning the market is viewed as a safe long-term bet. This is important for feasibility: even if short-term RevPAR softens, the underlying demand in Boca is expected to grow over time as South Florida continues to attract businesses and residents. The key question is how the Residence Inn positions itself to capture that demand.


  • Competitive Environment and Outlook: The Residence Inn’s competition likely includes the Hilton Garden Inn Boca Raton, Embassy Suites Boca Raton, and possibly newer entrants like Hyatt Place or Courtyard by Marriott (if any nearby). In an environment of slightly slowing demand, competition for guests could become more intense. Hotels might engage in rate discounting or extra loyalty promotions to maintain occupancy. The Residence Inn’s extended-stay niche can be an advantage here, as it can lock in multi-night or multi-week stays that provide a baseline occupancy. Its Marriott affiliation also helps draw in Marriott Bonvoy members and corporate accounts. The feasibility analysis should assume that while the market occupancy might hover in the high 60s, the subject property can attain low-to-mid 70s occupancy due to its niche and then focus on pushing ADR. ADR growth might be limited to inflationary levels (2-3% annually) in the near term given the forecast, so any significant RevPAR growth for the Residence Inn will likely have to come from outperforming on occupancy or mix (e.g., attracting higher-rated business). If inflation remains elevated, hotels will try to pass on rate increases, but consumer pushback could appear if the economy slows. For modeling purposes, a conservative projection might keep occupancy around 75% and ADR climbing gradually to $150 over the next couple of years – yielding RevPAR growth in line with inflation.


  • Investment Market Sentiment: On the investment side, Boca Raton saw a huge jump in sales volume in 2024 (4 hotels totaling $401M) thanks largely to the Eau Palm Beach sale. This shows liquidity for high-end assets. However, only a handful of transactions occurred, reflecting a cautious environment for buyers amid high interest rate. Many investors are sitting on the sidelines unless pricing is compelling. The Residence Inn’s auction sale at a high cap rate is symptomatic of the times – buyers want a deal that builds in a buffer against rising debt costs and recession risk. There is also the looming concern of loan maturities (three hotels in Boca on CMBS watchlist for 2024–2026 maturities), which could force more sales or distress. In such a scenario, having acquired the Residence Inn at a low basis is advantageous. If the new owner invests wisely and improves the asset, they could be well positioned when the market fully recovers or when more normalized financing returns. Given Boca’s status as a desirable hotel market, cap rates could compress again when interest rates fall – potentially providing an exit cap rate upside for the investor if they sell post-renovation in a few years. The feasibility from an investment standpoint thus not only considers current cash flows but also the medium-term market cycle: entering at a relatively low price in a temporarily softening market and banking on a subsequent upcycle by 2026-2027 when they might exit or refinance.


Conclusion (Market Context): The market analysis for Boca Raton reveals a fundamentally strong hospitality market that is experiencing a mild cooling off after a period of exceptional growth. For the Residence Inn, the environment is generally favorable: high base of demand, limited new direct competition, and a supportive investor outlook for quality assets. The hotel’s extended-stay positioning aligns with some of the persistent travel trends (longer leisure stays, “bleisure” travel combining work and play, etc.). The main external risks are a broader economic downturn (which could reduce corporate travel significantly) and the possibility that new supply or renovated competitors steal some share of demand. Mitigating these, the Residence Inn’s new ownership can proactively differentiate the property via renovation and targeted marketing to its niche. Overall, this hotel feasibility study finds that the Residence Inn can reasonably achieve stabilized performance in line with the upscale market (low-70s% occupancy, $150+ ADR) if executed properly, which in the context of Boca Raton’s outlook would make it a successful investment. The market will reward improved product quality and savvy management, and despite short-term headwinds, Boca Raton remains a high-barrier, high-demand location – a solid foundation for this hotel’s future operation and value growth.


June 11, 2025, by Michal Mohelsky, J.D., principal of MMCG, hotel feasibility study consultant


Sources: CMBS loans, MMCG database,

 
 
 

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