The Expense Side of Feasibility: Operating Costs Across SBA, USDA, and Conventional Lending

1. The Blind Spot on the Expense Side

Most pro formas are exercises in optimism. Rarely dishonest, but optimistic by construction. A sponsor who has spent eighteen months tying up a site, courting a franchisor, and locking a construction price has every reason to believe the building will fill quickly and run lean. So the revenue line gets the scrutiny. It is stress-tested against occupancy assumptions, absorption schedules, and competitive supply. The expense line, more often than not, gets a percentage and a confident nod.

That asymmetry is the reason feasibility studies exist. A lender weighing an SBA 7(a) loan, a USDA Business and Industry guarantee, or a conventional mortgage is not buying a revenue forecast. It is buying a defensible estimate of net operating income, and net operating income is what remains after expenses. Every dollar of operating cost a sponsor leaves out of the model does not vanish. It returns later as a gap in debt service, usually in the first or second year, when the project can least afford it.

The two kinds of error behave differently, and that is the whole point. Overstate revenue and the mistake is cushioned: a project underwritten to 90 percent occupancy that settles at 82 still collects the great majority of its rent. Understate expenses and there is no cushion. The error lands on net operating income at one hundred cents on the dollar. One review of real estate pro formas described the pattern without euphemism, finding that actual expenses run 15 to 25 percent above projection (1). On a property carrying a 60 percent expense ratio, a five-point underestimate cuts net operating income by roughly twelve percent. That is enough to carry a deal from a comfortable 1.30x debt service coverage ratio down through the 1.20x to 1.25x band where most credit committees draw the line.

None of this is hypothetical for government-guaranteed lending. The Small Business Administration's Office of Inspector General has, in review after review of loans that defaulted early, traced the failure to weak analysis of repayment ability and projected cash flow rather than to bad luck (2). In one such review, eleven of thirteen sampled loans carried material underwriting deficiencies. And the industries that default most often are the thin-margin, high-fixed-cost property types where expenses are hardest to estimate and where a feasibility study is most often the thing standing between an approval and a loss.

What follows looks at the expense side from three angles: how a credible feasibility study rationalizes operating costs, what the SBA, USDA, and conventional programs each require of that analysis, and why five very different asset classes fail in five very different ways when the expense line is wrong.

2. The Anatomy of Expense Rationalization

The technique at the heart of a feasibility study predates the loan programs it now serves. Appraisers know it as the reconstructed operating statement: a normalized projection of what a property should earn in a typical stabilized year, built by taking the owner's actual history and adjusting each line to a market-supported level (8). Reconstruction does three things a tax-oriented owner statement does not. It restores costs owners routinely omit, most often a management fee where the owner self-manages and a reserve for replacement. It annualizes lumpy charges such as real estate taxes. And it removes the one-time and the extraordinary, so that a single unusual year does not masquerade as the norm.

A reconstruction is only as honest as the benchmarks behind it. This is where industry datasets earn their keep. The IREM Income/Expense Analysis and the joint Income/Expense IQ program operated with BOMA and the National Apartment Association supply per-unit and per-square-foot expense comparisons at metro granularity; the 2024 multifamily edition alone drew on 4,666 properties and more than 1,089,000 units across 109 markets (18, 19). Hotels are benchmarked against STR and CBRE's Trends in the Hotel Industry (11, 12). Seniors housing leans on NIC MAP Vision and the ASHA/NIC State of Seniors Housing (14, 15). Where comparable data is scarce, as it frequently is for special-purpose assets whose owners guard their operating metrics, the MMCG database fills the gaps (25).

Reconstructed expenses are then sorted along two axes that determine how a property behaves under pressure. The first is fixed against variable. Property taxes and insurance do not move with occupancy; utilities, repairs, and occupancy-linked payroll do. A property weighted toward fixed costs has a higher break-even and far less room to absorb a revenue shortfall, which is the mechanical reason hotels and restaurants default more readily than storage. The second axis is above the line against below it. Operating expenses are deducted to reach net operating income; capital items and replacement reserves sit beneath it. The distinction reads as bookkeeping until it changes a number. Capitalize a net income computed before reserves using a rate extracted from net income that includes them, and the appraisal literature shows the result can overstate value by more than 18 percent (6, 8).

The standards that govern appraisal make this analysis mandatory rather than optional. USPAP's Standards Rule 1-4(c) directs the appraiser to "analyze such comparable operating expense data as are available to estimate the operating expenses of the property" and to "base projections of future rent and income potential and expenses on reasonably clear and appropriate evidence" (9). A simple sanity check follows: the operating-expense ratio of the reconstructed statement is measured against the benchmark range for the property type, and a figure that falls outside it sends every line back for review.

A feasibility study and an appraisal are often confused, and the difference is exactly the expense question. An appraisal reconstructs a stabilized operating statement to reach a value conclusion, the figure a lender uses to size collateral. A feasibility study asks a forward question the appraisal does not: given this market, this competition, and this cost structure, will the project generate the cash flow to support the loan, through the ramp as well as at stabilization. The two are complementary, not interchangeable, and for special-purpose property the SBA treats them as separate deliverables for separate tests, the appraisal supporting the collateral test and the feasibility study the cash-flow test (1, 8).

3. The Program Lens: What SBA, USDA, and Conventional Lenders Demand

The three lending regimes ask for different things, and the differences are not cosmetic. They change what a feasibility study must contain, who may write it, and whether it is required at all.

The SBA operates the least prescriptive of the three. Under SOP 50 10 8, effective June 1, 2025, the regulatory hook for a feasibility study is discretionary: the agency may require one, and it sits in the rulebook beside appraisals and surveys as a tool a lender can invoke (1). In practice, lenders and SBA quality reviewers expect a feasibility study for the situations where projections, not history, carry the credit: startups, ground-up construction or major expansion, a complete change of ownership, and above all special-purpose property. The SOP defines that last category as "a limited market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built" and lists hotels, car washes, gas stations, and assisted-living facilities among the examples (1). On repayment, the SOP is specific where it counts. Standard 7(a) loans must show a debt service coverage ratio of at least 1.15x, with operating cash flow defined as EBITDA; 7(a) small loans of $350,000 or less must clear 1.10x on a historical or projected basis under the requirements effective March 1, 2026, and a global cash-flow analysis is required wherever affiliates are involved (1). In a 504 transaction, the certified development company must state in its credit memorandum whether the project property is limited or special purpose and explain its conclusion, while the third-party lender underwrites the first-lien loan (1).

USDA is the opposite. Its feasibility standard is codified, and it is exacting. Under 7 CFR Part 5001, the regulation governing the OneRD Guarantee, a feasibility study is a report by an independent qualified consultant evaluating the "economic, market, technical, financial, and management feasibility" of a project (3). Those five dimensions are mandatory; a study that examines only one is not a USDA feasibility study. For the Business and Industry program, the trigger is a bright line: a feasibility study by an independent qualified consultant is mandatory for any guaranteed loan over $1,000,000 to a new business (4). The Community Facilities program runs a two-tier test, accepting a lighter financial feasibility analysis only where a safe harbor is met and otherwise requiring a full examination-opinion study prepared to AICPA attestation standards by a CPA carrying professional liability insurance (4). USDA also folds environmental review into technical feasibility and requires that assisted-living and similar residential projects be modeled at no more than 90 percent occupancy (4).

Conventional and agency lending sets its expense discipline through underwriting convention and supervisory guidance rather than a single feasibility mandate. Fannie Mae's DUS and Freddie Mac's Optigo programs re-underwrite a sponsor's pro forma to standardized floors: a minimum management fee, where Fannie's published floor is 3 percent of effective gross income, replacement reserves of $250 to $300 per unit per year, fully reassessed real estate taxes, a minimum vacancy, and a stressed underwriting interest rate rather than the spot rate, which is why a lender's coverage figure typically prints below the borrower's (5, 6). Agency multifamily execution clusters near a 1.25x debt service coverage ratio. For balance-sheet lenders, the interagency guidance on commercial real estate concentrations and the interagency appraisal standards govern: a state-certified appraisal is required for transactions above $500,000, and the income-capitalization approach carries the analysis for income-producing property (7). Conventional coverage floors run from roughly 1.20x for multifamily and industrial to 1.40x or higher for hotels and self-storage.

Exhibit 1. Feasibility and repayment requirements by loan program

Program	Feasibility study trigger	Min. DSCR	Key expense convention
SBA 7(a) Standard	Discretionary; expected for special-purpose, startup, new construction, change of ownership	1.15x (EBITDA basis)	Global cash-flow analysis; projections must be substantiated
SBA 7(a) Small (≤ $350k)	Discretionary	1.10x (historical or projected)	Commercial credit analysis (eff. 3/1/2026)
USDA B&I	Mandatory for loans > $1M to a new business	Agency credit standards	Five-dimension study; projections to 2 yrs stable operations
USDA Community Facilities	Tiered; full examination-opinion study absent safe harbor	Revenue sufficient for O&M + debt + reserves	AL / SNF modeled at ≤ 90% occupancy
Fannie DUS / Freddie Optigo	Appraisal + property condition assessment; pro forma re-underwritten	~1.25x	Min. mgmt fee (3%+ of EGI), reserves $250–$300/unit, taxes reassessed, stressed rate
Conventional (balance sheet)	Appraisal req. > $500k; income approach	1.20x–1.50x by type	Expense reconstruction; minimum vacancy and reserves
Sources: SBA SOP 50 10 8 (1); 7 CFR Part 5001 (3, 4); Fannie Mae (5); Freddie Mac (6); interagency guidance (7).

The thread running through all three regimes is the same. The moment a loan depends on what a property will do rather than what it has done, every program demands an independent basis for the projection. They differ only in how loudly they say it.

4. The Mathematics of Error: How Expense Misjudgments Move DSCR

The reason expense discipline decides feasibility is arithmetic, not philosophy. Debt service coverage is net operating income divided by debt service, and net operating income carries every expense error directly. Because lenders also size loans by dividing net operating income by a required coverage ratio, an overstated income figure does two things at once: it inflates the coverage the lender sees, and it inflates the loan the lender will advance.

A simple case shows the leverage. Take a property with $1,000,000 in effective gross income and a projected 40 percent expense ratio. The pro forma reports $600,000 of net operating income, and against annual debt service of roughly $462,000 it shows a 1.30x coverage ratio, comfortably financeable. Now suppose the true stabilized expense ratio is 45 percent, not 40, a five-point miss well inside the expense gap the literature describes. Net operating income falls to $550,000, debt service is unchanged, and coverage drops to 1.19x, below the floor. The same $50,000 of net operating income, capitalized at a 6 percent rate, is roughly $833,000 of value, enough to move the loan-to-value ratio and, on a tightly sized loan, to break it. The error never touched revenue. It lived entirely on the expense line.

The cushion a lender buys with a coverage requirement is smaller than it looks. A property underwritten to 1.25x can absorb only a 20 percent decline in net operating income before coverage reaches 1.0x, the point at which the asset no longer services its own debt (8). On a high-fixed-cost property, that cushion erodes quickly, because fixed costs do not fall when revenue does. Debt yield, net operating income over loan amount, is the metric lenders use to look past a strong-but-fragile coverage ratio, and it too rests on correctly estimated expenses. Get the expense line wrong and every downstream number, coverage, debt yield, value, and loan size, inherits the error.

The same arithmetic defines a break-even occupancy, the point at which collections exactly cover operating expenses and debt service. The higher the fixed-cost share, the higher that break-even sits, and the less revenue cushion the property holds before it stops covering its obligations. A feasibility study that reports break-even occupancy alongside the coverage ratio tells a lender not only whether the deal works at projection, but how far it can fall before it does not.

5. Five Asset Classes, Five Expense Architectures

The single most common expense-side error is the blended assumption: a round operating-expense ratio borrowed from one property type and applied to another. The range across asset classes is too wide for that to survive contact with reality. The figures below, drawn from public filings, industry benchmarks, and the MMCG database, show five property types with five fundamentally different cost structures.

Exhibit 2. Operating-expense architecture by asset class

Asset class	Operating expense ratio	Dominant cost driver	Labor share	Most-understated lines
Full-service hotel	65–75% of revenue (GOP margin 34–38%)	Labor	~56% of opex	FF&E reserve, PIP, OTA commissions, mgmt/franchise fees
Seniors housing (AL/MC)	Operating margin 20–33%	Labor	55–60% of opex	Agency labor, GL/PL insurance, lease-up staffing
Multifamily	35–45% of EGI	Property taxes	~7% of rent	Tax reassessment, insurance, turnover
Self-storage	26–35% of EGI	Property taxes	~4% of revenue	Tax reassessment, mgmt fee, lease-up losses
Express car wash	~67% of revenue (EBITDA 30–50%)	Labor + utilities	~25% of revenue	Water/sewer, equipment reserves, ramp labor, churn
Sources: CBRE / STR / HotStats (11–13); NIC / ASHA / Genworth (14–16); NAA / IREM / BOMA (18, 19); Public Storage (20); Mister Car Wash / ICA (21, 22); MMCG database (25).

Hotels carry the heaviest and most volatile expense load of the five. Full-service gross operating profit margins run between 34 and 38 percent of revenue, leaving a total expense load of 65 to 75 percent once fixed charges are counted (11, 12). Labor is the dominant cost, roughly 56 percent of operating expense, and it has been rising faster than productivity: compensation per available room has climbed even as hours worked fell (12, 13). Insurance jumped 17.4 percent in 2024 alone (11). The lines sponsors most often understate are the ones a brand and a lender treat as non-negotiable: an FF&E reserve of 4 percent of revenue, a property improvement plan that can run $15,000 to $40,000 per key every seven to ten years, online travel agency commissions buried inside net room revenue, and management and franchise fees.

Seniors housing is the most labor-intensive private-pay real estate in the country. Labor runs 55 to 60 percent of operating expense, and NIC data put labor at about 60 percent of total expenses across senior living and skilled nursing (14, 15). Operating margins span a wide band by care level, from roughly 20 percent for assisted living with memory care to 32.5 percent for freestanding independent living (15). On the revenue side, the national median assisted-living rate reached $6,200 per month in 2025, a reminder that both income and cost scale with acuity (16). Two cost lines are chronically understated. The first is agency and contract labor, which spikes during census ramp and staffing shortages. The second is professional and general liability insurance, which a 2024 benchmark put at $760 per occupied unit for senior living and $2,970 per occupied unit for long-term care, rising on litigation funding and social inflation (17). USDA's rule to model these projects at no more than 90 percent occupancy is a direct acknowledgment of how thin the margin for error is (4).

Multifamily is the most cost-efficient of the five and the most heavily benchmarked. Operating expenses run 35 to 45 percent of effective gross income, leaving net operating income margins of 55 to 65 percent. Real estate taxes are the single largest line, typically 26 to 30 percent of operating expense, and insurance has been the fastest-rising: national multifamily property insurance climbed from $502 to $777 per unit between 2021 and 2024, a 55 percent increase (18). The 2024 Income/Expense IQ benchmark put total operating expense at $8,657 per unit (18, 19). The understated lines are predictable: post-sale tax reassessment, insurance repricing, and turnover, which rose 17.5 percent in 2024 (18).

Self-storage sits at the opposite end of the expense spectrum, carrying one of the lowest ratios in commercial real estate. Single-asset facilities run near 35 percent of effective gross income, and institutional portfolios lower still, between 26 and 31 percent, producing net operating income margins around 78 to 79 percent; Public Storage reported a 78.5 percent same-store direct margin in 2024 (20). The asset is decidedly not labor-driven. At Public Storage, on-site payroll was just 3.6 percent of revenue and falling, while property taxes were the dominant cost at 44 percent of direct operating expense (20). The understated lines are specific to the model: a post-sale tax reassessment that can lift the bill several-fold, a third-party management fee of about 6 percent of revenue that owner-operated statements omit, and the operating losses of a lease-up that typically runs three years (20, 25).

Express car wash is the high-margin inverse of the hotel: labor-light, water-and-capital-intensive, and built on recurring membership revenue. Well-run tunnels reach EBITDA margins of 30 to 50 percent and higher; the only public pure-play operator posted a 32.3 percent adjusted EBITDA margin in 2024 (21, 22). The combined labor-and-chemicals line runs about 28 percent of revenue, of which roughly 90 percent is labor, leaving chemicals a surprisingly small share (21). The understated items are utilities, particularly water and sewer, equipment-replacement reserves on a seven-to-ten-year refresh cycle, ramp-period labor that is largely fixed regardless of volume, and the revenue risk that membership churn, running near 7.7 percent, flows almost directly to the bottom line because the cost base barely moves (21, 22).

Read across the five, a pattern emerges that matters more than any single ratio. The asset classes with the highest fixed-cost share, hotels and seniors housing, carry the most operating leverage and therefore the least resilience: a revenue shortfall flows almost undiluted to net operating income because the costs cannot be cut in step. The leaner, more variable structures, multifamily and self-storage, absorb shocks more gracefully. Express car wash is the instructive hybrid, light on labor but heavy on fixed real estate and equipment cost, with a recurring-revenue model that holds up well until membership churn meets a cost base that does not move. Operating leverage, not the headline margin, is what determines how a property behaves in the year a forecast proves optimistic. A storage facility at 35 percent and a full-service hotel at 70 percent are not two readings of the same instrument. They are different machines, and an expense assumption that ignores the difference is not conservative. It is wrong.

6. The Stabilization Trap

A second error is subtler than the blended ratio and, for the loan programs that finance new construction, more dangerous. It is the use of stabilized expense ratios to underwrite a property that has not yet stabilized.

A stabilized expense ratio assumes a building running at its long-run occupancy, with fixed costs spread across a full rent roll. During lease-up, none of that holds. Taxes, insurance, and core staffing are largely in place from the day the doors open, but the revenue to absorb them is not. Fixed costs spread over low occupancy push the expense ratio up and the coverage ratio down, often well below the stabilized figures a pro forma reports for year one. Apply a stabilized 40 percent expense ratio to a property that will not reach stabilized occupancy for two years, and the early-year net operating income is fiction.

This is precisely the population the SBA and USDA finance most heavily: startups and ground-up projects, the assets with no operating history to anchor the projection. A disciplined feasibility study handles the gap in two moves. It underwrites the ramp years on as-is expense ratios, with fixed costs spread over realistically projected occupancy rather than the stabilized ideal. And it sizes an interest or operating reserve to carry the property through lease-up, a reserve that for ground-up construction commonly runs 12 to 18 months of debt service (8). Stabilization timelines vary by asset and should be modeled accordingly: self-storage typically needs about three years to fill, seniors housing runs an 18-to-24-month census ramp during which sales and marketing is a permanent operating cost rather than a launch expense, and multifamily lease-up ranges from 6 to 24 months depending on market and product (14, 20). Where permanent debt is sized off stabilized net operating income, holdbacks and earn-outs bridge the distance, releasing proceeds only as the property hits leasing and income milestones.

A related trap inside the revenue assumption compounds the expense one. Economic occupancy, the rent actually collected, lags physical occupancy whenever a property offers concessions or carries unpaid balances, and during lease-up that gap is widest. A pro forma that fills the building on paper while ignoring the concessions required to fill it in practice overstates effective gross income at the same moment it understates the ramp-period expense ratio, a double error that lands squarely on coverage (20).

The failure mode is consistent across asset classes. A project that pencils on stabilized numbers but runs out of cash in year one was never underwritten. It was hoped for.

7. Where Pro Formas Break: The Chronically Understated Lines

Behind the recurring expense errors sits a well-documented human tendency. The planning literature calls it optimism bias, and its signature in capital projects is unmistakable. Bent Flyvbjerg's database of large projects found that nine in ten experience cost overruns and that the distribution of errors is not random but skewed, the mark of bias rather than mere imprecision (10). His most pointed finding is what he termed survival of the unfittest: the projects made to look best on paper are the ones that amass the worst overruns, because the most optimistic forecast is the one most likely to win approval (10). The antidote, reference-class forecasting, is simply the discipline of pricing a project against the realized outcomes of comparable past projects rather than the sponsor's inside view.

In a feasibility study, that discipline means modeling a handful of lines that sponsors understate with near-perfect regularity. Real estate taxes head the list. Municipalities reassess to the purchase price, and acquisition can lift the tax line by 20 to 40 percent in conventional property and by several multiples in self-storage (1, 20). Insurance comes next, where trailing figures are dangerous to project forward after multifamily premiums rose 55 percent in three years. Management fees follow, omitted entirely by owners who self-manage and added back at 3 to 5 percent of effective gross income in any credible reconstruction. Replacement reserves, typically 2 to 4 percent of effective gross income or a per-unit equivalent, are left out by sponsors precisely because they sit below the net operating income line. And repairs and maintenance run artificially low in seller statements where work has been deferred.

Exhibit 3. The chronically understated expense lines

Line item	Why it is understated	Typical correction
Real estate taxes	Reassessed to purchase price after sale	+20–40% (several-fold for storage)
Property insurance	Trailing figures lag a hard market	Reprice to current market (+55% multifamily, 2021–24)
Management fee	Omitted when owner self-manages	Add 3–5% of EGI
Replacement reserves	Sit below the NOI line	2–4% of EGI, or $250–$400/unit
Repairs & maintenance	Deferred in seller statements	Normalize to market
Ramp-period operating losses	Stabilized ratios applied to year one	Model as-is ratios + 12–18 mo. reserve
Sources: appraisal and GSE conventions (5, 6, 8, 9); pro forma optimism research (1, 10); MMCG database (25).

The cost of skipping this work shows up in the loss data. The industries that default most often in the SBA portfolio are the thin-margin, high-operating-leverage businesses, food service and segments of hospitality among them, where a modest revenue shortfall against an understated cost base eliminates the slim margin entirely. The Inspector General's repeated finding that early defaults trace to deficient repayment-ability and projection analysis is not a quirk of paperwork; it is the expense-side blind spot showing up as realized loss (2). In that light, reference-class forecasting and disciplined expense reconstruction are not academic refinements but the difference between a guarantee that performs and one that is purchased back.

The remedy is structural rather than exhortatory. A feasibility study earns its place by reconciling every expense assumption to a named external benchmark instead of the sponsor's pro forma, by modeling the chronically understated lines independently, and by flagging any expense ratio that sits more than about five points below the benchmark for its property type and market as a number requiring justification rather than acceptance.

8. The Cost Environment Ahead

Operating expenses are not estimated in a vacuum, and four cost pressures running through every asset class will shape feasibility for the next several years. They no longer move in the same direction, which makes each one a separate underwriting decision.

Insurance is the one piece of good news, and it must be taken carefully. After a punishing hard market, commercial property premiums have begun to fall: the Council of Insurance Agents and Brokers recorded a 0.2 percent decline in commercial property in the third quarter of 2025, the first drop since 2017, and property-catastrophe reinsurance fell about 12 percent at the January 2026 renewals (23). But casualty and liability lines keep climbing on nuclear verdicts and litigation funding, and the cumulative shock remains enormous: multifamily property insurance rose roughly 77 percent in real per-unit terms between 2019 and 2024, and one Federal Reserve analysis found 2024 premiums had reached double their 2021 level (18, 23). Relief on property should be modeled modestly and not assumed at all for catastrophe-exposed multifamily and hospitality.

Property taxes carry a delayed and divergent transmission. Assessors typically run about 18 months behind the market, so the office value collapse of 2022 through 2024 is only now flowing into assessments and appeals, while multifamily and industrial assessments continue to rise (24). The risk for non-office property is a burden shift: as office values fall and municipal budgets strain, the levy tends to migrate toward the property types still holding their value.

Labor is decelerating but remains structurally elevated. The Employment Cost Index showed private-industry wages up 3.4 percent year over year in the first quarter of 2026, down from a 2022 peak above 5 percent but still well ahead of the pre-pandemic norm (24). The pressure is sharpest in the labor-intensive asset classes: hotel wage cost per occupied room rose 12.8 percent in 2025, and reduced immigration is tightening the service-sector labor pool that hotels and seniors housing depend on (24).

Utilities and water are the categories most likely to accelerate. The Energy Information Administration projects commercial electricity demand to outpace residential for the first time on record in 2027, driven by data-center and AI load, with commercial sales growing 5.3 percent that year (24). Water and sewer bills rose 5.1 percent in 2025 and 24.2 percent over five years, comfortably ahead of inflation, with no relief in sight (24). For water-intensive uses such as car washes and for energy-intensive cold storage, these are the lines to model at the high end.

Taken together, these pressures have reset the operating-cost base permanently higher than the pre-pandemic norm, and that reset is the single most important fact for anyone underwriting from trailing financials. A property's 2019 expense load is not a guide to its 2026 one. Insurance, taxes, wages, and utilities have all moved, several of them by double digits, and trailing statements that predate those moves will understate forward expenses precisely when a lender most needs them to be right (18, 24).

Exhibit 4. Cost-environment scorecard, 2025–2027

Cost pressure	Recent trend	Forward direction	Most-exposed asset classes
Insurance (property)	Softening; first decline since 2017	Modest relief; reversible on catastrophe	Coastal multifamily, hospitality
Insurance (casualty)	Rising on nuclear verdicts	Continued increases	Seniors housing, hospitality
Property taxes	~18-mo. assessor lag; office appeals	Burden shift to multifamily / industrial	Multifamily, industrial, retail
Labor	+3.4% ECI; decelerating, elevated	Tight on reduced immigration	Hotels, seniors housing
Utilities (electricity)	Rising; data-center demand	+5.3% commercial sales (2027E)	Cold storage, energy-intensive uses
Water & sewer	+5.1% (2025); +24.2% over 5 yrs	Continued above-CPI increases	Car wash, hospitality, multifamily
Sources: Marsh / CIAB / Guy Carpenter (23); NAA (18); EIA, BLS, Lincoln Institute, Bluefield Research (24).

The composite message for underwriting is straightforward. Take insurance relief cautiously and selectively, watch property taxes for the reassessment lag and the burden shift, and treat labor, utilities, and water as structurally rising costs rather than stable ones.

9. From Expense Discipline to Lender Confidence

The revenue line will always draw the eye. It is where the upside lives, where the sponsor's conviction is strongest, and where the story is easiest to tell. But it is not where most deals are won or lost. They are decided on the other half of the ledger, in the unglamorous work of estimating what a property will actually cost to run.

A feasibility study's value is concentrated there: in a reconstructed operating statement anchored to external benchmarks rather than the sponsor's optimism, in expense assumptions sorted by their behavior under stress, in ramp years modeled apart from stabilized ones, and in the chronically understated lines brought back into the model where they belong. That discipline is what lets a lender size a loan, set a coverage cushion, and defend the credit, whether the loan runs through the SBA, USDA, or a conventional balance sheet. It is also what stands between an approval and the kind of early default the Inspector General keeps finding.

The work is unglamorous by design. It does not produce the headline number a sponsor wants to lead with, and it rarely makes a marginal deal look better. What it does is make a good deal defensible and a bad one visible before the loan closes rather than after it defaults.

June 17, 2026, by Michal Mohelsky, J.D. Principal of MMCG Invest, LLC, feasibility study company.

To discuss a feasibility study for a similar project,  Book a meeting with MMCG.

Reach out to discuss how our methodology supports your lending or development decision.

Michal Mohelsky, J.D. | Principal | mmcginvest.com 

Contact: michal@mmcginvest.com

Phone: (628) 225-1125

About MMCG

MMCG Invest, LLC is a national commercial real estate feasibility consulting firm specializing in SBA and USDA feasibility studies across asset classes including hotels and hospitality, multifamily, RV parks, gas stations, and assisted living. Our analyses serve lenders, CDCs, investors, and developers seeking institutional-quality market intelligence for underwriting and investment decisions. Practicing Affiliate of the Appraisal Institute. Studies prepared under USPAP discipline.

Disclaimer: This report is provided for informational purposes only and does not constitute investment advice. Data presented herein is derived from proprietary MMCG databases and third-party sources believed to be reliable; however, MMCG Invest makes no representation as to the accuracy or completeness of such information. Figures from third-party industry databases have been independently verified and, where appropriate, adjusted to reflect MMCG's proprietary analytical methodology. Past performance is not indicative of future results.

Sources

(1)  U.S. Small Business Administration — SOP 50 10 8 (effective June 1, 2025). sba.gov

(2)  U.S. SBA Office of Inspector General — High-Risk 7(a) Loan Review Program; Top Management and Performance Challenges (Report 26-01). oversight.gov

(3)  U.S. Government Publishing Office, eCFR — 7 CFR Part 5001, OneRD Guaranteed Loan Initiative. ecfr.gov

(4)  USDA Rural Development — Business & Industry (§5001.306) and Community Facilities (§5001.304) Guaranteed Loan Programs. rd.usda.gov

(5)  Fannie Mae — Multifamily Selling and Servicing Guide (DUS). fanniemae.com

(6)  Freddie Mac — Multifamily Seller/Servicer Guide; Capitalization Rate Guidance (2025). mf.freddiemac.com

(7)  FDIC, OCC & Federal Reserve — Interagency Guidance on Concentrations in CRE Lending; Interagency Appraisal and Evaluation Guidelines. federalregister.gov

(8)  Appraisal Institute — The Appraisal of Real Estate, 15th ed. appraisalinstitute.org

(9)  The Appraisal Foundation — Uniform Standards of Professional Appraisal Practice, 2024 ed. appraisalfoundation.org

(10)  Flyvbjerg, B. — “Survival of the Unfittest: Why the Worst Infrastructure Gets Built,” Oxford Review of Economic Policy (2009).

(11)  CBRE Hotels Research — Trends in the Hotel Industry (2025). cbre.com

(12)  STR — U.S. hotel operating performance data. str.com

(13)  HotStats / Actabl — global hotel profitability benchmarks. hotstats.com

(14)  National Investment Center for Seniors Housing & Care (NIC) / NIC MAP Vision. nic.org; nicmap.com

(15)  American Seniors Housing Association (ASHA) & NIC — State of Seniors Housing. seniorshousing.org

(16)  Genworth / CareScout — Cost of Care Survey (2025). genworth.com

(17)  Marsh / Oliver Wyman — Senior Living General and Professional Liability Benchmark (2024). marsh.com

(18)  National Apartment Association — Income/Expense IQ; Premium Pulse. naahq.org

(19)  IREM & BOMA — Income/Expense IQ benchmark. irem.org; boma.org

(20)  Public Storage — FY2024 Annual Report and earnings disclosures (U.S. SEC filings). sec.gov

(21)  Mister Car Wash, Inc. — Form 10-K, FY2024 (U.S. SEC filings). sec.gov

(22)  International Carwash Association (ICA) — industry research. carwash.org

(23)  Marsh — Global Insurance Market Index; Council of Insurance Agents & Brokers — Commercial P/C Market Survey; Guy Carpenter — reinsurance renewal reports. marsh.com; ciab.com; guycarp.com

(24)  Macroeconomic cost data — U.S. Energy Information Administration, Short-Term Energy Outlook; U.S. Bureau of Labor Statistics, Employment Cost Index; Lincoln Institute of Land Policy, 50-State Property Tax Comparison; Bluefield Research, U.S. Municipal Water & Sewer Rate Index. eia.gov; bls.gov; lincolninst.edu; bluefieldresearch.com

(25)  MMCG database — proprietary commercial real estate operating and feasibility dataset. mmcganalytics.com