Model Study: A 110-Key Extended-Stay Hotel in Loudoun County, Virginia, Financed with SBA 504

Model study: an illustrative feasibility analysis built on public data for Loudoun County, Virginia; not a client engagement.

Project summary

The credit question

A lender reviewing a file like this is not being asked whether Loudoun County needs hotel rooms. The county holds about half of Virginia's data center industry [3], sits beside Washington Dulles International Airport, and had a 2024 median household income of $177,457 [4]. The question is narrower. Can a newly formed operating company open a 110-key extended-stay hotel into a corridor where comparable product is still being added, and cover by its second year a capital stack that SBA's rules make heavier than a typical real estate loan?

Four things have to be true. First, demand has to persist through the ramp-up. Much of it is tied to data center construction, which is large today but is construction-phase demand, not operating demand. Second, the hotel has to earn a rate that clears its cost. At about $216,000 per key, the model needs an ADR in the low $170s at 78% occupancy to reach 1.25x coverage. Third, the structure has to fit the rules. SBA treats a hotel as limited or special purpose property and a newly formed operating company as a new business [2], which together push the borrower contribution to 20% [1]; and at a cost near $24 million, the $5,000,000 debenture limit binds [1]. Fourth, the hotel has to stay eligible: SBA requires more than half of revenue to come from transients who stay 30 days or less, and a start-up must show it in its projections [2]. That is a real constraint for a product whose best customers are crews on multi-month assignments.

Location and county economy

Loudoun County sits at the western edge of the Washington metropolitan area, with Dulles International Airport on its eastern edge and the Route 28, Route 7 and Dulles Greenway corridors running through its eastern half.

Population and households. The Census series shows Loudoun adding 6,963 residents in 2024 and 6,000 in 2025 [5]. For a hotel, residents matter through the visiting-relatives and relocation segments. A family relocating for a job may spend weeks house-hunting, and a suite with a kitchen is a common bridge.

Income. Median household income of $177,457 in 2024 [4] supports weekend rate, which is where extended-stay hotels near business districts are usually weakest.

Construction and the data center economy. Construction is the part of the economy that matters most for this hotel. JLARC estimates that Virginia's data center industry supports about 74,000 jobs a year, and that 59,000 of them, 80% of the total, come from the construction phase [3]. A data center building usually takes about 12 to 18 months to build, and about 1,500 workers are on site at the height of construction [3]. Those travelling electrical, mechanical and commissioning crews are the core extended-stay customer here. Data centers also matter to the county budget: JLARC puts data center revenue at 31% of Loudoun's total local tax revenue [3].

Federal travel. Federal exposure matters for this hotel because contractor travel is a segment whose rate is capped by the per diem.

Access. The network that brings visitors in matters more for a hotel than the commute. The Silver Line extension opened on November 15, 2022, adding stations at Ashburn, Loudoun Gateway and Washington Dulles International Airport [6]. That produces crew, disrupted-traveler and inbound business demand within a short drive of any site in the corridor.

Visitor economy. Statewide, visitors spent a record $35.1 billion in Virginia in 2024, up 5.4% from $33.3 billion in 2023 [7]. County-level hotel occupancy for Loudoun comes from paid data this model study does not use, so the model treats market occupancy as an assumption and tests it in the stress cases.

What the economy means for this asset. The county's growth is real but uneven in ways that matter for a hotel. Residents and income support weekend and relocation demand. Data center construction supports midweek and long-stay demand at volume. Federal travel is capped by the per diem. The model therefore treats Loudoun's strength as a reason to expect stable base demand, not as a reason to assume premium rates.

Market analysis

Demand drivers

Extended-stay hotels sell length of stay: guests take a suite for a week, a month or longer because their work or life is in transition in that place.

The data center pipeline is large but not guaranteed. JLARC finds that most of the industry's economic benefit comes from the construction phase rather than from ongoing operations [3]. Power is a real constraint: in 2022 the electric utility paused new data center loads in Loudoun County for three months while it worked on transmission constraints [3]. The most valuable segment today is also the one most exposed to a pause in permitting, power or tenant demand, so the model holds it to 32% of stabilized room nights and the stress tests cut it.

The federal per diem caps a segment's rate. GSA's FY2027 lodging per diem for Loudoun is $121 a night in every month [8], up from $115 in FY2026 [9]. Federal travelers, and contractors following federal travel rules, will not pay more. The model prices this segment at $136 in 2031 (per diem rising about 3% a year, an assumption) and keeps it at 10% of room nights.

Existing supply and pipeline

A competitive census of eastern Loudoun's extended-stay hotels is a paid product this model study does not use, so supply is built from an assumed existing base plus assumed additions.

The one documented opening says something about the competition even without a full census. The Home2 Suites in Ashburn is a 122-room hotel with an extended-stay design and in-room kitchens, across from the One Loudoun mixed-use district and less than 10 miles from Dulles, and its owner's release ties the location to the data center market [10]. It is the closest analogue to the modelled hotel. The two assumed additions stand for the kind of projects that may follow: a smaller-format economy extended-stay hotel competing mainly on price for crews, and a lifestyle hotel competing for short corporate stays and weekend leisure. A new upper-midscale hotel would sit between those products on rate.

No public source gives extended-stay occupancy for this corridor. The 75% market occupancy for 2026 is therefore a model assumption, and the stress tests show what happens if it is too high.

Demand method: segmentation, latent demand and penetration

The method is a supply and demand model of the competitive set, followed by a fair-share and penetration test for the subject. Base demand in 2026 is the assumed 1,050 rooms at an assumed 75% occupancy, or 287,438 room nights, split into five segments grown at assumed rates tied to their drivers:

• Data center construction: 30% of demand, growing 6% a year through 2029, then 4%, 4%, 3% and 3%, reflecting continued construction.
• Corporate and technology transient: 28%, growing 3%.
• Airport-related: 10%, growing 4.5%, with only part of airport traffic converting to hotel nights here.
• Federal and contractor: 12%, falling 2% in 2027 and 1% in 2028, flat in 2029, then growing 1%, reflecting federal spending restraint.
• Leisure, relocation and group: 20%, growing 2.5%.

Latent demand (guests now turned away midweek to Herndon, Reston or short-term rentals) is 5% of 2026 demand, or 14,372 room nights, recaptured half in 2028 and fully from 2029. Induced demand of 3,000 room nights a year from 2029 reflects a new branded-class product's distribution. Both are assumptions.

All figures in this table are modelled. Base demand compounds at 3.23% a year, but supply grows 26% between 2027 and 2029, so market occupancy falls from 77.5% to 69.5% in the opening year and recovers gradually. That is the key market result: the hotel opens into a temporarily oversupplied corridor. Its first-year 64% equals 92% penetration, typical for a new hotel building its base. By 2031 it needs 106% penetration to reach 78%, a modest premium that new product with full kitchens can plausibly earn over older hotels. The model then holds the subject at 78% as the market tightens, because a market near 78% would invite a new competitor.

Segment mix and rate at stabilization

The segment rates follow the guest. Data center crews book in volume through their employers and negotiate monthly rates, so their ADR sits below the hotel average even though they fill the most nights. Corporate and technology travelers on short trips pay the highest rates, and leisure and relocation guests pay near the top on weekends and in summer. Federal and contractor guests pay the per diem. The weighted ADR of $170.93 is carried as $171.00 in the pro forma. On these assumptions, stays of 30 nights or longer produce 28.7% of room revenue, and stays of 30 nights or less produce 71.3%. That 21-point cushion over SBA's 50% transient-revenue threshold [2] is the figure a CDC will test, and it is discussed under program compliance.

Forecast

The subject forecast is 64% at $158 in 2029, 74% at $165 in 2030 and 78% at $171 in 2031, with ADR growing 3% a year after that. The 2031 rate is about $147 in 2026 dollars, above the $121 per diem [8]. In a corridor dominated by construction and contractor demand, this hotel is a value product with a kitchen, not a rate leader.

Site and technical

Site requirements. The model assumes a 2.4-acre pad near Route 28 or Route 7 with public water and sewer, arterial visibility, and 120 to 130 surface spaces, including truck-friendly spaces for crews. A site near the Ashburn or Loudoun Gateway Metrorail stations [6] would favor corporate and leisure guests; one near the data center campuses would favor crews and lower land cost. The $1.0 million per acre land price is an assumption to be replaced with closed sales.

Zoning and permits. The budget assumes a site where a hotel is permitted by right, with no added amenity package, buffer or special exception. The parcel's zoning district, its by-right status and any use-specific standards for hotels are gating diligence items: a special exception adds months and hearing risk, and required amenities such as meeting space add cost the budget does not carry.

Construction approach. The model assumes a four-story, interior-corridor building of 66,000 gross square feet (600 per key), wood frame over slab, with studio and one-bedroom suites with full kitchens, guest laundry, breakfast area, fitness room and 24-hour market. Building cost of $205 per square foot plus $1,350,000 of site work totals $14,880,000, or $225 per square foot; both are assumptions for a high-cost county, to be replaced with contractor pricing. At $216,114 per key, the modelled cost reflects an upper-midscale product. The contract should be a guaranteed maximum price with payment and performance bonds. For new construction, SBA requires an appraisal of market value at completion, and after completion the CDC must obtain a statement that the building was built with only minor deviations from the plans and specifications [2]; before the debenture is issued, the CDC must also certify completion in accordance with the final plans and specifications [1].

Schedule. Site control and design run from Q4 2026 to Q2 2027, and site plan, permits and the bank and 504 approvals to Q3 2027. Closing and an 18-month build follow, with pre-opening hiring in Q4 2028, opening in January 2029 (Year 1) and stabilization in Year 3 (2031).

Development budget and sources and uses

Construction interest is computed monthly: land and 10% of other costs fund at closing, the rest draws evenly over 18 months, borrower cash goes in first, and interest at 8.00% (a prime rate of 7.00% in November 2026 [11] plus an assumed 1.00%) accrues on the drawn balance. The 5% contingency is inside the 10% ceiling on contingency reserves in 13 CFR 120.882(b) [1].

The debenture cap check

SBA's limit applies to the gross debenture: net proceeds plus the eligible administrative costs financed with them, and only the 504 loans of the borrower and its affiliates count toward it [2]. Under 13 CFR 120.931, the outstanding 504 balance for a borrower and its affiliates is limited to $5,000,000, rising to $5,500,000 per project only for small manufacturers and certain energy projects [1]. Neither exception applies: a hotel is not a manufacturer in NAICS 31 to 33, and SOP 50 10 8.1 bars new businesses from the energy-reduction goal [2]. Using the SOP's pricing steps [2], the model solves backwards from the limit: a net debenture of $4,867,970 plus the 0.50% guaranty fee ($24,339.85), the 0.25% funding fee ($12,169.93) and the 1.50% CDC processing fee ($73,019.55) [1], plus an assumed $2,500 of closing costs, is $4,979,999.32. Divided by 0.996, the SOP's step for the fee charged when a 20- or 25-year debenture is sold, and rounded up to the next even thousand [2], that is exactly $5,000,000.

The cap binds above about $16.2 million of cost, and this project is $7.5 million past that. The effect is not on coverage: with the 504 rate one point below the bank rate, moving $2.26 million to the bank adds about $12,000 of annual debt service. The effect is on the bank, which carries 59.5% of cost instead of 50%, a 56.5% loan-to-value at stabilization. Banks that cap hotel first liens at lower loan-to-value ratios may decline, so the cap narrows the lender pool more than it changes the numbers. The rules allow it: 13 CFR 120.920(a) sets 50% as a floor for the third-party loan, not a ceiling [1].

Revenue build and operating expenses

Ramp to stabilization

All figures are modelled. Year 1 occupancy of 64% reflects a hotel that opens in January, before contractor accounts, brand-loyalty guests and online review history have built up. Year 2 adds 4,015 occupied room nights as corporate and crew accounts sign, and Year 3 adds a further 1,606 as the hotel reaches its stabilized share. ADR rises faster than inflation in Years 1 to 3 because a new hotel discounts to win accounts, then reprices them at renewal. Total revenue per key moves from $37,832 in Year 1 to $51,398 in Year 4. A lender should ask for the monthly cash flow SBA requires for a new business, covering the first 12 months of operations or three months past break-even, whichever is longer [2], because January and February openings in this region carry winter seasonality.

Other revenue (market, laundry, pet and parking fees) is 2.5% of rooms revenue, suitable for a hotel without a restaurant. Occupancy and sales taxes collected from guests are pass-through items excluded from revenue. Monthly rates for contractors pull the mix toward 30-plus-night stays, which the model tracks.

Expense structure

Expenses are built by department: fixed amounts per key inflate 3% a year, and variable amounts follow occupied rooms or revenue. Year 4 (2032), modelled:

Year 4 gross operating profit is $2,926,371, or 51.8% of revenue, after franchise fees. Notes on key lines:

• Rooms department at $26 per occupied room in 2029 dollars reflects weekly rather than daily housekeeping for long stays; it rises if the mix shifts to short stays.
• Franchise fees at 10.5% of rooms revenue are an assumed upper-midscale extended-stay fee load; replace with the actual franchise disclosure document.
• Real estate tax applies an assumed rate of $0.805 per $100 to an assessed value of $20,936,910 (cost less FF&E, OS&E, pre-opening, working capital and loan fees), growing 2% a year. The rate is to be confirmed with the county, and an income-based reassessment could move the tax.
• BPOL and business personal property taxes are carried as an assumed $400 per key plus 0.15% of revenue, to be replaced with the county's current rates.
• FF&E reserve ramps 2%, 3% and 4% of revenue in Years 1 to 3.

The resulting NOI margin of 37.6% is the number a reviewer should test against comparable extended-stay operating statements. It depends on the extended-stay labor model and on the absence of a restaurant. If the operator runs the hotel like a select-service property with daily housekeeping and a staffed bar, rooms and undistributed costs would rise several points, and the margin would fall toward the low 30s, which the expense stress in Scenario D partly captures.

10-year pro forma

Undistributed expenses cover A&G, sales and marketing, franchise fees, IT, repairs and utilities. Each column ties: revenue less expenses equals NOI, and NOI less debt service equals cash flow. After Year 3 revenue and expenses both grow about 3%, so the NOI margin holds near 37.7% and ADR growth is the only source of NOI growth.

Debt structure under the 504 program

Rule set. SOP 50 10 8.1 took effect October 1, 2026 for applications issued an SBA loan number on or after that date [12], building on SOP 50 10 8, effective June 1, 2025 [13]; a file submitted in 2027 would be reviewed under it.

Rates. Rates are assumptions anchored to sourced benchmarks. The 10-year Treasury constant maturity yield was 4.88% on November 9, 2026 [11]. SBA pegs 504 rates to an increment above the 10-year Treasury rate [14], and the SOP names the 10-year Treasury rate as the usual benchmark for 20- and 25-year debentures [2]. The assumed 6.40% effective 504 rate sits about 1.5 points above that yield, covering the debenture spread and ongoing fees, which regulation caps: a CDC servicing fee of 0.625% to 2% a year (above 1% outside rural areas needs SBA's prior approval) and an SBA annual fee of no more than 0.9375% [1]. The assumed 7.40% bank rate sits about 2.5 points above the same yield, fixed for 10 years; the interim loan floats at prime (7.00% [11]) plus an assumed 1.00%.

Funding sequence. The bank's interim loan funds the whole debt portion during construction, including the share the 504 debenture will later take out. After completion, the debenture is sold and its proceeds repay the interim financing, which 13 CFR 120.882(d) lists as an eligible 504 cost [1]. Unused contingency matters at that point: the debenture is reduced by the amount that the unused contingency reserve exceeds 2% of the anticipated debenture [1]. The interim lender carries the take-out risk if the project changes in a way the CDC cannot fund, so the bank will want the 504 authorization in hand before the first construction draw.

Terms and fees. SBA offers 10-, 20- and 25-year 504 maturities [14], and the 25-year debenture suits real estate. The bank's 10-year term meets the minimum for a third-party loan beside a 20- or 25-year debenture [1], [2]. The bank's 25-year amortization leaves a year-10 balloon, which the SOP requires the loan report to justify [2]. The CDC processing fee (up to 1.5%), SBA guaranty fee (0.5%) and funding fee (up to 0.25%) [1] are financed in the gross debenture. The bank's 0.75% fee is an assumption.

Equity injection and its basis. 13 CFR 120.910(a) sets the borrower contribution at 15% for a borrower that has operated for two years or less, 15% for a limited or single-purpose building, 20% when both apply and 10% in all other cases, measured on project cost excluding administrative costs [1]. SOP 50 10 8.1 lists "hotels, motels, and other lodging facilities" as limited or special purpose property and defines a new business as one in operation for two years or less when the loan is approved [2]. A newly formed operating company meets both, so the requirement is 20%, or $4,754,509, with the debenture limited to 30% of the project [2]. Compared with an office or warehouse, the hotel classification adds five points of equity, about $1.19 million here: the cost of SBA treating a hotel as a building with a thin resale market outside its use. The contribution may be cash, project land, or borrowed funds that are subordinate to the third-party loan and the debenture and, without SBA's written approval, not repaid faster than the 504 loan [2]. Land held two years or more counts at a value set by an independent appraisal [2].

DSCR and break-even

SOP 50 10 8.1 requires 504 debt service coverage of at least 1.15, defined as EBITDA divided by combined post-transaction debt service. When historical cash flow cannot show it, as for a new business, the CDC must analyze at least two years of projections, and if they show repayment in Year 2 but not in Year 1, sufficient liquidity must be shown to cover the Year 1 shortfall [2]. The 1.25x bank target is an assumption. This model uses NOI after the FF&E reserve, which is stricter than EBITDA. On the SOP's EBITDA basis Year 1 is 0.95x and Year 2 is 1.25x. On the stricter basis Year 2 is 1.155x, clearing the floor by half a hundredth: at the edge of the rule, not inside it. The Year 1 shortfall is $168,806.

The modelled hotel covers its debt at 67.3% occupancy and the SBA floor at 72.8%, a 5.2-point cushion; ADR can fall 5.3% before coverage hits 1.15x. With the corridor modelled at 69.5% to 73.8% in 2029 to 2031, the subject must beat the market to keep that cushion.

Returns

The levered IRR dates the borrower's cash to closing, 18 months before opening, because the 504 contribution goes in first; the unlevered IRR places cost at mid-construction. Measured from opening, as many sponsor models do, the figures would be 17.7% and 10.4%, overstated because they ignore the construction period.

Most of the return comes from the sale: the exit supplies $14.9 million of $20.2 million in distributions. At a 9.50% terminal cap the levered IRR falls to 13.2% and the multiple to 3.59x; at 8.00% they rise to 15.7% and 4.65x. A 504 lender does not rely on the exit, but stabilized value sets collateral cover: the bank's lien is 56.5% of value and total debt 76.5%.

Cash-on-cash yield tells the sponsor's side of the story. Cash flow after debt service is 5.4% of equity in Year 2, 8.8% in Year 3 and 10.1% in Year 4, reaching 19.1% by Year 10 as ADR growth compounds against fixed debt service. A sponsor accepting a single-digit current yield for the first three years is betting on rate growth and the exit, which is reasonable for a new hotel but means the equity has little incentive to support the loan in a deep downturn unless it is also guaranteed.

Sensitivity and stress tests

The first grid varies the bank rate against stabilized occupancy (Year 4 DSCR, modelled); the 504 rate stays at 6.40% because it is fixed at debenture sale.

The second grid varies Year 4 ADR against occupancy at the base bank rate (modelled).

Room rate moves coverage faster than interest. A 10% ADR shortfall at 78% occupancy takes coverage to 1.03x, while a bank rate 150 basis points higher still yields 1.17x. With the largest segment negotiating monthly rates in bulk, ADR is the variable to test hardest.

• A. Data center slowdown. If the pipeline stalls, the hotel loses its largest segment and discounts to backfill; coverage stays below 1.00x until Year 6. This scenario decides the loan, and its mitigant must be structural: sponsor liquidity and guaranties.
• B. Ramp slip. If another competitor opens alongside the subject and delays stabilization a year, Years 1 and 2 fall below 1.00x and Year 2 misses the 1.15x floor, though Year 4 recovers fully. The cure is liquidity for two years, not one.
• C. Rate reset. A five-year fixed rate resetting 200 basis points higher drops Year 6 coverage from 1.37x to 1.23x, still above 1.15x.
• D. Expense inflation. Costs growing two points faster than rate push Year 2 to 1.13x, below the floor, and hold Year 10 at 1.26x.
• E. Combined. A modest miss on every line keeps coverage near 1.00x for years. This is the most realistic downside, and it shows little room for simultaneous small misses.

Structural alternatives

The dollar cap changes the bank's position far more than coverage, and the most effective improvement is equity: raising it from 20% to 25% ($1,188,627 more) lifts Year 2 coverage to 1.23x and the bank's LTV to about 52%.

Program compliance

The checklist below follows the order a CDC credit memorandum would use. Two items need more than a tick. Size is measured with affiliates [15], so a sponsor with other hotels must count their receipts or net worth, and any 504 balances those affiliates already carry reduce the $5,000,000 available to this project dollar for dollar [2]. And because the operating company is new, every coverage test rests on projections, whose assumptions SOP 50 10 8.1 requires the CDC to justify, including by comparison to current industry trends [2].

The job line is the one most likely to change the structure. An extended-stay hotel employs few people, and 24 FTE supports only $2,280,000 at $95,000 per job [17]. Keeping the full $5,000,000 requires a community development goal under 13 CFR 120.862(a), such as bringing new income into the community, with the CDC's portfolio meeting its job average including this loan [1]; otherwise the debenture must be reduced [2] and the bank carries 70.7% of cost.

The transient test needs ongoing attention. Monthly rates attract crews but push revenue toward stays SBA does not count as transient [2], so a lender should require annual length-of-stay reporting with a covenant well above 50%.

Risks and mitigants

The risks below are ranked roughly by their effect on coverage in the stress tests. The first three are market and eligibility risks that no construction control can fix; they are answered by liquidity, equity and covenants. The rest are execution risks that standard construction lending practice handles, provided the sponsor's commitments are documented before the first draw.

Assumptions

Model determination

As structured, the modelled project is financeable under 504, but narrowly and only with conditions. It clears every hard rule: 20% equity on the correct basis, a third-party loan above 50%, a debenture inside both the 30% share and the $5,000,000 limit, eligible hotel revenue, and 1.25x Year 2 coverage on the SOP's EBITDA basis. It does not clear them with room to spare. After the FF&E reserve, Year 2 is 1.16x against a 1.15x floor, stabilized coverage is 1.29x, and break-even for the floor is 72.8% occupancy in a corridor modelled at 69.5% to 73.8% in the first three years. The data center slowdown breaks the loan, and small misses on every line hold coverage near 1.00x for years.

The structure works because SBA's long, fixed second lien keeps debt service manageable at 80% of cost. It is fragile because the $5 million cap pushes the bank above its usual exposure, and because the hotel's best customers are the ones SBA's transient rule counts against it. A lender would likely set these conditions:

1. Liquidity reserve of at least $411,000 (three months of debt service), covering the $168,806 Year 1 shortfall, held until two consecutive years at 1.25x.
2. Sponsor strength: full guaranties from 20% owners, as SOP 50 10 8.1 requires [2], and post-closing liquidity sized to the Scenario B shortfall.
3. Equity of 25% ($5,943,136) preferred over the 20% minimum.
4. Job and policy basis: a 120.862 justification accepted by the CDC before the bank commits at 59.5%, with a fallback if the debenture shrinks.
5. Eligibility covenant: annual length-of-stay reporting, with transient revenue held above a floor such as 60%.
6. Construction controls: GMP contract, bonds, sponsor overrun commitment, an as-completed appraisal with SBA as intended user, and by-right zoning confirmed.
7. Market confirmation: a paid competitive census replacing the assumed 1,050-room base, and current status for every pipeline project.

With those conditions, a credit officer could approve this as a reasonable 504 hotel credit in a strong county economy. Without the reserve and equity cushion, its first two years depend on everything going right.