Hotel Feasibility Study: Demand, Ramp, Brand Costs and Financing

A hotel feasibility study tells a lender whether one specific hotel, on one specific site, under one specific flag or as an independent, can sell enough room nights at a supportable rate to pay its operating costs, its franchise and management fees, its reserves and its debt, through the opening ramp as well as at stabilization. It answers with evidence a reviewer can check: segment demand, a defined competitive set, a monthly forecast, a cost budget built line by line and coverage reported year by year under stress.

Four facts frame almost every hotel loan file:

• Hotels are mostly small businesses. The 2022 Economic Census counted 56,260 hotel and motel establishments (casino hotels excluded) with receipts of $206.2 billion [4], and 67.5% of hotel establishments in County Business Patterns had fewer than 20 employees in 2023 [8].
• New hotels start behind. A study of 3,494 new U.S. hotels found they took seven quarters, or 1.75 years, to bring occupancy up to comparable incumbents [5].
• SBA treats a hotel as special purpose collateral. Hotels, motels and other lodging facilities appear on SBA's list of limited or special purpose property, which sets a 504 borrower contribution of at least 15%, or 20% for a new business [1].
• New supply is still arriving. Private lodging construction ran at a seasonally adjusted annual rate of $23.6 billion in September 2026, 2.8% below September 2025 [6].

This page sets out what the study must prove, the public data it draws on, how the forecast and the cost budget are built, and how each capital source reads the result. For state detail, see the hotel feasibility study for Texas and the hotel feasibility study for Florida.

Every study ends in one of three conclusions: feasible as proposed; feasible with stated conditions, such as a funded interest reserve, a smaller loan or a verified renovation budget; or not feasible as proposed, with the changes that would make the project work.

What is a hotel feasibility study?

It is an independent analysis, written for a lender's file, of whether a proposed, acquired or converted hotel can support its financing. USDA's rule defines a feasibility study as a report "conducted by an independent qualified consultant(s) evaluating the economic, market, technical, financial, and management feasibility of the proposed project" [3]. Those five parts are a sound outline for any capital source, and a study built to them can usually serve more than one reviewer.

In federal statistics the core business is NAICS 721110, hotels (except casino hotels) and motels [4]. SBA's size standard for that industry is $40.0 million in average annual receipts [7], so most hotels qualify as small businesses for SBA purposes. The code covers a 40-room highway motel, a 120-room select-service hotel near an interchange, a 300-room full-service hotel with ballrooms and a downtown boutique property. The study therefore starts by defining the product precisely: keys by room type, the brand or independent position, the amenity program, food and beverage outlets, meeting space, parking and the opening date.

Exhibit 1. Market study, feasibility study and appraisal compared

Source: 7 CFR 5001.3 [3]; 13 CFR 120.160 [2]; FSC scope definitions.

A market study stops at demand; a feasibility study converts demand into cash flow and tests it against a specific loan. An appraisal is separate: a favorable value does not prove the hotel will cover its debt in its first two years, and a feasibility conclusion does not establish value. The study reports stabilized income in a form the appraiser can reconcile.

What does a lender need a hotel study to prove?

A lender needs proof that the hotel's own cash flow will repay the loan under the program's rules, and that nothing about the site, the stay mix, the brand or the management structure breaks those rules. SBA's regulation puts the standard plainly: "Loans must be so sound as to reasonably assure repayment" [2].

Exhibit 2. What the lender asks and what the study shows

Source: SBA SOP 50 10 8.1 [1]; 13 CFR Part 120 [2]; 7 CFR Part 5001 [3], as cited in each row.

SBA does not require a study on every loan. Its SOP lists conditions that may cause SBA to request one: market saturation by industry type and location, a unique market concept, a highly specialized project property, a project size disproportionate to the size of the community it will serve, and significant rapid growth of the applicant [1]. A hotel can meet several at once, especially a large new build in a small town. The SOP also names the independent reports that may mitigate weaknesses in the credit analysis, and the list includes feasibility studies and hospitality facility assessment reports [1].

USDA is more prescriptive. For a Business and Industry guarantee above $1,000,000 to a new business, a feasibility study prepared by an independent qualified consultant acceptable to the Agency is required, and the Agency sets its scope [3]. Below that amount, the Agency may still require one when the lender's analysis is not sufficient to determine technical feasibility or economic viability [3].

How large is the U.S. hotel industry in federal data?

It is a $206.2 billion employer industry of about 56,000 establishments, most of them small. The 2022 Economic Census counted 56,260 hotel and motel establishments owned by 44,768 firms, with receipts of $206,193,557 thousand, annual payroll of $49,167,030 thousand and 1,420,127 employees [4].

Exhibit 3. Traveler accommodation in the 2022 Economic Census

Source: U.S. Census Bureau, 2022 Economic Census, EC2272BASIC [4]. Per-establishment values and payroll shares calculated by FSC.

Hotels and motels carried 72.2% of traveler accommodation receipts. The average hotel or motel establishment took in about $3.67 million and employed 25.2 people, and payroll absorbed 23.8% of receipts [4]. Receipts per employee were about $145,200 and payroll per employee about $34,600 [4]. These are national averages across very different products, so the study uses them only as a cross-check on a budget built from the bottom up.

Exhibit 4. Hotel and motel establishments by employment size, 2023

Source: U.S. Census Bureau, County Business Patterns 2023, cbp23us, NAICS 721110 [8]. Shares calculated by FSC; size classes sum to 55,895 establishments.

The size profile explains why owner-operated hotels dominate SBA lending in this sector. Only 2,502 of the 55,895 hotel and motel establishments in County Business Patterns had 100 or more employees in 2023 [8]. Most are limited-service and select-service properties where the owner either runs the hotel or supervises a manager, which is exactly the structure SBA's management agreement rules test [1].

Exhibit 5. Ten states with the largest hotel and motel receipts, 2022

Source: U.S. Census Bureau, 2022 Economic Census, EC2272BASIC, NAICS 721110, state totals [4]. Shares and per-establishment values calculated by FSC.

The ten states held 59.7% of national hotel and motel receipts in 2022 [4]. The spread in receipts per establishment is the more useful signal for a lender. Texas had almost as many hotel establishments as California but less than half the receipts, about $2.57 million per establishment, which suggests a larger share of smaller or lower-priced properties. Hawaii's $27.46 million per establishment reflects large resort hotels. A study that borrows an average from the wrong product tier misstates both revenue and cost.

Where does hotel demand come from, segment by segment?

From a handful of named sources that each behave differently: corporate and commercial travel, government travel, groups and meetings, leisure, contract and extended-stay work, and travelers passing through. The study builds each segment separately, with its own evidence, seasonality and rate, because a single blended occupancy figure hides the segment that is about to weaken.

Exhibit 6. Demand segments and the public evidence the study uses

Source: DFW Airport [15]; GSA [9]; 15 U.S.C. 2225a [13]; National Park Service [14]; Joint Legislative Audit and Review Commission of Virginia [18]; Port of Portland [16].

No hotel depends on every segment. The analytical work is to identify the two or three segments that carry the property, measure each with dated evidence, and show what happens to coverage if one of them weakens.

Corporate and commercial demand

Corporate demand comes from named accounts: employers with travelers, vendors and trainees, hospitals with visiting families and staff, and universities with visitors and events. It is mostly midweek, booked close in, and rate-sensitive to negotiated discounts. The study lists the accounts, estimates their room nights from interviews and travel policies, and tests the share that a new hotel can realistically take from the hotels already serving them. Airport traffic is a useful cross-check on the trend. At DFW Airport, total passengers fell from 87,817,864 in 2024 to 85,660,127 in 2025, while international passengers rose 1.8% to 12,652,411 [15].

Government demand and the per diem ceiling

Government travel pays a published maximum, so the per diem rate caps what that segment will pay. GSA's FY2027 rates took effect on October 1, 2026, with a standard lodging rate of $113 a night for counties without a local rate [9]. Federal travel also carries a safety condition that many sponsors miss. Each agency must book at least 90% of its employees' commercial lodging room nights in approved places of public accommodation [10], meaning hotels listed by FEMA as meeting federal fire prevention guidelines [10]. Those guidelines call for hard-wired, single-station smoke detectors in each guest room and an automatic sprinkler system, except in places that are 3 stories or lower [12]. FEMA compiles the national master list from state submissions [11]. A hotel that is not on the list loses most federal room nights, and the per diem studies themselves are limited to approved places [10].

Exhibit 7. FY2027 federal lodging per diem rates, selected destinations

Source: U.S. General Services Administration, FY2027 per diem rates, effective October 1, 2026 [9]. Lowest and highest values are the seasonal lodging rates listed for each destination.

The seasonal spread in the federal table is itself evidence of seasonality. New York City's rate runs from $189 in January and February to $358 in the fall [9], and Phoenix's from $122 in summer to $232 in February and March [9]. The study uses the local rate to cap the government segment's ADR and to cross-check the shape of the monthly curve it builds from rate surveys.

Group and meeting demand

Groups book ahead, take blocks of rooms at a discount and need space the subject may or may not have. A hotel without meeting space captures little group demand, however strong the local convention calendar looks. Federal meetings carry the same fire-safety condition as federal travelers: no federal funds may sponsor or fund a meeting, convention, conference or training seminar held at a place of public accommodation that does not meet the guidelines [13]. The study inventories meeting space, lists the events that generate group nights, and models group rooms as a displacement decision, because a discounted group room is a room not sold to a higher-rated guest that night.

Leisure demand

Leisure demand follows attractions, parks, beaches, sports and events. It is weekend-weighted and seasonal, and it can move faster than any other segment. The national parks show the volatility clearly.

Exhibit 8. Concessioner lodging overnight stays in national parks, 2015 to 2025

Source: National Park Service, IRMA Visitor Use Statistics, Overnight Stays National report, 2015 to 2025 [14]. Changes calculated by FSC.

Lodging stays inside the parks fell 66.2% in 2020 and took until 2024 to return to within 1% of the 2019 level [14]. A gateway hotel that depends on a park needs a downside case that reflects that kind of shock, and its lender needs to see how long reserves would last. Airport data show the seasonal shape of leisure markets as well. At Tampa International Airport, the busiest month of 2025 was March, with 2,462,255 passengers, and the slowest was September, with 1,712,634 [17], so March traffic ran about 44% above September.

Contract and extended-stay demand

Contract demand comes from projects with a start and an end: plant construction, utility work, data centers, disaster recovery, rail and highway jobs. It can fill a hotel for a year and then disappear. Virginia's legislative audit commission reported that a data center building usually takes about 12 to 18 months to build, with about 1,500 workers on site at the height of construction, and that the industry's construction phase accounted for 80% of its estimated annual jobs [18]. That is real demand for extended-stay rooms, but it is demand with a finish date. The study separates project demand from permanent demand, dates each project, and tests coverage after the projects end. It also checks the stay mix against SBA's eligibility rule: a hotel whose guests mostly stay longer than 30 days can fail the requirement that more than 50% of revenue come from transients staying 30 days or less [1].

Transient and highway demand

Highway demand depends on traffic volume, interchange access, visibility and the number of competing exits. It is rate-sensitive, because travelers substitute easily between properties at the same exit. The study records state traffic counts, distance from the interchange and signage rules, and tests whether a new property creates demand or simply splits the existing exit.

How is the competitive set chosen?

By what the subject will actually compete with for the same guests, not by drawing a radius on a map. The competitive set drives every penetration, rate and occupancy conclusion in the study, so a careless set produces a careless forecast however good the model is.

Exhibit 9. Competitive set screening criteria

Source: FSC study method; 15 U.S.C. 2224 [11]; 2010 ADA Standards [40].

The set usually holds four to seven hotels, documented one by one, and properties left out are named with the reason. Weekday and weekend rates and demand are kept separate, because a corporate hotel and a leisure hotel can post similar annual occupancy while serving different guests. Rate evidence is gathered for specific room types on specific dates and recorded with those dates.

How are fair share and penetration calculated?

Fair share is the subject's share of competitive rooms, and penetration is how far the forecast places the subject above or below that share. If the competitive set has 540 rooms and the subject adds 100, the subject holds 15.6% of the 640 rooms, so its fair share of demand is 15.6%. A penetration index of 100 means the hotel captures exactly its fair share; an index above 100 means it outperforms the set and the study has to explain why.

The calculation is run segment by segment, because a hotel can win extended-stay demand and lose group demand in the same market. The example below is illustrative arithmetic, not market data.

Exhibit 10. Fair share and penetration by segment (illustrative)

Source: Illustrative arithmetic by FSC. Every input is an assumption chosen to show the method, not a market figure.

In this example the market's occupancy with the subject open is 65.9% (154,000 room nights over 233,600 available), and the subject reaches 68.6% (25,047 over 36,500), an overall index of 104. The index above 100 comes from two segments, extended-stay and corporate, so those two are where the evidence must be strongest: named accounts, kitchens in the room plan, a corporate rate program and a location advantage the competitors lack. The group index of 70 reflects limited meeting space. The house rule is simple. A forecast index above 100 needs a documented operating advantage, such as a better location, a newer product, a brand distribution advantage or a contracted account; without one, the lender case is written at 100.

Latent demand is handled the same way. Unaccommodated demand is measured from the nights the existing set turns guests away, shown by sold-out dates in the rate survey and by operator interviews. Induced demand is credited only to something the subject adds, such as meeting space that brings new groups or an extended-stay product the market lacks.

How are occupancy, ADR and RevPAR forecast?

Separately, and then reconciled. Occupancy is room nights sold divided by room nights available. Average daily rate (ADR) is room revenue divided by room nights sold. Revenue per available room (RevPAR) is room revenue divided by room nights available, which equals occupancy times ADR. The forecast treats RevPAR as a result, never as an input, because either component can be pushed up at the other's expense. A hotel can fill rooms by discounting, which flatters occupancy and lowers RevPAR, or hold rate and lose occupancy to cheaper neighbors.

Occupancy comes from the segment build in the previous section. ADR comes from the rate survey, segment by segment: negotiated corporate rates, government rates capped by per diem [9], group rates net of concessions, leisure rates by season and day of week, and extended-stay weekly rates. The study then checks that the two are consistent. A forecast that places the subject above the market on both occupancy and rate needs a product that justifies both.

Three adjustments are easy to miss. First, room taxes are not revenue. Texas, for example, levies a state hotel occupancy tax of 6% of the price paid for a room [19], and cities may add their own tax [20]; those amounts pass through to the government. Second, channel costs reduce net rate: commissions to online agencies and wholesalers, loyalty program charges and payment fees belong in the budget even when the published ADR ignores them. Third, the monthly curve matters as much as the annual figure, because debt service is due every month. The study builds the forecast by month for the first two operating years and annually after that, over a horizon sized to the loan term.

How long does a new hotel take to ramp up?

Usually more than a year, and longer for an independent. A study published through Cornell University's eCommons used data from 3,494 new entrants in the U.S. lodging industry. It found that in 2006 through 2009 new entrants opened with ADRs above incumbents and took seven quarters (1.75 years) to bring occupancy up to comparable incumbent hotels [5]. New hotels reached comparable RevPAR by the second quarter of their second year; brand-managed hotels got there earlier, in the first quarter of the second year, and independent hotels took substantially longer [5].

The ramp is where hotel loans most often fail, because costs start on opening day and revenue does not. Payroll, utilities, insurance, property tax, franchise minimums and debt service all begin before the hotel has found its customers. A project that covers its debt comfortably in year three can still default in year one if the loan structure cannot carry the gap. The rules reflect this. SBA's 7(a) standard asks for coverage of at least 1.15 within 2 years from loan funding or, for construction projects, within 2 years from the end of construction [1]. In the 504 program, if projections show repayment in Year 2 but not in Year 1, sufficient liquidity must be shown to cover the Year 1 shortfall, and the CDC must describe how interest and operations will be paid during construction [1].

Exhibit 11. How the study funds the ramp

Source: SBA SOP 50 10 8.1 [1]; 7 CFR Part 5001 [3]; USDA FY2026 OneRD notice, 91 FR 11272 [33].

The ramp check below shows the effect in rooms revenue. Enter the number of keys, a stabilized occupancy and a stabilized ADR, and it applies the opening-year and second-year occupancy shares you set to show how far rooms revenue falls below the stabilized year. ADR is held constant to isolate the occupancy effect. Every input is illustrative, including the two ramp shares, which are assumptions to replace rather than a benchmark or a forecast for any hotel, and the result is not a feasibility conclusion; a study builds the ramp from the subject's own market evidence.

A study turns the ramp into a funding plan. It states the first operating year in which coverage clears the lender's threshold, sizes an interest reserve and working capital to reach it, and, where the budget does not carry them, makes them conditions of the conclusion.

How does the study account for new supply?

By counting every room that will compete with the subject during its ramp, not just the rooms open today. A project that works against current supply can fail if two competitors open on the same corridor in its second year, exactly when it is still building its base. The study lists hotels under construction, permitted, in planning review, announced by a brand or developer, recently opened and still ramping, and closed for renovation with a reopening date.

National construction data show the pace of new building. The Census Bureau's construction spending survey put the value of private lodging construction at a seasonally adjusted annual rate of $23,593 million in September 2026, against $24,285 million in September 2025 [6]. For the first nine months of 2026, private lodging construction totaled $17,479 million, 9.4% less than the $19,291 million put in place in the same months of 2025 [6].

Exhibit 12. Value of lodging construction put in place, 2025 and 2026

Source: U.S. Census Bureau, Value of Construction Put in Place, Table 1, seasonally adjusted annual rates, September 2026 release [6]. Private construction made up 94.3% of lodging construction in September 2026, calculated by FSC.

Brand pipelines tell the same story from the franchisor's side. Hilton reported a development pipeline of a record 520,500 rooms at December 31, 2025, up 4% from a year earlier, and 97,000 room openings during 2025 [29]. Those are global figures for one brand family, so they say nothing about a particular trade area, but they explain why a franchise sales team may be signing a second or third hotel near the subject. The local check is what matters: planning agendas, building permits, state lodging license records where published, utility requests, land marketed for hotel use, and calls to planning staff and brand development offices. Each pipeline project is dated by stage and weighted by its likelihood of opening, and the forecast shows the subject's occupancy with and without the projects most likely to open during the ramp.

What do brand and franchise costs do to the numbers?

They add a layer of fees on top of every operating cost, and they buy distribution, a loyalty base and a known product in return. The study models both sides from the brand's own documents, never from a rule of thumb. The federal Franchise Rule requires franchisors to disclose their terms in a franchise disclosure document organized in numbered items [30], and the items a hotel study reads are set out below.

Exhibit 13. Franchise disclosure document items a hotel study reads

Source: 16 CFR 436.5, Disclosure items [30].

The fee items come off the top of revenue, so the study carries them at the rates written in the franchise agreement and shows their effect on coverage explicitly. Where fees are charged as a share of rooms revenue or of qualifying stays, they rise with the forecast and fall with it, so the downside cases carry them too.

SBA adds three tests of its own. If a brand meets the FTC definition of a franchise, it must be on the SBA Franchise Directory for the hotel to obtain SBA financing [1]. If a management company will run the hotel, the agreement must leave the owner meaningful oversight: the owner approves the annual operating budget and capital or operating spending above a significant threshold, controls the bank accounts and oversees the employees, who must be the owner's employees [1]. And if the management company is, or is affiliated with, the franchisor, the applicant is not eligible [1]. For 504 loans, the CDC must obtain a copy of the executed franchise agreement before closing [1].

Brand affiliation also changes the ramp. In the eCommons ramp study, brand-managed hotels reached comparable RevPAR earlier than other new entrants, and independents took substantially longer [5]. An independent or soft-branded hotel can still be the right answer in a destination market where design and location drive rate, but the study then has to show who will do the distribution work a brand would otherwise do, and what it costs.

How is an acquisition, renovation or conversion tested?

Against the hotel's own record first, and then against the change the buyer plans. An operating hotel has history, and that history is evidence. The study reconciles the trailing statements, explains why the hotel performs as it does against its competitive set, and only then projects the effect of a new flag, a renovation or new management.

SBA's change-of-ownership rules shape that work. They are set out in Appendix 15 of SOP 50 10 8.1, effective October 1, 2026 [1], and a hotel acquisition touches most of them.

Exhibit 14. SBA change-of-ownership rules that shape a hotel acquisition study

Source: SBA SOP 50 10 8.1, Appendix 15 [1].

A brand conversion or re-flag usually comes with a property improvement plan. The study treats the plan as a hard capital cost with a schedule, not as a footnote. Rooms taken out of service reduce available room nights during the work, so coverage is tested through the renovation as well as at stabilization. The renovation also triggers accessibility rules: when guest rooms are altered or added, the accessible room requirements apply to the rooms being altered or added until the hotel reaches the number required for new construction [40]. A plan that touches every guest room can therefore require new accessible rooms and roll-in showers, and those cost more and take longer than a soft-goods refresh.

Conventional lenders look at the same question through capital rules. A loan that finances the improvement of an existing income-producing property is excluded from the high volatility commercial real estate category only if the property's cash flow is sufficient to support the debt service and expenses under the bank's permanent loan standards [37]. A high volatility exposure takes a 150% risk weight [38], so a hotel whose cash flow cannot carry the renovation debt costs the bank more capital, which shows up in the price or the terms of the loan.

How do select-service, extended-stay, full-service, boutique and motel projects differ?

In revenue mix, staffing, cost structure and risk, and each needs its own scope. State law draws some of the lines. Florida, for example, classifies public lodging establishments by type, and the definitions show how the products differ in practice.

Exhibit 15. Florida's legal classifications of public lodging

Source: Florida Statutes 509.242(1) and 509.013 [24][25].

Select-service and limited-service hotels. Rooms produce nearly all revenue, with breakfast and a small market rather than a restaurant. Staffing is lean and costs are predictable, so feasibility turns on location, brand distribution and the depth of midweek demand. On an SBA loan, the management agreement and franchise directory tests apply in full [1].

Extended-stay hotels. Kitchens in the room, weekly rates, longer stays and lighter housekeeping change both revenue and labor. Demand comes from project work, relocation, training and medical stays, and it must be tied to identifiable sources. Stay length matters for eligibility and for taxes: SBA counts transients who stay 30 days or less [1], Texas exempts a guest who has the right to occupy a room for at least 30 consecutive days from the state hotel tax [19], and Portland's Tourism Improvement District fee excludes rent from an occupant staying more than 30 successive calendar days [27]. The study models the stay mix explicitly so the eligibility test and the tax budget both hold.

Full-service hotels. Restaurants, bars, banquets and meeting space add revenue and add labor, inventory and risk. Each department is modeled on its own margin, because a strong rooms department can hide a weak food and beverage operation. The capital source is often a bank, a life company or a securitized loan, and the management agreement terms carry real weight in the credit decision.

Boutique and independent hotels. Design, location and experience drive rate, but there is no brand reservation system or loyalty program to fill rooms in the first year. The ramp evidence suggests independents take substantially longer to reach comparable RevPAR [5]. The study prices the replacement distribution (digital marketing, channel management, revenue management and commissions) and tests whether the operator has done it before.

Motels and highway lodging. Florida's definition, with exterior room entrances and parking at each unit [25], describes the classic product. Revenue depends on corridor traffic, interchange access and signage. Where the building is three stories or lower, the federal sprinkler guideline does not apply, while the smoke detector guideline does [12]. Rate is the main competitive tool, so the study tests rate cuts as hard as occupancy cuts. Other lodging formats have their own pages: the RV park feasibility study and the glamping feasibility study.

Exhibit 16. How the products differ in a feasibility study

Source: FSC study scope by product; eligibility and program rules as cited in the text [1][3].

What operating costs and taxes does the pro forma carry?

Every cost the hotel will pay, built line by line, with fixed and variable parts separated so the model responds correctly when occupancy moves. The main lines are rooms department labor and supplies; food and beverage where it exists; administrative and general; sales and marketing; repairs and maintenance; utilities; franchise royalty and program fees; management fees; property taxes; insurance; and a reserve for replacing furniture, fixtures and equipment. Each comes from a quote, a contract, a tax bill, the franchise documents or a labeled assumption.

Payroll is the largest controllable cost. In the 2022 Economic Census, payroll was 23.8% of receipts for hotels and motels and 27.1% for bed-and-breakfast inns [4], before benefits and payroll taxes. The study builds staffing by department and shift, prices it at local wages, and checks the result against those ratios.

Energy is the next large cost: hotels run around the clock and heat water for every room.

Exhibit 17. Energy use by building type, 2018

Source: U.S. Energy Information Administration, Commercial Buildings Energy Consumption Survey 2018, Table C1 [31]. Energy per square foot and electricity share calculated by FSC from site electricity and major fuel totals.

Lodging buildings used about 85.7 thousand Btu per square foot in 2018, about 22% more than the average commercial building and about 31% more than offices [31]. The study prices utilities from local tariffs and the building's design, and uses the federal intensity only as a check.

Lodging taxes are a different matter. They are collected from guests and paid to governments, so they are not hotel revenue, but they raise the price the guest sees and they must be collected and filed correctly.

Exhibit 18. Examples of lodging taxes a hotel collects

Source: Texas Tax Code chapters 156 and 351 [19][20]; Texas Comptroller [22]; Florida Statutes 212.03 [23]; City of Portland [26]; Portland City Code 6.05 [27]; Oregon Department of Revenue [28].

Because the state rate has stayed at 6%, Texas hotel tax collections also work as a rough public signal of the room revenue cycle, which no government publishes directly for hotels in most states.

Exhibit 19. Texas state hotel occupancy tax collections, selected fiscal years

Source: Texas Comptroller of Public Accounts, All Funds revenue, historical data, hotel occupancy tax, amounts in thousands converted to millions [21]. Changes calculated by FSC. Texas fiscal years run September through August.

Collections fell 10.8% from fiscal 2008 to fiscal 2010 and 26.0% in fiscal 2020, then reached $833.6 million in fiscal 2026, 31.1% above fiscal 2019 [21]. Monthly receipts are seasonal as well: in fiscal 2025, April collections of $83.8 million were about 1.77 times January's $47.4 million [21]. Those swings are why the study's downside case is built from the public record of real downturns, not from a symmetrical percentage shaved off the base case.

How are DSCR, break-even occupancy and sensitivity tested?

By building the operating statement from the forecast, subtracting debt service on the proposed terms, and then attacking the result. Debt service coverage (DSCR) is net operating income divided by annual principal and interest. Break-even occupancy is the occupancy at which the hotel covers every cost and its debt service, with nothing left over. Both are reported by operating year, not only at stabilization.

The example below is an illustrative model for a 100-key select-service hotel. Every input is an assumption chosen to show the method; none is a market figure, and none describes a real project. The loan is assumed at $10,000,000 over 25 years at 7.25%, a quarter point above the bank prime rate of 7.00% that the Federal Reserve published for November 9, 2026 [32].

Exhibit 20. Illustrative stabilized operating statement, 100 keys

Source: Illustrative model by FSC. All inputs are assumptions; the prime rate reference is from the Federal Reserve H.15 release of November 10, 2026 [32].

At these assumptions the hotel breaks even on debt service at 58.5% occupancy, reaches the 1.15 coverage that SBA applies to 7(a) and 504 loans [1] at 62.5%, and reaches 1.25 at 65.2%. Break-even is not a fixed property of the building; it moves with rate. At an ADR of $135 the same hotel needs 67.5% occupancy to break even, and at $165 it needs 51.5%. The gap between the forecast occupancy and the coverage threshold is the cushion a lender is really buying, and the study states it in occupancy points and in dollars of ADR.

Exhibit 21. Illustrative sensitivity of coverage

Source: Illustrative model by FSC; all inputs are assumptions.

Two lessons carry over to real studies. A 10% rate cut does almost as much damage as a 10-point occupancy drop, because lost rate falls straight to the bottom line. And combined stress matters most: a 5-point and 5% decline together leaves coverage at 1.03.

The same model shows the ramp. If year-one occupancy reaches 80% of the stabilized level and ADR 95% of it, and year two reaches 92% and 98% (all assumptions), coverage is 0.73 in year one, with a cash shortfall of about $231,846 against debt service, and 1.11 in year two, still below 1.15. Under SBA's two-year rule [1], this hypothetical project would need a smaller loan, more equity or a stronger demand case before it could be called feasible, and under 504 the Year 1 shortfall would need liquidity behind it [1]. That is the kind of conditional conclusion a study is built to reach.

What do SBA, USDA and conventional lenders require for a hotel?

Each capital source applies its own rules to the same cash flow, so the study is built to the union of requirements for the sources actually in play, at the threshold of the strictest one.

Exhibit 22. Hotel financing paths compared

Source: SBA SOP 50 10 8.1 [1]; 13 CFR 120.151, 120.160, 120.910 and 120.931 [2]; 7 CFR 5001.105, 5001.306, 5001.402 and 5001.406 [3]; USDA FY2026 OneRD notice, 91 FR 11272 [33]; 12 CFR Part 34 [36]. USDA resets guarantee percentages and fees each fiscal year; confirm with the State Office.

SBA 7(a)

The maximum 7(a) loan is $5 million [34], and the aggregate SBA guaranty to one borrower and its affiliates may not exceed $3,750,000 [2]. A hotel qualifies only if more than 50% of the prior year's revenue came from transients staying 30 days or less, or, for a start-up, if its projections show that [1]. Coverage must reach 1.15 on a historical and/or projected basis and 1:1 globally [1]. A start-up needs an equity injection of at least 10% of total project costs [1]. For acquisitions, Appendix 15 sets the coverage, equity and due diligence rules described above [1].

SBA 504

A 504 project generally has three parts: a third-party lender providing 50% or more of the financing, a CDC providing up to 40% through a debenture guaranteed 100% by SBA, and a borrower injecting at least 10% [1]. CDCs originate 504 loans in collaboration with a senior lender [35]. Because SBA lists hotels, motels and other lodging facilities as limited or special purpose property, the borrower contributes at least 15%, or at least 20% if the project also involves a new business [1][2]. The CDC must address whether the property is special purpose in its credit memorandum and explain its conclusion [1]. Coverage of at least 1.15:1 applies [1], with the Year 1 liquidity rule described in the ramp section [1].

USDA Business and Industry

Hotels, motels and bed and breakfast establishments are eligible tourist and recreation facilities, but where the owner lives on site, the pro rata value of the owner's living quarters is deducted [3]. The project must be in a rural area, which excludes any city or town with more than 50,000 inhabitants and the urbanized area contiguous and adjacent to it [3]. Golf courses and racetracks are ineligible [3], and a business that derives more than 15% of its annual gross revenue from gambling is ineligible [3], so a resort hotel with those components must carve them out of both the uses of proceeds and the revenue model. A feasibility study by an independent qualified consultant acceptable to the Agency is required for guaranteed loans above $1,000,000 to a new business [3]. The Agency may also raise equity requirements for a loan it judges higher risk [3], and an application above $1,000,000 that will add more than 50 direct jobs goes to the Department of Labor for review [3].

Conventional bank loans

Banks set their own coverage and equity standards, within federal supervisory limits on loan-to-value ratios.

Exhibit 23. Supervisory loan-to-value limits for real estate loans

Source: 12 CFR Part 34, Appendix A to Subpart D, Interagency Guidelines for Real Estate Lending Policies [36].

A hotel construction loan falls in the 80% commercial construction category, and banks may set lower internal limits for riskier subcategories [36]. Construction loans also carry a capital charge: a high volatility commercial real estate exposure takes a 150% risk weight [38]. A commercial project can avoid that category if, among other conditions, the loan-to-value ratio is within the supervisory limit and the borrower has contributed capital of at least 15% of the property's appraised as-completed value [37]. That rule is one reason banks ask sponsors of new hotels for meaningful cash equity and an appraisal alongside the feasibility study.

Securitized loans

Securitized lenders and the rating agencies rebuild cash flow themselves, and they report it. Publicly registered commercial mortgage securitizations must disclose, loan by loan, the net operating income and debt service coverage at securitization and the most recent figures [39]. That reporting keeps the gap between projected and actual cash flow visible for the life of the loan, which is why the study carries conservative reserves and management fees from the start.

What site, building and code issues decide feasibility?

Accessibility, fire safety, flood exposure and zoning decide how many rooms a building can sell, who can book them and whether the lender can insure the collateral. Each has a federal rule the study checks before the room count is final; state and local codes add their own.

Exhibit 24. Accessible guest rooms required by the 2010 ADA Standards

Source: U.S. Department of Justice, 2010 ADA Standards for Accessible Design, Table 224.2 [40]. "Each 100 over 1000" includes any fraction of 100.

A 100-key hotel needs five rooms with mobility features, one of them with a roll-in shower [40], and rooms with communication features under Table 224.4 [40]. The rule covers places of lodging, which excludes only an establishment with five or fewer rooms for rent that the proprietor occupies as a residence [41]. Facilities on a common site under the same permit application with 50 or fewer guest rooms each may be combined to count required rooms, while facilities with more than 50 guest rooms are counted separately [43]. Reservations carry their own rules: a place of lodging must let guests with disabilities reserve accessible rooms in the same manner as others, describe accessible features in enough detail, block a reserved accessible room and hold it for the guest who booked it [42]. The study checks the room plan against the table and the reservation system against the rule, because a shortfall found after opening costs rooms and money.

Fire safety connects to revenue: the federal guidelines call for hard-wired smoke detectors in every guest room and sprinklers above three stories [12], and a hotel off the approved list gives up most federal travel [10] and federally funded meetings [13].

Flood exposure enters the budget directly. SBA requires flood insurance on any building, machinery or equipment financed with SBA assistance that sits in a special flood hazard area, and on fixtures and furnishings inside it [2]. The premium goes into the operating budget, and the elevation work goes into the development budget.

Zoning and permits come last but can stop everything. SBA eligibility for a hotel requires compliance with zoning and other legal requirements [1]. The study confirms that the use is permitted, that parking and height work for the planned key count, and that utility capacity letters support the opening date.

What have federal auditors found in guaranteed loans?

The same failures, repeatedly: projections nobody verified, coverage computed on thin or unaudited data, overstated equity and ignored technical risk. Each maps to a section a disciplined study is built to cover.

Exhibit 25. Audit findings and what the study does about them

Source: USDA Office of Inspector General, Audit Report 34601-15-Te, September 2003 [44]; SBA Office of Inspector General, Reports 18-21 and 19-22 [45][46].

The USDA audit predates the current OneRD rule, but the lesson has not changed. A study that shows its arithmetic, verifies its inputs and states where it disagrees with the sponsor is the cheapest protection a lender can buy.

What must a hotel feasibility study contain?

A complete study for a lender contains, at minimum:

1. A summary with the conclusion, the conditions attached to it and the key figures.
2. The project: keys by room type, brand or independent position, amenities, budget and schedule.
3. The site: access, visibility, utilities, flood zone, zoning and code status.
4. The economic base: employers, institutions, attractions and transportation that drive demand.
5. Demand by segment, with dated evidence for each.
6. The competitive set, property by property, and the reasons for each inclusion and exclusion.
7. New supply, by stage and expected opening date.
8. Fair share and penetration by segment, with the support for any index above 100.
9. Occupancy, ADR and RevPAR by month for two years and by year after that.
10. Brand economics from the franchise disclosure document and agreement.
11. The development or acquisition budget, including pre-opening costs, working capital, interest during construction and contingency.
12. The operating budget by department, with fixed and variable costs separated.
13. Coverage by year at the program's threshold, break-even occupancy and sensitivity cases.
14. The program checks: eligibility, management agreement, franchise status, equity and the study requirement.
15. A management assessment: the operator's record, staffing and systems.
16. Every source and assumption listed, with model outputs labeled as such.

How much does a hotel feasibility study cost, and how long does it take?

The fee is fixed before work begins and depends on the hotel's complexity.

Exhibit 26. Hotel feasibility study fees and timelines

Source: FSC published fee schedule.

The fee is never a percentage of the loan and never depends on the conclusion. Turnaround runs from the date the document set is complete. To start, the study needs: the site or property and parcel; keys, product tier and the proposed brand or independent position; the franchise application, the brand's disclosure document and any improvement plan; the development budget or purchase contract; the proposed loan structure and the lender, CDC or USDA State Office; for an existing hotel, three years of operating statements and tax returns, a trailing twelve-month statement and the current franchise and management agreements; any prior market study, appraisal or environmental report; and the owner's and operator's hotel experience. The work runs in six steps: scoping, document intake, field research, the model, review against the lender's questions and a final report with written answers to follow-up questions. Estimate your fee.

What happens after the study is delivered?

The lender, CDC or USDA reviewer reads it alongside the appraisal and the credit memorandum, and questions come back. The person who signed the study answers them in writing. If the brand, key count, budget or opening date changes before closing, the study is updated for the change. After opening, the study's monthly forecast becomes a baseline: comparing actual occupancy, rate and coverage against it shows early whether the hotel is on its ramp or falling behind, which is exactly the comparison securitized lenders already report for their own loans [39].

Who prepares the study?

Every study is prepared and signed by Sarrah Allen, MAI. The practice has no ownership or operating interest in any hotel it evaluates, takes no referral fees from operators, brands or vendors, and does not advocate for a sponsor. The fee is fixed in the engagement letter and does not change with the conclusion. More about the practice is on the about page, and related tools include the SBA DSCR calculator and the lender requirements matrix.

Download the evidence behind this page's exhibits (CSV, 578 data points with sources)

Who signs your study

FSC Consulting, Inc. is led by Sarrah Allen, MAI, a Member of the Appraisal Institute, who signs every study the practice issues. The certification page names the lead analyst who performed the research and modeling, the senior reviewer who checked it, the data sources used and the independence representations made, and both sign. The person who signs answers the credit officer's questions after delivery, as part of the fee.

Independence on a hotel file

• No ownership or operating interest in any hotel the practice evaluates.
• No referral fees from operators, brand franchisors or vendors.
• No advisory work for the operator of any hotel evaluated within the prior 24 months.
• Conflicts disclosed in the engagement letter before work begins, including prior work on a competitive-set property. The sponsor or lender may terminate at that point with a full retainer refund.
• No advocacy work: the conclusion follows the evidence, whatever it is.

Quality and coverage

• Four-pass review: lead analyst, senior analyst, and a second senior reviewer who took no part in the primary analysis.
• Errors and omissions insurance of $1 million; a certificate is available before the engagement letter is signed.
• Licensed data: CoStar, STR, IBISWorld, RMA Annual Statement Studies, Esri Business Analyst and Moody's Analytics.

More about the practice and the person who signs →