Hotel feasibility study.

Hotels do not sit cleanly inside any one lender category. A typical limited-service or select-service hotel project in 2026 is financed through one of six channels, each with a different feasibility expectation.

The SBA 7(a) and 504 programs finance a meaningful share of franchised limited-service and select-service hotel construction and acquisition in the United States, particularly for owner-operator borrowers. Both programs require a third-party feasibility study under SOP 50 10 8 for new construction and for substantial renovations or conversions, and the study must be prepared by an independent qualified source.

Conventional bank construction loans — typically delivered by regional and money-center banks — finance the larger end of the franchised market and a portion of the upscale and upper-upscale market. The standard package is a feasibility study plus a Phase I environmental site assessment plus an as-stabilized MAI appraisal, all engaged by the bank or the borrower with the bank's approval.

CMBS conduit execution finances stabilized hospitality at the $5 million to $80 million loan-size band, with the feasibility content aligned to rating-agency methodologies and built to survive B-piece kick-out. The conduit pathway is covered in detail under our CMBS conduit sub-pillar.

Life-company loans finance the higher end of the stabilized market, typically at lower leverage and longer terms than conduit. Hospitality is one of the few asset classes where life-cos require a standalone feasibility study even on otherwise stabilized collateral, because the cash-flow volatility of hotels does not lend itself to the trailing-twelve underwriting that life-cos apply to multifamily, industrial, and grocery-anchored retail.

Debt funds finance the transitional and value-add hospitality market — conversions, repositionings, and PIP-driven renovations — at higher leverage and shorter tenor than conduit or life-co. The feasibility scope on a debt fund loan is built around the repositioning thesis: where the asset is today, where the renovation and rebrand will take it, and what the stabilized exit looks like.

Agency multifamily — Fannie Mae, Freddie Mac, HUD-FHA — does not finance hotels. The agency line in the lender matrix is N/A.

In all five active hospitality channels, the brand-franchisor approval committee runs in parallel. Hilton, Marriott, IHG, Hyatt, and Choice each operate an internal committee that evaluates new development, conversion, and change-of-ownership applications against brand standards, market saturation, and projected impact on existing same-brand properties in the trade area. The franchise committee uses the feasibility study as a primary input.

The competitive set — the cohort of properties used to benchmark the subject's projected ADR, occupancy, and RevPAR — is the analytical center of gravity of every hotel feasibility study. The convention is set by Smith Travel Research: typically four to seven properties, matched on chain scale, location class, and demand segmentation, with documented selection criteria.

A defensible competitive set is not the largest set or the most flattering set. It is the set that the lender, the brand committee, and the rating agency or B-piece buyer will all accept. The selection criteria are explicit: chain scale match (a Hampton Inn benchmarks against other upper-midscale brands, not against Holiday Inn Express alone); location class match (interstate exit, suburban office park, urban CBD, airport, resort); demand-segment match (transient business, transient leisure, group, contract); and property age and product class within ten years where the market supports it.

Boundary cases — properties that fit two of the three criteria but not the third — are documented with explicit inclusion or exclusion rationale. A study that pulls in a higher-performing property to lift the projected ADR without that rationale is rejected at every level of the underwriting stack.

The trailing-twelve and stabilized penetration analysis runs against the documented set: the subject's RevPAR is expressed as a percentage of the competitive-set average, and forward projections that show penetration above 105 percent without a documented operational case (a meaningfully better location, a brand upgrade, a renovation lifting the property class) are written down to the competitive-set average in the lender case.

The franchise committee at Hilton, Marriott, IHG, Hyatt, or Choice runs its own analytical process in parallel with the lender's. The committee evaluates the project on three axes: brand standards compliance, market saturation, and impact on existing same-brand properties in the trade area.

Market saturation is the brand committee's structural concern. Each franchisor sets territory and impact rules — implicit or explicit — that govern how close a new property of the same brand can be located to an existing one without triggering an impact study and a potential denial. A new Hampton Inn within four miles of an existing Hampton Inn will draw an impact analysis from Hilton's development team; a new Holiday Inn Express within three miles of an existing one will draw the same scrutiny from IHG.

The feasibility study's brand-flag analysis section addresses three questions explicitly. First, does the proposed brand fit the market — meaning, do the demand segments and ADR positioning the brand targets actually exist in the trade area at sufficient depth? Second, what is the projected impact on existing same-brand properties, expressed as an estimated RevPAR change and occupancy displacement? Third, are there alternative brand positions within the same franchisor's portfolio (a Hampton Inn vs a Home2 Suites; a Holiday Inn Express vs an Avid) that better fit the market opportunity?

The committee uses the feasibility study to answer those questions. A study that does not address them forces the committee to commission its own analysis or to deny the application.

A Property Improvement Plan — the brand-mandated renovation scope that accompanies a change of ownership, a brand conversion, or a periodic brand refresh — is a hard cost that has to be integrated into the financial projection. PIP scopes typically run from $8,000 per key on a light brand refresh to $40,000+ per key on a full conversion or major renovation, and the timing of PIP completion drives both the renovation downtime in the occupancy projection and the capital structure of the loan.

The feasibility study's PIP integration runs at three levels. First, the PIP scope is documented from the franchisor's PIP letter or the consultant's pre-PIP estimate, broken down by guestroom, public space, exterior, MEP, and FF&E. Second, the renovation schedule is mapped to the occupancy projection — typically a phased renovation that holds occupancy at 60 to 70 percent of stabilized during the active renovation period, recovering to stabilized within 6 to 12 months of completion. Third, the PIP cost is integrated into the financing structure: SBA 504 will finance PIP as part of the project cost; conventional bank construction will fund PIP through the construction draw schedule; debt fund transitional execution will reserve PIP from the loan proceeds.

A feasibility study that documents the PIP at the line-item level and integrates the cost and the schedule into the financial projection survives the underwriting and the franchise approval simultaneously. A study that mentions PIP in passing without integration leaves the lender and the committee to estimate the impact themselves.

The feasibility study has to satisfy two audiences that ask overlapping but not identical questions. The lender — whether SBA, conventional bank, CMBS, life-co, or debt fund — is underwriting credit. The lender's structural question is whether the projected cash flow services the proposed debt at the underwriting constants and clears the DSCR and debt-yield thresholds, and whether the projected value supports the LTV.

The franchise committee at Hilton, Marriott, IHG, Hyatt, or Choice is underwriting brand fit. The committee's structural question is whether the proposed property will perform to the brand standard, will avoid cannibalizing existing same-brand properties in the trade area, and will reflect favorably on the brand over the franchise term. The committee uses many of the same inputs as the lender — the competitive set, the projected ADR and occupancy, the demand-segment analysis — but applies a different decision framework.

A study that addresses both audiences in the same document is more efficient for the borrower and more credible to both reviewers than two separate documents. The five elements that satisfy both are: a defensible competitive set; a transparent demand-driver analysis; a projection methodology with explicit rate-growth and occupancy-ramp assumptions tied to documented operational drivers; a brand-flag impact analysis; and a PIP-integrated financial model. The eight sub-pillar pages address each at the sub-segment-specific level.