Hotel Feasibility Study Consultants for SBA 7(a) and 504 Loans

What a hotel feasibility study consultant does for an SBA loan

SBA hotel loan performance: the SBA Hotel Lending Ledger

SBA does not publish loan performance by industry. The firm computes it from SBA’s loan-level FOIA files and publishes the results, so a credit reviewer can test a hotel file against the record of its class.

What the record does and does not say

A class-level loss rate below the SBA average is a reason a well-built hotel file can be approved, not evidence that a given hotel will perform. The study is where the specific market, product and capital structure decide the credit. Compare hotels with other property types in the SBA 7(a) charge-off rates by industry and the SBA Feasibility Risk Meter.

When an SBA lender orders a hotel feasibility study

No SBA rule makes a feasibility study mandatory for a hotel loan. 13 CFR 120.160(b) provides only that “SBA may require professional appraisals of the applicant’s and principals’ assets, a survey, or a feasibility study.” The decision rests with SBA, the 7(a) lender or the CDC. In practice the study becomes necessary in four situations. See also when SBA requires a feasibility study.

SOP 50 10 8.1 applies to loans receiving an SBA loan number on or after October 1, 2026 (Information Notice 5000-882227, September 25, 2026). Loans numbered on or before September 30, 2026 remain under SOP 50 10 8. A study scoped under the prior version should be re-tested against the version that governs its loan number. The full rule set is summarized on the SOP 50 10 8.1 page, and the acquisition record is analyzed in SBA acquisition loan default analysis.

On a hotel change of ownership, the study’s work shifts from projecting coverage to proving the record. It reconciles trailing results across tax returns, STR or CoStar reports and property-management-system data. It tests whether that performance survives the PIP, the re-flag and renovation downtime. And it identifies the loan amount the historical cash flow supports. On new construction and conversions, where there is no continuity of operations, the projection remains the credit.

How to choose a hotel feasibility study consultant

A lender reads a hotel feasibility study to decide whether it can rely on it. Seven tests separate a study that survives credit committee and SBA review from one that comes back with questions. They apply to any consultant, including this firm. The general version is set out in how to evaluate a feasibility study.

1. 1. Documented competitive-set evidence

   The competitive set is benchmarked on documented primary research. The report states how many properties the set contains and why each was included.

2. 2. Independence on the record

   The study is addressed to the lender as intended user, the fee is fixed before work begins, and neither the fee nor the conclusion depends on whether the loan closes.

3. 3. A named, credentialed signatory

   One accountable professional signs the determination, with the analyst and reviewer identified.

4. 4. Current SBA rule fluency

   The scope reflects the SOP version that governs the loan number, the brand’s Franchise Directory status, the transient-revenue eligibility test and the SOP 50 10 8.1 change-of-ownership coverage rules.

5. 5. Coverage reported through the ramp

   DSCR is shown by year from opening, not only at stabilization. Occupancy, ADR, labor and interest-rate stress are run alone and in combination.

6. 6. Reconciliation with the appraisal

   Stabilized income is in USALI format, so the going-concern appraiser can allocate it among land, building, equipment and intangibles without restating it.

7. 7. Willingness to say no

   The published record includes findings of not feasible, or feasible only with conditions.

Who prepares your hotel feasibility study

Every hotel study issued by SBA Feasibility Study LLC is authored and signed by David Jones, MAI, CCIM, principal of the firm. Mr. Jones has completed more than 4,300 feasibility studies over his career, across:

• hotels;
• fuel and convenience;
• car washes;
• self-storage;
• RV parks;
• multifamily;
• healthcare.

The firm’s studies have been accepted by 534 SBA 7(a) lenders and 107 Certified Development Companies. The analyst and reviewer on each engagement are named in the report. The firm does not white-label its conclusions under another letterhead, and it does not issue unsigned drafts that later become the basis for a credit decision.

Consultant profile and methodology · SBA feasibility methodology · Sample report contents

Hotel engagement record

Determinations are the firm’s independent findings. Credit and eligibility decisions rest with the lender, the CDC and SBA.

Related hospitality engagements: RV resort, Fredericksburg, TX, glamping resort, Sedona, AZ and wedding venue, Texas Hill Country. View all engagements

What a hotel feasibility study consultant analyzes

Hotels are a special purpose property in SBA lending: SBA defines a special purpose property as a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built, and hotels, motels, and other lodging facilities are named examples. In the 504 program SBA can request a study where market saturation or a highly specialized project property is present. U.S. occupancy averaged 62.3% in 2025 with ADR of $160.54 and RevPAR of $100.02, the first full-year occupancy and RevPAR declines since 2020 (CoStar). CoStar and Tourism Economics forecast 63.1% occupancy and 4.4% RevPAR growth for 2026, then 2.1% RevPAR growth in 2027, with industry supply growth below 1 percent (CoStar, August 2026); Lodging Econometrics forecasts 598 openings and 68,191 rooms in 2026, a 1.2 percent increase. Our market analysis methodology and financial projections and DSCR pages set out the general framework.

Demand segmentation, latent demand, and new supply

Before projecting occupancy, we build demand from the ground up. Accommodated room-night demand in the competitive market is segmented into commercial, leisure, and meeting and group travel, with any specialized segments such as medical, university, construction crew, or airline contract demand. Each segment is grown separately at a rate supported by its own drivers: employment and office activity for commercial, tourism and attraction data for leisure, and event calendars for group.

We then add latent demand, the room nights the existing hotels have not captured. Unaccommodated demand is travelers turned away on sell-out nights, estimated from the comp set’s monthly and day-of-week occupancy patterns. Induced demand is new room nights the subject itself will create through a brand, meeting space, or a new demand generator such as a hospital expansion or distribution center.

Every hotel under construction or in final planning within the market is added to supply and weighted by how directly it will compete with the subject and how likely it is to open. Nationally, 137,371 rooms in 1,094 projects were under construction at Q3 2026, up from 132,016 at Q1 2026 (Lodging Econometrics), but local pipelines vary widely, and a single new select-service hotel can reset a small market. The subject’s projected occupancy is then set through fair share and penetration analysis: its share of total demand relative to its share of supply, adjusted segment by segment for its competitive strengths and weaknesses. Our October 2026 SBA feasibility monitor tracks the program changes that affect new hotel supply financed under SBA.

STR data and competitive-set penetration

STR (originally Smith Travel Research, acquired by CoStar Group in 2019) is the industry’s reference source for hotel performance benchmarking. Competitive-set data allow direct benchmarking of the subject property against its most relevant competitors. The core metrics drive the entire financial model:

The comp set is the group of hotels against which the subject property is benchmarked. Constructing the right comp set is a judgment call that directly affects the credibility of the projections. A comp set for a proposed 90-room select-service hotel should include hotels of similar chain scale, room count, age, and market position within the defined competitive radius. Including a 300-room full-service convention hotel or a 40-room independent boutique distorts the benchmarking. STR groups hotels into chain scales (luxury, upper upscale, upscale, upper midscale, midscale, economy, and independent) based primarily on actual average room rates, and the comp set should stay within the subject’s chain scale and the one immediately adjacent.

We typically construct a primary comp set of 4 to 6 hotels that most closely match the subject property’s positioning, plus a secondary set of 3 to 5 additional properties that provide broader market context. Performance data for the primary comp set drives the base case projections. The secondary set validates whether the primary set is representative of overall market conditions.

Occupancy and ADR projections

Our projection methodology builds occupancy and ADR independently, then combines them into RevPAR. This avoids the common error of projecting RevPAR directly, which can mask unsupportable combinations of occupancy and rate.

We project occupancy using three approaches and triangulate the results. First, we benchmark against the comp set’s trailing 12-month occupancy, adjusting for any supply additions or removals in the competitive set. Second, we calculate the market-wide occupancy trend over 3 to 5 years and position the subject property relative to that trend based on its competitive advantages and disadvantages. Third, for new construction or conversion projects, we model the absorption curve: new hotels are commonly modelled to stabilize over about three years; the study derives the subject’s ramp from the opening histories of its competitive set rather than from a national rule of thumb. Stabilized occupancy must be justified against the comp set, not national norms: U.S. occupancy averaged 62.3% in 2025, so a 75% stabilized assumption requires a market and a competitive position that clearly support it.

ADR is projected by positioning the subject property within the comp set’s rate hierarchy. A new-build hotel typically prices at a premium to older competitors of the same chain scale; STR (now CoStar) found that hotels aged 2 to 5 years averaged ADR premiums of 7.5 percent (upscale) and 8 percent (upper midscale) over hotels aged 15 to 20 years, using 2007–2018 data. Over time, this premium erodes as the property ages unless renovation (PIP) spending maintains the competitive position. We project base case ADR growth benchmarked against the comp set’s history and current forecasts (CoStar and Tourism Economics project 3.1% for 2026 and 1.6% for 2027, after 0.9% in 2025), and we run a downside case at 1% to 2% annual growth.

Seasonal demand modelling

Hotels in most U.S. markets experience pronounced seasonal demand variations that must be reflected in the monthly cash flow model. A beach resort may achieve 85% occupancy in summer and 35% in winter. A ski area hotel reverses that pattern. A business-travel hotel in a secondary city may see 75% occupancy Tuesday through Thursday and 40% on weekends.

We model demand by month using monthly competitive-set data, adjusted for any demand generators specific to the subject (proximity to a medical center with year-round patient family demand, a university with seasonal peaks, or a corporate campus with predictable travel patterns). The monthly model is critical because annual averages can mask months where cash flow is insufficient to cover debt service. A hotel with a 72% annual occupancy may drop below breakeven for three months of the year, and the lender needs to see how the borrower manages that trough.

Ramp-up, interest carry and opening-year coverage

A new hotel opens into a market that does not yet know it exists. Revenue builds over months as distribution, corporate accounts and group calendars develop. Payroll, insurance, property taxes, franchise minimums and debt service run at full weight from the first day. A hotel can be viable at stabilization and still fail the loan if the structure cannot carry the years before it.

The study therefore reports debt service coverage by year from opening and identifies the first month in which coverage clears the lender’s standard. It sizes the interest reserve and working capital required to fund the operating deficit until then, and states that reserve as a condition when the sponsor’s budget does not carry it.

The ramp is derived from the opening histories of the competitive set and from the subject’s brand, chain scale and demand mix. It is not assumed from a national rule of thumb. See DSCR for SBA loans and the DSCR calculator.

Break-even occupancy, and why it moves with rate

Break-even occupancy is the occupancy at which net operating income just covers debt service. It is the most useful single number in a hotel credit, because it can be compared directly with the competitive set’s demonstrated occupancy. It is not a fixed property of the hotel.

Each occupied room contributes its rate, less the costs that rise with it:

• housekeeping, laundry, supplies and variable payroll;
• franchise royalties and assessments charged on revenue;
• the management fee;
• the FF&E reserve.

The sum of those contributions must cover fixed costs and debt service. When rate falls, each room contributes less and break-even occupancy rises. In the illustrative case below, a 10 percent cut in ADR lifts break-even occupancy from 64.4 to 74.3 percent. That is how a busy hotel misses its debt service.

The study reports break-even across a range of rate outcomes and sets it against the competitive set’s actual occupancy, so the cushion is shown, not asserted.

Flag vs. independent: how it changes the analysis

Whether the hotel operates under a franchise flag or as an independent property fundamentally changes the feasibility study’s assumptions.

For SBA-financed hotels, franchise affiliation is strongly preferred by most lenders. The franchise system provides a demand generation infrastructure and brand standards that reduce the operator-dependency risk that SBA examiners scrutinize. An independent hotel feasibility study must work harder to demonstrate demand capture without the franchise safety net. If the brand meets the FTC definition of a franchise, it must be listed on the SBA Franchise Directory for the loan to be eligible, and the lender must use the addendum the Directory specifies. Brands had to sign SBA’s updated franchisor certification by June 30, 2026 or be removed, so the current listing must be checked at approval. See franchise feasibility studies. Our SBA hotel feasibility study guide and SBA franchise index compare brand-level loan outcomes, and the special-purpose property guide explains why lenders treat hotels as special-purpose collateral.

PIP costs: the hidden capital requirement

Property Improvement Plans are mandatory renovation programs that franchise brands impose on a 5 to 7 year cycle. For SBA borrowers acquiring an existing flagged hotel, the PIP represents a capital expenditure that must be integrated into the total project cost and the feasibility study’s financial model.

PIP costs vary by brand and property condition. HVS’s Hotel Cost Estimating Guide puts soft-goods renovation at roughly $5,200 to $7,100 per room for midscale hotels and $7,200 to $9,900 for upscale hotels, in 2021 dollars, before recent inflation. Full-renovation and conversion PIPs are priced from the brand’s PIP letter and current contractor bids. For context, HVS’s 2026 development cost survey puts median new construction at about $200,000 per room for select-service hotels. Conversions and older properties also carry environmental due diligence questions, and PIP-heavy acquisitions are reviewed against SBA loss severity by property type.

The feasibility study must determine whether the subject property has a pending PIP, estimate the cost, and model the impact on cash flow during the renovation period (when rooms may be taken out of inventory) and the revenue lift after completion. A study that ignores PIP obligations overstates available cash flow and produces a DSCR that does not reflect the borrower’s true financial obligations.

Labor market analysis

Hospitality is the most labor-intensive commercial property type in the SBA lending portfolio. Staffing scales with occupied rooms, not just room count. Across U.S. hotels, labor cost averaged $46.79 and 2.105 hours per occupied room in Q1 2026 across about 5,000 hotels (Hotel Effectiveness), labor costs ran 33.5% of revenue at non-union hotels and 43.0% at union hotels (HotStats, December 2025), and labor is more than half of operated department expenses (CBRE). We model staffing by department and occupancy level, using the payroll FTE schedule introduced in USALI’s 12th Revised Edition. Labor and expense ratios follow our operating expense rationalization standard, applied the same way in the Hill Country wedding venue case study.

The feasibility study must assess local labor market conditions: unemployment rate, competing hospitality employers, prevailing wages for housekeeping, front desk, maintenance, and management positions, and any state or local minimum wage requirements that exceed the federal floor. In tight labor markets, the study should model wage rates 10% to 15% above current levels to account for retention pressure. Understating labor costs is one of the most common errors in hotel feasibility studies and one of the first things experienced credit officers check.

Hotel feasibility by property type

2026 market evidence for hotel credits

Every figure carries its source and period. The firm updates this section when a primary release changes the answer. The full narrative is in the U.S. Hotel Market Report and Outlook, Fall 2026.

Hotel feasibility study vs market study vs appraisal

See also feasibility study vs business plan and what to expect in the report.

How hotels are valued: appraisal methodology and standards

The feasibility study and the appraisal answer different questions, but in an SBA file they have to agree. The study tests whether the hotel can generate its projected cash flow; the appraisal converts that cash flow into value, separates real estate from business value, and sets the collateral position.

The standards behind the file

The appraisal follows USPAP (2024 edition, which has no fixed expiration date); Standards Rule 1-4(g) requires analysis of personal property and intangible items included in the appraisal, which always applies to an operating hotel. For federally regulated lenders, the Interagency Appraisal and Evaluation Guidelines bar using going concern value as market value; it may be reported separately only if clearly identified. SBA requires a Certified General appraiser with at least four going-concern appraisals of equivalent special use property in the last 36 months and separate values for land, building, equipment, and intangible assets. Operating statements follow the Uniform System of Accounts for the Lodging Industry (USALI), whose 12th Revised Edition took effect January 1, 2026.

Income approach

The primary approach. The appraiser forecasts a ten-year USALI-format P&L, using a fixed and variable component model in which each expense moves partly with occupancy and partly not, and deducts a market management fee, franchise fees, and the FF&E reserve. Net income is discounted to present value, with a terminal capitalization rate applied to Year 11 income. Mid-2026 investor surveys put limited-service hotel cap rates around 8.7%, discount rates around 11.3%, and terminal cap rates around 9.1% (USRC), with full-service at 8.0 percent, 10.4 percent and 8.3 percent (USRC, mid-year 2026). Cap rates and discount rates must be supported by the subject’s own risk profile, not just survey averages.

Sales comparison approach

Price per key (per room) is the basic unit of comparison, supplemented by room revenue multipliers. Comparable sales are adjusted for chain scale, brand, age and PIP status, location, RevPAR performance, and property rights. Rules of thumb, such as valuing a room at 1,000 times ADR, tend to overstate value and are used only as a rough check. Major U.S. hotel sales averaged about $211,000 per room in 2025 (LW Hospitality Advisors, deals over $10 million), a figure weighted toward larger hotels.

Cost approach

Land value plus replacement cost new, less physical, functional, and external obsolescence. It receives limited weight for existing hotels but is a key test for new construction: if stabilized value falls short of total development cost, the project is not financially feasible as proposed.

Separating real estate, equipment, and business value

Hotel value includes real property, FF&E (personal property), and business intangibles such as the brand affiliation, management, and assembled workforce. Two schools of thought dominate. The Rushmore Approach removes business value by deducting the management fee and franchise fees from income, then deducts a return on and of FF&E. The Business Enterprise Approach (associated with David Lennhoff, MAI) argues that additional intangibles must be identified and removed separately. Courts have split on the question; in SHC Half Moon Bay v. County of San Mateo (California Court of Appeal, 2014), deducting management and franchise fees was not enough to remove all intangibles. The allocation matters directly for the SBA loan: real estate supports up to a 25-year term while equipment and intangibles carry shorter terms, and under SOP 50 10 8.1 change-of-ownership loans use a blended weighted-average maturity. Our studies report stabilized income in USALI format so the appraiser can allocate it cleanly among land, building, equipment, and intangible assets.

Highest and best use and conversion

Every appraisal tests highest and best use as vacant and as improved: legally permissible, physically possible, financially feasible, and maximally productive. For older hotels, the as-improved test increasingly weighs continued hotel use against conversion to apartments or workforce housing, which works best for properties with larger rooms or suites and simpler construction. For lenders, conversion potential is a real part of the downside case, and the feasibility study supplies the financially feasible test for continued hotel use.

SBA eligibility and structure checklist for hotel loans

Beyond the checklist, lenders weigh operator experience heavily. For borrowers entering hospitality for the first time, the study addresses the management plan: an experienced general manager, a third-party management company with meaningful owner oversight, or a brand-mandated training program. Hotel staff must be the applicant’s employees, and an applicant whose management company is, or is affiliated with, the franchisor is not eligible (SOP 50 10 8, Section A, Ch. 1, Para. G). Under SOP 50 10 8.1, initial acquisitions and owner buyouts must show 1.25x coverage on historical earnings and business expansions 1.15x; a quality-of-earnings report is required for initial acquisitions and business expansions at a business purchase price of $3 million or more (see Exhibit 2). The FF&E reserve, typically 4% to 5% of total revenue and commonly ramped from 2% in Year 1 to 4% from Year 3, is carried as an operating expense. Program detail: SBA 7(a) feasibility study, SBA 504 feasibility study, 7(a) vs 504, the CDC compliance guide and the site and regulatory assessment.

Engaging the firm: process, fee and timeline

1. 1. Scoping call

   15 minutes, no cost.

2. 2. Written proposal within one business day

   Scope, method, timeline, firm fixed fee and acceptance guarantee terms.

3. 3. Engagement

   Engagement letter; structured data request within one to two business days; kickoff; mid-point review; delivery; support through lender acceptance.

Hotel studies are quoted at $4,900 to $25,000 or more, fixed before work begins.

• Lower end: limited-service acquisitions with documented operating history.
• Upper end: new construction, full-service properties and thin-data markets.

Delivery runs 12 to 20 business days from a complete data response (licensed competitive-set data adds procurement lead time). Rush delivery is available, though rarely below 10 business days. The fee does not depend on the conclusion or on whether the loan closes. Every inquiry is answered within one business day. For pricing across property types, see the cost and timeline guide and the feasibility study checklist.

Data request checklist

• Site or property address and parcel.
• Keys, chain scale, and proposed brand or independent positioning.
• Franchise proposal or license application, and the brand’s PIP letter if any.
• Development budget or purchase contract.
• Proposed loan structure, SBA program, and lender or CDC.
• For existing hotels:
  • three years of P&L statements and tax returns;
  • trailing-twelve-month STR or CoStar reports;
  • property-management-system data;
  • the current franchise and management agreements.
• Any market study, appraisal or Phase I already in the file.
• The sponsor’s hotel operating experience.

Hotel feasibility study FAQ

More answers: SBA feasibility study FAQ and the glossary.

How this page is verified

Program rules are checked against 13 CFR Parts 120 and 121 and SBA SOP 50 10 8 and 8.1. Every market figure names its source and date. Last verified October 26, 2026.

Sources

• eCFR, 13 CFR 120.160, 120.910, 120.111, 120.151 and 120.212 (current) — https://www.ecfr.gov/current/title-13/chapter-I/part-120
• U.S. Small Business Administration, SOP 50 10 8 (effective June 1, 2025) — https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
• U.S. Small Business Administration, Information Notices 5000-880695 (August 14, 2026) and 5000-882227 (September 25, 2026) — https://www.sba.gov/document/information-notice
• NAGGL, SOP 50 10 8.1 summaries (August 14 and September 25, 2026) — https://www.naggl.org
• Funder Intel, summary of SOP 50 10 8.1 Appendix 15 (October 13, 2026) — https://www.funderintel.com
• SBA Office of Capital Access, franchise directory certification notice (December 23, 2025) — https://www.sba.gov/document/support-sba-franchise-directory
• Federal Register, 91 FR 53741, proposed size standards (August 20, 2026) — https://www.federalregister.gov
• CoStar, U.S. hotel performance releases (January 20, August 6 and September 28, 2026) — https://www.costar.com
• Hotel Dive, CoStar and Tourism Economics forecast coverage (January 27 and June 2, 2026) — https://www.hoteldive.com
• Lodging Econometrics, U.S. Construction Pipeline Trend Reports, Q1–Q3 2026 — https://lodgingeconometrics.com
• HVS, U.S. Hotel Development Cost Survey 2026 (July 2026) and 2025 — https://www.hvs.com
• HVS, Hotel Franchise Fee Guide, 2020 edition — https://www.hvs.com
• USRC, Mid-Year 2026 Hotel Investor Survey (October 1, 2026) — https://www.usrealtyconsultants.com
• LW Hospitality Advisors, Major U.S. Hotel Sales Survey (January 26, 2026) — https://www.lwhospitalityadvisors.com
• CBRE, Trends in the Hotel Industry — https://www.cbre.com
• HotStats, labor cost analysis (December 2025) — https://www.hotstats.com
• Hotel Effectiveness / HotelData.com, labor benchmarks, Q1 2026 — https://www.hoteleffectiveness.com
• The Highland Group, extended-stay performance (August 2026) — https://www.thehighlandgroup.net
• Trepp via MBA Newslink (September 8, 2026) and YieldPro (October 2026), CMBS delinquency — https://www.trepp.com
• Marriott International, FY2025 earnings release (SEC filing) — https://www.sec.gov
• STR, “Age-related ADR premiums” — https://str.com
• U.S. Small Business Administration, 7(a) and 504 FOIA loan-level data (as of March 31, 2026) — https://data.sba.gov

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