How does select-service hotel financing differ from full-service?

Select-service vs. full-service financing dynamics

Operating model differences: select-service offers limited F&B (typically free breakfast, no full restaurant or banquet), no room service, and standardized brand operations. Full-service offers full restaurant, banquet, room service, and significant non-room revenue. The operating-business intensity is materially different, which drives the financing differential.

Lender bench depth: select-service has the deepest lender options in hospitality, banks (regional and national), CMBS conduits, debt funds, and life cos all participate. Full-service has shallower bench: banks more selective, CMBS still active, debt funds active for repositioning, life cos selective. Luxury / resort bench is thin: specialty lenders, debt funds, occasionally bank with deep recourse.

Debt yield floors: select-service typical floors 9.0%-11.0% stabilized. Full-service 10.5%-12.5%. Luxury / resort 11.0%-14.0%. The wider full-service floors reflect the operating risk of F&B and group business volatility.

Capex intensity: full-service hotels have higher capex requirements per key (typically 5%-7% of revenue vs. 4%-5% for select-service) reflecting the F&B and meeting-room maintenance. Lenders model the capex reserve requirement into sizing.

Sponsor playbook: focus on the binding constraint. For select-service, that's typically debt yield. For full-service, that's typically debt yield plus DSCR test. For luxury / resort, recourse and reserves often bind before debt yield.