What hospitality underwriting looks like
Hotel debt requires a different underwriting lens. Lenders focus on RevPAR trends, brand flag strength, management agreement terms, and the magnitude and timing of any property improvement plan (PIP) requirement. DSCR floors run higher than other asset classes, typically 1.40x to 1.50x, to account for operating volatility.
Limited-service flagged hotels in growth markets get the most lender attention. Full-service and resort assets are workable but tend to draw fewer bids and require more sponsor heft.
PIP financing
If a flag-mandated PIP is coming, it has to be in the capital plan up front. Lenders frequently require PIP reserves funded out of loan proceeds, and underestimating the PIP scope is one of the most common ways hotel deals stress at year three.
Typical hotel loan terms
| Loan type | Potential fit |
|---|---|
| CMBS conduit | Flagged, stabilized hotels |
| Bank permanent | Owner-operators with a banking relationship |
| Bridge (debt fund or bank) | PIP, renovation or repositioning |
| SBA 7(a) and 504 | Owner-operated hotels |
Loan proceeds, pricing and terms depend on the property and lender underwriting. Send the property details to discuss financing.
What lenders underwrite on hotel
- Trailing performance. Occupancy, average daily rate and RevPAR against the competitive set, usually from STR reports.
- Brand and franchise term. Remaining franchise term and any required property improvement plan come before sizing.
- Reserves. Lenders deduct a furniture, fixtures and equipment reserve, commonly around 4% of revenue, before measuring coverage.
- Management. The operator’s record with the brand and in the market carries real weight.
What to have ready
- Monthly P&L for the trailing 12 months and two prior years.
- STR reports for the same period.
- Franchise agreement and any open property improvement plan.
- Capital expenditure history and the renovation budget.
Frequently asked questions
What metrics are critical for hotel financing?
RevPAR trends, brand flag strength, historical operating margin stability, management agreement terms, and PIP scope and timing.
Are CMBS loans common for hotels?
Yes. CMBS has been a strong execution for stabilized hospitality given non-recourse structure and higher leverage capacity.
What is the minimum DSCR for hotel financing?
1.40x to 1.50x typically, meaningfully higher than other asset classes, to account for revenue volatility.