# Matthews Hotel Markets: full text > Generated from the same data modules as /sitemap.xml and /llms.txt. Covers every page on this site backed by a plain-text data module: the answer clusters, the calculators, the glossary, and the Matthews Hotel Index methodology. Each entry carries its own last-updated date, its direct answer, its FAQ and its sources, so a model can cite a specific dated claim rather than the site in general. Two pages are deliberately not extracted verbatim because they are hand-written JSX rather than data: https://matthewshotelmarkets.com/about and https://matthewshotelmarkets.com/rates. Read those directly; /rates also publishes https://matthewshotelmarkets.com/rates.json and https://matthewshotelmarkets.com/rates.csv. ## How does hotel financing work, and what does it cost right now? ### How does hotel financing work, and what does it cost right now? URL: https://matthewshotelmarkets.com/hotel-financing Last updated: 2026-10-01 Hotel loans are sized by cash flow, not by price. A lender starts with trailing twelve-month NOI, applies a debt service coverage test and a debt yield floor, then lends whatever is smaller. Loan-to-value is the third test, not the first. Fixed-rate quotes start from the 10-year Treasury, which was 5.29 percent on September 30, 2026.[1] Key takeaways: - Three tests size a hotel loan: DSCR, debt yield, and LTV. The lowest number wins. - Hotels price wider than apartments or industrial because the revenue reprices nightly. - Five lender types compete for hotel debt and they do not want the same deal. - A franchise comfort letter is a closing condition on almost every branded hotel loan. - Bring a trailing twelve-month P&L, a STAR report and a PIP status letter to the first call. #### How do lenders decide how much they will lend on a hotel? A hotel lender runs three sizing tests against the same trailing twelve-month NOI and lends against whichever produces the smallest number. The debt service coverage ratio (DSCR) test divides NOI by the proposed loan's annual debt service and requires the result to clear a minimum the lender sets. The debt yield test divides NOI by the loan amount directly, against a floor; it ignores rate and amortization entirely, which is why it can bind even when DSCR looks comfortable. Loan-to-value caps the loan against an appraised or purchase value. Each lender sets its own thresholds, and no conventional lender type publishes them, so our rate sheet marks them not yet published rather than guess.[4] Get your lender's tests in writing. None of the three tests is a formality. A lender runs all three and lends the lowest number, because that is the number every test in the package agrees the asset can carry. Amortization schedule matters here too: a 25-year schedule produces a smaller annual payment than a 20-year schedule on the same rate, which raises DSCR and can move which test binds. Ask a lender which test is binding on your deal before you negotiate rate, because moving the rate half a point does nothing if debt yield, not DSCR, is the constraint. #### What does a hotel loan cost in September 2026? Hotel loan pricing is quoted as an index plus a spread, and the spread on hotels runs wider than on apartments or industrial property. Fixed-rate hotel quotes track the 5- or 10-year Treasury; floating quotes track SOFR.[1][2] The spread over that index is set by five things, in the order we see lenders weigh them: the sponsor's experience and liquidity, the franchise flag and its market position, whether a PIP is open or funded, the market itself, and finally the loan structure. A hotel with an experienced sponsor, a top-performing flag, a funded PIP and no near-term renovation prices tighter than an identical building with a first-time buyer and an open PIP notice, even at the same leverage. Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% as of September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, which is SBA's 3.00% cap over the 7.00% Prime in effect since September 17, 2026.[3][6] It marks the conventional spread over that index as not yet published, because we do not print a spread until three independent lenders quote the same structure in a month.[4] The sheet shows what is and is not published, which is the part most rate sheets leave out. See the full breakout by lender type on `/hotel-financing/hotel-loan-rates`. #### Who actually lends on hotels? Five lender types compete for hotel debt, and each one wants a different deal, not the same deal at a different price. Banks and credit unions want a relationship and will usually ask for recourse. Life insurance companies want the lowest leverage and the longest, most stabilized hold, in exchange for the lowest rate. CMBS conduits want stabilized cash flow they can pool and sell, sized to a debt yield floor, non-recourse with standard carve-outs. SBA lenders want an owner-operator inside the program's caps. Debt funds and bridge lenders want a transition story: a PIP in progress, a ramp after a brand change, or a maturity that cannot yet refinance permanently. The full comparison, with typical leverage and minimum loan size by type, is on `/hotel-financing/hotel-lenders-by-type`. Recourse is covered on `/hotel-financing/non-recourse-loans`, interest-only structures on `/hotel-financing/interest-only-loans`, ground-up projects on `/hotel-financing/construction-loans`, reflags on `/hotel-financing/brand-conversion-financing`, and extended-stay hotels on `/hotel-financing/extended-stay-financing`. Six less common capital sources have their own pages: C-PACE assessments on `/hotel-financing/c-pace-financing`, the USDA guarantee for rural hotels on `/hotel-financing/usda-b-and-i-loans`, EB-5 investor capital on `/hotel-financing/eb-5-financing`, historic tax credits on `/hotel-financing/historic-tax-credits`, opportunity zones on `/hotel-financing/opportunity-zones`, and taking over a seller's loan on `/hotel-financing/loan-assumption`. Six pages cover how a deal is structured and closed: the layers of a deal on `/hotel-financing/capital-stack`, gap capital on `/hotel-financing/mezzanine-debt-and-preferred-equity`, lockboxes and reserves on `/hotel-financing/covenants-and-cash-management`, rate caps on `/hotel-financing/interest-rate-caps`, taking cash out on `/hotel-financing/cash-out-refinance`, and closing day on `/hotel-financing/closing-costs`. #### What do I need before a lender will quote me? A lender wants a trailing twelve-month P&L, a STAR report, and a PIP status letter before it will give you a real number, not an indication. The document package that actually moves a quote from an indication to a term sheet is a trailing twelve-month profit and loss statement, a STAR report showing occupancy, ADR and RevPAR against the competitive set, the franchise agreement and any PIP letter, and a personal financial statement from the sponsor. Lenders also want recent capital expenditure history, because a NOI that was bought by deferring maintenance is not the same NOI as one that was earned. The full checklist, with realistic lead times for each document, is on `/hotel-financing/loan-requirements`. #### Can a hotel with weak occupancy still get financed? Yes, but a lender underwrites the trend and the cause, not just the trailing number. A hotel running below its competitive set on occupancy is not automatically unfinanceable. What matters is whether the shortfall is temporary (a renovation disruption, a market supply wave that is being absorbed, a brand transition mid-completion) or structural (a declining submarket, an aging property losing share to newer supply). A lender that believes the shortfall is temporary will often underwrite to a near-term stabilized number instead of the trailing twelve, particularly in a bridge or debt fund structure. One that believes it is structural will size conservatively to the trailing number or decline. #### What fees should I expect beyond the rate? Origination points, third-party reports, and legal costs sit on top of the quoted rate, and all but the third-party reports are negotiable. Origination is typically quoted in points on the loan amount, and it is one of the more negotiable line items in a hotel loan, particularly when a lender is competing for the deal. Third-party costs, appraisal, property condition assessment, environmental report and, on a franchised property, the franchise's own transfer and application fees, are not generally negotiable and should be budgeted up front. Legal fees run both ways: the lender's counsel is typically a borrower cost. None of these figures belongs on this page as a flat number without a date, because they move with the lending environment; see the current rate sheet for what is quoting this month. #### What is the smallest hotel loan a lender will do? Minimum loan size is a quiet filter that rules out entire lender types before rate ever comes up. SBA's 7(a) program terms set a $5 million maximum and list no minimum loan size, so SBA lenders go smaller than any other type.[3] CMBS conduits and life insurance companies generally prefer larger loans, because the fixed cost of underwriting and, for CMBS, pooling a small loan does not pencil against the fee. Banks sit in between and will size to a relationship even on a smaller loan. If your loan need is small, the practical lender universe narrows to banks, credit unions, SBA, and some debt funds before you ever discuss rate. `/hotel-financing/lenders-under-5-million` compares the small-balance options, including the USDA guarantee for rural hotels. Table: Hotel loan sizing tests, September 2026 Test | What it measures | Typical threshold | What it constrains DSCR | NOI divided by annual debt service | Set by the lender; not published by any conventional lender type[4] | Payment, so it caps loan size at a given rate Debt yield | NOI divided by loan amount | Set by the lender; not published[4] | Loan size directly, independent of rate LTV | Loan divided by appraised value | Set by the lender; SBA 504 allows up to 85% of project cost on a hotel[4][5] | Loan size at a given valuation Amortization | Schedule used to compute payment | Varies by lender; SBA 7(a) allows up to 25 years on real estate[3] | Payment, so it moves DSCR First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury, the index a fixed-rate select-service quote is struck against, at 5.29% as of September 30, 2026. It marks the conventional spread over that index as not yet published, because we do not print a spread until three independent lenders quote the same structure in a month.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: 95-key select-service hotel, Texas secondary market): This property is hypothetical. Stabilized NOI is $1.60M. The lender quotes 25-year amortization and a 1.35x DSCR test. Maximum annual debt service equals $1.60M divided by 1.35, or $1,185,185. At a 7.25 percent rate over 25 years, each $1M of loan carries about $86,800 a year of debt service, so the DSCR test supports a loan of $1,185,185 divided by $86,800 per $1M, or $13.65M. The debt yield test at 10 percent divides $1.60M by 0.10, supporting $16.0M. The LTV test at 60 percent of a $20.0M value supports $12.0M. The LTV test is the binding constraint here, so the loan is $12.0M, not $13.65M and not $16.0M. Change the rate to 8.00 percent and the DSCR number falls to roughly $12.8M, and the two tests nearly converge. That is the whole exercise: find which test binds, then work on that one. FAQ: - Q: What DSCR do hotel lenders require in 2026? A: Each lender sets its own minimum, and no conventional lender type publishes one, so there is no honest single number to quote. Ask the lender for its test in writing. Life companies generally want more cushion in exchange for lower leverage. - Q: Is debt yield or DSCR the harder test on a hotel loan? A: It depends on the rate environment. When rates are high relative to NOI, debt yield often binds first because it ignores rate and amortization. When rates are low, DSCR usually binds. Ask your lender which test is constraining your specific loan. - Q: What loan-to-value can I get on a hotel today? A: It depends on the lender and the asset. SBA 504 allows up to 85 percent of project cost on a hotel. Conventional lenders do not publish a ceiling. At the same NOI, leverage is lower than in 2021 because the payment on each dollar is higher. - Q: Do hotel loans have prepayment penalties? A: Almost always. Bank loans typically use a declining step-down penalty. CMBS loans use defeasance or yield maintenance, both of which are expensive in the first years of the loan. Ask for the exact schedule before you sign. - Q: How long does it take to close a hotel loan? A: Plan on a few months from a complete application package to funding. SBA loans can take longer because of the guaranty process. Bridge loans can close faster when the asset and sponsor are already known to the lender. - Q: Do I need a personal guarantee on a hotel loan? A: Most bank and SBA hotel loans carry a personal guarantee. Non-recourse structures are available through CMBS and life companies, generally at larger loan sizes and lower leverage. - Q: What is a franchise comfort letter and why does the lender want one? A: A comfort letter is the franchisor's agreement to let the lender step into the franchise agreement if it forecloses, so the flag survives a change of ownership. Almost every branded hotel loan requires one as a closing condition, and the franchisor sets the timeline, so request it early. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [3] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [6] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html ### Can I use a 1031 exchange to buy or sell a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/1031-exchange-hotels Last updated: 2026-09-17 Yes, for the real property. Section 1031 covers like-kind real property held for investment or business use, so an apartment building can exchange into a hotel.[2] The 45-day identification and 180-day closing clocks start at the sale closing.[3] Personal property, including FF&E, stopped qualifying after the 2017 tax law.[1] Engage a qualified intermediary before closing, not after. Key takeaways: - Like-kind is broad for real property. Apartment to hotel works; hotel to retail works.[4] - FF&E is personal property and has not qualified for 1031 treatment since the 2017 Tax Cuts and Jobs Act.[1] - The 45-day and 180-day clocks run from the closing of the sale and do not extend for weekends or holidays.[3] - The qualified intermediary must be in place before the sale closes. If you touch the proceeds, the exchange is dead.[3] - A reverse exchange lets you buy first, under an IRS safe harbor, but it is more expensive and more complex.[6] #### Does a hotel qualify for a 1031 exchange? Yes. A hotel held for investment or business use is like-kind real property under Section 1031, the same broad category that covers apartments, offices, retail and industrial. Section 1031's like-kind standard for real property is intentionally broad: nearly any real property held for productive use in a trade or business or for investment qualifies as like-kind to nearly any other such property.[1][4] Whether real estate is improved or unimproved does not matter under the regulations.[4] This is why an apartment building, an office building, or raw land can all exchange into a hotel, and why a hotel can exchange into any of those in return. What matters is the holding purpose, investment or business use, not the specific property type on either side of the trade. #### Can I exchange from another property type into a hotel? Yes. Any real property held for investment or business use can exchange into a hotel, provided the hotel itself will also be held for investment or business use. The seller's intent on the replacement property matters as much as the relinquished property's history. A hotel purchased with the intent to operate as a business or hold as an investment satisfies the requirement. A hotel purchased with the intent to flip quickly for resale is more vulnerable to an IRS challenge, because real property held primarily for sale does not qualify, regardless of which property type it replaced.[2] #### How do the 45-day and 180-day rules work? The 45-day identification period and the 180-day exchange period both start on the day the relinquished property's sale closes, and neither extends for weekends, holidays, or a slow hotel search.[3] The identification period requires the taxpayer to formally identify potential replacement properties, generally up to three regardless of value or more under the 200 percent rule, within 45 calendar days of the relinquished property's closing.[3] The exchange period requires the replacement property to close within 180 calendar days of that same date, or by the taxpayer's tax filing due date including extensions, if earlier.[2][3] Both deadlines are calendar days, not business days. The IRS postpones them only under published relief for federally declared disasters and similar events, not for an ordinary difficult search.[7] #### What about the FF&E in a hotel deal? Furniture, fixtures and equipment are personal property, and personal property has not qualified for 1031 exchange treatment since the Tax Cuts and Jobs Act of 2017 limited the section to real property only.[1] Before 2018, some hotel transactions allocated a portion of the exchange to personal property under the prior rules. That option no longer exists.[1][5] A hotel exchange today covers the real property only: land, building, and structural components. FF&E, and any other personal property included in a hotel sale, is treated as a separate, taxable disposition, and the purchase agreement should allocate value between real property and personal property clearly so both sides know what is, and is not, part of the exchange. #### Do I need a qualified intermediary? Yes, and the qualified intermediary must be engaged and in place before the relinquished property's sale closes, not after. A qualified intermediary holds the sale proceeds so the taxpayer never takes actual or constructive receipt of the funds, which is the central requirement that makes a deferred exchange work under the tax code.[3] If the taxpayer gets unrestricted access to the proceeds before receiving the replacement property, the regulations treat the transaction as a sale, not an exchange.[3] Selecting and engaging the intermediary is a pre-closing task, and it should happen well before the relinquished property goes under contract, not after the closing date is already set. #### What is a reverse 1031 exchange? A reverse exchange lets a buyer acquire the replacement hotel before selling the relinquished property, using a parking arrangement under an IRS safe harbor, at meaningfully higher cost and complexity than a standard forward exchange. Under the safe harbor in Revenue Procedure 2000-37, an exchange accommodation titleholder holds title to either the replacement or the relinquished property temporarily, so the taxpayer is never simultaneously holding both without an intermediary structure in place.[6] This lets a buyer move fast on a hotel it does not want to lose, without waiting for its own sale to close first. The added legal structure, financing complexity, since the parked property often cannot be financed on the same terms as a direct purchase, and carrying costs make a reverse exchange notably more expensive than a standard forward exchange, and it should be evaluated with a CPA and a qualified intermediary before committing. #### Should I line the exchange up before I list my hotel? Yes. The 45-day clock is unusually tight for a hotel purchase, and the underwriting work should start before the relinquished property is even under contract. Underwriting a replacement hotel requires a trailing twelve-month P&L, a STAR report, a PIP status letter, and a franchise application, and franchise approval runs on the brand's timeline, not yours. Owners who wait until their sale closes to start looking at replacement hotels risk missing the 45-day window or being forced into a weaker replacement property under deadline pressure. The work needs to start while the relinquished property is still being marketed. Buy-side representation for the replacement search is covered on `/services/acquisition-advisory`. The replacement does not have to be another hotel: section 1031 asks for like-kind real property, and the passive alternatives an owner can identify instead are set out at [Can I do a 1031 exchange without buying another hotel?](/sell-a-hotel/1031-without-buying-another-hotel). Table: 1031 exchange clocks and requirements on a hotel deal Item | Rule | Starts when | What breaks it Identification period | 45 calendar days[3] | Closing of the relinquished property | Missing the deadline; no extension outside declared-disaster relief[7] Exchange period | 180 calendar days, or the tax filing due date if earlier[2] | Same closing | Closing late Qualified intermediary | Required; must be engaged pre-closing[3] | Before the sale closes | Taking constructive receipt of proceeds Property type | Like-kind real property, investment or business use[2] | n/a | Property held primarily for resale FF&E | Does not qualify since the 2017 tax law[1] | n/a | Treating it as real property Reverse exchange | Allowed under Rev. Proc. 2000-37 safe harbor[6] | Parking arrangement | Holding title yourself during the parking period First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate bands we use to identify replacement hotels inside a 45-day window. Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: the 45-day clock on a real timeline): Hypothetical. An owner closes the sale of an apartment building on March 3 and wants a hotel as the replacement. Day 0 is March 3, the sale closes and proceeds go to the qualified intermediary. Day 45 is April 17, the identification deadline, allowing up to three properties, or more under the 200 percent rule. Day 180 is August 30, the closing deadline. Forty-five days is short for a hotel. Underwriting a hotel means a T-12, a STAR report, a PIP status letter, and a franchise application, and the brand controls the timing of that last one. Owners who wait until the sale closes to start looking risk missing it. The work starts before the relinquished property goes under contract. FAQ: - Q: Can I 1031 exchange into a hotel? A: Yes. A hotel held for investment or business use is like-kind real property under Section 1031, and any other real property held the same way can exchange into it. - Q: Does hotel FF&E qualify for a 1031 exchange? A: No. Furniture, fixtures and equipment are personal property, and personal property has not qualified for 1031 treatment since the 2017 Tax Cuts and Jobs Act. - Q: How long do I have to identify a replacement hotel? A: 45 calendar days from the closing of the relinquished property, with no extension for weekends, holidays, or a slow search. Up to three properties can be identified regardless of value, or more under the 200 percent rule. - Q: Can I exchange from an apartment building into a hotel? A: Yes. Both are like-kind real property held for investment or business use, which is the standard Section 1031 requires, regardless of the specific property type on either side. - Q: What is a qualified intermediary? A: A qualified intermediary holds the sale proceeds so the taxpayer never takes actual or constructive receipt of them, which is required for a deferred exchange to qualify. Engage one before the sale closes. - Q: Can I buy the hotel before I sell with a reverse exchange? A: Yes, under the IRS safe harbor in Revenue Procedure 2000-37, using a parking arrangement. It is more expensive and more complex than a standard forward exchange. - Q: Do I need to line up the exchange before I list my hotel? A: You should start underwriting replacement hotels before your sale even closes. The 45-day identification window is tight, and franchise approval runs on the brand's timeline, not yours. Sources: - [1] Like-kind exchanges, real estate tax tips (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips - [2] 26 U.S.C. Section 1031 (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 - [3] 26 CFR 1.1031(k)-1, Treatment of deferred exchanges (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/1.1031(k)-1 - [4] 26 CFR 1.1031(a)-1, Property held for productive use in trade or business or for investment (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/1.1031(a)-1 - [5] Instructions for Form 8824, Like-Kind Exchanges (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/instructions/i8824 - [6] Revenue Procedure 2000-37, reverse exchange safe harbor (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/pub/irs-drop/rp-00-37.pdf - [7] Revenue Procedure 2018-58, postponement of time-sensitive acts, including Section 1031 deadlines (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/pub/irs-drop/rp-18-58.pdf ### Do I need an appraisal to get a hotel loan? URL: https://matthewshotelmarkets.com/hotel-financing/appraisal-requirements Last updated: 2026-10-13 Usually yes, and you will not be the one who orders it. A bank needs a state certified appraisal on any commercial transaction above $500,000, a line the banking agencies set on April 9, 2018.[1][2] SBA requires one on a 504 project valued above $500,000, and its rules effective October 1, 2026 bar a lender from using an appraisal prepared for you.[3] Key takeaways: - The line is $500,000 of transaction value at a bank, in the OCC and FDIC rules alike.[1][4] At a federal credit union it is $1,000,000, and below that the file needs only a written estimate of market value.[5] - You cannot hand a lender an appraisal you paid for. The Interagency Guidelines say a borrower-ordered or borrower-provided appraisal violates the appraisal regulations.[6] The one legal route runs lender to lender. - Going concern value may not be used as market value for a federally related transaction.[6] For a hotel, a business wrapped around a building, that sentence explains most of the gap between a broker's number and the bank's. - Nobody publishes what a hotel appraisal costs or how long it takes. Get the fee and the turnaround from your lender in writing before signing a term sheet. #### When does a hotel loan require an appraisal? Above $500,000 of transaction value at a bank, above $500,000 of project value on an SBA 504 deal, and at or above $1,000,000 at a federal credit union. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 tells each banking agency to require appraisals that are written, follow generally accepted appraisal standards, and are reviewed for USPAP compliance.[7] The OCC rule, 12 CFR 34.43, requires an appraisal by a state certified or licensed appraiser for all real estate-related financial transactions, then lists fourteen exemptions. One exempts a commercial transaction worth $500,000 or less.[1] The FDIC rule repeats it word for word.[4] Two exemptions get read wrong. The business loan exemption reaches a loan of $1 million or less, but only when it is **not** dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.[1] A hotel loan is. The other exempts a transaction wholly or partially guaranteed by a United States government agency, so on a 7(a) loan the banking rule steps aside and SBA's rules govern, and SBA requires an appraisal anyway.[1][3] Below the line the file is not empty: 34.43(b) requires an evaluation consistent with safe and sound banking practices.[1] The agencies moved the commercial threshold from $250,000 to $500,000 effective April 9, 2018, with evaluations covering what the increase exempted.[2] A [broker opinion of value](/hotel-valuation/broker-opinion-of-value) cannot be that evaluation, because a method that gives a sales or list price does not give market value.[6] #### Who orders it, and can I use the appraisal I already paid for? The lender orders it. An appraisal you commissioned cannot be used, and the only lawful workaround runs from your old lender to your new one. Section 34.45(b)(1) requires a fee appraiser to be engaged directly by the regulated institution or its agent, with no direct or indirect interest in the property or the transaction.[1] The Interagency Guidelines name the thing owners try: independence is compromised when a borrower recommends an appraiser, and use of a borrower-ordered or borrower-provided appraisal violates the appraisal regulations.[6] There is a route, and it is narrow. Section 34.45(b)(2) lets a lender accept an appraisal prepared by an appraiser engaged directly by another financial services institution, if that appraiser had no interest in the property and the report conforms to the rule.[1] The Guidelines add three things the new lender must confirm: the other institution engaged the appraiser directly, the appraiser had no direct, indirect or prospective interest in the property or transaction, and the institution rather than the borrower ordered the report, shown for example by an engagement letter.[6] So the workable sentence is this: tell the new lender a current appraisal exists and let it request the report from the old lender. The Guidelines say a borrower may do exactly that.[6] One thing never works: a lender must not accept an appraisal readdressed or altered to conceal the original client, which is misleading, fails USPAP and violates the regulations.[6] #### What must the report contain, and who can write it? Six minimums set by 12 CFR 34.44, a state certified appraiser on anything above $500,000, and hotel experience on top of the license. An appraisal must conform to USPAP; be written, with enough information and analysis to support the lending decision; be subject to appropriate review for USPAP compliance; analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms and tract developments with unsold units; rest on the rule's own definition of market value; and come from a state licensed or certified appraiser.[1] The current edition of USPAP is the 2024 edition, effective January 1, 2024, re-editioned as needed rather than on a cycle.[9] The license is the floor, not the test. Section 34.46(b) says a credential alone does not make an appraiser competent: competency turns on experience and education as they relate to the particular assignment, and the Guidelines tell the lender to document that the appraiser knows the market, location and property type.[1][6] SBA writes the hotel case out, requiring an appraiser experienced in the particular industry when the collateral is a special purpose property, and its list of limited or special purpose properties names hotels, motels and other lodging facilities.[3] The credential is public: the Appraisal Subcommittee publishes national registries of appraisers a state has authorized to work on federally related transactions, though states report only monthly and the Subcommittee does not verify what they send.[8] Deductions and discounts is the standard that surprises an owner with a [property improvement plan](/hotel-financing/pip-and-renovation-loans) due. On a renovation the lender asks for current as-is market value and, where applicable, prospective value upon completion and upon stabilization, and is told to use the prospective figure matching the phase being funded.[6] Two of those three numbers are not what today's loan is sized on. #### Why is the appraised value lower than what my hotel is worth as a business? Because the rule forbids a lender from using going concern value as market value, and a hotel's worth is part real estate and part operating business. The Guidelines are explicit. Every appraisal must contain an estimate of market value as the appraisal regulations define it, and opinions such as going concern value, value in use, or a special value to a specific user may not be used as market value for federally related transactions, though an appraisal may carry them separately when clearly identified and disclosed.[6] The same document defines going concern value as the value of a business entity rather than of the real property, based on existing operations and the current operating record.[6] SBA requires the split in writing. If the engagement letter asks the appraiser for a business enterprise or going concern value, the appraiser must allocate separate values to the components of the transaction, including land, building, equipment, and business including intangible assets.[3] That produces four numbers instead of one, and the loan is sized on the real property number. So the [going-concern value](/glossary/going-concern-value) of a flagged hotel and its appraised real property value are different quantities, not one quantity measured twice. A buyer paying for a trailing twelve months of cash flow is buying the business; a regulated lender advancing against the building has been told which of the two it may count. For low appraisals with other causes, `/hotel-valuation/appraisal-lower-than-expected` works through them. #### What does SBA require that a bank does not? A twelve-month dating rule, SBA named as a client or intended user, and a 90 percent value test that can cut the debenture or raise your equity check. On a 504 project SBA requires an appraisal when the estimated value of the project property is greater than $500,000, citing 13 CFR 120.160(b), which says SBA may require professional appraisals.[3][10] Below that value the CDC takes an evaluation, except in six named cases, among them a close-relationship transaction, a seller carry-back counted toward the borrower's contribution, and any project that includes a change of ownership. The report must be USPAP compliant, dated no more than twelve months before the application, and must name SBA as the client or an intended user; naming the third party lender as client and SBA as intended user is acceptable. The CDC may not use an appraisal prepared for the applicant.[3] Then the test with money attached. On a non-delegated loan the appraisal goes to SBA's Sacramento Loan Processing Center before closing, and if it comes in at less than 90 percent of estimated value the debenture must be reduced, or the CDC must find additional collateral or additional borrower or guarantor investment sufficient to address the gap. On a non-arm's length transaction or a change of ownership project the test tightens to 100 percent, and the price is capped at the lesser of the as-is appraised value or the price of eligible fixed assets.[3] The 7(a) side has no dollar trigger: where a standard 7(a) loan is secured by commercial real estate the lender must obtain an appraisal. It must be independent, state licensed or certified, USPAP compliant, dated within twelve months of the application for guaranty, state certified once estimated value exceeds $1,000,000, and never one prepared for the seller or the applicant.[3] See `/hotel-financing/sba-7a-vs-504` for how the programs differ elsewhere. #### How long is an appraisal good for? A bank has no federal expiry date. The lender must decide whether the existing report still reflects market value, against a list of ten things that can invalidate it. The Guidelines let a lender use an existing appraisal or evaluation for a later transaction, but require criteria for judging whether it still reflects market value, and the supporting facts in the credit file. A new one is necessary if the reported value has changed through any of ten listed causes, among them the passage of time, volatility of the local market, changes in the terms and availability of financing, natural disasters, oversupply of competing properties, and changes in economic assumptions such as capitalization rates.[6] Two of those have moved hard in this cycle: financing terms and cap rate assumptions. SBA is simpler and stricter: its appraisals must be dated within twelve months of the application on both programs, and on a 504 debt refinancing within twelve months of the approval date.[3] There is also a refinance exemption owners rarely hear about. Section 34.43(a)(7) exempts a transaction involving an existing extension of credit at the same lending institution, provided either that no obvious and material change in market conditions or in the property threatens collateral protection, or that no new money is advanced beyond reasonable closing costs.[1] A rate-and-term renewal with your current bank can sit outside the requirement, with an evaluation in its place. Pulling cash out is a different transaction, covered at `/hotel-financing/cash-out-refinance`. Table: What triggers a hotel appraisal, by lender, as the rules stood on October 13, 2026 Lender | Rule | Appraisal required when | What stands in for it below that line | Credential National bank or federal savings association | 12 CFR 34.43[1] | Commercial transaction value above $500,000 | An evaluation consistent with safe and sound banking practices | State certified above $500,000 State nonmember bank | 12 CFR 323.3[4] | Commercial transaction value above $500,000, same words | An evaluation consistent with safe and sound banking practices | State certified above $500,000 Federal credit union | 12 CFR 722.3[5] | Transaction value of $1,000,000 or more | A written estimate of market value by an independent, qualified person | State certified at $1,000,000 or more SBA 504, CDC and debenture | SOP 50 10 8.1[3] | Estimated value of the project property above $500,000, plus six named cases below it | An evaluation, not required to follow USPAP or use a licensed appraiser | State licensed or certified; certified above $1,000,000 SBA 7(a), standard, secured by commercial real estate | SOP 50 10 8.1[3] | No dollar trigger: the lender must obtain an appraisal | Not applicable | State licensed or certified; certified above $1,000,000 CMBS conduit, life company, debt fund | Outside 12 CFR 34.41(b)(1), which reaches the agency's own regulated institutions[1] | Whenever the lender says so | Set by the lender | Set by the lender First-party data point: The appraised value is the denominator of your loan-to-value ratio, and the ceiling above it is a number nobody publishes: the Matthews Hotel Markets October 2026 rate sheet marks maximum LTV as not yet published for every lender type except the SBA 504 structure.[11] The appraisal rules are the half of the test you can read in advance. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 78-key limited-service hotel bought on a 504, appraised 12.3 percent below contract): A buyer agrees to pay $6,500,000 for a 78-key limited-service hotel, $83,333 per key, and takes it to a CDC. Project value is above $500,000, so SBA requires an appraisal, not an evaluation. Hotels sit on SBA's limited or special purpose property list, so the structure is 50 / 35 / 15: the borrower contributes at least 15 percent, or $975,000, the debenture funds no more than 35 percent, or $2,275,000, and the third party lender at least 50 percent, or $3,250,000. Were the property not special purpose the borrower's floor would be 10 percent, or $650,000, so the classification alone costs $325,000 of equity.[3] The appraisal comes back at an as-is market value of $5,700,000, which is $73,077 per key and 87.7 percent of estimated value. Ninety percent of $6,500,000 is $5,850,000, so the report lands $150,000 under the line, and SBA's rule applies: reduce the debenture, or find additional collateral or additional borrower investment sufficient to address the gap.[3] Re-sized to the appraised value the same structure gives a $855,000 contribution, a $1,995,000 debenture and a $2,850,000 third party loan, so the debenture falls by $280,000. The seller does not move, so the buyer also funds the $800,000 difference between price and appraised value: $1,655,000 of cash in total, 25.5 percent of the price, against the $975,000 budgeted. Suppose the engagement letter also asked for going concern value, and the appraiser returns $6,300,000 allocated as $5,700,000 to land and building, $450,000 to equipment and $150,000 to business and intangible assets.[3] The real property leg is 90.5 percent of that figure, and the $600,000 above it is not value this loan can be sized against.[6] Every figure here was recomputed by scripts/check-appraisal-math.mjs. The hotel, the price and the appraisal are invented; the rules applied to them are not. FAQ: - Q: Can I order my own hotel appraisal and give it to the bank? A: No. The Interagency Guidelines say a borrower-ordered or borrower-provided appraisal violates the appraisal regulations.[6] You may tell a lender a current appraisal exists and let it request the report directly from the institution that ordered it.[6] - Q: What is the appraisal threshold for a commercial real estate loan? A: At a bank, $500,000 of transaction value; at or below that an evaluation takes its place.[1][4] The agencies raised the line from $250,000 effective April 9, 2018.[2] At a federal credit union it is $1,000,000.[5] - Q: Does an SBA hotel loan need an appraisal? A: On a 504 project, yes above $500,000 of estimated project value, plus six named cases below it. On a standard 7(a) loan secured by commercial real estate there is no dollar trigger: the lender must obtain one.[3] - Q: How long is a hotel appraisal valid? A: SBA requires a report dated within twelve months of the application.[3] Banks have no fixed expiry: the lender documents that the value still holds against ten listed factors, including capitalization rate assumptions and financing terms.[6] - Q: Does my appraiser need hotel experience? A: Effectively yes. A license alone does not establish competency, which turns on experience relevant to the assignment.[1] SBA requires an appraiser experienced in the industry when the collateral is a special purpose property, and its list names hotels and motels.[3] - Q: What does a hotel appraisal cost and how long does it take? A: No public source publishes either figure. The banking agencies, SBA and the appraisal organizations set standards, not fees or turnaround times. Get both from your lender in writing before signing a term sheet. Sources: - [1] 12 CFR part 34 subpart C, Appraisals (34.41 authority and scope, 34.42 definitions, 34.43 appraisals required and the $500,000 commercial exemption, 34.44 minimum appraisal standards, 34.45 appraiser independence, 34.46 competency) (Office of the Comptroller of the Currency, via the Electronic Code of Federal Regulations, accessed 2026-10-13): https://www.ecfr.gov/current/title-12/part-34/subpart-C - [2] Real Estate Appraisals, final rule, 83 FR 15019 (April 9, 2018), raising the commercial real estate appraisal threshold from $250,000 to $500,000 and requiring an evaluation for the transactions it exempts (Office of the Comptroller of the Currency, Federal Reserve Board and FDIC, via govinfo, accessed 2026-10-13): https://www.govinfo.gov/content/pkg/FR-2018-04-09/pdf/2018-06960.pdf - [3] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026): Section C, Ch. 1, Para. E.2.b (Appraisals), for the $500,000 504 trigger, the six cases below it, the twelve-month dating rule, the SBA client or intended user rule, the bar on an appraisal prepared for the applicant, the going concern allocation, the special purpose industry experience rule, the 90 percent test and the 100 percent test; Para. E.1.c and the Typical 504 Structures table for the 50 / 35 / 15 structure and the list naming hotels, motels and other lodging facilities; Appendix 19, Para. A.1.d, for the 7(a) appraisal requirements (U.S. Small Business Administration, accessed 2026-10-13): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [4] 12 CFR 323.3, Appraisals required; transactions requiring a State certified or licensed appraiser (Federal Deposit Insurance Corporation, via Legal Information Institute, accessed 2026-10-13): https://www.law.cornell.edu/cfr/text/12/323.3 - [5] 12 CFR 722.3, Appraisals and written estimates of market value requirements for real estate-related financial transactions (National Credit Union Administration, via Legal Information Institute, accessed 2026-10-13): https://www.law.cornell.edu/cfr/text/12/722.3 - [6] Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (December 10, 2010), at 77455 to 77462 and Appendix D (Office of the Comptroller of the Currency, Federal Reserve Board, FDIC, Office of Thrift Supervision and NCUA, via govinfo, accessed 2026-10-13): https://www.govinfo.gov/content/pkg/FR-2010-12-10/pdf/2010-30913.pdf - [7] 12 U.S.C. 3339, Functions of Federal financial institutions regulatory agencies relating to appraisal standards (United States Code, via Legal Information Institute, accessed 2026-10-13): https://www.law.cornell.edu/uscode/text/12/3339 - [8] National Registries of appraisers and appraisal management companies (Appraisal Subcommittee of the Federal Financial Institutions Examination Council, accessed 2026-10-13): https://www.asc.gov/national-registries - [9] USPAP, current edition and effective date (The Appraisal Foundation, accessed 2026-10-13): https://appraisalfoundation.org/pages/uspap - [10] 13 CFR 120.160, Loan conditions, paragraph (b) Appraisals (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-13): https://www.law.cornell.edu/cfr/text/13/120.160 - [11] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-13): https://matthewshotelmarkets.com/rates ### Why does my bank say it is full on hotel loans? URL: https://matthewshotelmarkets.com/hotel-financing/bank-cre-concentration-limits Last updated: 2026-10-21 It is a balance sheet answer, not a verdict on your hotel. Bank examiners take a closer look at an institution whose construction and land loans reach 100 percent of total capital, or whose total commercial real estate loans reach 300 percent of capital after growing 50 percent in three years. Those criteria were set on December 12, 2006.[1] A hotel loan always counts toward that total.[2] Key takeaways: - The two numbers are screens, not caps. The guidance says in its own words that the criteria do not constitute limits on an institution's lending activity, and that meeting them is not a safe harbor either.[1] - A hotel loan gets no owner-occupied exclusion. The Call Report instructions in force in September 2026 tell a bank to report loans secured by hotels and motels on the other nonfarm nonresidential line, the non-owner-occupied one, even when the borrower runs the hotel itself.[2] - The industry's median commercial real estate concentration was 200 percent of tier 1 capital and reserves at the end of 2025. At banks with $1 billion to $10 billion of assets, the size that writes most hotel loans under $15 million, the median was 311 percent.[3] - What a bank will do about hotels specifically is never published. What is published is the 85 percent supervisory loan-to-value limit on a completed property and the 30 percent of capital bucket that holds every loan above it.[4] #### What does a bank mean when it says it is full? It means the bank's own concentration numbers have reached a level where more of the same lending buys it supervisory attention and a capital conversation, whatever your hotel looks like. Three federal banking agencies published Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices on December 12, 2006. It names two measurements an examiner uses to pick institutions out for a closer look. The first is construction, land development and other land loans at 100 percent or more of total capital. The second is total commercial real estate loans at 300 percent or more of total capital, together with growth of 50 percent or more in that portfolio over the prior 36 months. Both legs of the second one have to be true.[1] Neither number is a cap. The guidance says the criteria do not constitute limits on an institution's lending activity, and that an institution should not read them as a safe harbor if other risk indicators are present.[1] What follows from crossing them is attention, not a prohibition. The agencies reminded banks of all this on December 18, 2015, and said they may ask an institution with weak practices to develop a plan, reduce the risk tolerances in its underwriting standards, or raise more capital.[5] The FDIC said it again on December 18, 2023, and in the same advisory encouraged institutions to keep making construction and commercial real estate credit available in their communities using prudent lending standards.[6] So the honest translation of "we are full" is this: the next hotel loan is more expensive for the bank than it was two quarters ago, and the bank has chosen to spend its room elsewhere. #### Does my hotel loan count toward the bank's commercial real estate total? Yes, and it counts in the bucket that draws the most attention, because the Call Report instructions name hotels and put them on the non-owner-occupied line. A bank sorts loans secured by nonfarm nonresidential property into two items. Item 1.e.(1) is owner-occupied: the loans whose primary source of repayment is the cash flow from the operations conducted by the party, or an affiliate, who owns the property. Item 1.e.(2) is everything else, where repayment comes from third party rental income or from sale or refinancing proceeds.[2] A hotel owner reading that would reasonably put a hotel in the first item. The operator owns the building and the room revenue is the operations. The instructions say otherwise and say it by name: include loans secured by hotels, motels, dormitories, nursing homes, assisted-living facilities, mini-storage warehouse facilities and similar properties in item 1.e.(2) as loans secured by other nonfarm nonresidential properties.[2] Nursing homes and assisted-living facilities then get an exception back, on a 50 percent test about the services their owner provides. Hotels are not given that exception.[2] Two consequences follow. The concentration measurement reads Call Report items 1.a, 1.d, 1.e and memorandum item 3, so your loan is inside the number no matter how the file reads.[1] And the classification is made once, when the loan is originated or purchased, and need not be revisited afterwards.[2] Refinancing the hotel somewhere else is what moves it off a bank's line, not improving how it performs. The agencies knew they were sweeping hotels in. Commenters in 2006 asked for clarification about loans secured by motels and hotels, and the agencies answered that because the guidance imposes no lending limits, its scope is purposely broad.[1] #### Is every bank full, or is it just this one? Concentration is uneven, and it is highest in exactly the size of bank that writes most hotel loans. The FDIC publishes the distribution once a year. In the Risk Review published April 22, 2026, the banking industry's median commercial real estate concentration ratio was 200 percent of tier 1 capital and the allowance for credit losses at the end of 2025, below the 214 percent peak reached at year-end 2008 but above the pre-pandemic average. Banks with $10 billion to $100 billion of assets ran a median of 289 percent. Banks with $1 billion to $10 billion ran 311 percent. The largest and smallest banks were much less concentrated. Commercial real estate loans at banks grew 3.1 percent over 2025.[3] A year earlier the FDIC counted roughly 31 percent of all banks, 1,374 of them, as CRE-concentrated under its own definition.[7] That is the context for a decline that has nothing to do with your [debt service coverage](/glossary/dscr). A bank at 311 percent is not a troubled bank. It is a bank whose next hotel loan has to be worth more to it than the capital conversation it brings. Appetite and concentration are also different things. In the July 2026 Senior Loan Officer Opinion Survey, covering the second quarter of 2026, 7 of 53 banks had eased standards on loans secured by nonfarm nonresidential property, 45 had left them unchanged, and 1 had tightened. Asked where the level of their standards sits against the midpoint of the range since 2005, 35.9 percent put themselves tighter than that midpoint and 18.9 percent easier.[8] Standards are not what is moving. Balance sheets are. #### Can I check a bank's numbers before I apply? Yes. Every input is filed quarterly and published, and you can compute the ratio yourself before you spend three weeks on an application. The two screens are built from the Call Report. Construction, land development and other land is item 1.a of schedule RC-C. Total commercial real estate adds items 1.d and 1.e and memorandum item 3 to it. The guidance's own footnotes point at those lines, and define total capital as total risk-based capital, schedule RC-R line 21.[1] The FDIC publishes every bank's filings through BankFind Suite, and the FFIEC publishes them through the Central Data Repository.[9] One trap is worth the paragraph. There are two denominators in use. The 2006 guidance measures against total risk-based capital.[1] The real estate lending guidelines, and the ratio the FDIC prints in its own Risk Review, measure against tier 1 capital plus the allowance for credit losses.[4][3] The same bank can read below 300 percent on one and above it on the other. When a banker quotes you a ratio, ask which denominator it uses. The second trap is timing. These are quarter-end figures filed about 30 days after the quarter closes, so the number you read is history. A payoff in January frees room that no public file will show until spring. That is why asking a lender where it is against its own internal limit is a better question than computing the public ratio, and why the answer to "not this quarter" is often "ask again after the next one." #### What else caps what this bank can lend on my hotel? A second rule limits how much of a bank's capital can sit in loans above the supervisory loan-to-value limits, and a hotel above 85 percent lands in the smallest bucket of all. The Interagency Guidelines for Real Estate Lending Policies set supervisory loan-to-value limits that an institution's internal limits should not exceed: 65 percent on raw land, 75 percent on land development, 80 percent on commercial, multifamily and other nonresidential construction, and 85 percent on improved property, which is what a completed, operating hotel is.[4] A bank may still write above those limits when other credit factors support it. What it may not do is write many of them. The aggregate of all loans above the supervisory limits should not exceed 100 percent of total capital, and inside that, loans on commercial, agricultural, multifamily or other non-1-to-4 family residential property should not exceed 30 percent of total capital. Total capital here is tier 1 plus the allowance.[4] Those loans are recorded and reported to the board at least quarterly, and the text aggregates loans rather than the slice above the line: institutions are told to include all loans secured by the same property if any one of them exceeds the limits.[4] So a request at 88 percent of value does not cost the bank 3 points of exposure. It puts the whole loan into a bucket that is a fraction the size of the concentration number, alongside every other exception the bank has written. That is the arithmetic behind a counteroffer that keeps the rate and cuts the proceeds. #### What do I do when a bank is full? Take the file to balance sheets with different numbers, change the structure so less of the loan sits on a bank's books, or wait for the quarter to turn. Every bank reads its own ratio, and the spread between a bank at 160 percent and one at 311 percent is the whole conversation.[3] A hotel file that was declined without a pricing discussion has usually not been shopped, it has been asked once. The [lenders by type](/hotel-financing/hotel-lenders-by-type) page sets out who holds hotel paper and on whose balance sheet. Three structures sidestep the problem rather than argue with it. An [SBA 7(a) or 504 loan](/hotel-financing/sba-7a-vs-504) puts a government guaranty or a debenture behind part of the capital stack, which changes what the bank keeps. A credit union runs under a published statutory cap instead of an internal one: no insured credit union may hold member business loans above the lesser of 1.75 times its actual net worth or 1.75 times the net worth it needs to be well capitalized, which is why a credit union says no for a different reason and at a different moment.[10] And [CMBS](/hotel-financing/cmbs-loans), life company and debt fund money is not deposit funded at all, so none of these measurements reaches it. The trade is prepayment, not price. The last option is the calendar. Concentration ratios move with payoffs, capital raises and the denominator itself. A bank that is full in the fourth quarter is often open in the second. Ask the banker to tell you when, and ask for the answer in writing before you pay for a third-party report. Table: Published numbers that sit between a bank and a hotel loan, October 2026 Measure | What it covers | The number | What it is Concentration screen 1 | Construction, land development and other land loans | 100 percent of total capital | A screen for supervisory review, not a limit[1] Concentration screen 2 | Total commercial real estate loans, plus 50 percent growth over 36 months | 300 percent of total capital | A screen, and both legs must be true[1] Where a hotel loan is reported | Loans secured by hotels and motels | Schedule RC-C item 1.e.(2) | Non-owner-occupied, named in the instructions[2] Supervisory loan-to-value, improved property | A completed, operating hotel | 85 percent | Internal limits should not exceed it[4] Supervisory loan-to-value, commercial construction | A hotel under construction | 80 percent | Internal limits should not exceed it[4] Loans above the supervisory limits, all property | Every exception the bank has written | 100 percent of total capital | A supervisory ceiling on the aggregate[4] Loans above the limits, commercial property | The bucket a high-leverage hotel loan lands in | 30 percent of total capital | A sub-limit inside the 100 percent[4] Credit union member business loans | All business lending at that credit union | 1.75 times actual net worth | A statutory cap, not a guideline[10] This bank's limit on hotels | Hotel exposure as the bank defines it | Not published | Board policy, disclosed only if the banker tells you First-party data point: Our October 2026 rate sheet marks every cell on the bank and credit union row as not yet published, because no balance sheet lender publishes its spread, its maximum loan-to-value or its coverage floor.[11] Its concentration ratio is the one number in that row you can read for yourself, in a public quarterly filing, before you apply. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $900 million community bank, and a $7,000,000 hotel loan): This bank does not exist, and neither does the hotel. Every rule applied to them is public, so the arithmetic can be checked line by line. The bank has $900,000,000 of assets, $104,000,000 of total risk-based capital, and $97,000,000 of tier 1 capital plus its allowance for credit losses. Its construction, land development and other land loans are $85,000,000, which is 81.7 percent of total capital, under the first screen's 100 percent. Its total commercial real estate book is $300,000,000, which is 288.5 percent of total capital under the 2006 guidance's denominator and 309.3 percent under the tier 1 plus allowance denominator the FDIC uses.[1][3] Three years ago that book was $205,000,000, so it has grown 46.3 percent, just under the 50 percent leg of the second screen. You ask for $7,000,000 against a 100-key limited-service hotel valued at $10,000,000, which is $100,000 per key and 70 percent loan-to-value, inside the 85 percent supervisory limit on improved property.[4] Fund it and the bank's commercial real estate book is $307,000,000, or 295.2 percent of total capital, with 36-month growth of 49.8 percent. Both legs stay under, by 4.8 points and by 0.2 points. The room left below 300 percent is 3.00 times $104,000,000 less $307,000,000, which is $5,000,000: not another loan this size. Now change one input. Ask for $8,800,000 on the same $10,000,000 value and the loan is at 88 percent, above the supervisory limit. It does not consume 3 points of anything. The whole $8,800,000 enters the bucket capped at 30 percent of tier 1 plus allowance, which is $29,100,000, and takes 30.2 percent of it on its own.[4] That is why the counteroffer comes back at proceeds rather than at price. Every figure here was recomputed by scripts/check-cre-concentration-math.mjs. FAQ: - Q: What is the 300 percent CRE concentration rule? A: It is a supervisory screen, not a rule. Examiners look harder at a bank whose commercial real estate loans reach 300 percent of total capital and have grown 50 percent in 36 months. The guidance states that it sets no limit on lending.[1] - Q: Do hotel loans count as commercial real estate for a bank? A: Yes. The Call Report instructions tell banks to report loans secured by hotels and motels as other nonfarm nonresidential property, the non-owner-occupied line that feeds the concentration measurement.[2] Hotels are named in the text. - Q: Why did my restaurant loan not count the same way? A: A property whose repayment comes from the operations of the owner occupying it is reported as owner-occupied.[2] The instructions carve hotels out of that treatment by name, and give the exception back only to nursing homes and assisted-living facilities. - Q: Can I look up a bank's concentration ratio? A: Yes. The inputs are Call Report schedule RC-C items 1.a, 1.d and 1.e plus memorandum item 3, over capital from schedule RC-R.[1] The FDIC and the FFIEC both publish the filings.[9] Figures lag the quarter by about a month. - Q: Is there a legal limit on how much a bank can lend on hotels? A: No published limit exists for hotels specifically. Banks set internal limits and do not publish them. The published ceilings are the supervisory loan-to-value limits and the 100 and 30 percent of capital buckets for loans that exceed them.[4] - Q: Do credit unions have the same problem? A: They have a different one. A statute caps member business loans at an insured credit union at the lesser of 1.75 times actual net worth or 1.75 times the net worth required to be well capitalized.[10] That cap is published; a bank's internal limit is not. - Q: Have regulators told banks to stop commercial real estate lending? A: No. The FDIC's advisory of December 18, 2023 encourages institutions to keep making construction and commercial real estate credit available in their communities using prudent lending standards and strong underwriting.[6] Sources: - [1] Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, 71 FR 74580 (December 12, 2006), at 74582 to 74583 for the comments on loans secured by motels and hotels, at 74585 for the scope and the definition of a commercial real estate loan, and at 74587 for the two supervisory criteria and footnotes 4, 5 and 6 naming the Call Report lines (Office of the Comptroller of the Currency, Federal Reserve Board and FDIC, via govinfo, accessed 2026-10-21): https://www.govinfo.gov/content/pkg/FR-2006-12-12/html/06-9630.htm - [2] FFIEC 031 and 041 Call Report instructions, Schedule RC-C, Loans and Lease Financing Receivables, September 2026 edition, items 1.e, 1.e.(1) and 1.e.(2), pages RC-C-6b to RC-C-6d (Federal Financial Institutions Examination Council, via the FDIC, accessed 2026-10-21): https://www.fdic.gov/bank-financial-reports/ffiec-031-and-041-schedule-rc-c-loans-and-lease-financing-receivables - [3] Risk Review 2026, section 4.1, Commercial Real Estate, pages 16 and 17, for the median concentration ratios at year-end 2025 and footnote 10's definition (Federal Deposit Insurance Corporation, accessed 2026-10-21): https://www.fdic.gov/analysis/2026-risk-review-full.pdf - [4] Interagency Guidelines for Real Estate Lending Policies, appendix A to subpart A of 12 CFR part 365: the supervisory loan-to-value limits, loans in excess of those limits, and footnote 4 on total capital (Federal Deposit Insurance Corporation, via Legal Information Institute, accessed 2026-10-21): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_A_of_part_365 - [5] Statement on Prudent Risk Management for Commercial Real Estate Lending, FIL-62-2015 (December 18, 2015), and the interagency statement attached to it (Federal Reserve Board, FDIC and Office of the Comptroller of the Currency, via the FDIC, accessed 2026-10-21): https://www.fdic.gov/news/financial-institution-letters/2015/fil15062.html - [6] Advisory: Managing Commercial Real Estate Concentrations in a Challenging Economic Environment, FIL-64-2023 (December 18, 2023) (Federal Deposit Insurance Corporation, accessed 2026-10-21): https://www.fdic.gov/news/financial-institution-letters/2023/fil23064.html - [7] Risk Review 2025, section on commercial real estate, footnote 12, for the share of banks that were CRE-concentrated at year-end 2024 (Federal Deposit Insurance Corporation, accessed 2026-10-21): https://www.fdic.gov/analysis/2025-risk-review.pdf - [8] July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices, table 1, question 8 on standards for loans secured by nonfarm nonresidential properties and the special question on the level of those standards since 2005 (Board of Governors of the Federal Reserve System, accessed 2026-10-21): https://www.federalreserve.gov/data/sloos/sloos-202607-table-1.htm - [9] BankFind Suite, the public search of every insured institution's Call Report filings (Federal Deposit Insurance Corporation, accessed 2026-10-21): https://banks.data.fdic.gov/bankfind-suite/ - [10] 12 U.S.C. 1757a, Limitation on member business loans (United States Code, via Legal Information Institute, accessed 2026-10-21): https://www.law.cornell.edu/uscode/text/12/1757a - [11] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-21): https://matthewshotelmarkets.com/rates ### How do I finance converting my hotel to a new brand? URL: https://matthewshotelmarkets.com/hotel-financing/brand-conversion-financing Last updated: 2026-10-01 Most owners fund a conversion with a renovation or bridge loan plus cash, sometimes offset by franchisor key money that arrives after opening. Hilton's disclosure document for Spark, a conversion-only brand, issued March 30, 2026, estimates $3,251,531 to $5,906,193 to convert a 100-room hotel, before real estate.[1] Leaving the old flag early can cost 60 months of royalties on top.[2] Key takeaways: - A conversion budget has four parts: the new brand's fees, the renovation and FF&E, the cost of leaving the old flag, and cash to carry the hotel through the disruption. - Hilton's 2026 Spark FDD puts a 100-room conversion at about $32,500 to $59,100 per room before real estate, and tells owners to assume a contingency of at least 10 percent of renovation cost.[1] - Exit damages are a formula, not a negotiation starting point. Hilton's 2026 Hampton agreement sets them at the hotel's average monthly royalty times 60 for most of the term.[2] - Key money is not a loan and not free. Hilton calls its incentive a contingent liability that burns off evenly over the franchise term and becomes repayable on termination or transfer.[2] - Your existing lender has to approve the flag change, and the new lender will want a comfort letter from the new franchisor. Start both conversations before you sign the franchise application. #### What does a brand conversion actually cost? The only honest public numbers are the franchisors' own, and Hilton's 2026 estimate for converting a 100-room hotel to Spark is $3.25 million to $5.91 million before real estate. Spark by Hilton is offered for conversion projects only, so its Item 7 table is a pure conversion budget. For a 100-room hotel in good condition, Hilton estimates $1,300,000 to $2,800,000 for construction and renovation, $900,000 to $1,200,000 for furniture, fixtures and equipment, $36,000 to $60,000 for signage, a $75,000 franchise application fee and a $10,000 fee to prepare the property improvement plan. The total is $3,251,531 to $5,906,193, which is about $32,500 to $59,100 per room. It excludes real estate, market studies, insurance and interest.[1] Three lines in that table matter to a lender. Contingency is $130,000 to $280,000, and Hilton tells owners to assume at least 10 percent of renovation cost. Additional funds for the first three months of operation are $300,000 to $500,000. And Hilton says it cannot estimate pre-conversion costs for any specific existing hotel, because there are too many variables.[1] Other brands cost more to enter. Hilton's 2026 Hampton document sets the application fee for a new development or conversion at $100,000 plus $400 for each room over 150, with the same $10,000 PIP fee.[2] Hampton's Item 7 estimates new construction, not conversion, so the scope of a Hampton conversion comes from the PIP itself. For how PIP scopes and per-room budgets work, see `/hotel-financing/pip-and-renovation-loans` and `/glossary/pip`. #### What does it cost to leave my current flag? If you terminate early, the franchise agreement's liquidated damages clause sets the price, and under Hilton's 2026 Hampton agreement that is usually 60 months of royalties. Hilton's 2026 Hampton FDD lays the formula out by period. If the agreement ends after the second anniversary of opening and before the final 60 months of the term, damages are the hotel's average monthly royalty fees multiplied by 60. In the final 60 months, the multiplier is the number of months remaining. The average is taken over the 24 months before termination, and the royalty is 6 percent of gross rooms revenue.[2] That makes timing the biggest variable in a conversion budget. A reflag at natural expiration owes nothing under this formula. A reflag five years early owes five years of royalties. Every franchisor's agreement is different, so read your own, and ask whether the damages are owed if you convert to another brand in the same family. Lenders care because liquidated damages are a use of funds with no collateral value. A bank will usually want that line covered by equity. #### What loans pay for a conversion? A bank renovation loan, a bridge loan that also refinances the existing mortgage, or an SBA loan, depending on size, the hotel's current cash flow and how much the conversion disrupts it. A bank loan fits when the hotel already covers its debt and the conversion is a moderate renovation. The capital rules help here: improvements to an existing income-producing property are excluded from the high volatility commercial real estate category when the property's cash flow supports its debt service and expenses under the bank's permanent-loan criteria.[3] Banks do not publish their terms, and our rate sheet marks them not yet published.[4] A bridge loan fits when the conversion is deep enough to interrupt cash flow, or when the existing loan has to be paid off to allow it. The bridge lender underwrites the stabilized NOI under the new flag, holds back the renovation budget and funds it in draws, and expects to be refinanced once the hotel has a trailing record. Bridge debt floats over SOFR, which was 3.90 percent for September 30, 2026.[4] See `/hotel-financing/bridge-loans`. SBA works for smaller projects. A 7(a) loan caps at $5 million, and the portion that improves real property can run 25 years plus the period needed to complete the improvements.[5] A 504 project can include the renovation of existing buildings, with a fixed-rate debenture that priced at 6.54 percent for 25 years on September 10, 2026.[6][4] If the new brand meets the FTC definition of a franchise, it must be on the SBA Franchise Directory for the loan to be eligible.[7] Buying a hotel and converting it in one transaction uses the same three tools, with the purchase price and the conversion budget in one sources-and-uses table. Lenders size that loan to total cost, not to the purchase price alone. #### What is key money, and does it reduce what I need to borrow? Key money is a franchisor incentive paid after the hotel opens under the new flag, so it repays debt or equity afterward; it does not fund the renovation. Hilton's 2026 Hampton FDD describes its version precisely. An incentive is a financial contribution to assist with the development or conversion of the hotel, offered at Hilton's sole discretion. The owner and its principals sign a development incentive note. The money is disbursed within 30 days after the hotel opens with Hilton's consent, provided the PIP is complete and the application fee is paid.[2] The FDD says an incentive is not a loan, it is a contingent liability. It does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share each year, one twentieth a year on a 20-year term, and bears no interest unless it comes due and is not paid, when it accrues at 1.5 percent per month or the highest rate allowed by law.[2] Hilton adds that it generally does not offer other financing, though in rare cases it may offer a mezzanine loan or a guaranty.[2] Two financing consequences follow. Your lender will treat the note as an obligation of the principals and will want it disclosed. And a buyer of the hotel either assumes the note with the franchisor's consent or you repay the unamortized balance at closing, so key money taken today is a deduction from sale proceeds for years. #### Will my lender let me change the flag? Almost every hotel loan requires lender consent to terminate or replace the franchise agreement, so the lender is a party to the decision whether or not it funds the work. A branded hotel loan is underwritten to the flag. Changing it without consent is typically a default, and under a non-recourse loan an unpermitted franchise change can sit close to the carve-out list; see `/hotel-financing/non-recourse-loans`. A CMBS servicer will process the request under the loan documents, which takes time and fees; `/hotel-financing/cmbs-loans` explains who decides. The new lender, or the existing one, will also want a comfort letter from the new franchisor, which lets the lender step into the franchise agreement after a foreclosure. Hilton's 2026 Hampton FDD lists a $3,500 processing fee for a lender comfort letter.[2] Order it when you apply for the franchise, not the week before closing. #### How long does a conversion take, and what should I line up first? Hilton tells Spark applicants to expect about 6 to 18 months for conversion work, depending on the condition of the hotel, with deadlines written into the franchise agreement. That is the franchisor's own estimate, for its own conversion brand, so treat it as a planning range.[1] The start and completion dates are set project by project in the PIP and the franchise agreement, and Hilton charges a $10,000 fee for an extension.[2] A loan that funds in draws has to be closed before the first deadline, which means the loan process and the franchise application run in parallel. The order that works: get the PIP scope and a contractor's price, confirm the exit cost and date under the old agreement, ask the current lender what it will consent to, then take the full sources-and-uses budget to lenders. Whether the conversion is worth doing is a valuation question, not a financing one. The test is whether the NOI gain under the new flag, capitalized, exceeds the all-in cost; `/hotel-financing/refinance-or-sell` walks through the same comparison for an owner deciding whether to invest or exit. Table: What a hotel brand conversion budget contains, and what usually funds each line Budget line | Public figure | What usually funds it New franchise application fee | Spark $75,000; Hampton $100,000 plus $400 per room over 150[1][2] | Equity, due with the application PIP preparation fee | $10,000 at both brands[1][2] | Equity Renovation and leasehold improvements | Spark, 100 rooms: $1,300,000 to $2,800,000[1] | Loan proceeds, funded in draws Furniture, fixtures and equipment | Spark, 100 rooms: $900,000 to $1,200,000[1] | Loan proceeds or FF&E reserve Signage and systems | Spark signage $36,000 to $60,000; computer systems $38,595 to $92,895[1] | Loan proceeds Contingency | At least 10% of renovation cost[1] | Loan holdback plus equity Operating funds, first three months | Spark: $300,000 to $500,000[1] | Equity or working-capital portion of an SBA 7(a) loan Liquidated damages to the old franchisor | Hampton formula: average monthly royalty times 60 for most of the term[2] | Equity; lenders rarely fund it Franchisor incentive (key money) | Paid within 30 days after opening; repayable balance falls evenly over the term[2] | Arrives after the work; pays down debt or returns equity First-party data point: Matthews Hotel Markets' October 2026 rate sheet indexes its Bridge and debt fund row, the row most conversions are financed from, to SOFR at 3.90% for September 30, 2026, and notes that a bridge loan almost always requires a purchased rate cap. The spread is marked not yet published.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: reflagging a 100-room hotel five years before the old agreement expires): Hypothetical. A 100-room hotel earns $3,200,000 a year in rooms revenue under a franchise agreement that uses the liquidated damages formula in Hilton's 2026 Hampton FDD, with more than 60 months left on the term. The owner plans a conversion with a $4,500,000 budget, inside the $3,251,531 to $5,906,193 range Hilton publishes for a 100-room Spark conversion.[1] The budget, the revenue and the incentive below are assumptions for the arithmetic. Exit cost. The royalty is 6 percent of rooms revenue: $3,200,000 times 0.06 divided by 12 equals $16,000 a month. Multiplied by 60, liquidated damages are $960,000.[2] All-in cost. $4,500,000 plus $960,000 equals $5,460,000, or $54,600 per room. The exit cost is 17.6 percent of the total, and it buys nothing a lender can take as collateral. Financing. The conversion budget alone would fit under the $5,000,000 SBA 7(a) cap with $500,000 of room.[5] Any existing mortgage to refinance would not, so this owner is looking at a bank or bridge loan for the $4,500,000 and equity for the $960,000. Key money. Suppose the new franchisor offers a $500,000 incentive on a 20-year term. It arrives within 30 days after opening, so it repays part of the loan; it cannot fund the work. The repayable amount falls by $25,000 a year. If the owner sells after 6 years and the buyer does not assume the note, $500,000 times 14 divided by 20, or $350,000, comes out of sale proceeds.[2] Waiting until the last 60 months of the old agreement shrinks the $960,000 by $16,000 for every month closer to expiration. FAQ: - Q: What's it cost to convert a hotel from one brand to another? A: Hilton's 2026 FDD for Spark, a conversion-only brand, estimates $3,251,531 to $5,906,193 for a 100-room hotel, about $32,500 to $59,100 per room, before real estate. Add any liquidated damages owed to the old franchisor. Other brands publish their own figures. - Q: My franchise agreement is ending and I want to reflag. How do I pay for the conversion? A: At expiration there are usually no exit damages, so the budget is fees, renovation, FF&E and carry. A bank renovation loan works if the hotel covers its debt today. A bridge loan works if the conversion interrupts cash flow. SBA 7(a) or 504 works on smaller projects. - Q: What is key money, and do I have to pay it back? A: It is a franchisor incentive paid after the hotel opens under the new flag. Hilton's 2026 Hampton FDD calls it a contingent liability, not a loan. The repayable amount falls evenly each year and comes due if the franchise terminates early or the hotel is transferred. - Q: Will my lender let me change my hotel's flag? A: You need its consent under almost every hotel loan. Bring the new franchise approval, the PIP budget and the funding plan. A bank decides case by case. A CMBS servicer follows the loan documents. Changing flags without consent is typically a default. - Q: Can I finance the PIP together with the purchase when I buy a hotel to convert? A: Yes. Lenders size an acquisition with a conversion to total cost, meaning price plus the conversion budget, and fund the renovation in draws. Bridge lenders and SBA lenders both do this. Permanent lenders such as CMBS generally want the work finished first. - Q: How long does a hotel conversion take? A: Hilton's 2026 Spark FDD says it generally anticipates conversion projects to take about 6 to 18 months, depending on the condition of the existing hotel. That is the franchisor's estimate. Your deadlines are written into the franchise agreement and the PIP. - Q: What are liquidated damages on a hotel franchise agreement? A: A formula payment for ending the agreement early. Under Hilton's 2026 Hampton agreement it is the hotel's average monthly royalty times 60 for most of the term, and the months remaining in the last 60. Read your own agreement, because formulas differ. - Q: Is it worth converting my hotel to a different brand? A: Only if the NOI gain under the new flag, capitalized at a realistic cap rate, exceeds the all-in cost including exit damages and lost revenue during the work. We do not publish a typical RevPAR lift, because no public primary source supports one. Sources: - [1] 2026 US Spark by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 1, Item 7 (100-room conversion, pp. 33-34) and Item 11 (conversion timing, p. 60) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Spark.pdf - [2] 2026 US Hampton Franchise Disclosure Document (issued March 30, 2026): Item 5 initial fees (pp. 15-16), Item 6 comfort letter fee and liquidated damages (pp. 25-26, 31), Item 10 financing and incentives (pp. 44-45) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [3] 12 CFR 217.2, Definitions: HVCRE exposure, exclusion for improvements to existing income-producing property (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/217.2 - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [6] 504 loans (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/loans/504-loans/ - [7] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section A, Ch. 1: the SBA Franchise Directory (pp. 31-32) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs ### What is a bridge loan and when should a hotel owner use one? URL: https://matthewshotelmarkets.com/hotel-financing/bridge-loans Last updated: 2026-10-01 A bridge loan is short-term floating-rate debt, usually interest-only, used when the hotel is not yet financeable by a permanent lender. It buys time for a PIP, a ramp-up, or a repositioning. It floats over SOFR, which was 3.90 percent for September 30, 2026, and usually requires a purchased rate cap.[1] Identify the exit before you sign, not after. Key takeaways: - Bridge debt is priced over SOFR and floats, so lenders usually require a rate cap as a condition of closing. - The three real use cases: an in-progress PIP, a ramp after a brand change, and a maturity you cannot refinance yet. - Interest-only preserves cash flow during the transition, which is the point. - Extension options are cheap to buy at closing and expensive to buy later. - If you cannot name the takeout lender at closing, you do not have a bridge plan. #### What makes a loan a bridge loan? A bridge loan is short-term, floating-rate, interest-only debt that finances a hotel through a transition a permanent lender is not yet willing to underwrite. Where permanent debt underwrites the trailing twelve-month NOI as it stands today, a bridge lender is willing to underwrite a stabilized, forward-looking NOI, on the condition that the loan term is short enough, and the rate high enough, to compensate for that added risk. Bridge loans run for a short term, often with extension options, are priced over SOFR rather than the Treasury, and are usually interest-only so the borrower's cash flow is not squeezed while the property is mid-transition. #### When does a hotel actually need one? Three situations call for a bridge loan: a PIP still in progress, a ramp-up after a brand conversion, and a maturity a permanent lender will not yet refinance. A hotel with an unfinished, brand-mandated renovation cannot show a permanent lender the stabilized NOI the renovation is expected to produce, so a bridge loan finances the gap between today's NOI and the pro forma. A hotel recently converted to a new flag has not yet built the trailing operating history a permanent lender wants, and a bridge loan carries it through that ramp. A hotel approaching maturity with NOI that does not yet support a permanent refinance, but is expected to recover, uses a bridge loan to buy the time for that recovery to show up in the numbers. Outside these three situations, permanent debt is almost always the better and cheaper choice. #### What does a hotel bridge loan cost? Bridge debt costs more than permanent debt in both rate and required upfront purchases, and that premium is the price of the flexibility and the underwriting risk the lender is taking. Matthews Hotel Markets' October 2026 rate sheet puts SOFR, the index a hotel bridge loan floats over, at 3.90% for September 30, 2026.[1] It marks the bridge spread and the cap strike as not yet published: nobody publishes either one, and we do not print a number we have not seen quoted by three independent lenders in a month.[2] Ask a bridge lender for both in writing. Beyond the spread itself, bridge loans typically carry an origination fee, an exit fee if the loan is repaid before a set date, and the cost of the rate cap covered below. None of these are exotic; they are the standard cost structure of short-term floating debt, and they should be modeled into the total cost of the bridge period, not just the quoted spread. #### What is a rate cap and how much is it? A rate cap is a purchased derivative that caps the borrower's floating rate at a set strike, and hotel bridge lenders usually require one as a closing condition. Because a bridge loan floats with SOFR, the lender requires the borrower to buy a rate cap so that a sharp rate increase does not push the loan's debt service above what the property can support during the bridge term. The cap's cost depends on the strike level, the notional amount, and the term, and it is a live, quoted cost, not a fixed percentage that holds across the market. Budget for it as a real, sometimes significant, line item at closing, and get a quote before you assume the bridge structure pencils. #### How do I get out of it? The exit is a permanent take-out loan, a sale, or an extension, and the lender expects to see which one you are planning before the bridge closes, not after. A credible bridge plan names the intended exit at closing: a specific permanent lender type and rough terms once the PIP or ramp is complete, or a sale timeline if that is the plan instead. Lenders who write bridge loans without a clear exit path in view are taking on risk they generally price for, which shows up as a wider spread or a shorter term. The clearest, cheapest bridge loans are the ones where the takeout is essentially pre-underwritten before the bridge even funds. #### What happens if my business plan slips? A slipping business plan is the central risk of bridge financing, and the honest response is to model the downside case before you close, not after the numbers come in short. If a renovation runs long, or the stabilized NOI comes in below the pro forma, the bridge loan's maturity can arrive before the permanent takeout is ready to fund at the size needed. Extension options, negotiated at closing, are the standard cushion for this risk, and they are meaningfully cheaper to buy up front than to negotiate under pressure near maturity. The worked example below shows exactly how much the bridge outcome depends on the stabilized number actually showing up. #### Bridge or an extension from my current lender? An extension from your existing lender is usually simpler and often cheaper than a new bridge loan, when the current lender is willing to offer one at all. An extension avoids a new closing, new third-party reports, and a new lender relationship, and it fits well when the shortfall is a matter of months, not years. A bridge loan from a new lender makes more sense when the current lender is unwilling to extend, when future funding for a PIP is needed and the current lender cannot provide it, or when the timeline to stabilization is long enough that a purpose-built bridge structure is worth the added complexity of a new closing. Table: Bridge debt versus permanent debt for a hotel Category | Bridge | Permanent Rate | SOFR plus a spread, floating | Fixed Term | Short, often with extension options | Longer, fixed for the term Amortization | Usually interest only | Amortizing, sometimes with an interest-only period Requires | Usually a purchased rate cap | No cap on a fixed rate Funds capex | Yes, usually a future-funding facility | Rarely Prepayment | Usually lighter than permanent debt; watch the exit fee | Step-down penalty, or defeasance or yield maintenance on CMBS Underwritten to | Stabilized pro forma NOI | Trailing twelve-month NOI First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts SOFR, the index a hotel bridge loan floats over, at 3.90% for September 30, 2026.[1] It marks the bridge spread and the cap strike as not yet published, because nobody publishes them and we will not print a number we have not seen quoted three times in a month.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: bridging a $3.0M PIP): Hypothetical. A 104-key hotel with a $3.0M brand-mandated PIP. Current NOI $1.35M. Stabilized pro forma NOI after the renovation is $1.95M. A permanent lender sizes against the trailing NOI of $1.35M at a 1.40x test: maximum debt service $964,286, supporting a loan of about $11.1M at a 25-year schedule and 7.25 percent. A bridge lender instead sizes against the stabilized $1.95M, funds the $3.0M PIP through a future-funding facility, and lends $16.5M total, interest only. The bridge provides $5.4M more and funds the renovation. It also costs more every month and floats. The deal only works if the stabilized $1.95M shows up. Write down what happens if it comes in at $1.65M instead, before you close. FAQ: - Q: What is a typical hotel bridge loan rate? A: It is quoted as SOFR plus a spread, and both the spread and the cap cost move with the market. Our October 2026 rate sheet publishes SOFR but not a bridge spread, because nobody publishes one. Get both in writing. - Q: How long is a hotel bridge loan? A: Short, and usually shorter than permanent debt, often with extension options negotiated at closing. The term should match how long the PIP, ramp, or maturity gap actually needs, not a default assumption. - Q: Do I need a rate cap on a bridge loan? A: Usually. Because bridge debt floats with SOFR, lenders typically require a purchased rate cap as a closing condition, protecting the property's debt service against a sharp rate increase during the bridge term. - Q: Can a bridge loan fund my PIP? A: Yes. A bridge loan with a future-funding facility is a common route for a large PIP. It draws capital as the renovation progresses rather than funding the full amount at closing. - Q: Is a hotel bridge loan recourse? A: It varies by lender. Some bridge lenders require full or partial recourse; others offer non-recourse with standard carve-outs, generally at lower leverage or with a stronger sponsor. - Q: What happens at the end of a bridge loan? A: The loan is repaid through a permanent refinance, a sale, or an extension. The exit should be identified before the bridge closes, not decided under pressure near maturity. - Q: Can I extend a hotel bridge loan? A: Often, if extension options were negotiated at closing. Extensions bought up front are typically far cheaper than negotiating one after the business plan has already slipped. Sources: - [1] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### Can I use C-PACE financing on a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/c-pace-financing Last updated: 2026-10-01 Yes, where the state and the city or county have an active program. C-PACE is long-term, fixed-rate financing for energy, water and resiliency work, repaid through an assessment on the property.[1][2] The Texas program lists hospitality as eligible and generally keeps the assessment within 20 percent of property value.[2] An existing mortgage lender must consent in writing.[3] PACENation counts $13.5 billion of cumulative C-PACE investment through December 2025.[4] Key takeaways: - C-PACE is a property assessment, not a mortgage. It is repaid on the tax-bill framework, stays with the property when it sells, and in Texas ranks with other ad valorem tax liens.[1][6] - It pays for building systems, not furniture: HVAC, chillers and boilers, water heating, lighting, building envelope, water conservation and on-site power, all permanently fixed to the property.[2][3] - A hotel with a mortgage needs the lender's written consent first. Texas law requires 30 days of written notice to the mortgage holder and a written consent before the assessment contract is signed.[5] - In Texas the assessment generally should be no more than 20 percent of the property's value, and the term must be shorter than the useful life of the improvements, often 10 to 25 years.[2] - Some programs fund eligible work that is already finished. The look-back window is set locally: a PACENation article in April 2020 cited 3 years in Michigan and 1 year in Connecticut.[8] #### What is C-PACE, in plain terms? C-PACE, short for commercial property assessed clean energy, is financing for building improvements that the owner repays through an assessment on the property instead of a conventional loan payment. The U.S. Department of Energy describes C-PACE as a structure in which a building owner borrows for energy reduction, on-site generation or similar projects and repays through an assessment on the property tax bill, with the arrangement staying with the property if it is sold.[1] It exists only where a state has passed enabling legislation and a local program is active.[1] DOE says the financing can cover 100 percent of project cost, with terms of typically 10 to 20 years that do not exceed the useful life of the equipment, and a typical close time of 3 to 9 months.[1] The money usually comes from private capital providers, not from the government. In Texas the owner picks the lender and the contractor, and the program administrator reviews the project.[2] PACENation, the industry's trade association, reports $13.5 billion of cumulative commercial PACE investment across 3,837 projects from 2009 through December 2025.[4] That is an association's own count, so read it as a sign of scale, not as an audited market figure. #### Is a hotel eligible, and what can the money pay for? Hotels are eligible commercial property in the programs we read, and the money pays for permanently fixed improvements that cut energy or water use. The Texas PACE Authority, the nonprofit that administers more than 100 local programs in Texas, lists hospitality among eligible property types.[2][7] Its list of eligible improvements reads like the mechanical half of a hotel renovation: HVAC systems and controls, chillers, boilers and furnaces, water heating, energy management systems, lighting, building enclosure and envelope work, water conservation, and on-site power generation such as solar or combined heat and power.[2] Texas sets three tests for a qualified improvement. It must be permanently fixed to the real property, it must have a demonstrated capacity to decrease energy or water consumption or demand, and its useful life must exceed the term of the financing.[3] That rules out the soft side of a PIP: case goods, soft goods, signage and televisions are not building systems. Undeveloped lots and government-owned property are ineligible in Texas, though a privately owned ground lease on government land may qualify, and the administrator points to a hotel as its example.[3] Every state writes its own list. Some add resiliency or seismic work. Check the statute and the program guide for the county the hotel sits in. For what the brand's renovation scope usually contains, see [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). Where a city or state sets an emissions limit, the same work is also a compliance item: [Does my hotel have to report energy use or cut its carbon emissions?](/hotel-industry/energy-benchmarking-and-emissions-limits) #### Does my mortgage lender have to approve it? Yes. A C-PACE assessment on a mortgaged hotel needs the mortgage holder's consent, by statute in Texas and by the loan documents almost everywhere. Texas Local Government Code section 399.010 says that before a local government signs an assessment contract, the holder of any mortgage lien must receive written notice at least 30 days before the contract is executed, and a written consent from that holder must be obtained.[5] DOE gives the national version: for properties with a mortgage, lender consent is usually required, and it can be difficult and time-consuming to obtain.[1] The reason is lien priority, covered in the next section. The loan documents point the same way. Commercial mortgages generally carry a due-on-encumbrance clause, which lets the lender accelerate the loan if the borrower encumbers the property without consent. A 2026 CMBS prospectus describes that clause as general across its loan pool.[9] Putting an assessment on the hotel without asking is a default risk, not a shortcut. The Texas administrator's advice is to lead with a business plan that shows the property's value and net operating income improving, because a lender is weighing a small senior claim against better collateral.[2] Lenders do not publish their consent standards, so ask yours before you budget around the money. #### Where does C-PACE sit in the capital stack? A C-PACE assessment sits ahead of the mortgage in lien priority, but only for the installments that are due, which is why it behaves differently from a second mortgage or mezzanine debt. In Texas a PACE assessment is a first and prior lien from the date the notice is recorded, with the same priority status as a lien for any other ad valorem tax. The lien runs with the land, and the part of the assessment that has not yet come due is not eliminated by a tax foreclosure.[6] DOE puts it generally: the lien is senior to most other debt on the property, which is what lets capital providers offer long terms.[1] Two features soften that seniority for the mortgage lender. The assessment does not accelerate: in a default only the current installment is due, not the full balance.[7] And the financing is non-recourse to the borrower and carries no personal guarantee in the Texas program.[2][7] So the senior lender's real exposure is the unpaid installments, much like unpaid property tax. In a hotel deal, owners use C-PACE for the slice of cost between the senior loan and their own equity, the slice that [mezzanine debt](/glossary/mezzanine-debt) or preferred equity would otherwise fill. The Texas administrator says owners most often use it to reduce equity requirements and fill gaps left by conservative loan sizing.[7] A senior lender will still underwrite the combined claim, because the annual assessment comes out of cash flow ahead of debt service. Model it as a fixed charge when you run [the DSCR calculator](/tools/dscr-calculator). #### What is retroactive C-PACE? Retroactive C-PACE is an assessment placed after eligible work is finished, which reimburses the owner for improvements already paid for. A PACENation article dated April 17, 2020 describes the practice: properties that recently completed qualifying work can use C-PACE to replenish reserves or reduce other lenders' exposure, and projects near completion can use it for cost overruns. At that date the author counted roughly two dozen states with active programs and said retroactivity was workable in roughly a dozen of those markets, with a 3-year look-back in Michigan and 1 year in Connecticut. Rules can differ between neighboring counties in the same state.[8] Those figures are six years old and program rules change, so treat them as examples of how much the window varies, not as current terms. The Texas pages we read for this article do not describe a look-back at all. Before you count on reimbursement for a finished PIP, get the look-back period, the eligible cost list and the lender consent requirement from the local program administrator in writing. For a recently renovated or newly built hotel carrying expensive short-term debt, that one call can be worth making before you price [a bridge loan](/hotel-financing/bridge-loans). #### What happens to the assessment when I sell or refinance? The assessment stays with the hotel: on a sale the unpaid balance passes to the buyer unless it is paid off, and on a refinance the new lender has to accept it. The Texas administrator states that the assessment is tied to the property instead of the owner and transfers automatically to the next owner, who keeps both the payments and the utility savings.[2] DOE says the same, with the option of paying it off in full before the sale.[1] In practice a buyer prices the hotel with the assessment in view. The annual installment is a fixed charge that lowers the cash flow a buyer and its lender will underwrite, so expect it to be treated like any other obligation that runs with the land, such as [a ground lease](/glossary/ground-lease). A new lender at refinance has to accept a lien that ranks ahead of it. If you expect to sell or refinance within a few years, ask the capital provider for the prepayment terms before closing. They are set by contract and not by the statutes we read. See [Should I refinance my hotel or sell it instead?](/hotel-financing/refinance-or-sell) for how to compare the two exits. #### Does C-PACE cost less than the capital it replaces? It depends on the rate you are quoted, and nobody publishes a hotel C-PACE rate sheet, so compare a written quote against your actual alternatives. The Texas PACE Authority says rates depend on a variety of factors and that project rates in its program have hovered around 6 percent. It does not date that statement, so take it as history and not as a quote.[2] For reference, the 10-year Treasury was 5.29 percent on September 30, 2026, and the 25-year SBA 504 debenture priced at 6.54 percent on September 10, 2026.[10] What C-PACE offers that short-term capital does not is a fixed rate, a long amortization and no balloon. What it costs you is a senior lien that a future buyer and lender must accept, a consent process with your current lender, and closing costs for the engineering review. In Texas an independent third-party reviewer has to confirm the projected savings, and the program expects savings to exceed the cost of the project over its life.[2] If the hotel also qualifies for SBA financing, price the fixed-rate 504 structure as well: [What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel?](/hotel-financing/sba-7a-vs-504). Table: How a C-PACE assessment differs from a hotel's senior mortgage Feature | C-PACE assessment | Senior mortgage What secures it | An assessment lien on the property with tax-lien priority in Texas[6] | A mortgage or deed of trust on the hotel What it can fund | Permanently fixed energy, water and resiliency improvements[2][3] | Purchase, refinance and, if the lender agrees, renovation How much | In Texas, generally no more than 20% of property value; up to 100% of eligible project cost[1][2] | Set by the lender's own tests, which lenders do not publish Term | Shorter than the useful life of the improvements; often 10 to 25 years in Texas, typically 10 to 20 nationally[1][2] | Set by the lender; often shorter than the amortization, with a balloon Recourse | Non-recourse, no personal guarantee in the Texas program[2][7] | Depends on the lender and the loan type On default | Only the current installment is due; the balance does not accelerate[7] | The lender can accelerate the full balance On a sale | Transfers to the buyer with the property unless paid off[1][2] | Paid off or formally assumed; see the assumption page Consent needed | Written consent of any existing mortgage holder, with 30 days' notice in Texas[5] | Not applicable First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% as of September 30, 2026 and the 25-year SBA 504 debenture at 6.54% as of September 10, 2026. It carries no C-PACE row, because C-PACE capital providers do not publish rates.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: $1.8M of C-PACE inside a 120-key hotel renovation): Hypothetical. A 120-key hotel in a Texas county with an active program is valued at $15,000,000 and carries a $9,000,000 senior loan, which is 60 percent of value. The brand's PIP includes $1,800,000 of qualifying work: rooftop units, a chiller, water heaters, LED lighting and window replacement. The rate and term below are assumptions for the arithmetic, not quotes. Size check. The Texas guideline is an assessment of no more than 20 percent of value.[2] Twenty percent of $15,000,000 is $3,000,000. The $1,800,000 request is 12 percent of value, inside the guideline. Combined claim. $9,000,000 plus $1,800,000 equals $10,800,000, or 72 percent of value. The senior lender sees that number when it decides whether to consent. Payment. At an assumed 6.50 percent fixed rate over 20 years with level annual installments, the assessment is $163,362 a year. Over 20 years that totals $3,267,230. What it replaces. Without C-PACE the owner writes a check for $1,800,000 or borrows it short-term. With it, the owner keeps $1,800,000 of equity in exchange for a $163,362 annual charge that ranks ahead of the mortgage and passes to the next owner. The remaining PIP items, such as case goods and soft goods, are not eligible and still need cash, reserves or a renovation loan. FAQ: - Q: Can I use C-PACE to pay for my hotel's PIP? A: Only the part that is a permanently fixed energy or water improvement, such as HVAC, water heating, lighting, windows or roofing. Furniture, soft goods and signage do not qualify under the Texas tests, and other states use similar ones. - Q: Does C-PACE require a personal guarantee? A: Not in the Texas program, which describes the financing as non-recourse with no personal guarantees. The security is the assessment lien on the property. Confirm the terms with the capital provider in your state. - Q: Will my CMBS or bank lender consent to C-PACE? A: It is the lender's decision, and lenders do not publish consent standards. Texas requires written consent and 30 days' written notice. DOE warns that consent can be difficult and slow, so ask before you commit to a budget that depends on it. - Q: What happens to C-PACE if I sell my hotel? A: The unpaid assessment stays with the property and becomes the buyer's obligation unless you pay it off at closing. Buyers and their lenders will underwrite the annual installment as a fixed charge. - Q: Can I get C-PACE for work I already completed? A: In some programs, yes. Look-back windows are set locally. A PACENation article from April 2020 cited 3 years in Michigan and 1 year in Connecticut. Ask your local administrator for the current rule in writing. - Q: Is C-PACE available for a new-build hotel? A: It depends on the program. Texas excludes undeveloped lots and lots undergoing development at the time of the assessment. PACENation's market data tracks new-construction projects, so other programs fund them. The program guide for the hotel's county controls. - Q: How long does C-PACE take to close? A: The Department of Energy describes the typical close time as medium, 3 to 9 months. Lender consent and the engineering review of projected savings are the steps most likely to set the pace. - Q: Is C-PACE available in every state? A: No. It requires state enabling legislation and an active local program. Check PACENation's program map or your state energy office, then confirm the city or county where the hotel sits has opted in. Sources: - [1] Better Buildings Financing Navigator: Commercial Property Assessed Clean Energy (CPACE) (U.S. Department of Energy, accessed 2026-09-18): https://betterbuildingssolutioncenter.energy.gov/financing-navigator/option/cpace - [2] Property Owner FAQ: eligible properties and improvements, 20 percent of value guideline, term, consent process, lien (Texas PACE Authority, accessed 2026-09-18): https://www.texaspaceauthority.org/home/resources/faqs/property-owner-faq/ - [3] Eligibility: qualified improvements, ineligible properties, owner underwriting factors (Texas PACE Authority, accessed 2026-09-18): https://www.texaspaceauthority.org/eligibility/ - [4] PACE Market Data: cumulative C-PACE investment and project count, 2009 to December 2025 (PACENation, accessed 2026-09-18): https://www.pacenation.org/pace-market-data/ - [5] Texas Local Government Code section 399.010, Notice to Mortgage Holder Required for Participation (Texas Legislature, via Texas.Public.Law, accessed 2026-09-18): https://texas.public.law/statutes/tex._local_gov%27t_code_section_399.010 - [6] Texas Local Government Code section 399.014, Lien (Texas Legislature, via Texas.Public.Law, accessed 2026-09-18): https://texas.public.law/statutes/tex._local_gov%27t_code_section_399.014 - [7] What Senior Lenders Need to Know About TX-PACE (March 26, 2026) (Texas PACE Authority, accessed 2026-09-18): https://www.texaspaceauthority.org/what-senior-lenders-need-to-know-about-tx-pace/ - [8] Retroactivity: New Use for C-PACE During Challenging Times (April 17, 2020) (PACENation, accessed 2026-09-18): https://www.pacenation.org/retroactivity-new-use-for-c-pace-during-challenging-times/ - [9] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): due-on-sale and due-on-encumbrance provisions, p. 221 (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1013454/000153949726000776/n5676_x16-424b2.htm - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### What happens to my hotel if I file Chapter 11? URL: https://matthewshotelmarkets.com/hotel-financing/chapter-11-bankruptcy Last updated: 2026-10-16 Filing stops a foreclosure the day it is filed.[1] But if the court finds the hotel is single asset real estate, the lender can have that stay lifted unless, within 90 days, the owner files a confirmable plan or starts paying monthly interest at the nondefault contract rate.[1][2] Chapter 11 filings reached 10,320 in the year ending June 30, 2026.[3] Key takeaways: - The automatic stay is immediate and it is the whole of what filing buys. Section 362(a) stops the foreclosure sale, the receivership application and the collection suit the moment the petition is filed, because a voluntary petition is itself the order for relief.[1][4] - Room revenue is not free cash. Section 552(b)(2) names hotels and keeps a pre-filing lien attached to payments for the use or occupancy of rooms, which makes that money cash collateral the owner cannot spend without consent or a court order.[5][6] - The franchise agreement's clause terminating on a bankruptcy filing is unenforceable under section 365(e)(1), and the exception in section 365(e)(2) is where franchisors argue.[7] - Chapter 11 costs $1,738 to open, then 0.9 percent of disbursements every quarter the hotel pays out $1,000,000 or more.[8][9] - Subchapter V is closed to most hotel owners: the ceiling is $3,424,000 since April 1, 2025, and the definition excludes a debtor whose primary activity is owning single asset real estate.[2][10] #### What does filing Chapter 11 actually stop? The foreclosure sale, the receivership application and the collection suit, on the day the petition is filed, because the filing of a voluntary case is itself the order for relief.[4] Section 362(a) stops the commencement or continuation of a judicial, administrative or other action against the debtor, any act to create, perfect or enforce a lien against property of the estate, and any act to enforce a pre-petition lien against property of the debtor.[1] What the stay does not do is change the loan. The balance, the rate, the maturity and the default interest that has been accruing since the breach all survive the filing. The stay buys time, and the Code sets exactly how much. It does not make the hotel profitable. #### Is a hotel single asset real estate? The Code does not say. It gives a three-part test, and the answer decides whether a 90-day clock runs against the owner.[1][2] Section 101(51B) defines single asset real estate as real property constituting a single property or project, other than residential real property with fewer than four residential units, that generates substantially all of the gross income of a debtor that is not a family farmer, and on which no substantial business is being conducted by the debtor other than the business of operating the real property and activities incidental to it.[2] A single-hotel borrowing entity clears the first two parts of that test without argument. The third is the fight. A hotel sells rooms, food, meeting space and parking, and whether that is a substantial business beyond operating real property is a finding the judge makes on the record in front of them. The statute carves out small residential property and does not name hotels either way, so an owner should not assume the answer and should not let a lender assert it without a ruling. #### What is the 90-day deadline? 90 days after the order for relief, or 30 days after the court rules the paragraph applies, whichever is later, to do one of exactly two things.[1] Section 362(d)(3) directs the court to lift the stay for a creditor secured by single asset real estate unless, by that date, the debtor has either filed a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, or commenced monthly payments equal to interest at the then applicable nondefault contract rate on the value of the creditor's interest in the real estate.[1] Three details decide what that costs. The rate is the nondefault contract rate, not the default rate the note has been running at. The payment is calculated on the value of the creditor's interest in the real estate rather than on the loan balance, which on an underwater hotel is the smaller of the two numbers. And the statute lets the debtor make those payments out of rents or other income at the debtor's sole discretion, notwithstanding section 363(c)(2), which is the one place the Code hands a hotel debtor its own room revenue without a motion.[1][6] The 90 days can be extended for cause, but only by an order entered inside the first 90 days. #### Can I spend the hotel's room revenue? Not without the lender's consent or a court order. Section 552(b)(2) reaches hotel room revenue by name, which makes it cash collateral.[5][6] Section 552(a) is the general rule: property the estate acquires after the filing is not subject to a lien created by a pre-filing security agreement. Section 552(b)(2) is the exception, and it was drafted for lodging. Where the security agreement extends to rents, or to the fees, charges, accounts or other payments for the use or occupancy of rooms and other public facilities in hotels, motels or other lodging properties, the lien keeps reaching that money after the filing, subject to the court ordering otherwise based on the equities of the case.[5] Section 363(a) defines cash collateral to include cash and deposit accounts in which both the estate and another entity hold an interest, section 363(c)(2) bars using it without each interested entity's consent or a court order, and section 363(c)(4) requires the rest to be segregated and accounted for.[6] Unauthorized use of cash collateral that substantially harms a creditor is itself cause to convert the case to Chapter 7 or dismiss it under section 1112(b)(4)(D).[11] So is failure to maintain insurance in a way that puts the estate or the public at risk.[11] #### Does filing make me personally liable on the loan? That depends on the carve-out schedule in your own guaranty, and no lender publishes one. A non-recourse hotel loan is non-recourse until a listed event converts it, and the list sits in the guaranty and the loan agreement rather than in any public document. Banks, CMBS lenders, life companies and debt funds do not publish their carve-out schedules, so no page can honestly tell an owner what their own documents say about a voluntary filing. Read the documents with counsel before the petition rather than after it. Where a carve-out does convert on a filing, the effect is to turn a balance the entity cannot pay into a judgment the principals can be pursued for. #### Can a hotel use Subchapter V? Not if owning the hotel is the debtor's primary activity, and not at hotel loan sizes.[2][10] Subchapter V eligibility runs through the definition of small business debtor in section 101(51D), which carries two bars for a hotel owner. The first is the exclusion in the definition itself for a person whose primary activity is the business of owning single asset real estate.[2] The second is the debt ceiling: $3,424,000 of aggregate noncontingent liquidated secured and unsecured debt, excluding debt owed to affiliates and insiders, raised from $3,024,725 by the triennial adjustment published at 90 FR 8941 on February 4, 2025 and effective for cases commenced on or after April 1, 2025.[10] The $7,500,000 ceiling many owners remember came from a temporary provision in section 1182(1) that sunset on June 21, 2024, which the same notice records.[10] A $14,000,000 hotel loan is over the current ceiling by a factor of four on its own. #### What happens to the franchise agreement? The clause saying the filing terminates it is unenforceable under section 365(e)(1), and the exception in section 365(e)(2) is where the argument goes.[7] Section 365(a) lets the debtor, subject to the court's approval, assume or reject any executory contract or unexpired lease.[7] Section 365(e)(1) says a contract may not be terminated or modified after the case begins solely because of a clause conditioned on the debtor's insolvency or financial condition, the commencement of a case, or the appointment of a trustee or custodian.[7] Check the termination section of your own agreement for that clause. Section 365(e)(2)(A) takes it back where applicable law excuses the other party from accepting performance from or rendering performance to the trustee or an assignee and that party does not consent, which is the same test section 365(c)(1) applies to assumption and assignment.[7] Trademark licensing is the ground franchisors argue it on. If the agreement is assumed, section 365(b)(1) requires the debtor to cure the default or give adequate assurance of a prompt cure, compensate the counterparty, and give adequate assurance of future performance, which on a hotel usually means funding the deferred property improvement plan.[7] Section 365(n), which protects a licensee when the debtor is the licensor, does not help here, because a franchisee is the licensee and not the licensor.[7] #### How long do I have to file a plan, and can the lender be forced to accept it? 120 days of exclusivity, never extendable past 18 months, and confirmation over the lender's objection only if the plan is fair and equitable.[12][13] Section 1121(b) gives the debtor the exclusive right to file a plan until 120 days after the order for relief, and section 1121(c)(3) runs exclusivity to 180 days to get that plan accepted by each impaired class.[12] A court can lengthen or shorten both periods for cause, but section 1121(d)(2) caps the 120-day period at 18 months and the 180-day period at 20 months after the order for relief.[12] After that, anyone can file a competing plan, the lender included. Confirmation needs at least one impaired class to accept, counting no insider's vote, under section 1129(a)(10).[13] Where an impaired class rejects, section 1129(b)(1) still lets the court confirm a plan that does not discriminate unfairly and is fair and equitable. For a secured claim, section 1129(b)(2)(A) sets out what that means: the lender keeps its lien and takes deferred cash payments totalling at least the allowed amount of the claim with a present value at least equal to its interest in the property, or the property is sold free and clear with the lien attaching to the proceeds, subject to credit bidding under section 363(k).[13][6] A plan that cannot show the hotel carrying that payment stream is not a plan, which is why the debt service coverage ratio matters inside a Chapter 11. #### What does Chapter 11 cost to run? $1,738 to open the case, then 0.9 percent of disbursements in every quarter the hotel pays out $1,000,000 or more.[8][9] The statutory fee for a Chapter 11 case that does not concern a railroad is $1,167 under 28 U.S.C. 1930(a)(3), and item 8 of the Judicial Conference's Bankruptcy Court Miscellaneous Fee Schedule, effective December 1, 2023, adds a $571 administrative fee for a Chapter 11 petition.[8][9] The running cost is the quarterly United States trustee fee. During the ten-year period beginning January 1, 2021, section 1930(a)(6)(B) sets that fee at 0.9 percent of disbursements, capped at $250,000, for any quarter in which disbursements total at least $1,000,000, and at the greater of 0.4 percent or $250 below that line.[8] The 0.9 percent figure came in with Public Law 119-76 and applies to fees for disbursements in any calendar quarter beginning on or after February 6, 2026.[8] Disbursements means money paid out, not profit, so a hotel meeting payroll and paying vendors crosses $1,000,000 a quarter at a modest size. The larger bill is professional fees, and no public source publishes what a hotel Chapter 11 costs in counsel, financial advisors and the lender's fees charged to the estate. Ask for an estimate in writing before filing. Failure to file a disclosure statement, or to file or confirm a plan, within the time the court fixes is itself cause to convert or dismiss under section 1112(b)(4)(J).[11] Table: Chapter 11 deadlines and statutory costs a hotel owner cannot negotiate Item | What the statute sets | Measured from | Authority Automatic stay begins | On filing. A voluntary petition is itself the order for relief | Petition date | 11 U.S.C. 362(a), 301(b) Single asset real estate: plan or pay | 90 days, or 30 days after the court rules the paragraph applies, whichever is later. Extendable for cause only by an order inside the 90 days | Order for relief | 11 U.S.C. 362(d)(3) Exclusive right to file a plan | 120 days, extendable for cause but never past 18 months | Order for relief | 11 U.S.C. 1121(b), (d)(2)(A) Exclusive right to get it accepted | 180 days, extendable for cause but never past 20 months | Order for relief | 11 U.S.C. 1121(c)(3), (d)(2)(B) Case filing fee | $1,167 statutory plus a $571 administrative fee, $1,738 in total | Petition date | 28 U.S.C. 1930(a)(3); Fee Schedule item 8 Quarterly United States trustee fee | 0.9 percent of disbursements, capped at $250,000, in any quarter with $1,000,000 or more disbursed | Each calendar quarter | 28 U.S.C. 1930(a)(6)(B) Subchapter V debt ceiling | $3,424,000, and closed to a debtor whose primary activity is owning single asset real estate | Petition date | 11 U.S.C. 101(51D); 90 FR 8941 First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29 percent as of September 30, 2026 and Prime at 7.00 percent, unchanged since September 17.[14] Those are the published benchmarks a replacement loan prices off. The discount rate a court uses to test present value under section 1129(b)(2)(A)(i)(II) is a finding in the case, not a published number, and nobody should treat a benchmark as a substitute for it.[13] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 110-key hotel and the 90-day choice under section 362(d)(3)): Hypothetical, and every input is an assumption rather than a published figure. A 110-key select-service hotel. Loan balance $14,000,000. Nondefault contract rate 6.50 percent. The court values the lender's interest in the real estate at $11,500,000. The hotel runs $7,600,000 of revenue and disburses about $1,850,000 a quarter. The section 362(d)(3)(B) payment is interest at the nondefault contract rate on the value of the creditor's interest in the real estate, so $11,500,000 times 6.50 percent is $747,500 a year, or $62,291.67 a month.[1] Interest on the full $14,000,000 balance at the same rate would be $75,833.33 a month, so calculating on value rather than balance saves about $13,542 a month. The annual figure, $747,500, is 9.8 percent of revenue. The statutory costs stack on top. Four quarters at 0.9 percent of $1,850,000 is $16,650 a quarter, or $66,600 a year, plus $1,738 to open the case.[8][9] If the owner takes the payment route at day 90 and the case runs a year, that is nine monthly payments of $62,291.67, which is $560,625, plus $66,600, plus $1,738: $628,963, or $5,718 a key, before a dollar of professional fees. The alternative is to have a plan on file inside 90 days that a court could confirm within a reasonable time.[1] FAQ: - Q: Does filing Chapter 11 stop a hotel foreclosure? A: Yes, on the day the petition is filed. Section 362(a) stops the sale, the receivership application and the collection suit, and the filing of a voluntary case is itself the order for relief.[1][4] It does not change the loan. - Q: Is a hotel single asset real estate under the Bankruptcy Code? A: The Code does not say. Section 101(51B) asks whether the debtor conducts a substantial business beyond operating the real property, and the court makes that finding on the record in front of it.[2] Hotels are not named either way. - Q: Can I use my hotel's room revenue after I file? A: Only with the lender's consent or a court order. Section 552(b)(2) keeps a pre-filing lien on payments for the use or occupancy of rooms, which makes it cash collateral under section 363.[5][6] Section 362(d)(3) is the narrow exception. - Q: Will I lose the franchise if I file? A: Not automatically. Section 365(e)(1) makes a clause terminating on a bankruptcy filing unenforceable.[7] Assuming the agreement means curing the default and giving adequate assurance of future performance, which usually means funding the property improvement plan. - Q: Can a hotel file under Subchapter V? A: Rarely. Section 101(51D) excludes a debtor whose primary activity is owning single asset real estate, and caps debt at $3,424,000 since April 1, 2025.[2][10] The temporary $7,500,000 ceiling sunset on June 21, 2024. - Q: How long does a hotel Chapter 11 take? A: The Code sets the outer edges, not the duration. Exclusivity runs 120 days and cannot be extended past 18 months after the order for relief; acceptance exclusivity runs 180 days and stops at 20 months.[12] - Q: What does Chapter 11 cost a hotel owner? A: $1,738 to open, then 0.9 percent of quarterly disbursements above $1,000,000, capped at $250,000 a quarter.[8][9] Professional fees are the larger number and no public source publishes them. Get an estimate in writing first. - Q: Is a court-approved sale better than a plan? A: Sometimes. Section 363(f) allows a sale free and clear of liens in defined circumstances, and section 363(k) lets the lender credit bid.[6] A clean title attracts buyers; the cost is fees, time and a public process. Sources: - [1] 11 U.S.C. 362, automatic stay, including (a) and (d)(3) on single asset real estate (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/362 - [2] 11 U.S.C. 101, definitions, including (51B) single asset real estate and (51D) small business debtor (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/101 - [3] Bankruptcies Rise 12.2 Percent (10,320 Chapter 11 filings in the year ending June 30, 2026), July 28, 2026 (Administrative Office of the U.S. Courts, accessed 2026-10-16): https://www.uscourts.gov/data-news/judiciary-news/2026/07/28/bankruptcies-rise-122-percent - [4] 11 U.S.C. 301, voluntary cases: the commencement of a voluntary case constitutes an order for relief (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/301 - [5] 11 U.S.C. 552, postpetition effect of a security interest, including (b)(2) on hotels, motels and other lodging properties (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/552 - [6] 11 U.S.C. 363, use, sale or lease of property, including (a) and (c) on cash collateral, (f) on sales free and clear and (k) on credit bidding (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/363 - [7] 11 U.S.C. 365, executory contracts and unexpired leases, including (b)(1), (c)(1), (e) and (n) (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/365 - [8] 28 U.S.C. 1930, bankruptcy fees, including (a)(3) and the quarterly fee schedule at (a)(6) (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/28/1930 - [9] Bankruptcy Court Miscellaneous Fee Schedule, item 8, effective December 1, 2023 (Administrative Office of the U.S. Courts, accessed 2026-10-16): https://www.uscourts.gov/court-programs/fees/bankruptcy-court-miscellaneous-fee-schedule - [10] Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases, 90 FR 8941 (February 4, 2025), effective April 1, 2025 (Judicial Conference of the United States, via the Federal Register, accessed 2026-10-16): https://www.govinfo.gov/content/pkg/FR-2025-02-04/html/2025-02207.htm - [11] 11 U.S.C. 1112, conversion or dismissal, including (b)(4)(C), (D) and (J) (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/1112 - [12] 11 U.S.C. 1121, who may file a plan, including the 120-day and 180-day periods and the 18-month and 20-month caps (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/1121 - [13] 11 U.S.C. 1129, confirmation of plan, including (a)(10) and (b) on cramdown (Cornell Law School Legal Information Institute, accessed 2026-10-16): https://www.law.cornell.edu/uscode/text/11/1129 - [14] Hotel debt rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-16): https://matthewshotelmarkets.com/rates ### What is a CMBS loan and how does it work for hotels? URL: https://matthewshotelmarkets.com/hotel-financing/cmbs-loans Last updated: 2026-10-01 A CMBS loan is a fixed-rate hotel loan originated to be pooled and sold as bonds. It is non-recourse with standard carve-outs, often has interest-only periods, and is sized to a debt yield floor. Its fixed rate starts from Treasuries; the 10-year was 5.29 percent on September 30, 2026.[1] You get non-recourse and give up flexibility, because the servicer follows the documents. Key takeaways: - CMBS is non-recourse with carve-outs. It is not no-recourse. - Debt yield, not LTV, is usually the binding constraint on a hotel CMBS loan. - Prepayment is through defeasance or yield maintenance, both of which are expensive early. - Once the loan closes, your counterparty is a servicer, not the originator. - Limited-service hotels are financeable in CMBS, but small loans often do not fit a pool efficiently. #### What makes a loan a CMBS loan? A CMBS loan is originated by a lender specifically to be pooled with other commercial mortgages and sold to bond investors, which shapes every term in the loan documents. Because the loan is designed to be securitized, its terms are standardized to fit rating agency and bond-investor expectations: fixed rate, a defined term, a fixed amortization schedule (or interest-only), and tightly defined default and transfer provisions. The originating lender typically sells the loan into a pool shortly after closing, at which point a master servicer administers routine servicing and a special servicer takes over only if the loan defaults or approaches default. This structure is why a CMBS loan behaves differently after closing than a portfolio loan held by a bank. #### How is a hotel CMBS loan sized? Debt yield is usually the binding test on a hotel CMBS loan, more often than LTV or DSCR. Debt yield divides NOI by the loan amount and ignores rate and amortization entirely, which makes it a conservative floor that CMBS conduits lean on heavily for hospitality, given how quickly hotel NOI can move relative to a leased asset. In our experience, conduits set a higher debt yield floor for hotels than for leased property types. LTV and DSCR are still run, but debt yield frequently produces the smallest, and therefore binding, number. The worked example below shows how the binding test can shift with a single appraisal change. #### What does non-recourse actually mean here? Non-recourse in a CMBS loan means the lender's remedy in a standard default is limited to the property, except for a defined list of bad acts, the carve-outs, that trigger personal liability. Standard carve-outs, often called bad-boy carve-outs, typically cover fraud, waste, environmental liability, unauthorized transfers, and bankruptcy filings made in bad faith. A sponsor who operates honestly and does not trigger a carve-out event has no personal exposure beyond the equity in the deal. A sponsor who commits fraud or improperly transfers the property loses that protection entirely. Non-recourse is real protection, but it is conditional protection, not a blank exemption from personal liability. #### What does it cost to pay off a CMBS loan early? Early prepayment on a CMBS loan runs through defeasance or yield maintenance, and both are structured to make the bondholders whole, not to be cheap. Defeasance replaces the mortgaged property as collateral with a portfolio of government securities that replicates the loan's remaining cash flows, which the borrower purchases and pledges to the trust; the cost scales with how far current rates have moved from the loan's coupon and how much term remains. Yield maintenance instead charges a calculated penalty designed to compensate the lender for the lost interest. Both mechanisms are most expensive in the early years of the loan and become cheaper as the loan approaches its maturity or open period. Either way, a CMBS loan should be underwritten as a loan the borrower intends to hold through its term, not one meant to be refinanced early. #### Who do I talk to after closing? A master servicer handles routine administration for the life of a performing CMBS loan; a special servicer takes over only if the loan defaults or is at imminent risk of default. The master servicer collects payments, manages escrows, and processes routine requests, but generally has limited authority to modify loan terms. If the loan defaults, or the borrower demonstrates imminent default, the file transfers to a special servicer, whose fiduciary duty runs to the bondholders as a pool, not to the individual borrower. This is the single biggest mental adjustment a first-time CMBS borrower needs to make: there is no relationship banker to call when something goes wrong. Transfers are not rare. Trepp put the lodging CMBS delinquency rate at 5.35 percent in July 2026,[2] and the lodging special servicing rate at 8.63 percent the same month.[3] The full mechanics of that stage are on `/hotel-financing/loan-workouts`. #### Can a limited-service hotel get CMBS financing? Yes, limited-service and select-service hotels are common CMBS collateral, but the loan needs to be large enough to carry the fixed cost of pooling. On a small loan, the fixed costs of CMBS origination, rating agency review, and pooling do not scale down well against the fee available on a small loan, which pushes smaller limited-service transactions toward banks, SBA, or debt funds instead. On a larger loan, a well-performing limited-service hotel with a strong comp-set position and an experienced sponsor is straightforward CMBS collateral. #### When is CMBS the wrong choice for a hotel? CMBS is the wrong choice when a near-term sale, a major renovation, or any need for loan flexibility is likely during the term, because the defeasance or yield-maintenance cost and the servicer relationship both work against flexibility. A hotel with a PIP still in progress, an owner considering a sale inside the next few years, or a business plan that depends on renegotiating terms mid-loan is generally better matched to a bank loan or a bridge structure, both covered on `/hotel-financing/hotel-lenders-by-type` and `/hotel-financing/bridge-loans`. CMBS rewards certainty: a stabilized asset, a sponsor planning to hold through the term, and no need to touch the loan again until maturity. Table: Hotel CMBS versus a bank loan Category | CMBS | Bank Recourse | Non-recourse with bad-boy carve-outs | Usually full or partial recourse Rate | Fixed for the term | Fixed for a shorter term, or floating Term | Longer fixed term | Often shorter, with a rate reset or maturity sooner Amortization | Long schedule, often IO for part of the term | Often a shorter schedule Sizing driver | Debt yield floor | DSCR and the relationship Prepayment | Defeasance or yield maintenance | Declining step-down, sometimes open After closing | Master servicer, then special servicer if it defaults | The banker who closed it Best fit | Stabilized, non-recourse needed, no near-term sale | Flexibility needed, PIP or repositioning ahead First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury, the index a fixed-rate CMBS quote is struck against, at 5.29% as of September 30, 2026, and marks the CMBS spread itself as not yet published. We do not print a spread until three independent lenders quote the same structure in a month.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: why the debt yield floor binds): Hypothetical. 120-key limited-service hotel. NOI $2.10M. Appraised value $26.0M. The LTV test at 65 percent supports $16.90M. The debt yield floor at 10.5 percent divides $2.10M by 0.105, supporting $20.00M. The DSCR test at 1.40x, with 30-year amortization at 7.10 percent (an annual constant of about $80,640 per $1M), gives a maximum debt service of $2.10M divided by 1.40, or $1.50M, which supports a loan of $18.60M. The LTV test binds at $16.90M. Now assume the appraisal comes in at $30.0M instead: the LTV test moves to $19.50M and the DSCR test at $18.60M becomes the constraint. Which test binds changes with a single appraisal. Ask the lender which one is binding before you negotiate anything else. FAQ: - Q: Is a CMBS hotel loan non-recourse? A: Yes, subject to standard carve-outs for fraud, waste, environmental liability, unauthorized transfers, and bad-faith bankruptcy filings. A sponsor who avoids those triggers has no personal liability beyond the property. - Q: What is the minimum loan size for hotel CMBS? A: There is no published minimum. In practice, small loans often do not fit a pool, because the fixed costs of pooling and rating agency review do not scale down with the loan's fee. - Q: What is defeasance and what does it cost? A: Defeasance replaces the property with government securities that replicate the loan's remaining payments. Cost depends on how far rates have moved from the loan's coupon and how much term is left; it is most expensive early in the loan. - Q: Can I get interest-only on a hotel CMBS loan? A: Often, for part of the term, particularly on well-leveraged stabilized deals. Availability and length vary by lender and by the current lending environment; get the terms in writing. - Q: What is debt yield and why does CMBS use it? A: Debt yield divides NOI by loan amount and ignores rate and amortization. CMBS conduits favor it for hotels because it is a conservative floor that does not get distorted by a low rate or a long amortization schedule. - Q: What's the hotel CMBS delinquency rate right now? A: Trepp put the lodging CMBS delinquency rate at 5.35 percent for July 2026, up 13 basis points on the month, as reported by MBA NewsLink. Trepp updates it monthly, so check the latest release before relying on it. - Q: What happens if my CMBS hotel loan goes to special servicing? A: The file transfers from the master servicer to a special servicer, whose duty runs to bondholders, not to you. Full detail on what a special servicer can and cannot do is on the loan workouts page. - Q: Can I sell the hotel with the CMBS loan in place? A: Only through an assumption, if the buyer qualifies and the loan documents permit it, or by paying the loan off through defeasance or yield maintenance at sale. Either path adds cost and time to a transaction; plan for it before you go to market. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Trepp: CMBS Delinquency Rate Up 51 Basis Points in July (MBA NewsLink, citing Trepp, accessed 2026-09-18): https://newslink.mba.org/mba-newslinks/2026/august/mba-newslink-thursday-august-6-2026/trepp-cmbs-delinquency-rate-up-51-basis-points-in-july/ - [3] CMBS Special Servicing Rate Falls as Office, Lodging Recover (CRE Daily, citing Trepp, accessed 2026-09-18): https://www.credaily.com/briefs/cmbs-special-servicing-rate-falls-as-office-lodging-recover/ - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How do I finance hotel construction in 2026? URL: https://matthewshotelmarkets.com/hotel-financing/construction-loans Last updated: 2026-10-01 Most ground-up hotels are financed with a bank construction loan that funds in draws, then refinanced into permanent debt after opening. Federal guidelines cap a bank's construction loan at 80 percent of value,[1] and bank capital rules favor projects with at least 15 percent borrower equity.[2] Private lodging construction ran at a $23.3 billion annual rate in July 2026, down 9.9 percent from July 2025.[3] Key takeaways: - A construction loan is sized to cost, funded in draws, and interest-only while you build. The permanent loan that replaces it is sized to cash flow. - Federal real estate lending guidelines set a supervisory ceiling of 80 percent loan-to-value on commercial construction and 65 percent on raw land.[1] Banks set their own limits under that ceiling and do not publish them. - If the borrower has less than 15 percent of the as-completed value in the deal as cash or land, the bank must hold capital against the loan at a 150 percent risk weight instead of 100 percent.[2][4] That is why lenders ask for real equity. - SBA 7(a) can fund construction and then amortize for up to 25 years after it. SBA 504 is permanent takeout money, so a bank still carries the build.[5][6] - In the Federal Reserve's July 2026 survey, a significant net share of banks said construction lending standards sit at the tighter end of their range since 2005.[7] #### Who actually makes hotel construction loans? Banks make most of them, SBA lenders cover the smaller owner-operator projects, and debt funds fill the gap when a bank will not reach the leverage the project needs. A ground-up hotel has no cash flow, so the lender types that size to trailing NOI, CMBS and life companies, are not construction lenders. That leaves three groups. Local and regional banks fund most select-service builds, usually for a sponsor they already know, with a personal guaranty. SBA lenders use the 7(a) program for projects that fit inside its $5 million loan cap, or pair a bank loan with a 504 debenture that arrives after completion.[5][6] Debt funds lend on larger or more complicated projects at a higher cost. Our rate sheet carries a Construction row indexed to Prime or SOFR. The spread on that row is marked not yet published, because no construction lender publishes one and we do not print a spread until three independent lenders quote the same structure in a month.[8] For how each lender type behaves once the hotel is open, see `/hotel-financing/hotel-lenders-by-type`. #### How much equity do I need to build a hotel? There is no published minimum, but two federal rules explain why banks want meaningful cash or land equity in a hotel project before the first draw. The first rule is the interagency real estate lending guidelines. They tell every bank to set internal loan-to-value limits no higher than the supervisory limits: 65 percent for raw land, 75 percent for land development, and 80 percent for commercial construction. A bank can exceed those limits only within a capped bucket, and its exceptions on commercial property cannot total more than 30 percent of its capital.[1] The guidelines also require the bank's policy to set minimum hard equity, limits on interest reserves, and requirements for guarantor support.[1] The second rule is the capital treatment of high volatility commercial real estate, or HVCRE. A hotel construction loan escapes that label if the loan-to-value is inside the supervisory limit and the borrower has contributed capital of at least 15 percent of the appraised as-completed value, in cash, unencumbered marketable assets, paid development costs, or land. The capital has to stay in the project until the loan is reclassified.[2] An HVCRE loan carries a 150 percent risk weight, against 100 percent for an ordinary corporate exposure.[4] A loan that costs the bank half again as much capital gets priced higher or declined. These are floors that come from regulation. The equity your lender actually asks for is a credit decision, it is usually higher on a hotel than the floor, and it is not published. Get it in writing. #### How is a construction loan different from a permanent hotel loan? A construction loan is sized to the budget, funds a piece at a time, and charges interest only on what has been drawn; a permanent loan is sized to NOI and funds once. The budget is the underwriting. The lender reviews the general contract, the franchise approval, a feasibility study, and a line-by-line budget that includes an interest reserve, which is loan money set aside to pay the loan's own interest until the hotel can. Each month the borrower submits a draw request, an inspector confirms the work is in place, and the lender funds that draw. Equity almost always goes in first. The sponsor typically signs two guaranties on a bank construction loan: repayment, and completion, which is a promise to finish the building and cover cost overruns. Better structures let the repayment guaranty fall away or shrink once the hotel opens and reaches an agreed coverage level. The table below sets the two loan types side by side. #### Can I use an SBA loan to build a hotel? Yes. SBA 7(a) can finance construction directly, and SBA 504 can take out a bank's construction loan with a fixed-rate debenture after the hotel is finished. A 7(a) loan caps at $5 million. The portion used to build or improve real estate can run 25 years plus the additional period needed to complete construction.[5] With Prime at 7.00 percent since September 17, 2026, the maximum variable rate on a 7(a) loan over $350,000 is 10.00 percent.[8][9] SBA's regulation requires a 100 percent payment and performance bond and builder's risk insurance on 7(a) construction unless SBA waives it.[10] The current SOP applies that to construction components over $350,000 and waives the bonds when the lender hires a third-party construction management firm that controls disbursements.[6] SBA does not allow balloon payments on 7(a) loans.[6] The 504 program is permanent or take-out financing. An interim lender, usually the same bank that holds the first lien, funds construction, and the debenture sale repays the interim loan after the project is complete.[6] For a hotel the debenture is capped at $5 million and at 35 percent of project cost, and the borrower puts in at least 15 percent.[6] On a larger project the $5 million cap binds first, as the worked example shows. The 25-year debenture priced at 6.54 percent on September 10, 2026.[8] See `/hotel-financing/sba-7a-vs-504` for the full comparison. #### What does it cost to build a branded select-service hotel? Hilton's 2026 franchise disclosure documents put a new 89-room Hampton Inn at $17.0 million to $24.7 million and a new 107-suite Home2 Suites at $18.1 million to $26.6 million, both before land. Those are the franchisor's own Item 7 estimates, issued March 30, 2026. The Hampton Inn range is $17,043,739 to $24,732,532 for 89 rooms, which works out to about $191,500 to $277,900 per room, excluding real property.[11] The Home2 Suites range is $18,075,688 to $26,550,592 for 107 suites, or about $168,900 to $248,100 per suite, excluding real property.[12] Land, financing costs and interest during construction sit on top. An FDD estimate is a planning range, not a bid. Your lender will underwrite the general contractor's number, test it against an independent cost review, and add a contingency line. Hilton requires a new-development franchisee to start construction within 15 months of application approval, so the loan has to be ready when the franchise clock is running.[11] #### Are banks making hotel construction loans right now? Yes, selectively. Standards stopped tightening in 2026, but they remain tight by historical measure and developer demand is soft. The Federal Reserve's July 2026 Senior Loan Officer Opinion Survey, released August 3, 2026, reported that standards for construction and land development loans were basically unchanged over the second quarter, while a moderate net share of banks saw weaker demand for those loans. Asked where standards sit relative to their range since 2005, a significant net share of banks put construction loans at the tighter end, though fewer banks said so than in July 2025.[7] The building data agrees. The Census Bureau put private lodging construction at a seasonally adjusted annual rate of $23.3 billion in July 2026, down 9.9 percent from $25.9 billion in July 2025.[3] Less new supply is a reason some lenders like the hotels that do get built. It also means a construction request competes for a small allocation, so the sponsor's track record and liquidity carry most of the decision. #### What happens when construction is finished? The construction loan has to be replaced or converted, and the exit is underwritten before the first draw, not after the ribbon cutting. There are three common exits. A construction-to-permanent loan converts to an amortizing loan with the same bank once the hotel opens. A bridge loan carries the hotel through its ramp until trailing NOI supports permanent debt; see `/hotel-financing/bridge-loans`. Or the owner refinances straight into permanent debt once the hotel has a stabilized trailing twelve months; see `/hotel-financing/refinance` and `/hotel-financing/loan-requirements` for what that lender will test. Build the timeline backward from the construction loan's maturity. A new hotel needs time to ramp, the permanent lender needs a trailing period to underwrite, and the closing itself takes months. Extension options on the construction loan are worth negotiating up front for that reason. Table: Hotel construction loan versus permanent hotel loan Feature | Construction loan | Permanent loan Sized to | Project cost and as-completed value. Supervisory ceiling of 80% loan-to-value at banks[1] | Trailing NOI through DSCR, debt yield and LTV tests Funding | Monthly draws against inspected work, equity in first | One funding at closing Payments during the term | Interest only on the drawn balance, usually paid from an interest reserve in the budget | Principal and interest, sometimes after an interest-only period Rate | Floating over Prime or SOFR; spread not published[8] | Fixed over Treasuries or floating, by lender type Guaranties | Repayment and completion guaranties are standard at banks | Recourse at banks and SBA; non-recourse with carve-outs at CMBS and life companies Lender's main risk | The hotel is not finished on budget, or opens into a weak market | NOI falls below debt service Exit or conversion | Converts to permanent, or is refinanced by bridge, SBA 504 debenture or permanent debt[6] | Refinance or sale at maturity First-party data point: Matthews Hotel Markets' October 2026 rate sheet indexes its Construction row to Prime or SOFR, with Prime at 7.00%, unchanged since September 17, 2026, and SOFR at 3.90% for September 30, 2026. It marks the construction spread as not yet published, because no lender publishes one and we do not print a spread until three independent lenders quote the same structure in a month.[8] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: 89-room select-service hotel, $21.0M all-in cost): Hypothetical. Total project cost is $21.0M including land, inside the range Hilton's 2026 FDD gives for an 89-room Hampton Inn once land is added.[11] The appraised as-completed value is $24.0M. The loan-to-cost, the spread and the draw pattern below are assumptions for the arithmetic, not quotes. Bank path. A bank offers 65 percent of cost: $21.0M times 0.65 equals a $13.65M loan, so equity is $7.35M, or 35 percent of cost. The supervisory ceiling is 80 percent of $24.0M, or $19.2M, and this loan is 56.9 percent of value, well inside it.[1] The HVCRE capital test needs 15 percent of $24.0M, or $3.6M, of contributed capital; $7.35M clears it, so the bank holds the loan at the ordinary risk weight.[2][4] Interest reserve. Assume an 18-month build, an average drawn balance of 55 percent of the loan, and a rate of 8.00 percent, which is the 7.00 percent Prime plus an assumed 1.00 percent. $13.65M times 0.55 times 8.00 percent times 1.5 years equals about $900,900. That reserve is a budget line inside the $21.0M, and it is why a rate move during construction is a cost overrun risk. SBA 504 path. The bank first lien is 50 percent, or $10.5M. A hotel debenture could be 35 percent, but it is capped at $5.0M, which is 23.8 percent of this project. Equity is the remainder: $5.5M, or 26.2 percent. The cap starts to bind once project cost passes $5.0M divided by 0.35, or about $14.3M.[6] The 504 path needs $1.85M less equity than the bank path here, and the bank still has to fund the debenture's share during construction as the interim lender. FAQ: - Q: How much do I have to put down to build a hotel? A: No lender publishes a minimum. Federal guidelines cap bank construction loans at 80 percent of value, and bank capital rules favor borrowers with at least 15 percent of as-completed value in cash or land. SBA 504 requires at least 15 percent on a hotel. Expect to be asked for more. - Q: I already own the land. Does that count as my equity? A: Usually yes. The bank capital rule counts contributed land toward the 15 percent test, and SBA 504 accepts land that is part of the project as the borrower's contribution. The lender decides the value it will credit, so ask before you rely on an appraisal. - Q: Can I get an SBA loan to build a new hotel? A: Yes. SBA 7(a) can fund construction up to its $5 million cap and then amortize for up to 25 years. SBA 504 takes out the construction lender with a fixed-rate debenture, capped at $5 million for a hotel, after the building is complete. - Q: Is a hotel construction loan recourse? A: At a bank or SBA lender, yes. Expect a repayment guaranty and a completion guaranty. Some structures reduce or release the repayment guaranty after the hotel opens and reaches an agreed coverage level. Non-recourse construction debt exists at debt funds, at lower leverage and higher cost. - Q: What interest rate should I expect on a hotel construction loan in 2026? A: A floating rate over Prime or SOFR. Prime has been 7.00 percent since September 17, 2026. No lender publishes its construction spread, so our rate sheet does not print one. The SBA 7(a) maximum on loans over $350,000 is 10.00 percent. - Q: What is an interest reserve? A: It is a line in the construction budget, funded by the loan, that pays the loan's interest while the hotel has no income. It is sized from the draw schedule and an assumed rate, so a longer build or a higher rate uses it up faster. - Q: How long does a hotel construction loan last? A: Long enough to build and begin the ramp, usually with extension options. SBA 7(a) is different: it runs up to 25 years plus the construction period, so there is no separate refinance. Match the term to a realistic opening date and permanent-loan timeline. - Q: Do I need the franchise approved before I apply for a construction loan? A: In practice, yes for a branded hotel. The lender underwrites the flag, the prototype cost and the franchise term. Hilton's 2026 Hampton FDD requires construction to start within 15 months of application approval, so line up the loan and the franchise together. Sources: - [1] 12 CFR Part 34, Subpart D, Appendix A: Interagency Guidelines for Real Estate Lending Policies (supervisory loan-to-value limits) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [2] 12 CFR 217.2, Definitions: high volatility commercial real estate (HVCRE) exposure (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/217.2 - [3] Monthly Construction Spending, July 2026 (release CB26-140, September 1, 2026), Table 1, private lodging (U.S. Census Bureau, accessed 2026-09-18): https://www.census.gov/construction/c30/pdf/release.pdf - [4] 12 CFR 217.32, General risk weights: corporate exposures (f) and HVCRE exposures (j) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/217.32 - [5] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [6] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): amortization and balloons (p. 125), 7(a) construction loan provisions (pp. 311-312), 504 interim financing (pp. 332-333), debenture limits (p. 350), hotels as Limited or Special Purpose Property (pp. 354-355) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [7] The July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices (released August 3, 2026) (Board of Governors of the Federal Reserve System, accessed 2026-09-18): https://www.federalreserve.gov/data/sloos/sloos-202607.htm - [8] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [9] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html - [10] 13 CFR 120.200, What bonding requirements exist during construction? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.200 - [11] 2026 US Hampton Franchise Disclosure Document (issued March 30, 2026), Item 5 notes and Item 7 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [12] 2026 US Home2 Suites Franchise Disclosure Document (issued March 30, 2026), Item 7 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf ### How does EB-5 financing work for a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/eb-5-financing Last updated: 2026-10-01 EB-5 lets a foreign investor seek a green card by investing in a U.S. business that creates at least 10 full-time jobs. For petitions filed on or after March 15, 2022, the minimum is $1,050,000, or $800,000 in a targeted employment area.[1] Hotel developers usually pool investors through a USCIS-designated regional center, a program authorized through September 30, 2027.[1][2] Key takeaways: - Minimum investment: $1,050,000, or $800,000 in a targeted employment area or infrastructure project, for petitions filed on or after March 15, 2022. The first inflation adjustment applies to petitions filed on or after January 1, 2027.[1][2] - Each investor must account for at least 10 full-time jobs. Through a regional center, up to 90 percent of those can be indirect jobs from an economic model, or up to 75 percent when construction lasts less than two years.[1][2] - A targeted employment area is either rural or high-unemployment, and since 2022 only the Department of Homeland Security can designate a high-unemployment area.[1][2] - The regional center program is authorized through September 30, 2027. The statute protects petitions filed on or before September 30, 2026 if the program lapses.[2] - The investor's capital must stay at risk with no guaranteed return or repayment right. USCIS designation of a regional center is not an endorsement of any project.[1][3] #### What is EB-5, and why do hotel developers use it? EB-5 is an immigrant visa category that Congress created in 1990 to bring in job-creating foreign capital, and hotel developers use it because building and staffing a hotel creates the jobs the program counts. USCIS administers the program. An investor puts the required capital into a new commercial enterprise, the enterprise creates at least 10 full-time jobs for qualifying U.S. workers, and the investor, spouse and children can obtain conditional permanent residence, then apply to remove the conditions after about two years.[1][3] The EB-5 Reform and Integrity Act, signed March 15, 2022 as part of Public Law 117-103, rewrote the rules for both the visa category and the regional center program.[1] For a developer, EB-5 is a source of capital, not a lender. In a typical regional center structure the investors buy into a new commercial enterprise, often a fund, and the fund lends to or invests in the entity that builds the hotel. The SEC describes exactly that arrangement and warns investors that they may be investing in an enterprise with no assets that was set up to lend to a developer.[3] In the hotel's capital stack the EB-5 money usually sits behind the senior construction loan, in the position that [mezzanine debt](/glossary/mezzanine-debt) or preferred equity would otherwise fill. Senior lenders do not publish their terms for accepting it, so raise it with the construction lender early. See [How do I finance hotel construction in 2026?](/hotel-financing/construction-loans) #### How much does each investor have to put in? $1,050,000 as the standard minimum, or $800,000 when the project is in a targeted employment area or is an infrastructure project, for petitions filed on or after March 15, 2022. Before that date the minimums were $1,000,000 and $500,000.[1] The amounts are scheduled to change. USCIS says future adjustments are tied to the Consumer Price Index for All Urban Consumers measured from March 15, 2022, happen every five years, and first take effect for petitions filed on or after January 1, 2027.[1] The statute sets the reduced amount at 75 percent of the standard amount at each adjustment.[2] A raise that will still be open in 2027 should plan for a higher figure per investor. USCIS had not replaced the amounts on the page we read, which was last reviewed November 18, 2025.[1] Capital means cash and other tangible assets the investor owns and controls, valued at fair market value. It does not include money invested in exchange for a note, bond or other debt arrangement between the investor and the enterprise, and the investor cannot hold a contractual right to repayment.[1] The statute also expects the capital to stay invested for not less than two years.[2] Those rules are why EB-5 offerings are structured as equity in the fund, even when the fund then makes a loan to the hotel. #### What is a targeted employment area, and does my hotel site qualify? A targeted employment area is, at the time of investment, either a rural area or an area with unemployment of at least 150 percent of the national average. Rural for EB-5 means outside any metropolitan statistical area and outside the outer boundary of any city or town with a population of 20,000 or more, based on the most recent decennial census.[1] That is a different and tighter test than the 50,000-person line USDA uses for its loan guarantees, covered in [Can I get a USDA B&I loan for a hotel?](/hotel-financing/usda-b-and-i-loans) A high-unemployment area is the census tract, or contiguous tracts, where the enterprise is principally doing business, optionally with directly adjacent tracts, if the weighted average unemployment rate is at least 150 percent of the national average.[1] Since the 2022 law, only the Secretary of Homeland Security or a DHS designee can make that designation. State and local officials cannot.[2] Location also affects visa availability, which affects how fast investors commit. Each fiscal year 20 percent of EB-5 visas are reserved for rural investments, 10 percent for high-unemployment areas and 2 percent for infrastructure projects.[1][2] A rural hotel site therefore offers investors both the lower minimum and the largest reserved pool. #### How many jobs does the hotel have to create? At least 10 full-time jobs per investor, so a raise from 15 investors has to support 150 jobs. Full-time means at least 35 working hours a week. Qualifying employees are U.S. citizens, permanent residents and other immigrants authorized to work, not the investor or the investor's family. Intermittent, temporary, seasonal and transient jobs do not count, though USCIS generally does not treat a job expected to last at least two years that way.[1] A stand-alone investor has to show direct jobs: the enterprise itself must be the employer.[1] A regional center project can count indirect jobs estimated with an economic model, and that is what makes a hotel raise workable. Up to 90 percent of the job requirement can be met with indirect jobs.[1][2] The statute tightens this for short construction periods: when the jobs come from construction activity lasting less than two years, only up to 75 percent of the requirement can be met with indirectly created jobs, and the construction jobs counted as direct are prorated by the fraction of two years the work lasts.[2] The practical limit on an EB-5 raise is therefore the job count the economist can support, not the amount the developer wants. Size the raise from the jobs down. #### What does a regional center do, and what dates matter? A regional center is an entity USCIS designates to pool EB-5 investors into projects, and the program behind it is authorized through September 30, 2027. USCIS defines a regional center as an economic unit, public or private, involved with promoting economic growth, and publishes lists of approved and terminated centers.[4] The 2022 law added oversight: USCIS must audit each designated center at least once every five years, including the flow of investor capital into projects, and centers pay an annual fee into an EB-5 Integrity Fund.[4] Three dates matter in late 2026. First, the statute makes regional center visas available through September 30, 2027.[2] Second, it protects investors if Congress lets the program lapse: DHS must keep processing petitions that were filed on or before September 30, 2026 and may not deny them because the authorization expired.[2] A petition filed after that date does not have that protection unless Congress acts. Third, the investment amounts adjust for petitions filed on or after January 1, 2027.[1] For a developer, that means investor demand can bunch up ahead of these dates and thin out after them. Do not build a construction budget that depends on EB-5 subscriptions arriving on schedule. #### What are the risks, stated plainly? The investors can lose their money and their immigration path, and the developer can be left with a funding gap, because nothing in the program guarantees either the capital or the visas. The SEC and USCIS issued a joint investor alert on October 9, 2013 that still describes the risks well. Designation as a regional center does not mean USCIS, the SEC or any other agency has approved the investments it offers. Most offerings are unregistered securities. Money invested through EB-5 must be at risk, so a promised return or a promised refund is a warning sign, and so is any guarantee of a visa or of its timing.[3] One case in the alert involved a hotel and conference center: the SEC alleged a $156 million fraud in which the promoters falsely claimed to have building permits and the backing of major hotel chains.[3] For the developer the risks are different. The capital arrives investor by investor and depends on visa demand in the investors' home countries. The project has to hit the job count or the investors' petitions fail. USCIS audits and securities law both apply to the raise, so it needs securities counsel, immigration counsel and an economist, not only a lender. And the senior lender has to accept the structure. This page explains the rules. It is not immigration, securities or legal advice. Table: EB-5 rules that shape a hotel raise, for petitions filed on or after March 15, 2022 Rule | Standard project | Targeted employment area project Minimum investment per investor | $1,050,000[1] | $800,000, including infrastructure projects[1] Next scheduled adjustment | Petitions filed on or after January 1, 2027[1] | Set at 75% of the standard amount at each adjustment[2] Jobs required per investor | 10 full-time, at 35 or more hours a week[1] | 10 full-time, at 35 or more hours a week[1] Indirect jobs allowed, regional center | Up to 90%; up to 75% if construction lasts under 2 years[2] | Up to 90%; up to 75% if construction lasts under 2 years[2] Who qualifies the location | Not applicable | Rural by census definition; high unemployment designated only by DHS[1][2] Reserved visas each fiscal year | None; draws from the unreserved pool | 20% rural, 10% high unemployment, 2% infrastructure[1][2] Regional center authorization | Through September 30, 2027[2] | Through September 30, 2027[2] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts SOFR at 3.90% and the 10-year Treasury at 5.29% as of September 30, 2026, and marks the construction loan spread as not yet published. EB-5 capital has no public rate index at all, which is why it is compared deal by deal against the senior loan it sits behind.[5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $12.0M EB-5 tranche in a $40.0M hotel development): Hypothetical. A developer plans a $40,000,000 select-service hotel on a site that qualifies as a targeted employment area. The capital stack is an assumption for the arithmetic: a $22,000,000 senior construction loan (55 percent), $12,000,000 of EB-5 capital (30 percent) and $6,000,000 of sponsor equity (15 percent). $22,000,000 plus $12,000,000 plus $6,000,000 equals $40,000,000. Investors. At $800,000 each, $12,000,000 takes 15 investors.[1] If the site were not in a targeted employment area the minimum would be $1,050,000, and $12,000,000 would take 12 investors, since 11 would raise only $11,550,000. Jobs. 15 investors times 10 jobs equals 150 full-time jobs.[1] Through a regional center, up to 90 percent can be indirect: 135 indirect and at least 15 direct.[2] If construction lasts less than two years, only 75 percent of the requirement can be met with indirect jobs. 75 percent of 150 is 112.5, so at most 112 indirect jobs and at least 38 that qualify as direct.[2] The check that matters. If the economist's model supports only 120 qualifying jobs, the raise supports 12 investors, or $9,600,000, and the developer needs another $2,400,000 from somewhere else. Size the tranche from the job count. Timing. A petition filed on or before September 30, 2026 carries the statute's protection against a program lapse. One filed on or after January 1, 2027 is subject to the adjusted investment amounts.[1][2] FAQ: - Q: What is the minimum EB-5 investment in 2026? A: $1,050,000, or $800,000 in a targeted employment area or infrastructure project, for petitions filed on or after March 15, 2022. USCIS says the first inflation adjustment applies to petitions filed on or after January 1, 2027. - Q: Can EB-5 money be used to buy an existing hotel? A: The rules are built around job creation, so a plain purchase of a stable hotel rarely fits. USCIS allows job preservation only for a troubled business, one at least two years old with a net loss of at least 20 percent of its net worth. - Q: Is the EB-5 regional center program still active? A: Yes. The statute authorizes regional center visas through September 30, 2027, and requires DHS to keep processing petitions filed on or before September 30, 2026 even if the authorization later expires. - Q: Does USCIS approval of a regional center mean the hotel project is safe? A: No. The SEC and USCIS state that designation does not mean any agency has approved or endorsed the investments a regional center offers. Investors should get the offering memorandum, verify permits and brand commitments directly, and use independent counsel. - Q: Can a developer guarantee EB-5 investors their money back? A: No. The capital must be at risk. USCIS excludes capital subject to a contractual right of repayment, and the SEC lists guaranteed returns or refunds as a warning sign of fraud. - Q: How many EB-5 investors does a hotel project need? A: Divide the raise by the minimum investment, then check jobs. Each investor needs 10 full-time jobs, so 15 investors need 150. The job count the economic model supports is usually the binding limit. - Q: Is a rural hotel site better for EB-5? A: It qualifies for the $800,000 minimum and the largest reserved visa pool, 20 percent of annual EB-5 visas. Rural for EB-5 means outside a metropolitan statistical area and outside any city or town of 20,000 or more. - Q: Where does EB-5 sit in a hotel's capital stack? A: Usually behind the senior construction loan, in the position mezzanine debt or preferred equity would fill. The senior lender must accept the structure, and lenders do not publish their terms for doing so. Sources: - [1] About the EB-5 Visa Classification (last reviewed November 18, 2025): investment amounts, targeted employment areas, job creation, capital, visa set-asides (U.S. Citizenship and Immigration Services, accessed 2026-09-18): https://www.uscis.gov/working-in-the-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/about-the-eb-5-visa-classification - [2] 8 U.S.C. 1153(b)(5), Employment creation: capital amounts and adjustment, reserved visas, high unemployment designation, regional center program, indirect jobs, protection from expired legislation (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/8/1153 - [3] Investor Alert: Investment Scams Exploit Immigrant Investor Program (October 9, 2013) (U.S. Securities and Exchange Commission and U.S. Citizenship and Immigration Services, accessed 2026-09-18): https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-51 - [4] EB-5 Immigrant Investor Regional Centers (last reviewed October 11, 2024): definition, audits, Integrity Fund fee (U.S. Citizenship and Immigration Services, accessed 2026-09-18): https://www.uscis.gov/working-in-the-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor-regional-centers - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How is extended-stay hotel financing different? URL: https://matthewshotelmarkets.com/hotel-financing/extended-stay-financing Last updated: 2026-10-01 Lenders size an extended-stay hotel with the same DSCR, debt yield and LTV tests as any hotel, but length of stay changes eligibility and risk. SBA finances a hotel only if more than 50 percent of prior-year revenue came from guests staying 30 days or less.[1] Hilton's 2026 Home2 Suites disclosure shows 78.0 percent occupancy in 2025, with 42 percent of room nights from stays of five nights or more.[2] Key takeaways: - The sizing tests do not change. What changes is how a lender reads the guest mix, the expense model and whether the property is still a hotel. - SBA's 30-day rule is the hard line. More than 50 percent of prior-year revenue has to come from stays of 30 days or less, or the property is an ineligible passive business.[1] - Public brand data shows the occupancy advantage. Choice Hotels reported 69.1 percent occupancy for its extended-stay brands in 2025, against 54.9 percent for its midscale and upper midscale brands.[3] - The rate is lower and the stay is longer. That trade supports a leaner staffing model, and it concentrates revenue in fewer guests and employers. - A brand-standard extended-stay hotel is nowhere near the 30-day line. Home2 Suites stays of five nights or more averaged 11.9 nights in 2025.[2] #### Do lenders treat an extended-stay hotel differently from a regular hotel? They run the same three sizing tests, then ask three extra questions: how long guests stay, who they are, and whether the property still operates as a hotel. An extended-stay loan is sized the way `/hotel-financing/loan-requirements` describes: DSCR, debt yield and loan-to-value against trailing twelve-month NOI, with the smallest result winning. No conventional lender publishes its thresholds for either product, so our rate sheet does not print them.[4] The extra questions are about durability. Longer stays mean fewer check-ins per occupied room, less frequent housekeeping, and steadier midweek occupancy. They also mean a larger share of revenue can sit with a handful of accounts: a construction crew, a hospital's traveling nurses, an insurer housing displaced families. A lender will ask for the length-of-stay report and the top accounts, and will want to know what happens to occupancy when the largest project in town ends. #### Can I get an SBA loan for an extended-stay hotel? Yes, if more than 50 percent of the business's prior-year revenue came from transients who stay 30 days or less at a time. SBA treats businesses that mainly rent real estate as passive and ineligible, and it says apartment buildings are not eligible. Its SOP then carves out hotels, motels, RV parks, marinas and campgrounds, on one condition: more than 50 percent of the business's revenue for the prior year is derived from transients who stay for 30 days or less at a time, and the business complies with zoning and other legal requirements. For a start-up, the projections have to show the same thing.[1] That is a revenue test, not a room-count test and not a brand test. An economy extended-stay property that has drifted into monthly rentals can fail it while carrying a hotel flag and a hotel license. If the property passes, the ordinary program terms apply: a $5 million 7(a) cap, up to 25 years on real estate,[5] and the 504 structure described on `/hotel-financing/sba-7a-vs-504`. USDA's Business and Industry guarantee also lists hotels and motels as eligible tourist facilities in rural areas.[6] Pull the length-of-stay revenue split before you apply. The lender will, and it is better to know on which side of the line the trailing year falls. #### What do the public numbers say about extended-stay performance? Extended-stay brands run higher occupancy at a lower rate than their transient siblings, in both Hilton's and Choice's public filings. Hilton's 2026 franchise disclosure documents report 2025 results for comparable US hotels. Home2 Suites, across 561 comparable hotels, averaged 78.0 percent occupancy, a $144.47 room rate and $112.63 RevPAR.[2] Hampton, across 1,893 comparable hotels, averaged 71.0 percent occupancy, $149.08 and $105.90.[7] Seven points more occupancy at a slightly lower rate produced about 6 percent more RevPAR. Choice Hotels' 10-K for 2025 shows the same shape further down the chain scale. Its extended-stay brands, WoodSpring Suites, Everhome Suites, MainStay Suites and Suburban Studios, ran 69.1 percent occupancy at a $66.10 average daily rate, for RevPAR of $45.67. Its midscale and upper midscale brands ran 54.9 percent at $99.21, for $54.50.[3] Higher occupancy did not mean higher RevPAR there, which is why a lender looks at margin and not only at the top line. Hilton defines an extended stay as five or more consecutive nights. By that definition Home2 Suites had about 7.1 million extended-stay nights in 2025, about 42 percent of all room nights, and those stays averaged 11.9 nights.[2] Franchisor figures are averages for hotels already in the system. They are not a projection for yours. #### Why is the expense model different? Fewer arrivals and less frequent housekeeping lower the labor needed per occupied room, and that is the core of the extended-stay margin argument. The operating standards are public. Choice describes weekly housekeeping at Everhome Suites and MainStay Suites and bi-weekly housekeeping at WoodSpring Suites and Suburban Studios, alongside in-room kitchens and 24/7 guest laundry.[3] Hilton notes that a Home2 Suites hotel has limited meeting space and limited food and beverage.[2] Fees differ a little too: Hilton's 2026 documents put the monthly program fee at 3.5 percent of gross rooms revenue for Home2 Suites and 4 percent for Hampton, on top of a 6 percent royalty for both.[2][7] We do not publish an expense ratio for the segment, because the public sources that would support one are subscriber data. A lender will build its own from your trailing P&L. It will also add back what long stays cost: kitchens and appliances wear faster, so expect the FF&E reserve and the property condition report to get a careful read. #### What happens to occupancy tax on long stays? In many states a guest who stays 30 days or more stops being taxed as a hotel guest, which changes the tax line and signals how the state views the stay. Texas is a clear example. The state hotel tax rate is 6 percent, and guests who occupy a room for 30 or more consecutive days with no payment interruption are considered permanent residents and are exempt.[8] Rules differ by state and city, so check your own. This matters to financing in two ways. First, the exemption report is an independent record of how much of your revenue comes from 30-day stays, and SBA's SOP lists transient occupancy tax records among the third-party records a lender may use to verify a seller's financial data in certain acquisitions.[1] Second, a property that has become mostly monthly housing can raise zoning and licensing questions that a lender's counsel will ask about. #### Which lenders fit an extended-stay hotel? The same five lender types as any hotel, with the fit decided by flag, guest mix and size more than by the extended-stay label. A branded upper-midscale or midscale extended-stay hotel with a transient-heavy mix is ordinary bank, SBA and CMBS business. An unbranded or economy property with a high share of monthly guests narrows the field to local banks and credit unions that know the owner, and to bridge lenders if there is a repositioning plan. Compare the types on `/hotel-financing/hotel-lenders-by-type`. New construction is an active part of this segment, because the prototypes are small and the staffing model is lean. Hilton's 2026 estimate for a new 107-suite Home2 Suites is $18,075,688 to $26,550,592 before land.[2] See `/hotel-financing/construction-loans` for how that gets financed. Table: Extended-stay versus transient select-service hotels: public 2025 figures and what lenders do with them Item | Extended-stay | Transient | What a lender does with it Hilton, 2025 occupancy | Home2 Suites 78.0%[2] | Hampton 71.0%[7] | Tests whether your hotel beats or trails its own flag's average Hilton, 2025 room rate and RevPAR | $144.47 and $112.63[2] | $149.08 and $105.90[7] | Underwrites your trailing numbers, not the brand's Choice, 2025 occupancy, ADR, RevPAR | 69.1%, $66.10, $45.67[3] | Midscale and upper midscale: 54.9%, $99.21, $54.50[3] | Looks past occupancy to margin Housekeeping standard | Weekly or bi-weekly at Choice's extended-stay brands[3] | Set by each brand's standards; not stated in the filings cited here | Expects lower rooms labor per occupied room, and checks it in the P&L SBA eligibility | Only if more than 50% of prior-year revenue is from stays of 30 days or less[1] | Same rule; rarely in question | Asks for the length-of-stay revenue split Expense ratio | Not published here; subscriber data | Not published here; subscriber data | Builds it from your trailing twelve-month P&L DSCR test, leverage and spread | Set by the lender; not published[4] | Set by the lender; not published[4] | Same three sizing tests for both First-party data point: Matthews Hotel Markets' October 2026 rate sheet does not carry a separate extended-stay row. It prices hotel debt by lender type, with the SBA 7(a) maximum at 10.00% on the 7.00% Prime in effect since September 17, 2026, and it marks conventional DSCR floors, leverage and spreads as not yet published for every hotel type, extended-stay included.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: the SBA 30-day revenue test on two extended-stay hotels): Hypothetical. Two 96-suite economy extended-stay hotels each earned $2,400,000 of revenue last year. The test is SBA's: more than 50 percent of prior-year revenue from transients who stay 30 days or less.[1] Hotel A earned $1,300,000 from guests whose stays ran longer than 30 days. That is 54.2 percent of revenue, so the transient share is 45.8 percent. Hotel A fails. It is ineligible for SBA 7(a) and 504 no matter how strong its NOI is, and the buyer needs a conventional bank or credit union loan. Hotel B earned $900,000 from stays longer than 30 days, or 37.5 percent. The transient share is 62.5 percent. Hotel B passes and can be financed under either SBA program if it meets the other rules. Same building, same revenue, different lender universe. For scale, a 45-night stay at $60 a night is $2,700 of revenue, and in Texas the 6 percent state hotel tax on it, $162, is not owed once the guest qualifies as a permanent resident.[8] The tax exemption report and the SBA test are measuring the same guests. FAQ: - Q: Can I get an SBA loan to buy an extended-stay hotel? A: Yes, if more than 50 percent of the hotel's revenue for the prior year came from guests who stayed 30 days or less at a time. If most revenue comes from longer stays, SBA treats the property as ineligible passive real estate. - Q: I'm buying a WoodSpring Suites. Will a bank finance it like a regular hotel? A: It will use the same DSCR, debt yield and LTV tests. It will also ask for the length-of-stay mix and the largest accounts, because long stays concentrate revenue. A branded property with a mostly transient mix is ordinary hotel business for banks and SBA lenders. - Q: Do lenders prefer extended-stay hotels? A: Many like the occupancy profile. Choice Hotels reported 69.1 percent occupancy for its extended-stay brands in 2025 against 54.9 percent for midscale and upper midscale. No lender publishes a separate extended-stay DSCR floor, leverage limit or spread, so the preference shows up in quotes, not in a posted number. - Q: Is an extended-stay hotel a hotel or an apartment building to a lender? A: A hotel, as long as it operates like one: nightly or weekly rates, hotel licensing, occupancy tax collected on short stays. SBA draws its line at revenue from stays over 30 days. Past that line the property starts to look like housing, and the lender list changes. - Q: My hotel has a lot of monthly guests. Does that hurt my refinance? A: It can narrow the lender list. It rules out SBA if long stays produce half or more of revenue, and it prompts zoning and licensing questions. It can help with coverage if those guests are stable. Bring the length-of-stay revenue report to the first conversation. - Q: How long do extended-stay guests actually stay? A: At Hilton's Home2 Suites in 2025, stays of five nights or more averaged 11.9 nights and made up about 42 percent of room nights, according to the 2026 franchise disclosure document. Economy extended-stay properties can run much longer, which is where the 30-day questions begin. - Q: Do guests who stay over 30 days pay hotel occupancy tax? A: It depends on the state. In Texas, a guest who stays 30 or more consecutive days with no payment interruption is a permanent resident and is exempt from the 6 percent state hotel tax. Check your state and city rules. - Q: What does it cost to build an extended-stay hotel? A: Hilton's 2026 franchise disclosure document estimates $18,075,688 to $26,550,592 for a new 107-suite Home2 Suites, excluding land. That is about $168,900 to $248,100 per suite. It is a planning range from the franchisor, not a contractor's bid. Sources: - [1] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section A, Ch. 1, passive businesses: hotels and the 30-day transient revenue test (pp. 19-20); third-party verification of seller financial data (p. 91) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [2] 2026 US Home2 Suites Franchise Disclosure Document (issued March 30, 2026), Items 1, 6, 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf - [3] Choice Hotels International, Inc. Form 10-K for fiscal year 2025: brand descriptions and US operating statistics by chain scale (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [6] 7 CFR 5001.105, Eligible projects: tourist and recreation facilities, including hotels and motels (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.105 - [7] 2026 US Hampton Franchise Disclosure Document (issued March 30, 2026), Items 6 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [8] Hotel Occupancy Tax Exemptions (Publication 96-224) (Texas Comptroller of Public Accounts, accessed 2026-09-18): https://comptroller.texas.gov/taxes/publications/96-224.php ### Hotel financing questions, answered URL: https://matthewshotelmarkets.com/hotel-financing/faq Last updated: 2026-10-01 This page collects the short questions that do not need their own page. SBA's 7(a) program lists no minimum loan size and caps loans at $5 million.[1] Origination is typically quoted in points on the loan amount. A franchise comfort letter is a closing condition on most branded hotel loans. The 10-year Treasury was 5.29 percent on September 30, 2026.[2] Key takeaways: - Every answer here is 100 words or fewer, and links to the page that goes deeper. - Minimum loan size is the filter most owners do not know exists. - Points are negotiable; the index and the spread usually are not. - Comfort letters run on the franchisor's timeline, so request them early. - Leverage in 2026 is lower than 2021 at the same NOI, because the rate is higher. #### How small a hotel loan can I get? SBA's 7(a) program lists no minimum loan size, so SBA lenders go smallest; CMBS and life insurance companies generally prefer larger loans.[1] Banks and credit unions size flexibly around a relationship, sometimes below the SBA floor for the right sponsor. Full comparison of minimums by lender type is on `/hotel-financing/hotel-lenders-by-type`. #### What fees and points should I expect? Origination is typically quoted in points on the loan amount, and it is one of the more negotiable line items in a hotel loan. Third-party costs, appraisal, property condition assessment, and environmental report, are not generally negotiable. The index and spread that set the rate itself are largely a market quote, not a negotiating line item the way points can be. See `/hotel-financing/hotel-loan-rates` for the full pricing structure. #### What is a franchise comfort letter? A comfort letter is the franchisor's agreement to let a lender step into the franchise agreement if it forecloses, protecting the flag through a change of ownership. It is a standard closing condition on almost every branded hotel loan, and the franchisor sets the timeline, so request it early rather than late in the process. More detail is on `/hotel-financing/loan-requirements`. #### Can I qualify with weak occupancy? Yes, if the lender believes the shortfall is temporary and can see a credible trend back toward the comp set, rather than a structural decline. A lender reviewing a soft trailing number weighs the cause and the trend as much as the number itself. Full discussion of how lenders treat weak occupancy is on `/hotel-financing/loan-requirements`. #### Will I have to sign personally? Most bank and SBA hotel loans carry a personal guarantee, and SBA rules generally require one from anyone owning 20 percent or more; non-recourse structures are available through CMBS and life companies, generally at larger loan sizes.[3] The recourse question is often the fastest way to narrow the realistic lender list for a given deal; see `/hotel-financing/hotel-lenders-by-type` for which types offer non-recourse. #### What amortization is standard? SBA 7(a) allows up to 25 years on real estate; conventional lenders set their own schedules, and CMBS loans often include an interest-only period.[1] Amortization schedule directly affects the annual payment on a given loan amount and rate, which in turn affects the DSCR test. The full comparison by lender type is on `/hotel-financing/hotel-loan-rates`. #### Why is my leverage lower than it was in 2021? At the same NOI, a higher rate produces a higher annual payment per dollar borrowed, which means the same debt service coverage test supports a smaller loan today than it did in 2021. This is arithmetic, not a change in lender appetite for hospitality. The worked example below shows the exact mechanism with real numbers, and the full refinance implications are on `/hotel-financing/refinance`. Table: Quick reference: hotel loan basics, September 2026 Question | Short answer | Deeper page Minimum loan size | SBA 7(a): no listed minimum, $5M maximum[1]; CMBS and life co prefer larger loans | /hotel-financing/hotel-lenders-by-type Origination | Quoted in points on loan amount; negotiable | /hotel-financing/how-debt-placement-works Comfort letter | Required on most branded hotel loans; request early | /hotel-financing/loan-requirements Amortization | Up to 25 years on SBA 7(a) real estate[1]; others vary by lender | /hotel-financing/hotel-loan-rates Personal guarantee | Standard on bank and SBA; not on CMBS or life co | /hotel-financing/hotel-lenders-by-type Leverage vs. 2021 | Lower at the same NOI, because the payment is higher | /hotel-financing/refinance First-party data point: Matthews Hotel Markets' October 2026 rate sheet marks points and working leverage as not yet published for every lender type except SBA, where SBA rules cap a hotel 504 structure at 85% of project cost. What it does publish: the 10-year Treasury at 5.29% on September 30, 2026 and the 7(a) maximum allowable rate at 10.00%, with Prime at 7.00% since September 17, 2026.[4][5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: why the same hotel borrows less in 2026 than in 2021): Hypothetical. The same hotel, the same $1.60M of NOI, the same 1.35x test and 25-year schedule. Only the rate changes. At 4.00 percent in 2021, the annual constant per $1M is about $63,400. Maximum debt service of $1,185,185 supports a loan of $18.69M. At 7.25 percent in 2026, the annual constant per $1M rises to about $86,800. The same maximum debt service supports a loan of $13.65M. The hotel did not change. The loan fell $5.04M, 27 percent. This single comparison explains most of what owners are experiencing at maturity right now. FAQ: - Q: What is the smallest hotel loan a lender will make? A: SBA's 7(a) program lists no minimum loan size, so SBA lenders go smallest. CMBS and life insurance companies generally prefer larger loans. Banks size flexibly around a relationship. - Q: How many points will I pay on a hotel loan? A: It varies by lender and deal, and points are one of the more negotiable line items in a hotel loan. Lenders do not publish them, and our rate sheet marks them not yet published. Get the figure in writing. - Q: What is a franchise comfort letter? A: The franchisor's agreement to let a lender step into the franchise agreement if it forecloses, protecting the flag through a change of ownership. It is a standard closing condition, so request it early. - Q: Can I finance a hotel running 50 percent occupancy? A: Possibly, if the lender believes the shortfall is temporary and identifiable, such as a renovation or new supply still being absorbed, rather than a structural decline against the comp set. - Q: Is a personal guarantee always required? A: No. It is standard on most bank and SBA loans. Non-recourse structures are available through CMBS and life insurance companies, generally at larger loan sizes. - Q: What is standard amortization on a hotel loan? A: SBA 7(a) allows up to 25 years on real estate. Conventional lenders set their own schedules, and CMBS loans often include an interest-only period for part of the term. - Q: Why can I borrow less than I could in 2021? A: At the same NOI, a higher rate produces a higher annual payment per dollar borrowed, so the same coverage test supports a smaller loan. It is a function of rate, not a change in lender appetite. - Q: Do hotel lenders require an FF&E reserve? A: Usually, commonly funded at closing and replenished annually as a percentage of revenue. It funds ongoing furniture, fixtures and equipment replacement and is a standard loan covenant. Sources: - [1] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [2] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [3] 13 CFR 120.160, Loan conditions (guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html ### Does my hotel need flood insurance to close a loan? URL: https://matthewshotelmarkets.com/hotel-financing/flood-insurance-requirements Last updated: 2026-10-02 If any part of the building sits in a FEMA special flood hazard area and your lender is federally regulated, yes.[1][2] The federal minimum is the lesser of your loan balance or the most the NFIP will write, which is $500,000 per non-residential building.[3][5] NFIP authority runs to December 11, 2026.[4] Key takeaways: - The trigger is the flood map plus who regulates your lender, not the loan size. A regulated lender may not make, increase, extend or renew the loan without coverage for its term.[1][2] - The federal floor is small: the lesser of the loan balance or the NFIP maximum, which is itself the lesser of $500,000 per non-residential building or the building's insurable value.[2][3][5] - A standard NFIP policy pays nothing for the rooms you cannot sell: the General Property Form excludes loss of revenue, loss of use and interruption of business.[6] - Hotel loans sit outside the flood escrow rule, because 12 CFR 22.5(a)(2)(i) excepts a loan made primarily for business purposes.[2] - The program's authority moves. FEMA said on September 28, 2026 that it runs to 11:59 p.m. on December 11, 2026.[4] #### When does federal law make me buy flood insurance on a hotel? Federal law makes it mandatory when the hotel building sits in a special flood hazard area in a community that participates in the NFIP and the loan comes from a lender the rule reaches. The statute is 42 U.S.C. 4012a(b)(1). It directs the federal banking regulators to bar a regulated lending institution from making, increasing, extending or renewing any loan secured by improved real estate in an identified special flood hazard area unless the building and any personal property securing the loan is covered for the term of the loan.[1] The OCC's version, 12 CFR 22.3(a), adds that the coverage reaches the building and the personal property securing the loan, never the land.[2] Who holds the loan decides whether the statute reaches it. It binds regulated lending institutions, federal agency lenders under 4012a(b)(2), and Fannie Mae and Freddie Mac through 4012a(b)(3).[1] SBA is a federal agency lender, and SOP 50 10 8.1, effective October 1, 2026, carries the duty into 7(a) and 504 hotel loans: where any portion of a collateral building is in a special flood hazard area, the lender must require flood insurance on that building, and on equipment, fixtures or inventory inside it that also secures the loan.[8] A debt fund or conduit originator outside those categories is not bound by the statute and requires flood insurance by loan document instead, on terms nobody publishes. Two mechanics follow: 12 CFR 22.6 makes the lender use FEMA's standard flood hazard determination form, and 22.9 makes it send you written notice that the building is in the zone, whether or not coverage is available.[2] #### How much flood insurance does the rule actually require? The required amount is the lesser of the loan balance or the maximum NFIP coverage available, and that maximum is itself the lesser of the program cap for the building type or the building's insurable value. The five federal banking agencies wrote the test out as Question Amount 5 of the Interagency Questions and Answers Regarding Flood Insurance, 87 FR 32826, May 31, 2022, where their own example runs a $300,000 loan against a shed worth $30,000 and lands on $30,000, because insurable value is the binding leg.[3] On a hotel the program cap binds instead. Question Amount 1 sets maximum building coverage at $500,000 for everything written on the General Property Form, which includes all non-residential buildings, and $500,000 for contents on the same form; the statute behind both is 42 U.S.C. 4013(b)(4).[3][5] Question Amount 4 puts a hotel where the normal stay is under six months in the non-residential class, and an extended-stay hotel where normal occupancy runs six months or more in the other-residential class, also on the General Property Form at the same cap.[3] In an emergency program community the business-property structure limit is $100,000.[5] Insurable value is the other leg, and Question Amount 2 defines it as generally 100 percent replacement cost value, including the foundation. Amount 6 makes the lender size each collateral building and add the results, and Amount 8 lets a lender require more than the minimum.[3] How much more is lender-set and unpublished. #### Why is the federal minimum never enough for a hotel? A 100-key hotel costs many times $500,000 to rebuild, so the statutory floor covers a fraction of the building and the lender has to look past the NFIP for the rest. The gap is arithmetic: replacement cost on a limited-service hotel runs into the millions, and the cap is $500,000 per building rather than per key or per dollar of loan.[3][5] The answer is usually a private layer, and the rule leaves room for one. Under 12 CFR 22.3(c)(1) a federally regulated lender must accept a private flood policy meeting the definition in 22.2(k): coverage at least as broad as the standard NFIP policy, 45 days' notice of cancellation or non-renewal, a mortgage interest clause and cancellation terms as restrictive as the NFIP's. Section 22.3(c)(3) then permits discretionary acceptance of a policy that misses the definition, naming the structure hotels actually use: a difference in conditions, multiple peril or other blanket policy on non-residential commercial property from a surplus lines insurer the state has recognized or not disapproved.[2] SBA requires a private policy to match the standard NFIP policy.[8] The deductible on such a policy has its own answer. Question Amount 10 lets a lender accept a blanket flood or multi-peril policy with a per-occurrence deductible even where one covered building is worth less than the deductible, and notes such policies are often used on hotels and resorts; what a lender may not do is let the deductible equal aggregate insurable value.[3] Required limits are lender-set and unpublished. #### What does a standard NFIP policy on a hotel not cover? The General Property Form pays for direct physical loss to the building and its contents, and refuses every economic loss that follows, including lost room revenue. Section V.A lists what direct physical loss does not reach: loss of revenue or profits, loss of access, loss of use, loss from interruption of business, and any other economic loss.[6] On a hotel that is the largest number in a flood: rooms out of service for two months earn nothing, and the NFIP pays none of it. Business interruption cover is a separate policy, and its price is not published. The settlement is narrower than owners expect. Section VII pays the least of the amount of insurance, the actual cash value, or the cost to repair with like kind and quality, and actual cash value is depreciated, so an older hotel can settle below replacement cost even inside the cap. Coverage D, Increased Cost of Compliance, adds up to $30,000 for ordinance-driven elevation, floodproofing, relocation or demolition, but Coverage A and Coverage D together cannot exceed the Act's maximum, so a hotel insured at the $500,000 cap collects nothing extra.[6] The property exclusions in section IV read like a list of hotel amenities. Pools, hot tubs and spas that are not bathroom fixtures, and their pumps and heaters, are out wherever they sit, along with decks and patios outside the exterior walls, retaining walls, underground equipment, property not inside the enclosed building, and any building more than 49 percent of whose actual cash value is below ground.[6] #### Will flood insurance hold up my closing? A policy bought in connection with a loan takes effect at the moment of closing, so flood insurance should not add a day to the schedule unless the program's authority has lapsed. The waiting period is the thing to know, and the loan exception to it. A new NFIP policy normally takes effect at 12:01 a.m. on the thirtieth day after the application and premium are presented, but under 44 CFR 61.11(b) the initial purchase in connection with making, increasing, extending or renewing a loan is effective as of the time of the closing, provided the request reaches the NFIP and the premium is presented at or before it.[9] The statute agrees at 42 U.S.C. 4013(c)(2)(A), and a separate exception covers the first purchase after a map revision.[5] The real schedule risk is the program's authorization. No new contract for flood insurance may be written after the date Congress sets in 42 U.S.C. 4026, and Congress has moved that date more than thirty times since 1987.[7] FEMA's reauthorization page, last updated September 28, 2026, says legislation signed on September 2, 2026 extended it to 11:59 p.m. on December 11, 2026, and that in a lapse FEMA keeps paying valid claims from available funds but stops selling and renewing policies.[4] So check the date rather than the code: on October 2, 2026 the codified text of 4026 still printed September 30, 2026, because the September extension had not reached a US Code release.[7] If you are closing inside a window where the authority could lapse, ask early whether your lender will take a private policy under 12 CFR 22.3(c), which the authorization does not touch.[2] #### What happens if the policy lapses, or the map changes under me? Your lender must notify you, and if you do not replace the coverage within 45 days it buys a policy for you, charges you for it, and backdates the cost to the day coverage lapsed. Force placement is in 42 U.S.C. 4012a(e) and 12 CFR 22.7. On finding at any point in the term that the collateral is uninsured or underinsured, the lender must tell you to buy coverage at your expense, and if you have not bought it 45 days later it must purchase the policy and may charge you the premiums and fees, back to the day the old coverage lapsed.[1][2] Within 30 days of confirmation that you do have coverage, it must cancel the force-placed policy and refund the overlapping premiums and fees, and it must accept a declarations page showing the policy number and the insurer as proof.[1] A remap does the same without any act of yours, because the duty attaches to a building FEMA has identified as being in a special flood hazard area at origination or later in the term.[1] Under 12 CFR 22.8 the lender may charge a reasonable determination fee, including for life-of-loan monitoring, and may pass it on when a FEMA revision triggers a new determination.[2] Lenders are rigid here because they are the ones penalized. Under 42 U.S.C. 4012a(f) a regulated lender found to have a pattern or practice of violating the purchase, escrow or notice requirements is assessed up to $2,000 for each violation, and selling the loan does not remove the liability. The duty outlives a sale too: for federal financial assistance, 4012a(a) applies it during the life of the property, regardless of transfer of ownership.[1] #### Does a flood zone change what my hotel is worth or what a renovation costs? It can change the renovation, because a project costing half the building's value forces the whole building into compliance with the local floodplain ordinance. The definition is in 44 CFR 59.1. A substantial improvement is any reconstruction, rehabilitation, addition or other improvement costing 50 percent or more of the building's market value before the work starts, and it includes a building that has taken substantial damage, meaning repair costs of 50 percent or more of pre-damage market value. Correcting code violations the local official calls the minimum needed for safe conditions does not count, nor does qualifying work on a historic structure.[10] Crossing the line is expensive. Under 44 CFR 60.3(c)(3) a participating community must require new construction and substantial improvement of a non-residential building in an A1-30, AE or AH zone either to put its lowest floor at or above the base flood level, or to be designed with its utility and sanitary facilities so the structure is watertight below that level and can resist hydrostatic and hydrodynamic loads and buoyancy. Section 60.3(c)(4) makes a registered engineer or architect certify the design and the elevation reached.[11] A brand-mandated property improvement plan on a hotel in an AE zone can walk into that test, and the floodproofing cost is not in the brand's scope. For value, the exposure shows up through underwriting. A buyer prices the premium, the deductible and the business interruption layer into expenses, and a lender sizes debt off what is left. No public source publishes hotel flood premiums or the share of US hotels in special flood hazard areas, so this page prints neither. Table: A standard NFIP policy on a hotel: the federal floor and what it leaves out, October 2026 Item | What the standard NFIP policy does | Where the rule is Maximum building coverage | $500,000 per non-residential building in a regular program community | 42 U.S.C. 4013(b)(4); Q&A Amount 1 Maximum contents coverage | $500,000 for contents the building owner owns | 42 U.S.C. 4013(b)(4); Q&A Amount 1 Maximum in an emergency program community | $100,000 for the structure | 42 U.S.C. 4013(b)(1)(B) Minimum the lender must require | Lesser of the loan balance or the NFIP maximum, which is itself the lesser of the cap or insurable value | 12 CFR 22.3(a); Q&A Amount 5 Basis of a building claim | Least of the coverage amount, actual cash value, or the cost to repair with like kind and quality | 44 CFR 61 app. A(2), VII Room revenue lost while rooms are out | Not covered, along with loss of use and interruption of business | 44 CFR 61 app. A(2), V.A.1 and V.A.4 Pool, spa and their equipment | Not covered, wherever located | 44 CFR 61 app. A(2), IV.14 Increased Cost of Compliance | Up to $30,000, but Coverage A and Coverage D together cannot exceed the Act's maximum | 44 CFR 61 app. A(2), III.D.2 Escrow of the premium | Not required on a loan made primarily for business or commercial purposes | 12 CFR 22.5(a)(2)(i) Effective date when bought at closing | The time of the loan closing, if applied for and paid at or before closing | 44 CFR 61.11(b); 42 U.S.C. 4013(c)(2)(A) Effective date otherwise | 12:01 a.m. on the thirtieth day after application and premium | 44 CFR 61.11(d) Private policy instead of NFIP | Must be accepted if it meets the definition; may be accepted if it does not, including a surplus lines blanket policy on commercial property | 12 CFR 22.2(k), 22.3(c) First-party data point: Matthews Hotel Markets' October 2026 rate sheet is the other half of this question. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks the debt service coverage and loan-to-value cells as not yet published, because lenders do not publish them.[12] An insurance certificate a lender will not accept stops a closing at any of those rates. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 120-key select-service hotel in an AE zone): This hotel does not exist. The 120 keys, the $16,800,000 replacement cost, the $2,100,000 of owner-owned furniture and equipment, the $9,400,000 loan balance, the $50,000 deductible, the depreciation to 70 percent of replacement cost, the two-month closure and the $155 rate are assumptions. The rules applied to them are not, and every figure was recomputed with scripts/check-flood-math.mjs. Start with the sizing test. The NFIP maximum on the building is the lesser of the $500,000 cap and the $16,800,000 insurable value, so $500,000; the required amount is the lesser of that and the $9,400,000 balance, so $500,000 again. Contents land on $500,000 the same way. The floor is $1,000,000 against $18,900,000 of insurable value, 5.3 percent of it, leaving the building uninsured by the NFIP for $16,300,000.[2][3][5] Increased Cost of Compliance adds nothing, because Coverage A is already at the Act's maximum.[6] Now flood the ground floor and call the repair $2,000,000. Section VII pays the least of the $500,000 of coverage, the $11,760,000 actual cash value and the $2,000,000 repair cost, so $500,000, less the $50,000 deductible: $450,000.[6] That is 22.5 percent of the repair bill, and $1,550,000 of it is yours. Then add what the policy refuses. Rooms are out for 60 nights; at 70 percent occupancy that is 5,040 occupied room nights, and at $155 each it is $781,200 of rooms revenue excluded outright.[6] Total uninsured on one event: $2,331,200, or 24.8 percent of the loan balance. The renovation test is separate. If pre-work market value is $14,000,000, the substantial improvement line sits at $7,000,000. A $35,000 per key property improvement plan costs $4,200,000, or 30.0 percent of market value, and stays under it. A larger scope, or a flood damaging half the value, crosses it, and the community must then require base flood elevation or certified floodproofing.[10][11] FAQ: - Q: Is flood insurance required if only part of my hotel is in the flood zone? A: Yes. SBA's SOP says that if any portion of a collateral building is in a special flood hazard area, the lender must require flood insurance on it.[8] The bank rules reach a building located or to be located in such an area.[1][2] - Q: My lender is a debt fund, not a bank. Does the federal rule apply? A: Not directly. The statute binds regulated lending institutions, federal agency lenders and the two housing enterprises.[1] A lender outside those categories requires flood insurance by loan document instead, on terms no public source publishes. - Q: Can I use a private flood policy instead of NFIP? A: Yes. A federally regulated lender must accept a private policy meeting 12 CFR 22.2(k), and may accept one that does not under 22.3(c)(3), including a surplus lines blanket policy on commercial property.[2] SBA requires coverage matching a standard NFIP policy.[8] - Q: Does NFIP flood insurance pay for the rooms I cannot sell? A: No. The General Property Form excludes loss of revenue or profits, loss of access, loss of use, interruption of business and any other economic loss.[6] Business interruption on a hotel comes from a separate policy. - Q: Will buying flood insurance delay my closing? A: It should not. A policy bought in connection with making, increasing, extending or renewing a loan takes effect at the time of closing if it is applied for and paid at or before closing.[9] Otherwise the wait is 30 days.[5][9] - Q: What happens if my hotel's flood policy lapses? A: Your lender must notify you. If you do not buy coverage within 45 days, it must buy a policy for you and may charge the premium back to the date your coverage lapsed, then refund any overlap once you prove new coverage.[1][2] - Q: Does a renovation in a flood zone trigger elevation requirements? A: It can. Work costing 50 percent or more of the building's pre-work market value is a substantial improvement, and the community must then require the lowest floor at or above base flood elevation or certified floodproofing.[10][11] - Q: Is the NFIP's authority about to lapse? A: FEMA said on September 28, 2026 that authorization runs to 11:59 p.m. on December 11, 2026.[4] It says that in a lapse it keeps paying valid claims from available funds but stops selling and renewing policies.[4] Sources: - [1] 42 U.S.C. 4012a: the purchase requirement for regulated lending institutions, federal agency lenders and the housing enterprises in (b)(1) to (b)(3), the private flood insurance definition in (b)(7), the small-loan exception in (c)(2), the escrow direction in (d), force placement with its 45-day notice, 30-day termination and declarations-page proof in (e), the civil penalty of up to $2,000 per violation in (f)(5), and the life-of-the-property duty in (a) (Legal Information Institute, Cornell Law School, accessed 2026-10-02): https://www.law.cornell.edu/uscode/text/42/4012a - [2] 12 CFR part 22, the OCC's Loans in Areas Having Special Flood Hazards: the purchase requirement and coverage amount in 22.3(a), table funding in 22.3(b), mandatory, compliance-aid and discretionary acceptance of private flood insurance in 22.3(c) with the definition in 22.2(k), the exemptions in 22.4, the business-purpose escrow exception in 22.5(a)(2)(i), the standard flood hazard determination form in 22.6, force placement in 22.7, determination and life-of-loan monitoring fees in 22.8, and the borrower notice in 22.9 (title 12 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-02): https://www.ecfr.gov/current/title-12/part-22 - [3] Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, 87 FR 32826 (May 31, 2022): Amount 1 on the $500,000 General Property Form caps for building and contents, Amount 2 on insurable value as 100 percent replacement cost value, Amount 4 classifying hotels and motels with stays under six months as non-residential buildings, Amount 5 on the lesser-of test with a worked example, Amount 6 on multiple buildings, Amount 8 on a lender requiring more than the minimum, and Amount 10 on blanket flood and multi-peril policies with per-occurrence deductibles, which the agencies note are often used on hotels and resorts (Office of the Comptroller of the Currency, Federal Reserve Board, FDIC, Farm Credit Administration and NCUA, via the Federal Register, accessed 2026-10-02): https://www.federalregister.gov/documents/2022/05/31/2022-10414/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-flood - [4] Congressional Reauthorization for the National Flood Insurance Program, last updated September 28, 2026: legislation signed September 2, 2026 extended the NFIP's authorization to 11:59 p.m. on December 11, 2026, and during a lapse FEMA would retain authority to pay valid claims with available funds but would stop selling and renewing policies (Federal Emergency Management Agency, accessed 2026-10-02): https://www.fema.gov/flood-insurance/rules-legislation/congressional-reauthorization - [5] 42 U.S.C. 4013: the $500,000 aggregate liability for a non-residential building and $500,000 for contents in (b)(4), the $100,000 emergency program structure limit for business property in (b)(1)(B), the 30-day waiting period in (c)(1), and the exceptions for a purchase in connection with a loan and for a map revision in (c)(2) (Legal Information Institute, Cornell Law School, accessed 2026-10-02): https://www.law.cornell.edu/uscode/text/42/4013 - [6] Standard Flood Insurance Policy, General Property Form, 44 CFR part 61 appendix A(2): the coverage of non-residential buildings in I.A, the $30,000 Increased Cost of Compliance limit and its combined cap with Coverage A in III.D.2, the property not insured in IV including pools, spas and their equipment and buildings more than 49 percent below ground, the exclusions for loss of revenue or profits, loss of access, loss of use, interruption of business and any other economic loss in V.A, the doubled deductible during construction in VI, and the loss settlement at the least of coverage, actual cash value or repair cost in VII (title 44 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-02): https://www.ecfr.gov/current/title-44/part-61 - [7] 42 U.S.C. 4026: no new contract for flood insurance may be entered into after the date Congress sets, which the codified text read on October 2, 2026 still printed as September 30, 2026, with amendment notes showing more than thirty changes to that date since 1987 and the Public Law 119-75 amendment of February 3, 2026 taking effect as if enacted January 30, 2026 (Legal Information Institute, Cornell Law School, accessed 2026-10-02): https://www.law.cornell.edu/uscode/text/42/4026 - [8] SBA SOP 50 10 8.1, effective October 1, 2026, Flood Insurance: requirements built on FEMA Form 086-0-32, the duty to require flood insurance where any portion of a collateral building is in a special flood hazard area and on personal property collateral inside it, coverage at the lesser of the outstanding principal balance or the maximum limit available (itself the lesser of the NFIP limit for the structure type or the structure's insurable value), the six conditions a private flood policy must meet, and the 45-day cancellation notice for private flood insurance (U.S. Small Business Administration, accessed 2026-10-02): https://legacy.sba.gov/sites/default/files/2026-08/SOP%2050%2010%208.1%20effective%2010.1.2026_0.docx - [9] 44 CFR 61.11: the effective date of a new Standard Flood Insurance Policy, which is the time of the loan closing where the initial purchase is in connection with making, increasing, extending or renewing a loan and the application and premium are presented at or before closing under (b), and otherwise 12:01 a.m. on the thirtieth calendar day after the application and premium under (d) (title 44 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-02): https://www.ecfr.gov/current/title-44/section-61.11 - [10] 44 CFR 59.1: the definitions of substantial improvement, being any reconstruction, rehabilitation, addition or other improvement costing 50 percent or more of the structure's market value before the start of construction, and of substantial damage, with the exclusions for minimum code-violation corrections and for qualifying alterations to a historic structure (title 44 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-02): https://www.ecfr.gov/current/title-44/section-59.1 - [11] 44 CFR 60.3(c)(3) and (c)(4): a participating community must require new construction and substantial improvement of a non-residential structure in an A1-30, AE or AH zone either to have the lowest floor at or above the base flood level or to be floodproofed watertight below it, and must have a registered professional engineer or architect certify the design and the elevation reached (title 44 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-02): https://www.ecfr.gov/current/title-44/section-60.3 - [12] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-02): https://matthewshotelmarkets.com/rates ### Can I use historic tax credits to renovate a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/historic-tax-credits Last updated: 2026-10-01 Yes. A hotel is an income-producing use, so a certified historic building renovated as a hotel can earn a federal credit equal to 20 percent of qualified rehabilitation costs, claimed in equal parts over 5 years.[1][2] The work must meet the Secretary of the Interior's Standards, and selling within 5 years triggers recapture.[1][3] The IRS last updated its guidance page on July 23, 2026.[1] Key takeaways: - The federal credit is 20 percent of qualified rehabilitation expenditures, taken ratably over 5 years starting when the building is placed in service.[1] - The building must be a certified historic structure: listed in the National Register of Historic Places or certified as contributing to a registered historic district.[2] - The rehabilitation must be substantial. Within a 24-month period, or 60 months for a phased project, qualified costs must exceed the greater of $5,000 or the building's adjusted basis.[1][4] - Purchase price, enlargements and furniture do not count. Qualified costs are capital costs of depreciable real property.[2][4] - Recapture runs 5 years after the hotel is placed in service: 100 percent in the first year, stepping down 20 points a year.[6] #### Does a hotel qualify for the federal historic tax credit? Yes. The federal credit is for historic buildings in a business, commercial or other income-producing use, and a hotel is one. The National Park Service says the building must be depreciable, such as in a business, commercial or other income-producing use, and that owner-occupied residential property does not qualify.[3] The credit is only for buildings, not for other structures, and the building has to keep enough historic material to be worth preserving.[2] The building has to be a certified historic structure. That means it is listed individually in the National Register of Historic Places, or it sits in a registered historic district and the Park Service certifies that it contributes to the district's significance. Not every building in a district contributes, and the owner asks for the certification by filing Part 1 of the Historic Preservation Certification Application.[2] Two kinds of hotel projects use the credit. One is renovating a historic hotel that is already operating. The other is converting a historic office, bank or warehouse building into a hotel. The Standards allow a new use that requires minimal change to the building's defining characteristics.[7] The Park Service says its program approves about 1,200 projects a year.[3] #### How much is the credit, and when do I get it? The credit is 20 percent of qualified rehabilitation expenditures, and since 2018 it is claimed in five equal annual parts starting the year the building is placed in service. The IRS states the rule this way: the credit is 20 percent of qualified expenses, allocated ratably over a 5-year period on the federal return. The older rule that allowed the whole credit in the placed-in-service year survives only under a transition rule from the 2017 tax law.[1] The 10 percent credit for older non-historic buildings was repealed by the same law, Public Law 115-97.[3] The credit also lowers the building's tax basis. Section 50(c) reduces the basis of the property by the amount of the credit, which means less depreciation later and a larger taxable gain on sale.[6] A tax credit is only worth its face value to someone who owes that much federal income tax and is not blocked by the passive activity limits, which the IRS flags on its credit page.[1] That is why a historic hotel project may bring in a tax credit investor through a partnership or a lease structure. The IRS recognizes claims by partners and shareholders of pass-through entities and, in certain cases, by lessees when the owner elects to pass the credit through.[1] The terms of those investments are private and we do not publish a price for them. #### Which renovation costs count? Costs count when they are capital costs for depreciable real property, which covers most of the building work and none of the purchase price, additions or furniture. Section 47 defines a qualified rehabilitation expenditure as an amount properly chargeable to capital account for nonresidential real property, residential rental property, other long-lived real property, or an addition or improvement to them. It excludes the cost of acquiring the building, any expenditure attributable to enlarging the building, and any rehabilitation of a certified historic structure that is not a certified rehabilitation. The owner must use straight-line depreciation on the costs.[4] The IRS adds that rehabilitation includes renovation, restoration and reconstruction but not an enlargement or new construction.[1] For a hotel, that splits a renovation budget in a useful way. Structural work, mechanical, electrical and plumbing systems, roofing, windows, elevators and interior construction are building costs. Case goods, soft goods, televisions and other furniture, fixtures and equipment are personal property, not real property, so they fall outside the definition.[4] A new wing or a rooftop addition is an enlargement. The Park Service gives its own examples of costs that may not qualify: a new rear addition, new kitchen appliances and landscaping.[2] The line between building and equipment is a cost segregation question with real money on it. Settle it with the project's tax advisor before the budget is final. A brand's renovation scope usually mixes both kinds of cost: see [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans) #### What is the substantial rehabilitation test? Qualified costs during a 24-month period the owner selects must exceed the greater of $5,000 or the adjusted basis of the building, with a 60-month period available for phased projects. The adjusted basis is measured at the start of the 24-month period or of the owner's holding period, whichever is later.[4] The Park Service gives the working formula: purchase price, minus the cost of the land, minus depreciation taken, plus prior capital improvements.[2] The 60-month alternative applies when the project is reasonably expected to be completed in phases set out in architectural plans and specifications finished before the work begins.[4] This test matters most to a buyer. A long-time owner who has depreciated the building may have a low basis and clear the test easily. A buyer's basis is what it just paid for the building, so a buyer who pays $5,000,000 for the building, land excluded, has to spend more than $5,000,000 on qualified work inside the measuring period. A light renovation of an expensive historic hotel will not qualify. A heavy renovation or a conversion of a cheap building usually will. #### What are the Secretary's Standards, and who reviews the work? The Secretary of the Interior's Standards for Rehabilitation are ten principles in 36 CFR 67.7, and the State Historic Preservation Office and the National Park Service review the project against them. The Park Service describes the Standards as regulatory for the tax incentive program and as covering the exterior and the interior of the building, its site, and attached or adjacent new construction.[5] Among them: keep the property's historic character and avoid removing historic materials; repair deteriorated historic features instead of replacing them; do not use treatments such as sandblasting that damage historic materials; and design additions so they are compatible, distinguishable from the old work, and removable without harming the building. The regulation says the Standards are applied in a reasonable manner, taking into consideration economic and technical feasibility.[7] Every element of the project must meet them. Portions that do not conform cannot be carved out.[7] The application has three parts on Form 10-168. Part 1 establishes that the building is a certified historic structure. Part 2 describes the proposed work. Part 3 certifies the completed work, and the IRS asks for the date the Park Service signed Part 3 on Form 3468.[1] The IRS says to file Part 1 before starting the work, and it describes relief procedures for an owner who did not file before the building was placed in service.[1] For a hotel, look hardest at windows, the historic lobby and corridors, and exterior signage, because the Standards protect distinctive features, finishes and spaces.[7] A franchisor's design standards and the Secretary's Standards can pull in different directions. Get the brand's written sign-off on the historic scope before you file Part 2. #### What is recapture, and what does it mean if I sell? If the hotel is sold or stops being investment credit property within five years of being placed in service, part of the credit is added back to the owner's tax. Section 50(a) sets the schedule: 100 percent if the event happens within one full year after the property is placed in service, then 80, 60, 40 and 20 percent for each following year.[6] The IRS lists the common triggers: disposing of your interest in the property, or the property no longer qualifying, within the 5-year period. A casualty that destroys the building inside the period can also trigger it, and so can donating a facade easement within five years.[1] For a hotel owner this turns the credit into a five-year hold requirement. A sale in year three gives back 60 percent of the credit.[6] A foreclosure is a disposition too, so the senior loan's default terms matter to anyone relying on the credit. If your plan is to renovate and sell quickly, model the project without the credit. Exit timing is covered in [Should I refinance my hotel or sell it instead?](/hotel-financing/refinance-or-sell) and [What taxes do I pay when I sell a hotel?](/sell-a-hotel/taxes-when-selling-a-hotel) #### Can I add a state historic tax credit? Often, yes. Many states run their own credit, each with its own rate and rules, and a project can qualify for both. We cite only a state agency for a state credit, so here is one worked from its own source. Texas offers a 25 percent credit for the certified rehabilitation of historic buildings in income-producing or nonprofit use, and the Texas Historical Commission's eligibility page names a hotel as an example of a qualifying use.[8][9] Texas has no state income tax, so the credit applies against the state franchise tax or insurance premium tax. The certificate is freely transferable, and the Commission says most applicants benefit by selling it. The program took effect January 1, 2015. Its minimum is $5,000 of qualified costs, with no substantial rehabilitation test, and it excludes property acquisition, new additions, furniture, parking lots, sidewalks and landscaping. The work must meet the same Secretary's Standards.[9] Other states differ on rate, caps, transferability and whether funds are limited each year. Read the state historic preservation office's page for the state the hotel is in, and apply before the work is finished. Both programs require the application to be submitted before the project is completed.[9] #### How do historic credits fit with the hotel's loan? The credit is equity that arrives after the work is done, so the construction period still has to be financed with debt and cash. The federal credit starts when the building is placed in service and then arrives over five tax years.[1] A project that counts on it needs either a tax credit investor who pays in during or after construction, or a bridge against the future credits. Neither is a published market, and terms are private. The senior loan is sized the way any hotel renovation or construction loan is sized: see [How do I finance hotel construction in 2026?](/hotel-financing/construction-loans). Where the state allows it, the energy-related part of a historic renovation can also be financed with a property assessment: see [Can I use C-PACE financing on a hotel?](/hotel-financing/c-pace-financing) One limit from the IRS: generally you cannot claim the energy credit on the same property for which you claimed the rehabilitation credit.[1] This page explains the rules. It is not tax advice, and a historic credit project needs a tax advisor and a preservation consultant from the first budget. Table: Federal historic tax credit and the Texas state credit, side by side Feature | Federal credit (IRC section 47) | Texas state credit Rate | 20% of qualified rehabilitation expenditures[1] | 25%[8] Eligible building | Certified historic structure in an income-producing use[2][3] | National Register, Recorded Texas Historic Landmark or State Antiquities Landmark; income-producing or nonprofit use[9] Minimum spend | More than the greater of $5,000 or the building's adjusted basis, in 24 or 60 months[4] | $5,000 of qualified costs[9] Design standard | Secretary of the Interior's Standards for Rehabilitation[7] | The same Standards[9] When it is claimed | Ratably over 5 years from placed in service[1] | Generally the year placed in service; franchise tax credit carries forward 5 years[9] Transferable | Claimed by owners, by partners and shareholders of pass-through owners, and by certain lessees[1] | Yes, the certificate is freely transferable[9] Not eligible | Acquisition cost, enlargements, non-certified work[4] | Acquisition, new additions, furniture, parking lots, sidewalks, landscaping[9] Recapture | 5 years: 100%, 80%, 60%, 40%, 20%[6] | See the Texas Historical Commission's program rules[9] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows Prime at 7.00% and SOFR at 3.90% as of September 30, 2026, the two indexes a construction or renovation loan floats over, and marks the construction spread as not yet published. A historic credit lowers the equity a project needs. It does not change what the senior loan costs.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $9.0M renovation of a 1920s downtown hotel): Hypothetical. A buyer pays $6,000,000 for a 1920s hotel listed in the National Register. $1,000,000 of the price is land, so the building's adjusted basis is $5,000,000. The renovation budget is $9,000,000: $7,500,000 of building work that qualifies, $1,000,000 of furniture, fixtures and equipment, and $500,000 for a new rooftop addition. The split is an assumption for the arithmetic. A tax advisor sets the real one. Substantial rehabilitation test. $7,500,000 of qualified costs exceeds the $5,000,000 adjusted basis, so the project passes, provided the costs fall inside the 24-month period or the project was planned in phases for the 60-month period.[4] The $1,500,000 of furniture and addition costs do not count.[4] Federal credit. 20 percent of $7,500,000 equals $1,500,000, claimed at $300,000 a year for 5 years from the year the hotel is placed in service.[1] Basis. The building's depreciable basis is reduced by the $1,500,000 credit.[6] Recapture. If the owner sells between two and three full years after the hotel is placed in service, the recapture percentage is 60 percent. 60 percent of $1,500,000 is $900,000 of credit at stake.[6] How that interacts with credits not yet claimed is a calculation for the tax advisor. State credit. If the hotel were in Texas and the same $7,500,000 qualified under the state's rules, the state credit would be 25 percent, or $1,875,000, as a transferable certificate.[8][9] Federal and state credits together come to $3,375,000 against a total project cost of $15,000,000. None of it arrives before the hotel reopens. FAQ: - Q: How much is the federal historic tax credit for a hotel? A: 20 percent of qualified rehabilitation expenditures, claimed in equal parts over 5 years beginning when the building is placed in service. The building must be a certified historic structure and the work must be certified by the National Park Service. - Q: Does my hotel have to be on the National Register? A: It must be listed individually in the National Register of Historic Places, or be certified by the National Park Service as contributing to a registered historic district. You request that certification with Part 1 of the application. - Q: Does hotel furniture count toward the historic tax credit? A: No. Qualified costs are capital costs of depreciable real property, so building work counts and furniture, fixtures and equipment do not. The purchase price and any enlargement of the building are excluded too. - Q: What if I sell the hotel within five years? A: Part of the credit is recaptured: 100 percent if the sale is within the first year after the hotel is placed in service, then 80, 60, 40 and 20 percent in the following years. After five years there is no recapture. - Q: Can I start construction before the Park Service approves my application? A: You can, at your own risk. The work is judged against the Standards whether or not it was approved in advance, and non-conforming work can cost the whole credit. The IRS says to apply with Part 1 before starting the work. - Q: Can I convert an old office building into a hotel and claim the credit? A: Yes, if the building is a certified historic structure and the conversion meets the Standards, which allow a new use that requires minimal change to the building's defining characteristics. The substantial rehabilitation test still applies. - Q: Is there still a 10 percent credit for old buildings that are not historic? A: No. Public Law 115-97, enacted December 22, 2017, repealed the 10 percent credit for non-historic buildings, subject to transition rules. Only the 20 percent credit for certified historic structures remains. - Q: Can I use historic credits and C-PACE on the same hotel? A: They are separate programs, and the Texas PACE program says its financing complements historic incentives.[11] The IRS notes you generally cannot claim the federal energy credit on the same property as the rehabilitation credit. Have the tax advisor check the combination. Sources: - [1] Rehabilitation credit (page last reviewed July 23, 2026): 20 percent credit, 5-year ratable claim, measuring periods, Form 3468, recapture, easements, energy credit (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/businesses/small-businesses-self-employed/rehabilitation-credit - [2] Historic Preservation Tax Incentives: Eligibility Requirements (National Park Service, Technical Preservation Services, accessed 2026-09-18): https://www.nps.gov/subjects/taxincentives/eligibility-requirements.htm - [3] Historic Preservation Tax Incentives: About the incentives (National Park Service, Technical Preservation Services, accessed 2026-09-18): https://www.nps.gov/subjects/taxincentives/about.htm - [4] 26 U.S.C. 47, Rehabilitation credit: qualified rehabilitated building, substantial rehabilitation, qualified rehabilitation expenditures (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/47 - [5] The Secretary of the Interior's Standards for Rehabilitation (National Park Service, Technical Preservation Services, accessed 2026-09-18): https://www.nps.gov/subjects/taxincentives/secretarys-standards-rehabilitation.htm - [6] 26 U.S.C. 50, Other special rules: recapture percentages at (a)(1)(B), basis adjustment at (c) (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/50 - [7] 36 CFR 67.7, Standards for Rehabilitation, with 36 CFR 67.6(b) on certification of the whole project (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/36/67.7 - [8] Historic Preservation Tax Credits: federal 20 percent and Texas 25 percent programs (Texas Historical Commission, accessed 2026-09-18): https://thc.texas.gov/preserve/grants-tax-credits-and-funding/historic-preservation-tax-credits - [9] Texas Historic Preservation Tax Credit Program: eligibility, eligible and ineligible costs, transferability, application parts (Texas Historical Commission, accessed 2026-09-18): https://thc.texas.gov/preserve/grants-tax-credits-and-funding/historic-preservation-tax-credits/texas-historic - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [11] Property Owner FAQ: TX-PACE complements historic grants and tax incentives (Texas PACE Authority, accessed 2026-09-18): https://www.texaspaceauthority.org/home/resources/faqs/property-owner-faq/ ### Who are the biggest hotel lenders, and which type fits my deal? URL: https://matthewshotelmarkets.com/hotel-financing/hotel-lenders-by-type Last updated: 2026-10-01 Five lender types compete for hotel debt in September 2026 and they want different deals. Banks want a relationship and recourse. Life companies want stabilized, low-leverage, long-term. CMBS wants non-recourse at higher leverage. SBA wants owner-operators under program caps. Debt funds want transition. Matching the asset to the type is most of the work. Key takeaways: - There is no single best hotel lender. There is a best lender for your specific asset and business plan. - Recourse is the fastest way to narrow the list. If you will not sign, banks and SBA mostly drop out. - Life companies offer the lowest rates and the least leverage. That trade is the whole product. - Debt funds are the only type that will lend against a business plan instead of a trailing twelve. - Minimum loan size is the quiet filter. On a small loan, CMBS and life companies usually are not options. #### What are the five types of hotel lender? Banks and credit unions, life insurance companies, CMBS conduits, SBA lenders, and debt funds each compete for hotel debt, and each one wants a structurally different deal. Banks and credit unions lend against a relationship, often with deposits or other business tied to the loan, and generally want recourse. Life insurance companies deploy long-duration insurance liabilities into long-term, low-leverage, stabilized real estate debt, and their product is defined by that low-leverage, low-rate trade. CMBS conduits originate to securitize and sell, want stabilized cash flow they can pool, and are typically non-recourse with standard carve-outs. SBA lenders serve owner-operators inside the government-guaranteed programs' caps and eligibility rules: $5 million for a 7(a) loan and $5 million for a 504 debenture on a hotel.[1][2][4] Debt funds and bridge lenders serve transition situations that the other four types are not built to underwrite. Only the first group is measured against its deposits and capital, which is why a bank can decline a sound hotel loan on its own balance sheet arithmetic: see [why a bank says it is full on hotel loans](/hotel-financing/bank-cre-concentration-limits). #### Which ones do non-recourse? CMBS and debt funds typically offer non-recourse with standard carve-outs; banks and SBA typically require a personal guarantee. Life insurance companies also generally lend non-recourse, but at their characteristically lower leverage and higher borrower quality bar. A sponsor who will not sign personally has, in practice, already narrowed the realistic lender universe to CMBS, life companies, and certain debt funds, each of which comes with its own leverage and asset-quality trade-offs in exchange for that non-recourse structure. #### Who has the lowest rate, and what do they want in return? Life insurance companies typically offer the lowest rate on a hotel loan, in exchange for the lowest leverage and the strictest asset-quality and stabilization requirements. Matthews Hotel Markets' October 2026 rate sheet shows what each lender type will actually put in writing. For SBA that is a lot: a 7(a) maximum allowable rate of 10.00%, which is SBA's 3.00% cap[1] over the 7.00% Prime in effect since September 17, 2026,[5][6] and a 504 hotel structure capped at 85% of project cost under SBA rules. For banks, life companies, CMBS conduits and debt funds it is the index only, the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90% for September 30, 2026,[7] with the spread and the working leverage ceiling both marked not yet published.[3] The trade is structural, not just a market quirk: a life company is matching a long-duration liability to a long-duration, low-risk asset, which only works on the most stabilized, best-located hotels at conservative leverage. A borrower chasing the lowest rate without meeting that bar will not find it available, regardless of the quoted spread. #### Who will lend on an independent hotel? Banks, debt funds, and, within program limits, SBA lenders will finance an independent, unflagged hotel; CMBS and life companies generally prefer the demand-generation and brand-standard assurance a franchise provides. An independent hotel is financeable, but the lender leans more heavily on the sponsor's own operating track record and the specific market's demand fundamentals, because there is no franchise system's reservation channel and brand standards behind the asset. This generally narrows the realistic lender list and can mean somewhat more conservative leverage than an otherwise-identical branded hotel would receive. #### Who is fastest to close? Banks and debt funds are generally fastest to close, particularly with an existing relationship or a sponsor already known to the lender; CMBS and SBA typically take longer because of pooling and guaranty processes. A bank that already knows the sponsor and the asset can move quickly because much of the underwriting groundwork is already in place. CMBS timelines are set by the need to fit the loan into a pooling and securitization process on a schedule the borrower does not control. SBA timelines are set by the government guaranty process on top of ordinary underwriting. Speed should be weighed against rate and leverage, not treated as the deciding factor alone. #### What is the minimum loan size for each? SBA will go smallest, because the 7(a) program lists no minimum loan size; banks will size to a relationship even on a smaller loan; CMBS and life companies generally prefer larger loans.[1] This minimum-size filter operates before rate ever enters the conversation. An owner with a small loan need should expect the realistic lender universe to be banks, credit unions, SBA, and some debt funds, not CMBS or life companies, regardless of how strong the asset otherwise looks. #### How do I pick? Match the lender type to the business plan first, recourse tolerance and hold period second, and rate last, because rate only matters among the lender types that actually fit the deal. The worked example below runs one hotel through three lender types and shows how the same asset produces meaningfully different proceeds, structure, and prepayment cost depending on which type is selected, with the right answer depending on the sponsor's actual hold period, not a generic ranking of lender types. Table: Hotel lender types compared, September 2026 Lender type | Typical leverage | Recourse | Typical minimum | Wants Bank / credit union | Set by the bank; not published | Usually recourse | Flexible, sized to the relationship | Relationship, deposits, a sponsor they know Life insurance company | Lowest of the five; not published | Non-recourse | Larger loans only | Stabilized, well-located, long term, low leverage CMBS conduit | Higher than a life company; sized to a debt yield floor | Non-recourse with carve-outs | Larger loans; pooling costs are fixed | Stabilized cash flow, no near-term sale SBA 7(a) / 504 | Up to 85% of project cost on a hotel under 504[3][4] | Personal guarantee required | No listed 7(a) minimum; $5M 7(a) maximum[1] | Owner-operator, within program caps Debt fund / bridge | Highest; sized to the business plan, often against cost | Non-recourse with carve-outs | Varies by fund | A transition story: PIP, ramp, reposition First-party data point: Matthews Hotel Markets' October 2026 rate sheet publishes what each lender type will put in writing. For SBA that is a lot: a 7(a) maximum allowable rate of 10.00% at the 7.00% Prime in effect since September 17, 2026, and a 504 hotel structure capped at 85% of project cost. For banks, life companies, CMBS and debt funds it is the index only.[3] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: the same hotel, three lender types): Hypothetical. 110-key stabilized Hampton Inn, NOI $1.90M, value $23.5M, sponsor has hotel experience and will not sign recourse. A life company at 55 percent LTV supports $12.93M, the lowest rate, 10-year fixed, non-recourse. A CMBS conduit at 65 percent LTV supports $15.28M, a wider rate, 10-year fixed, non-recourse with carve-outs, and defeasance on prepayment. A bank at 65 percent LTV also supports $15.28M, but requires recourse, which the sponsor has already ruled out. The choice is $2.35M of extra proceeds against a wider coupon and a painful prepayment. If the hold is 10 years, CMBS fits. If a sale is possible in year four, the life company loan is cheaper to exit even though it is smaller. The prepayment term decides this, not the rate. FAQ: - Q: Who lends on hotels? A: Five lender types compete for hotel debt: banks and credit unions, life insurance companies, CMBS conduits, SBA lenders, and debt funds. Each wants a structurally different deal, not just a different price. - Q: Do life insurance companies lend on hotels? A: Yes, on stabilized, well-located hotels at conservative leverage, typically the lowest rate available in exchange for the lowest leverage and strictest asset-quality bar of the five lender types. - Q: Which hotel lenders offer non-recourse? A: CMBS conduits, life insurance companies, and many debt funds offer non-recourse structures with standard carve-outs. Banks and SBA lenders generally require a personal guarantee. - Q: What is the minimum hotel loan size? A: SBA's 7(a) program lists no minimum loan size, so SBA goes smallest. CMBS and life insurance companies generally prefer larger loans. Banks size flexibly around an existing relationship. - Q: Who lends on independent hotels? A: Banks, debt funds, and SBA lenders within program limits will finance independent, unflagged hotels. CMBS and life companies generally prefer the demand assurance a franchise brand provides. - Q: Which hotel lender is fastest? A: Banks and debt funds are generally fastest, particularly with an existing sponsor relationship. CMBS and SBA typically take longer because of pooling and government guaranty processes. - Q: Can I get a hotel loan without a personal guarantee? A: Yes, through CMBS, life insurance companies, or certain debt funds, generally at lower leverage or with a stronger sponsor and asset profile than a recourse loan would require. Sources: - [1] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [2] 504 loans (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/loans/504-loans/ - [3] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [4] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [5] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html - [6] PNC Bank, N.A. Changes Prime Rate (PNC Bank, N.A., via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/pnc-bank-na-changes-prime-rate-302881163.html - [7] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr ### What are current hotel loan interest rates? URL: https://matthewshotelmarkets.com/hotel-financing/hotel-loan-rates Last updated: 2026-10-01 Hotel loan rates are quoted as a spread over an index, not as a flat number. Fixed-rate quotes track the 5- and 10-year Treasury; floating quotes track SOFR. On September 30, 2026, the 10-year Treasury was 5.29 percent.[1] In our experience, hotels price wider than apartments or industrial, because hotel revenue reprices every night. Key takeaways: - A hotel rate is an index plus a spread. Ask for both, not the headline number. - Fixed quotes key off the 5- or 10-year Treasury; floating quotes key off SOFR. - In our experience, hotels carry a wider spread than leased property types. - The spread is driven by the sponsor, the flag, the PIP status and the market, in that order. - In our worked example, a 50 basis point rate move cuts DSCR-sized proceeds by about 4 percent. #### What index is my hotel loan priced off? Fixed-rate hotel loans price off the Treasury curve; floating-rate hotel loans price off SOFR. A fixed-rate quote, whether from a bank, a life insurance company, or a CMBS conduit, starts with the Treasury of a matching maturity: the 5-year Treasury for a 5-year loan, the 10-year for a 10-year loan.[1] A floating-rate quote, typical of a bank line, a bridge loan, or a debt fund, starts with SOFR and resets periodically.[2] Neither index is the borrower's rate. The lender adds a spread to the index to arrive at the coupon, and that spread is where the real underwriting happens. #### What spread should I expect over that index? The spread on a hotel loan is set primarily by the sponsor and the asset, and it moves month to month with the broader lending environment. Matthews Hotel Markets' October 2026 rate sheet publishes 9 of its 49 priced cells and marks the other 40 as not yet published. The spread over the index is one of the cells we do not publish: no lender type prints one, and we will not print one until three independent lenders quote the same structure in a month. What the sheet does publish is the index every quote is struck against, the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90% for September 30, 2026,[2] plus the SBA rows, where the maximum allowable 7(a) rate is 10.00% at the 7.00% Prime in effect since September 17.[5][6] Spreads are not static. They widen when lenders pull back from hospitality generally, and they tighten when capital is competing for a limited number of financeable deals. A spread quoted in July is not necessarily the spread available in September, which is why any specific number on this page needs a date attached, not a memory. #### Why do hotels price wider than apartments or industrial? A hotel's revenue reprices nightly, which makes its cash flow more volatile than a lease-backed property, and lenders price that volatility into the spread. Apartment and industrial leases fix rent for months or years at a time. A hotel's effective lease term is one night. That means hotel NOI can move faster, in either direction, than NOI on a leased asset, and a lender underwriting a hotel is underwriting operating risk on top of real estate risk. The wider spread is the price of that volatility. It is not a penalty for the asset class; it is a structural feature of how hotel revenue is produced. #### Does my brand change my rate? The flag matters, but mostly through what it signals about demand and comp-set performance, not as a rate discount by name. A top-performing brand in a strong comp-set position, evidenced by a STAR report showing RevPAR index above 100, supports a lender's underwriting more than the brand name alone. An independent or soft-branded hotel is financeable, but the lender leans more heavily on the sponsor's operating track record and the market fundamentals, because there is no franchise system standing behind demand generation. The practical effect is that a strong operator in a well-known brand at a well-performing property gets the tightest spread on the desk, and the flag by itself is one input among several, not a lookup table. #### Fixed or floating: which one for a hotel? Fixed fits a stabilized hold; floating fits a transition, and the choice should follow the business plan, not the headline rate. A stabilized hotel with no near-term capital plan generally fits fixed-rate permanent debt, because it removes rate risk for the term. A hotel mid-PIP, mid-ramp after a brand conversion, or approaching a near-term sale generally fits floating-rate bridge debt, because the shorter horizon and the need for future funding do not pair well with a 10-year fixed structure and its prepayment penalty. Comparing only the headline rate between the two, without matching the structure to the plan, is the most common rate-shopping mistake on the desk. #### What term and amortization come with each rate? Term and amortization vary meaningfully by lender type and change the payment on an identical rate. Banks and credit unions often write shorter terms with rate resets. Life insurance companies and CMBS write longer fixed terms, and CMBS often includes an interest-only period. SBA 7(a) can amortize fully out to 25 years on real estate,[3] and the SBA 504 debenture is fixed for 10, 20 or 25 years.[4] Debt funds and bridge lenders are usually interest-only for a short term. The full comparison by lender type is below. #### How much does a rate move change my loan amount? In the worked example below, a 50 basis point move in rate changes DSCR-sized proceeds by about 4 percent on an identical property, with nothing about the hotel itself changing. This is the most underappreciated number in hotel financing conversations. Because DSCR is a fixed multiple of a fixed NOI, the annual debt service the loan can support does not change with rate, but the amount of loan that fixed debt service will buy does. A higher rate means a higher annual constant per dollar borrowed, so the same maximum debt service buys less loan. The worked example below shows this with real numbers. Table: Hotel loan pricing structure by lender type, September 2026 Lender type | Index | Typical term | Typical amortization | Rate type Bank / credit union | SOFR or bank cost of funds | Shorter, often with rate resets | Set by the bank | Fixed or floating Life insurance company | 10-year Treasury | Long, fixed | Long schedule | Fixed CMBS | Swap or Treasury | Long, fixed | Long schedule, often IO first | Fixed SBA 7(a) | Prime | Up to 25 years on real estate[3] | Fully amortizing | Variable, fixed available[3] SBA 504 (debenture) | Debenture pricing, above the 10-year Treasury[4] | 10, 20 or 25 years[4] | Fully amortizing | Fixed Debt fund / bridge | SOFR | Short, often with extensions | Interest only | Floating with a cap First-party data point: Matthews Hotel Markets' October 2026 rate sheet publishes 9 of its 49 priced cells and marks the other 40 as not yet published. The published ones are the SBA rows: a 7(a) maximum allowable rate of 10.00% at the 7.00% Prime in effect since September 17, 2026, and a 504 hotel structure capped at 85% of project cost.[5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: how 50 basis points moves the loan): Hypothetical property. NOI $1.60M, 25-year amortization, 1.35x DSCR test. At 7.25 percent, the annual constant per $1M of loan is about $86,800, and maximum debt service of $1,185,185 supports a loan of $13.65M. At 7.75 percent, the annual constant per $1M rises to about $90,600, and the same maximum debt service supports a loan of $13.08M. Fifty basis points cost $570,000 of proceeds, about 4.2 percent of the loan. Nothing about the hotel changed. That is why the rate conversation and the proceeds conversation are the same conversation. FAQ: - Q: What is a typical hotel loan rate in September 2026? A: It is quoted as an index plus a spread, not a single number. Fixed loans track the Treasury; floating loans track SOFR. Our October 2026 rate sheet publishes the index values but not conventional spreads, so get the spread in writing. - Q: Is a hotel loan rate fixed or floating? A: Both exist. Permanent loans for stabilized hotels are usually fixed. Bridge loans for transitional hotels are usually floating over SOFR and require a purchased rate cap. - Q: What is the spread over SOFR on a hotel bridge loan? A: It varies by sponsor, asset and market and moves with the lending environment. Nobody publishes it, and our rate sheet marks it not yet published. Get the spread and the cap cost in writing from the lender. - Q: Do Hampton Inn or Holiday Inn Express loans price better than an independent hotel? A: A strong brand in a strong comp-set position helps, mainly by supporting the demand story. An independent hotel with a strong operator and strong market fundamentals can price competitively; the brand name alone is not a rate lookup table. - Q: How often do hotel loan rates change? A: Fixed quotes move with the Treasury daily and with lender spread appetite over weeks to months. Floating quotes reset with SOFR on the schedule set in the loan documents. - Q: Does a rate lock cost anything on a hotel loan? A: It can. Some lenders charge a rate lock deposit or fee, refundable at closing, forfeited if the deal does not close. Ask for the lock terms in writing before you rely on a quoted rate. - Q: Why is my hotel quote wider than my friend's apartment quote? A: Hotel revenue reprices nightly, which makes cash flow more volatile than a lease-backed property like an apartment. Lenders price that volatility into a wider spread. It reflects the asset class, not your specific deal. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [3] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [4] 504 loans (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/loans/504-loans/ - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [6] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html ### How does hotel debt placement actually work? URL: https://matthewshotelmarkets.com/hotel-financing/how-debt-placement-works Last updated: 2026-10-01 Debt placement is a competitive process, not an introduction. The broker packages the asset, takes it to the lenders most likely to want it, collects term sheets against a common deadline, and normalizes them. It costs a fee, usually a percentage of the loan, and pays for itself when the gap between quotes beats the fee. Fixed quotes start from the 10-year Treasury, 5.29 percent on September 30, 2026.[1] Key takeaways: - Going direct to one bank gets you one quote and no way to know if it is good. - The value is comparability: same package, same deadline, quotes normalized to the same terms. - A fee is paid at closing, quoted as a percentage of loan amount. Ask for it in writing up front. - The right lender list is short and specific, not every lender in the market. - Budget a few months from complete package to funding on a straightforward hotel loan. #### What does a debt placement broker actually do? A debt placement broker packages the deal once, sends it to a curated list of lenders on a common timeline, and normalizes the term sheets that come back so an owner is comparing apples to apples. The package includes the trailing financials, STAR report, franchise documentation, and a written summary of the business plan, all assembled the way the target lenders expect to see it. Rather than each lender receiving a slightly different, informally assembled set of materials, every lender in the process sees the same package, on the same deadline, which is what makes the resulting quotes genuinely comparable rather than apples to oranges. #### How is the lender list built? The list is built from the specific deal's profile, leverage target, recourse tolerance, hold period, and business plan, matched against which lender types and which specific institutions are actually active in that combination today. A short, well-targeted list of lenders who are actually likely to want the specific deal produces a stronger competitive process than a long list that includes lenders who will decline or come back with an uncompetitive quote. This targeting is where a broker's ongoing market contact matters most: knowing which lender types are currently aggressive on hospitality, which are pulling back, and which specific institutions have appetite for the asset's leverage and structure this month, not last year. #### How do I compare term sheets that are not alike? Term sheets rarely arrive in identical form, and normalizing them to the same rate basis, term, amortization, and fee structure is the step that turns five different documents into one real comparison. A quote at a lower headline rate but a shorter interest-only period, a higher origination fee, or a tighter prepayment structure is not automatically the better loan. Normalizing every quote to an all-in effective cost, over the same assumed hold period, is the only way to compare them honestly. This is mechanical work, but it is work that is easy to get wrong under time pressure without a consistent framework applied to every quote. #### What does debt placement cost? A placement fee is typically quoted as a percentage of the loan amount, paid at closing, and it is a negotiable line item, not a fixed industry rate. Matthews Hotel Markets' October 2026 rate sheet marks the spread between lender types as not yet published, and that is exactly the point: the gap a placement process captures is not a number anyone prints, which is why an owner cannot look it up and decide on their own whether the process is worth the fee. What the sheet does publish is the index every quote is struck against, the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90% for September 30, 2026.[1][2][3] The fee should be agreed in writing before the process starts, not negotiated after term sheets are in hand, and an owner should ask directly what the fee is and whether it is contingent on closing. #### When should I just call my bank? Calling your existing bank directly makes sense on a smaller loan with a strong existing relationship, where the relationship itself is likely to produce a competitive quote without a formal process. The honest answer is that a placement process is not always worth running. When the loan is small, the relationship is strong, and the expected spread between the best available quote and the relationship quote is modest, the broker fee can exceed the value captured. The worked example below shows exactly where that line sits with real numbers. #### How long does the process take? In our experience, a straightforward hotel debt placement takes a few months from a complete application package to funding, and term sheets come back within a few weeks of the package going out. That timeline assumes the trailing financials, STAR report and PIP status are ready before the process starts; the full document checklist and realistic lead times for each item are on `/hotel-financing/loan-requirements`. Anything missing when the process begins adds directly to the total timeline. #### What do I need to start? The same core package every hotel lender wants: a trailing twelve-month P&L, a STAR report, the franchise agreement and any PIP status, and a summary of the business plan and sponsor. Starting a placement process without this package assembled produces a slower, weaker process, because lenders either decline to quote on an incomplete picture or come back with soft, heavily caveated indications rather than real term sheets. Assembling the package before approaching lenders, rather than during, is the single highest-leverage step an owner controls directly. For representation on the placement itself, see `/services/capital-markets`. Table: Going direct versus running a placement process Category | Direct to one lender | Placement process Quotes received | One | Several, from a targeted list Package prepared | Whatever you send | Standardized, with the questions pre-answered Comparability | None | Quotes normalized to the same term and structure Negotiating position | Take it or leave it | Competitive tension Cost | No broker fee | Fee at closing, percentage of loan Time to term sheets | Depends on the lender | A few weeks from a complete package Best fit | Small loan, strong existing relationship | Anything where the spread between quotes exceeds the fee First-party data point: Matthews Hotel Markets' October 2026 rate sheet marks the spread between lender types as not yet published, and that is the point: the number a placement process captures is not a number anyone prints. The sheet does publish the index every quote is struck against, the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90% for September 30, 2026.[2][3] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: does the fee pay for itself?): Hypothetical. A $12.0M hotel loan. A placement process returns six term sheets. The best rate is 7.10 percent; the one the owner would have taken from their existing bank is 7.55 percent. The rate difference is 45 basis points. Annual interest saved is $12.0M times 0.45 percent, or $54,000. Over a 5-year term, that is $270,000. A placement fee at 0.75 percent of $12.0M is $90,000. The process nets $180,000 over the term in this hypothetical, before considering that the best quote also came with a year of interest-only. Run the same math with a 10 basis point spread and the fee does not pay for itself. Both outcomes happen. Ask for the spread history before you engage anyone, including us. FAQ: - Q: What does a hotel debt placement broker do? A: Packages the deal once, presents it to a curated list of lenders on a common deadline, collects term sheets, and normalizes them to the same basis so they can be compared honestly. - Q: How much does hotel debt placement cost? A: Typically a percentage of the loan amount, paid at closing, and negotiable. Get the fee in writing before the process starts, not after term sheets arrive. - Q: Do I need a broker to get a hotel loan? A: Not always. A small loan with a strong existing bank relationship can be worth calling direct. A broker earns its fee when running a competitive process is likely to beat the relationship quote by more than the fee costs. - Q: How many lenders will see my deal? A: A well-run process returns several term sheets from a targeted lender list, not every lender in the market. A shorter, well-matched list usually beats a long, unfocused one. - Q: How long does hotel debt placement take? A: In our experience, a few months from a complete application package to funding, with term sheets back within a few weeks of the package going out. Anything missing from the package adds time. - Q: Who pays the placement fee, me or the lender? A: The borrower generally pays the placement fee at closing, quoted as a percentage of the loan amount. Confirm the fee structure in writing before starting the process. - Q: What documents do I need to start a placement process? A: A trailing twelve-month P&L, a STAR report, the franchise agreement and PIP status, and a summary of the business plan and sponsor. The full checklist with lead times is on the loan requirements page. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [3] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### Can I deduct all the interest on my hotel loan? URL: https://matthewshotelmarkets.com/hotel-financing/interest-deduction-limits Last updated: 2026-10-28 Usually yes. Section 163(j) caps the deduction at business interest income plus 30 percent of adjusted taxable income, and a July 4, 2025 amendment added depreciation back into that income figure for tax years beginning after December 31, 2024.[1] A hotel owner averaging $32,000,000 or less of gross receipts is exempt for 2026 anyway.[1][2] Key takeaways: - Most single-hotel owners never reach the cap. For a tax year beginning in 2026 the exemption runs to average annual gross receipts of $32,000,000 or less over the three prior years, and related entities under common control are counted as one.[2][3] - A hotel partnership that allocates more than 35 percent of its losses to partners who do not participate is a syndicate, and a syndicate is denied the small business exemption at any size.[4][5][6] - A hotel can elect out of the limit entirely. A regulation example holds that a hotel offering full amenities is a real property trade or business, so the election under section 163(j)(7)(B) is available.[8][9][10] - That election is irrevocable and it reprices depreciation: the building moves to a 40-year alternative depreciation system life and loses bonus depreciation, while furniture, fixtures and equipment are untouched.[11][12] #### What does section 163(j) actually limit? It caps the business interest deduction at business interest income plus 30 percent of adjusted taxable income plus floor plan financing interest, which for a hotel is zero. Section 163(j)(1) sets that cap and says the 30 percent piece is never less than zero.[1] Business interest is any interest on debt properly allocable to a trade or business, which is what a hotel mortgage is.[1] Floor plan financing is not a hotel item: section 163(j)(9) limits it to debt financing motor vehicles, boats or farm machinery held for sale or lease and secured by that inventory.[1] Section 163(j)(8) defines adjusted taxable income as taxable income computed without regard to items not allocable to a trade or business, business interest and business interest income, the net operating loss and section 199A deductions, depreciation, amortization and depletion, and certain foreign inclusions.[1] For a single-asset hotel that collapses to something an owner already knows: revenue less operating expenses. The cap is 30 percent of that number. #### Is my hotel small enough to be exempt? For a tax year beginning in 2026 the line is $32,000,000 of average annual gross receipts over the three prior tax years, and the count aggregates entities under common control. Section 163(j)(3) switches the limitation off for any taxpayer that meets the gross receipts test of section 448(c), other than a tax shelter barred from the cash method.[1] Section 448(c)(1) sets that test at average annual gross receipts for the three tax years ending with the year before the current one, and section 448(c)(4) indexes the statutory $25,000,000 for inflation in $1,000,000 steps.[3] Revenue Procedure 2025-32, section 4.30, puts that figure for tax years beginning in 2026 at $32,000,000.[2] Two traps sit inside that sentence. The first is aggregation: section 448(c)(2) treats all persons treated as a single employer under section 52(a) or (b) or section 414(m) or (o) as one person.[3] One 120-key hotel will not come close. Nine under common ownership, each running $3,600,000 of revenue, add to $32,400,000 and put the group over the line. The second is that the measure is gross receipts, not profit, reduced only by returns and allowances, so a hotel with a thin year still counts every dollar it collected.[3] 26 CFR 1.163(j)-2(d) applies the same test to taxpayers that are neither a corporation nor a partnership, and gives the sharing rules for pass-through gross receipts.[4] For the depreciation side of the same return, see [How does depreciation work on a hotel I buy?](/buy-a-hotel/depreciation-and-cost-segregation). #### Why do syndicated hotel deals lose the exemption? Because a partnership that allocates more than 35 percent of its losses to partners who do not manage it is a syndicate, and the small business exemption does not reach a syndicate at any size. Section 163(j)(3) carves out a tax shelter, section 448(d)(3) borrows the definition in section 461(i)(3), and section 461(i)(3)(B) points at any syndicate within the meaning of section 1256(e)(3)(B).[1][3][5] That provision defines a syndicate as any partnership or other entity, other than a C corporation, if more than 35 percent of the losses of the entity during the tax year are allocable to limited partners or limited entrepreneurs.[6] This is the most common way a small hotel deal ends up inside the limitation. 26 CFR 1.1256(e)-2 works the fact pattern: an S corporation with $5,000,000 of gross receipts, $4,500,000 of non-interest expenses and $600,000 of interest expense has a net loss of $100,000, half of it allocated to the owner who supplied the capital and does not participate, which makes the entity a syndicate for that year.[7] That regulation computes the loss without regard to section 163(j) itself, so the interest counts in full in testing whether there is a loss to allocate.[4][7] The test runs year by year on losses, so it turns on whether the entity has a loss at all. And section 1256(e)(3)(C) removes from the limited-partner count any interest held by an individual who actively participates at all times in managing the entity, by that individual's close family, or by someone who actively participated for at least five years.[6] An owner-operator with a working partner stands differently from a deal funded by passive capital. #### What changed for tax years beginning in 2025 and 2026? Two amendments signed on July 4, 2025: depreciation is added back to adjusted taxable income from tax years beginning after December 31, 2024, and from tax years beginning after December 31, 2025 the limit reaches interest a hotel would capitalize. The first change matters most to a hotel, because hotels are depreciation-heavy. Section 163(j)(8)(A)(v) always excluded depreciation, amortization and depletion from adjusted taxable income, but between 2022 and 2024 that exclusion was switched off, so those deductions cut the cap. Public Law 119-21, section 70303(a), struck the words "in the case of taxable years beginning before January 1, 2022" from the clause, and section 70303(c)(1) applies the change to tax years beginning after December 31, 2024.[1] The cap is now 30 percent of a number close to operating profit, with no sunset in the codified text. The second change is newer and narrower. Section 70341 added section 163(j)(10), which applies the limitation to business interest whether the taxpayer would deduct it or capitalize it under an interest capitalization provision, applies the allowed amount first to the interest that would otherwise be capitalized, and bars any carried-forward amount from being treated as capitalizable interest later.[1] Section 70341(b) also pulled interest capitalized under section 263(g) or 263A(f) out of the definition of business interest, all of it effective for tax years beginning after December 31, 2025.[1] A hotel under construction is the case to watch, because construction-period interest is the interest most often charged to capital account. See [How do I finance hotel construction in 2026?](/hotel-financing/construction-loans). #### Can a hotel elect out of the limit altogether? Yes. A hotel is a real property trade or business under the governing regulation, so an election under section 163(j)(7)(B) is available, and the regulation says so with a hotel example. Section 163(j)(7)(A)(ii) takes an electing real property trade or business out of the definition of trade or business here, and section 163(j)(7)(B) defines that as any business described in section 469(c)(7)(C) that elects.[1] 26 CFR 1.163(j)-1(b)(14)(i) points at the same place: section 469(c)(7)(C) and 26 CFR 1.469-9(b)(2).[8] Section 469(c)(7)(C) lists development, redevelopment, construction, acquisition, conversion, rental, operation, management, leasing and brokerage of real property.[9] Whether operating a hotel counts is a real question, because 26 CFR 1.469-9(b)(2)(ii)(H) requires that payments from customers be principally for the use of the real property and not for other significant or extraordinary personal services.[10] A hotel sells housekeeping, food and beverage and front desk service alongside the room. The regulation answers it directly. Example 5 at 26 CFR 1.469-9(b)(2)(iii)(E) describes a limited partnership that owns and operates a luxury hotel offering in-room food and beverage, maid and linen service, valet parking, concierge, front desk and bellhop service and dry cleaning. It concludes that even though those personal services are significant, the principal purpose of the hotel's operations is providing the use of its rooms and suites, so the partnership is engaged in a real property trade or business.[10] The same example holds that the outside contractor supplying the maid service is not, which matters when operations sit in a separate entity.[10] The election is open even to a hotel that already qualifies for the small business exemption, and the activity need not be a section 162 trade or business.[11] It is made by attaching a statement titled "Section 1.163(j)-9 Election" to a timely filed original return, including extensions, naming the taxpayer and the business, the principal business activity code and the election itself.[11] #### What does electing out cost? The election is irrevocable, it moves the building and any qualified improvement property to the alternative depreciation system, and it bars bonus depreciation on those assets. 26 CFR 1.163(j)-9(c)(2) makes the election irrevocable and (c)(1) applies it to every later year.[11] It terminates when the taxpayer stops conducting that business, which includes selling substantially all of its assets to an unrelated buyer in a taxable asset transfer.[11] The depreciation consequence is statutory. Section 163(j)(13)(A) cross-references section 168(g)(1)(F), which puts property described in section 168(g)(8) on the alternative depreciation system: nonresidential real property, residential rental property and qualified improvement property held by an electing real property trade or business.[1][12] A hotel building is nonresidential real property, which runs 39 years under section 168(c) and 40 years under the alternative system in section 168(g)(2)(C)(iv), both straight line.[12] 26 CFR 1.163(j)-9(c)(3) adds that an electing taxpayer cannot claim the first-year bonus deduction under section 168(k) on those types.[11] The election does not touch most of what a cost segregation study reaches. Section 168(g)(8) names only those three categories, so furniture, fixtures, equipment and land improvements keep their shorter lives and stay eligible for bonus depreciation.[12] On a hotel that is a large share of basis, which is why electing out costs less here than on an office building. No lender publishes how it underwrites any of this. Whether a credit committee sizes a loan off pre-election or post-election taxable income, and what it does with a disallowed interest carryforward in a covenant test, are credit policy questions no bank, life company, debt fund or CMBS lender discloses. Ask in writing. #### What happens to interest I cannot deduct this year? It carries forward indefinitely as business interest of the next tax year, on a harsher mechanic inside a partnership. Section 163(j)(2) treats any disallowed business interest as business interest paid or accrued in the succeeding tax year, with no expiry, so at the entity level it is a timing cost rather than a permanent loss.[1] Partnerships work differently. Section 163(j)(4)(A)(i) applies the limitation at the partnership level, and section 163(j)(4)(B)(i) says the partnership does not carry the disallowed amount forward. It becomes excess business interest allocated to the partners, and under section 163(j)(4)(B)(ii) a partner can deduct it later only against excess taxable income from the same partnership.[1] Section 163(j)(4)(B)(iii) reduces the partner's basis in the partnership interest by that amount, restoring it on a later disposition for any part never deducted.[1] A partner can therefore sit on suspended interest that only the same hotel's future income releases. It is all computed on Form 8990, which the IRS describes as the form used to calculate the business interest expense you can deduct and the amount to carry forward.[13] One warning: that page's "Recent developments" note still prints the $29,000,000 threshold for 2023, so take the figure from Revenue Procedure 2025-32 instead.[2][13] Table: Where a hotel owner can sit under section 163(j), tax year beginning in 2026 Position | How a hotel gets there | Business interest deduction | Depreciation consequence Exempt small business | Average annual gross receipts of $32,000,000 or less for the three prior tax years, aggregating entities under common control, and not a tax shelter[1][2][3][4] | No limit | None Subject to the limitation | Over the gross receipts line, or a syndicate at any size[1][5][6][7] | Business interest income plus 30 percent of adjusted taxable income[1] | None, and depreciation is added back to adjusted taxable income for tax years beginning after December 31, 2024[1] Electing real property trade or business | An irrevocable election statement attached to a timely filed original return, available because a hotel is a real property trade or business[8][9][10][11] | No limit | Building and qualified improvement property move to the alternative depreciation system, 40 years for the building, and lose bonus depreciation; furniture, fixtures and equipment are untouched[11][12] Floor plan financing relief | Not available to a hotel: the definition covers motor vehicles, boats and farm machinery held for sale or lease[1] | Not applicable | Not applicable First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% on September 30, 2026, up 54 basis points over that calendar month, which is why the interest side of this calculation is larger than it was two years ago; the sheet's observed spread and coupon cells are marked not yet published, so the 7.25% coupon in the example below is an assumption and not a quote.[14] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: 120-key select-service hotel in a syndicated partnership, tax year beginning January 1, 2026): Hypothetical. A 120-key select-service hotel in an LLC taxed as a partnership. Revenue $6,400,000, operating expenses $4,600,000, so operating profit is $1,800,000. Debt is $14,000,000 at an assumed 7.25 percent interest-only coupon, which is $1,015,000 of interest. Depreciation is $900,000. Sixty percent of the losses go to two partners who supplied capital and do not manage. Step one, the exemption. Gross receipts of $6,400,000 sit far below the $32,000,000 line for 2026. But 60 percent is more than 35 percent, so the partnership is a syndicate under section 1256(e)(3)(B), and a syndicate gets no exemption at any size. Step two, adjusted taxable income. Taxable income before the limitation is $1,800,000 less $1,015,000 less $900,000, or negative $115,000. Adding back the interest and the depreciation gives $1,800,000, the operating profit. That is the point of the 2025 amendment. Step three, the cap. Business interest income is zero and 30 percent of $1,800,000 is $540,000. So $540,000 of the $1,015,000 is deductible and $475,000 becomes excess business interest allocated to the partners. Under the 2022 to 2024 rule, with no depreciation add-back, adjusted taxable income would have been $900,000, the cap $270,000 and the disallowed amount $745,000. The amendment moved $270,000 forward. Step four, price the election. Assume a $15,500,000 purchase allocated $2,000,000 to land, $10,000,000 to the building and $3,500,000 to furniture, fixtures, equipment and land improvements. Electing out deducts all $1,015,000, an extra $475,000 this year. The cost: the building moves from a 39-year life, $10,000,000 divided by 39, or $256,410 a year, to a 40-year alternative system life, $10,000,000 divided by 40, or $250,000 a year. That is $6,410 a year for as long as you own it, plus no bonus depreciation on future qualified improvement property, irrevocably. The $3,500,000 of shorter-life property is unaffected. Step five, the trap this hotel escapes. Nine hotels at $3,600,000 of revenue each total $32,400,000, $400,000 over the 2026 line, so that owner is inside the limitation on gross receipts alone. Every figure is arithmetic on assumed inputs, not an observed market rate, and the election is a CPA decision. FAQ: - Q: Does section 163(j) apply to a single hotel I own? A: Usually no. For a tax year beginning in 2026 the exemption covers average annual gross receipts of $32,000,000 or less over the three prior years. One hotel rarely reaches that, unless it is a syndicate or part of a commonly controlled group. - Q: Is a hotel a real property trade or business? A: Yes, for this election. Example 5 in 26 CFR 1.469-9(b)(2)(iii) holds that a partnership owning and operating a full-service hotel is a real property trade or business, because its principal purpose is providing the use of its rooms. - Q: Should I elect out of the interest limitation? A: Only with your CPA. It is irrevocable, moves the building to a 40-year alternative depreciation system life and bars bonus depreciation on it and on qualified improvement property. It does not touch furniture, fixtures and equipment. - Q: Does depreciation reduce the interest cap? A: Not for tax years beginning after December 31, 2024. Public Law 119-21 restored the add-back in section 163(j)(8)(A)(v), so depreciation, amortization and depletion leave adjusted taxable income again, which raises the cap for a hotel. - Q: What happens to interest I cannot deduct? A: It carries forward with no expiry. A partnership does not carry it forward itself: the amount becomes excess business interest allocated to partners, deductible only against later excess taxable income from that partnership, and it cuts partner basis. - Q: Does the limit apply to construction interest I capitalize? A: For tax years beginning after December 31, 2025, yes. New section 163(j)(10) applies the limitation whether the interest would be deducted or capitalized, and applies the allowed amount first to what would otherwise be capitalized. - Q: Which form reports this? A: Form 8990. The election out is a separate statement attached to the return. Sources: - [1] 26 U.S.C. 163(j), Limitation on business interest, including (j)(1) the 30 percent cap, (j)(2) carryforward, (j)(3) small business exemption, (j)(4) partnership rules, (j)(5) business interest, (j)(7) electing real property trade or business, (j)(8) adjusted taxable income, (j)(9) floor plan financing, (j)(10) interest capitalization, (j)(13) cross reference to 168(g)(1)(F), and the amendment and effective-date notes for Pub. L. 119-21 sections 70303, 70341 and 70342 of July 4, 2025 (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/163 - [2] Revenue Procedure 2025-32, section 4.30, Limitation on Use of Cash Method of Accounting ($32,000,000 for tax years beginning in 2026), and section 4.31, Threshold for Excess Business Loss ($256,000, or $512,000 for joint returns) (Internal Revenue Service, accessed 2026-10-28): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - [3] 26 U.S.C. 448, Limitation on use of cash method of accounting, including (a)(3) tax shelters, (c)(1) the three-year average gross receipts test, (c)(2) aggregation under sections 52 and 414, (c)(3) special rules and (c)(4) inflation adjustment, and (d)(3) the tax shelter definition (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/448 - [4] 26 CFR 1.163(j)-2(d), Small business exemption, including (d)(2) application of the gross receipts test to individuals, partners and S corporation shareholders and (d)(3) determining a syndicate's loss amount without regard to section 163(j) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/cfr/text/26/1.163(j)-2 - [5] 26 U.S.C. 461, including (i)(3) the tax shelter definition and (l) the limitation on excess business losses of noncorporate taxpayers, with the $250,000 base amount in (l)(3)(A)(ii)(II), the inflation adjustment in (l)(3)(C) and the tax years covered in (l)(1)(B) (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/461 - [6] 26 U.S.C. 1256(e)(3), Special rule for syndicates, including (e)(3)(B) the more-than-35-percent definition and (e)(3)(C) the active management exclusions (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/1256 - [7] 26 CFR 1.1256(e)-2, Special rules for syndicates, including (b) the loss calculation without regard to section 163(j) and the (c) example on a passive capital owner (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/cfr/text/26/1.1256(e)-2 - [8] 26 CFR 1.163(j)-1(b)(14), definition of electing real property trade or business, pointing to section 469(c)(7)(C) and 26 CFR 1.469-9(b)(2) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/cfr/text/26/1.163(j)-1 - [9] 26 U.S.C. 469(c)(7)(C), definition of a real property trade or business (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/469 - [10] 26 CFR 1.469-9(b)(2), real property trade or business definitions, including (b)(2)(ii)(H) real property operation and Example 5 at (b)(2)(iii)(E) holding that a partnership owning and operating a luxury hotel is engaged in a real property trade or business (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/cfr/text/26/1.469-9 - [11] 26 CFR 1.163(j)-9, Elections for excepted trades or businesses, including (b)(2) availability to exempt small businesses, (c)(2) irrevocability, (c)(3) the alternative depreciation system and loss of section 168(k), (d)(2) the election statement contents and (e) termination and the 60-month anti-abuse rule (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/cfr/text/26/1.163(j)-9 - [12] 26 U.S.C. 168, including (c) the 39-year recovery period for nonresidential real property, (g)(1)(F) and (g)(8) the property an electing real property trade or business must depreciate under the alternative system, and (g)(2)(C)(iv) the 40-year alternative recovery period (United States Code, via Legal Information Institute, accessed 2026-10-28): https://www.law.cornell.edu/uscode/text/26/168 - [13] About Form 8990, Limitation on Business Interest Expense Under Section 163(j), page last reviewed or updated March 31, 2026 (Internal Revenue Service, accessed 2026-10-28): https://www.irs.gov/forms-pubs/about-form-8990 - [14] Matthews Hotel Markets hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets, accessed 2026-10-28): https://matthewshotelmarkets.com/rates ### Can I get an interest-only hotel loan? URL: https://matthewshotelmarkets.com/hotel-financing/interest-only-loans Last updated: 2026-10-01 Yes, from some lenders. Bridge and construction loans are usually interest-only, and CMBS conduits often grant it: in one conduit pool marketed in February 2026, 67.3 percent of the balance was interest-only to maturity and another 10.1 percent had a partial interest-only period.[1] SBA 7(a) loans must fully amortize with no balloon,[2] and bank regulators require limits on non-amortizing loans.[3] Key takeaways: - Interest-only lowers the payment. It does not lower the debt, so the full balance is still there at maturity. - Who offers it: bridge lenders and construction lenders as a matter of course, CMBS and life companies for stronger loans, banks for short periods. - Who does not: SBA does not allow balloon payments on 7(a) loans, and USDA guaranteed loans must amortize, with any interest-only period ending within three years.[2][4] - Interest-only raises DSCR but leaves debt yield and LTV untouched. If debt yield is your binding test, interest-only will not get you more proceeds. - On a $10 million loan at 7.00 percent, interest-only saves about $148,000 a year against a 25-year schedule, and skips about $2.1 million of principal paydown over ten years. #### Which hotel lenders offer interest-only? Transitional lenders offer it by default, securitized and insurance lenders offer it to stronger loans, and banks offer it sparingly. Bridge and debt fund loans are usually interest-only for the whole term, because the hotel is in transition and the business plan needs the cash; see `/hotel-financing/bridge-loans`. Construction loans charge interest only on the drawn balance while the hotel is built; see `/hotel-financing/construction-loans`. CMBS is where a stabilized hotel is most likely to find interest-only on permanent debt. Conduit pool disclosures are public, and one shows the scale. The Benchmark 2026-B42 pool, marketed February 18, 2026, held 62 loans totaling $729,201,713 across property types. By balance, 67.3 percent was interest-only for the full term, 10.1 percent was interest-only and then amortizing, and 16.5 percent amortized from the start. The pool's weighted average loan-to-value was 50.1 percent and its underwritten debt service coverage was 2.57 times.[1] That is one pool and only 1.8 percent of it was hospitality, so it shows what conduits will do for low-leverage loans, not what a hotel should expect. `/hotel-financing/cmbs-loans` covers the hotel-specific terms. Banks sit under a rule. The interagency real estate lending guidelines require each bank's loan policy to include standards for the acceptability of, and limits on, non-amortizing loans.[3] In practice that means a bank may give a year or two of interest-only during a renovation or a ramp, then amortize. No lender publishes its interest-only policy as a number, and our rate sheet does not print one.[5] #### Are SBA or USDA hotel loans ever interest-only? Only briefly. Both programs require the loan to pay itself off, so interest-only is limited to an early period such as construction. SBA's SOP is direct: SBA does not allow balloon payments, and a fixed-rate loan must use a payment that fully amortizes it by maturity. The lender may adjust the amortization schedule to meet the cash flow needs of the business, and the note terms must state any interest-only payment period.[2] A 7(a) loan can run 25 years on real estate plus the period needed to complete construction or improvements, which is where an interest-only stretch usually sits.[6] The 504 debenture is fully amortizing over 10, 20 or 25 years.[5] USDA's guaranteed loan regulation is more specific. Balloon maturities are not allowed. If the note provides an interest-only period, the first full payment of principal and interest must begin no more than three years from the date of the note.[4] For a small hotel, then, the trade is clear. Government-guaranteed debt gives long amortization and no refinance risk. It does not give years of interest-only. #### How much does interest-only lower the payment? On a $10 million loan at 7.00 percent, interest-only is $700,000 a year, against about $848,000 on a 25-year amortization schedule. The rate in that comparison is an assumption for the arithmetic, not a quote. Interest-only is simply the balance times the rate: $10,000,000 times 7.00 percent equals $700,000 a year, or $58,333 a month. A 25-year amortizing payment at the same rate is $70,678 a month, or $848,135 a year. The difference is $148,135 a year. The saving shrinks as amortization lengthens and as rates rise, because at higher rates more of an amortizing payment is interest anyway. The 10-year Treasury, the index a fixed-rate quote is struck against, was 5.29 percent on September 30, 2026.[5][7] Run your own numbers with `/tools/dscr-calculator`. #### Does interest-only help me qualify for a bigger loan? It helps on the DSCR test and does nothing on the debt yield and LTV tests, so it depends on which test is binding. DSCR divides NOI by annual debt service, so a smaller payment produces a higher ratio. Debt yield divides NOI by the loan amount and ignores the payment entirely. Loan-to-value ignores it too. `/hotel-financing/loan-requirements` explains how lenders run all three and lend the smallest result. Lenders know this. Some underwrite DSCR on an amortizing payment even when the loan is interest-only, precisely so the structure cannot inflate proceeds. Ask which payment the lender's coverage test uses. If the answer is the amortizing payment, interest-only changes your cash flow and nothing else. #### What is the catch? The balloon. Every dollar of principal you did not pay is still owed at maturity, and the refinance has to cover it. On the same $10 million loan, ten years of 25-year amortization pays the balance down to about $7,863,000. The interest-only borrower still owes $10,000,000. If rates or values have moved against the hotel by then, that $2.1 million gap is the difference between a routine refinance and a cash-in one. `/hotel-financing/loan-maturities-2026-2027` describes what that looks like for loans coming due now, and `/hotel-financing/loan-workouts` covers what happens when a maturity cannot be met. A partial interest-only period has its own cliff. When it ends, the payment steps up to the amortizing amount, about 21 percent higher in this example, with no change in the hotel's income. Budget for the step before it arrives. #### When does interest-only make sense for a hotel? When the cash it frees has a better use than paying down the loan, and the exit does not depend on amortization. Three cases are common. A renovation or PIP period, when cash flow dips and then recovers; see `/hotel-financing/pip-and-renovation-loans`. A short hold, where the owner plans to sell before amortization would have mattered much. And a low-leverage loan, where the balloon is comfortably refinanceable even at a lower value. It makes less sense on a high-leverage loan held to maturity in a flat market, because amortization is the only thing reducing refinance risk there. If a lender offers a choice, compare the two structures over your actual hold period, including the balance you will owe at the end; `/hotel-financing/how-debt-placement-works` explains how to compare quotes on an all-in basis. Table: Interest-only availability by hotel lender type, September 2026 Lender type | Interest-only? | Rule or evidence | Balloon at maturity? Bridge and debt fund | Usually, for the full term | Rate sheet describes the row as floating-rate and short-term[5] | Yes Construction | Yes, on the drawn balance during the build | Interest usually paid from a budgeted reserve | Yes, unless the loan converts to permanent CMBS conduit | Often, full-term or partial, for stronger loans | One February 2026 pool: 67.3% full-term and 10.1% partial by balance[1] | Yes Life company | Sometimes, at low leverage | Not published | Usually Bank and credit union | Short periods, case by case | Policy must set limits on non-amortizing loans[3] | Often, when the term is shorter than the amortization SBA 7(a) | Only a stated early period, such as construction | No balloon payments; must fully amortize by maturity[2] | No USDA B&I guarantee | Up to three years from the note date | 7 CFR 5001.402[4] | No First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and SOFR at 3.90% as of September 30, 2026, and describes both SBA programs as fully amortizing. It publishes no interest-only terms for conventional lenders, because none of them publishes any.[5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $10.0M hotel loan, interest-only versus 25-year amortization): Hypothetical. Loan amount $10,000,000, rate 7.00 percent, NOI $1,200,000. The rate and the coverage test are assumptions for the arithmetic. Payment. Interest-only: $10,000,000 times 7.00 percent equals $700,000 a year. Amortizing over 25 years: $70,678 a month, or $848,135 a year. Interest-only saves $148,135 a year. A three-year interest-only period followed by amortization saves about $444,400 of cash in total. Coverage. DSCR is $1,200,000 divided by $700,000, or 1.71 times, on the interest-only payment. It is $1,200,000 divided by $848,135, or 1.41 times, on the amortizing payment. Same hotel, same loan, same risk of default at maturity. Proceeds. At an assumed 1.35 times test, interest-only sizing would support $1,200,000 divided by 1.35 divided by 7.00 percent, or about $12.70M. Amortizing sizing supports about $10.48M. But the debt yield on $12.70M is only 9.45 percent, against 11.45 percent on $10.48M. A lender with a debt yield floor between those two numbers lends the smaller amount no matter how the payment is structured. Balance. After five years the amortizing loan owes about $9,116,000. After ten years it owes about $7,863,000. The interest-only loan owes $10,000,000 at both dates. The ten-year difference is about $2,137,000, against about $1,481,000 of payments saved over the same ten years. FAQ: - Q: Can I get interest-only on a hotel CMBS loan? A: Often, if leverage is low and coverage is strong. In one conduit pool marketed in February 2026, 67.3 percent of the balance was interest-only for the full term and 10.1 percent had a partial period. Hotels were a small share of that pool, so expect closer scrutiny. - Q: Are SBA hotel loans ever interest-only? A: Only for a stated early period, typically during construction or renovation. SBA's SOP says balloon payments are not allowed and the loan must fully amortize by maturity. The 504 debenture is fully amortizing over 10, 20 or 25 years. - Q: How much lower is an interest-only payment on a $10 million hotel loan? A: At an assumed 7.00 percent, interest-only is $700,000 a year. A 25-year amortizing payment is about $848,000 a year. The difference is about $148,000 a year, or roughly $12,300 a month. - Q: Does interest-only help my DSCR on a hotel refinance? A: It raises the DSCR calculated on the actual payment. Some lenders test coverage on an amortizing payment anyway, and debt yield and LTV ignore the payment entirely. Ask the lender which payment its test uses before counting on extra proceeds. - Q: My hotel loan has three years of interest-only left. What happens when it ends? A: The payment steps up to the amortizing amount, based on the schedule in your note. On a 7.00 percent loan with 25-year amortization the step is about 21 percent. Put the higher payment in your budget now, and check coverage covenants against it. - Q: Is an interest-only loan riskier? A: It carries more refinance risk, because the full balance comes due at maturity. After ten years, a 25-year amortizing loan at 7.00 percent has paid off about 21 percent of its balance. An interest-only loan has paid off none. - Q: Do banks offer interest-only on hotel loans? A: Sometimes, for a year or two around a renovation, a ramp-up or a seasonal business. Federal guidelines require every bank's loan policy to set limits on non-amortizing loans, so long interest-only periods on permanent bank debt are uncommon. - Q: Can I get an interest-only USDA loan for a rural hotel? A: For a limited time. Under 7 CFR 5001.402, if a guaranteed loan has an interest-only period, the first full principal and interest payment must start within three years of the note date. Balloon maturities are not allowed. Sources: - [1] Benchmark 2026-B42 Mortgage Trust, free writing prospectus: new issue announcement, February 18, 2026 (pool balance, amortization types, property types) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000696/n5676_x6-newissue.htm - [2] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section B: amortization, no balloon payments (p. 125); note terms and interest-only payment periods (p. 316) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 12 CFR Part 34, Subpart D, Appendix A: Interagency Guidelines for Real Estate Lending Policies (standards for and limits on non-amortizing loans) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [4] 7 CFR 5001.402, Term length, loan schedule, and repayment (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.402 - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [6] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [7] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve ### Who lends on hotels under $5 million? URL: https://matthewshotelmarkets.com/hotel-financing/lenders-under-5-million Last updated: 2026-10-05 Four groups make most hotel loans under $5 million: SBA 7(a) lenders, banks paired with an SBA 504 debenture, community banks and credit unions lending conventionally, and rural lenders using the USDA Business and Industry guarantee. A 7(a) loan caps at $5 million.[1] USDA's most recent published notice, which set fiscal 2026 rates, guarantees 85 percent of a B&I loan under $5 million.[2] Prime has been 7.00 percent since September 17, 2026.[3] Key takeaways: - Small hotel loans are relationship and program loans. CMBS conduits and life companies mostly work above this size, so expect recourse. - SBA 7(a): one loan up to $5 million, guaranteed up to 75 percent above $150,000, up to 25 years on real estate, no balloon.[1][4] - SBA 504: a bank first lien, a fixed-rate debenture up to $5 million on a hotel, and at least 15 percent from the borrower.[5][4] The 25-year debenture priced at 6.54 percent on September 10, 2026.[3] - USDA B&I: hotels and motels are named as eligible in the regulation, in areas outside cities of more than 50,000 people, with terms up to 40 years and no balloon.[6][7][8] - A bank's legal lending limit is 15 percent of its capital and surplus per borrower.[9] A small bank can run out of room on one hotel. #### Why is the lender list different under $5 million? The fixed cost of underwriting and securitizing a hotel loan pushes capital-markets lenders toward bigger loans, which leaves small loans to banks, credit unions and government-guaranteed programs. A public example shows the scale conduits work at. The Benchmark 2026-B42 CMBS pool, marketed in February 2026, held 62 loans totaling $729,201,713, an average of about $11.8 million per loan, and hospitality was 1.8 percent of the pool.[10] A $3 million motel loan is not what that machine is built for. Our rate sheet calls conventional bank and credit union debt the most common source of hotel debt under $15 million.[3] Under $5 million the SBA programs join it, because the 7(a) loan cap and the 504 hotel debenture cap both sit at $5 million.[1][4] Nearly all of this debt is recourse. If that is a problem, read `/hotel-financing/non-recourse-loans` before you shop. #### How does SBA 7(a) work for a small hotel? It is one loan from one lender, up to $5 million, with a federal guaranty that lets the bank lend longer and at higher leverage than it would alone. SBA guarantees up to 75 percent of a 7(a) loan above $150,000. A loan that finances real estate can run up to 25 years, and proceeds can cover the purchase, equipment, working capital and a change of ownership.[1] SBA does not allow balloon payments, so the loan fully amortizes.[4] The maximum variable rate on loans over $350,000 is the base rate plus 3.0 percent, which is 10.00 percent on the 7.00 percent Prime in effect since September 17, 2026.[1][3] SBA publishes a maximum loan size and no minimum.[1] Two conditions catch hotel buyers. Holders of at least 20 percent of the business generally must personally guarantee the loan.[11] And the hotel has to be a hotel: more than 50 percent of prior-year revenue must come from guests who stay 30 days or less.[4] `/hotel-financing/extended-stay-financing` covers that test. #### When is SBA 504 the better small-hotel loan? When the purchase is mostly real estate and you want part of the debt fixed for up to 25 years. A 504 project has three pieces: a bank first lien, a debenture-funded second lien from a Certified Development Company, and the borrower's contribution. SBA's SOP lists hotels, motels and other lodging as Limited or Special Purpose Property, so the borrower contributes at least 15 percent, or 20 percent if the business is also two years old or less.[5][4] The debenture on a hotel caps at $5 million.[4] It cannot fund working capital.[12] The debenture rate is published monthly. The 25-year debenture priced at 6.54 percent on September 10, 2026, fees included.[3] The bank prices its first lien separately. `/hotel-financing/sba-7a-vs-504` runs the two programs side by side on the same purchase. #### Can I get a USDA loan for a hotel? Yes, if the hotel is in an eligible rural area. The Business and Industry program guarantees a bank's loan, and its regulation names hotels and motels as eligible projects. The OneRD guaranteed loan regulation lists tourist and recreation facilities, including hotels, motels and bed and breakfast establishments, among eligible B&I projects.[6] Rural means an area outside a city or town of more than 50,000 inhabitants and outside the urbanized area next to one, based on the latest decennial census.[7] USDA maintains an eligibility map, and your lender will check the address. The program limit is $25 million per borrower, far above this page's range.[13] Under the fiscal 2026 notice, a B&I loan under $5 million receives an 85 percent guarantee, with an initial guarantee fee of 3.0 percent and a periodic retention fee of 0.55 percent; loans from $5 million to $25 million receive 80 percent. Those rates took effect October 1, 2025, and that notice is still the most recent one USDA has published: fiscal 2026 ended September 30, 2026 and no fiscal 2027 notice had published as of October 5, 2026.[2] Terms can run up to 40 years, limited to the useful life of the assets, balloon maturities are not allowed, and any interest-only period ends within three years of the note date.[8] Not every bank is a B&I lender, and the guarantee adds a federal agency review. It is worth the effort for a rural hotel that is too large or too real-estate-heavy for 7(a), or where a longer amortization makes the coverage test work. The program's equity, appraisal and refinancing rules are on `/hotel-financing/usda-b-and-i-loans`. #### Do community banks and credit unions make hotel loans? Yes, and for a small hotel they are often the fastest and most flexible option, within two legal limits worth knowing. The first is the legal lending limit. A national bank's total loans to one borrower may not exceed 15 percent of its capital and surplus, plus another 10 percent if that excess is fully secured by readily marketable collateral, which a hotel is not.[9] State-chartered banks follow their own state limits. When a banker says a loan is too big for the bank, this is usually what it means, and the fix is a participation with another bank or a larger lender. The second applies to credit unions. A federally insured credit union's member business loans are capped in aggregate at 1.75 times its net worth.[14] A credit union near that cap may like your hotel and still decline it. Ask early. A bank can be closed to hotel paper for a third reason that has nothing to do with the borrower, its own commercial real estate concentration, which is explained in [why a bank says it is full on hotel loans](/hotel-financing/bank-cre-concentration-limits). Neither type publishes its DSCR floor, leverage limit or spread, so our rate sheet marks those cells not yet published.[3] Expect a personal guaranty, a shorter fixed period than the amortization, and a deposit relationship. #### How do I choose among them? Start with what the hotel and the buyer qualify for, then weigh down payment, rate structure and speed. If you are an owner-operator buying your first hotel, start with 7(a): it is one loan, it can include working capital, and the lender's policy sets the down payment instead of a regulatory minimum. If the deal is mostly real estate and you want a fixed rate, price 504. If the hotel is rural, ask a B&I lender what a 40-year maximum term does to coverage. If you have a banking relationship, liquidity and want speed and light prepayment terms, a conventional bank or credit union loan is often simplest. Whichever path you take, the lender will size the loan the way `/hotel-financing/loan-requirements` describes, and the documents are the same. A renovation or brand change on top of the purchase changes the answer; see `/hotel-financing/pip-and-renovation-loans`. Table: Small-balance hotel loan options and their published limits, September 2026 Option | Published size limit | Government guaranty | Longest term | Published rate fact | Key condition SBA 7(a) | $5 million loan maximum; no published minimum[1] | Up to 75% above $150,000[1] | 25 years on real estate, no balloon[1][4] | Maximum 10.00% variable on loans over $350,000[3] | Personal guaranty from 20% owners; 30-day transient revenue test[11][4] SBA 504 | $5 million debenture on a hotel; bank first lien sized by the bank[4] | SBA backs the debenture that funds the second lien | 10, 20 or 25 year debenture[12] | 25-year debenture 6.54%, priced September 10, 2026[3] | Borrower contributes at least 15% on a hotel; no working capital[5][12] USDA B&I guarantee | $25 million per borrower[13] | 85% under $5 million under the fiscal 2026 notice, the most recent published[2] | Up to 40 years, no balloon[8] | Rate set by the lender; 3.0% guarantee fee and 0.55% retention fee[2] | Rural area: outside cities of more than 50,000[7] Community or regional bank | Legal limit of 15% of the bank's capital and surplus per borrower[9] | None | Set by the bank; not published | Not published[3] | Relationship and personal guaranty Credit union | Aggregate business loans capped at 1.75 times net worth[14] | None | Set by the credit union; not published | Not published[3] | Membership; room under the business loan cap First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows the two published small-balance benchmarks: a 10.00% maximum allowable rate on SBA 7(a) loans over $350,000, which is the 7.00% Prime effective September 17, 2026 plus SBA's 3.00% cap, and 6.54% on the 25-year SBA 504 debenture priced September 10, 2026. It marks conventional bank and credit union spreads as not yet published.[3] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $4.2M purchase of a 48-key rural hotel, four ways): Hypothetical. A 48-key hotel in a town of 9,000 people sells for $4,200,000. The loan-to-price figures for 7(a), B&I and the bank are assumptions for the arithmetic, not quotes or program rules. SBA 7(a) at an assumed 85 percent of price: a $3,570,000 loan and $630,000 down. SBA guarantees 75 percent, or $2,677,500, and the lender holds $892,500 of unguaranteed exposure.[1] SBA 504 at the hotel minimums: bank first lien 50 percent, $2,100,000; debenture 35 percent, $1,470,000; borrower 15 percent, $630,000.[5][4] The down payment matches the 7(a) case here, and $1,470,000 of the debt is fixed for up to 25 years. USDA B&I at an assumed 80 percent of price: a $3,360,000 loan and $840,000 down. The fiscal 2026 guarantee is 85 percent, or $2,856,000. The initial guarantee fee is 3.0 percent of the guaranteed amount, $85,680, and the periodic retention fee is 0.55 percent of the guaranteed share of the outstanding balance, about $15,708 at the starting balance.[2][15] Conventional bank at the same $3,360,000: under the 15 percent lending limit, the bank needs at least $22,400,000 of capital and surplus to hold this loan alone.[9] A bank with $30,000,000 of capital and surplus has a $4,500,000 limit, so this one borrower would use most of it. Four structures, down payments from $630,000 to $840,000, and the right one depends on the rate structure, fees and speed you need. FAQ: - Q: What's the minimum loan size hotel lenders will do? A: It depends on the lender type. SBA publishes a $5 million maximum for 7(a) and no minimum, so SBA lenders and community banks go smallest. CMBS conduits and life companies generally prefer larger loans. One 2026 conduit pool averaged about $11.8 million per loan. - Q: I'm buying a 40-room motel for $2.8 million. Who will finance it? A: Most likely an SBA 7(a) lender, a bank paired with an SBA 504 debenture, or a community bank or credit union that knows you. If the motel is outside a city of more than 50,000 people, a USDA B&I lender is a fourth option. - Q: Can I get a USDA loan for a hotel in a small town? A: Yes. The USDA Business and Industry regulation names hotels and motels as eligible projects in rural areas. A bank makes the loan and, under USDA's most recent published notice, which set fiscal 2026 rates, USDA guarantees 85 percent of it if the loan is under $5 million. - Q: Do credit unions make hotel loans? A: Many do. A federally insured credit union's total member business loans are capped at 1.75 times its net worth, so appetite depends on how much room it has left. You also need to qualify for membership. - Q: My bank says my hotel loan is too big for them. What does that mean? A: Usually the legal lending limit. A national bank cannot lend one borrower more than 15 percent of its capital and surplus on a loan like this. The bank can sell a participation to another bank, or you can move to a larger lender. - Q: How much do I need to put down on a small hotel? A: SBA 504 requires at least 15 percent on a hotel, or 20 percent for a business two years old or less. SBA 7(a), USDA B&I and conventional lenders set equity by their own credit policy and do not publish it. Get the requirement in writing. - Q: Are small hotel loans always recourse? A: Nearly always. SBA rules generally require a personal guaranty from every owner of 20 percent or more, and banks and credit unions ask for one by policy. Non-recourse lenders mostly work at larger loan sizes. - Q: Is there a balloon payment on an SBA or USDA hotel loan? A: No. SBA does not allow balloon payments on 7(a) loans, and the USDA regulation says balloon maturities are not allowed on guaranteed loans. Conventional bank loans often do have a balloon, because the fixed period is shorter than the amortization. Sources: - [1] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [2] OneRD Annual Notice of Guarantee Fee Rates, Periodic Retention Fee Rates, Loan Guarantee Percentage and Fee for Issuance of the Loan Note Guarantee Prior to Construction Completion for Fiscal Year 2026 (91 FR 11272, March 9, 2026) (Federal Register, U.S. Department of Agriculture Rural Development, accessed 2026-09-18): https://www.federalregister.gov/documents/2026/03/09/2026-04581/onerd-annual-notice-of-guarantee-fee-rates-periodic-retention-fee-rates-loan-guarantee-percentage - [3] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [4] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): 30-day transient revenue test (pp. 19-20), no balloon payments (p. 125), debenture limits (p. 350), hotels as Limited or Special Purpose Property (pp. 354-355) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [5] 13 CFR 120.910, Borrower contributions (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [6] 7 CFR 5001.105, Eligible projects: tourist and recreation facilities, including hotels and motels (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.105 - [7] 7 CFR 5001.3, Definitions: rural and rural area (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.3 - [8] 7 CFR 5001.402, Term length, loan schedule, and repayment (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.402 - [9] 12 CFR 32.3, Lending limits (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/32.3 - [10] Benchmark 2026-B42 Mortgage Trust, free writing prospectus: new issue announcement, February 18, 2026 (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000696/n5676_x6-newissue.htm - [11] 13 CFR 120.160, Loan conditions (personal guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 - [12] 504 loans (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/loans/504-loans/ - [13] 7 CFR 5001.406, Maximum loan amounts (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.406 - [14] 12 CFR 723.8, Aggregate member business loan limit; exclusions and exceptions (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/723.8 - [15] 7 CFR 5001.454, Guarantee fee, and 7 CFR 5001.455, Guarantee retention fee (how each fee is calculated) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.454 ### Can I assume the existing loan when I buy a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/loan-assumption Last updated: 2026-10-26 Sometimes. Most hotel loans carry a due-on-sale clause, so an assumption needs the lender's consent. CMBS loans often permit one if the buyer qualifies and pays an assumption fee.[1] SBA lets a 7(a) lender charge up to 1 percent of the balance and says the buyer of a business should be offered the chance to assume the SBA debt, under SOP 50 10 8, effective June 1, 2025.[3] Key takeaways: - Start from the due-on-sale clause. Federal law lets a lender enforce it, so without consent a sale makes the loan callable.[1][2] - CMBS: loan documents often allow a transfer if there is no default, the buyer is creditworthy and experienced, the buyer signs an assumption agreement, and the assumption fee is paid. The servicer decides, and large loans also need rating agency confirmation.[1] - SBA 7(a): the lender may charge an assumption fee of no more than 1 percent of the outstanding principal, the buyer must meet current 7(a) eligibility rules, and the assumption agreement must bar any future assumption.[3][4] - SBA 504 and USDA B&I: a 504 assumption fee cannot exceed 1 percent of the balance and needs SBA's written approval. USDA charges an eligible buyer a one-time $1,500 transfer fee and must approve in writing first.[3][5] - An assumed loan keeps its rate, its remaining term and its balance. The buyer has to cover the gap between that balance and the price with cash or approved subordinate capital. #### What does it mean to assume a hotel loan? Assuming a loan means the buyer takes over the seller's existing mortgage, with its rate, balance, remaining term and covenants, instead of paying it off and borrowing new money. SBA's servicing manual defines it plainly: another person takes over the borrower's legal obligations and benefits under the loan documents.[4] Nothing about the loan resets. If the seller's loan has six years left at a fixed rate, the buyer gets six years at that rate. That is attractive when the existing rate is below today's market. The 10-year Treasury, the index behind most fixed-rate hotel quotes, was 5.29 percent on September 30, 2026.[6] A loan written when the index was much lower carries a coupon a new lender cannot match. For the seller, an assumption can also avoid a prepayment cost. On a CMBS loan that cost is [defeasance](/glossary/defeasance) or [yield maintenance](/glossary/yield-maintenance), which can be costly. See [What is a CMBS loan and how does it work for hotels?](/hotel-financing/cmbs-loans) The catch is that the lender has to agree, and the loan was sized to the seller's purchase, not the buyer's. #### Why do I need the lender's permission? Nearly every commercial mortgage has a due-on-sale clause that lets the lender demand full repayment if the property or control of the borrower changes hands without consent. A 2026 CMBS prospectus describes its pool this way: the mortgage loans generally contain due-on-sale and due-on-encumbrance clauses, which permit the holder to accelerate the loan if the borrower sells, transfers or encumbers the property, or a controlling interest in the borrower, without the lender's consent.[1] The clause reaches entity transfers, not only deeds. The same prospectus notes that loans usually permit some transfers without consent, such as estate planning and family transfers and transfers of non-controlling interests.[1] Federal law backs the clause. Under the Garn-St Germain Act, a lender may enforce a due-on-sale clause in a real property loan notwithstanding state law to the contrary.[2] The prospectus draws the practical conclusion: a lender can accelerate on a transfer without having to show that the sale harms its security.[1] So a buyer cannot simply keep making the seller's payments. Buying the hotel subject to the loan without consent hands the lender a right to call it. #### How does a CMBS loan assumption work? A CMBS assumption is a consent request to the loan's servicer, judged against conditions written in the loan documents and the pooling and servicing agreement. The prospectus lists the conditions that loans in its pool commonly set for a permitted transfer: no event of default; a proposed transferee that is creditworthy and has sufficient experience owning and managing similar properties, or a rating agency confirmation; an assumption agreement signed by the transferee, with legal opinions and title insurance endorsements; and receipt of the assumption fee. Some loans allow a limited number of transfers without a fee.[1] Who decides depends on the loan. The master servicer handles a performing loan unless the decision is classed as a major decision or a special servicer decision, in which case the special servicer handles it, and before certain trigger events the directing certificateholder must consent. For the largest loans in a pool, such as one over $35,000,000, or one of the 10 largest with a balance of at least $10,000,000, the servicer also needs written confirmation from the rating agencies. The servicer may not approve an assumption without requiring the borrower to pay the rating agencies' fees, where the loan documents allow that.[1] The money goes to the servicers, not to the bondholders. Assumption fees are never paid to certificateholders, the special servicer keeps 100 percent of assumption fees on specially serviced loans, and it splits them 50 percent on other loans where it is involved. A separate assumption application fee goes to whichever servicer processes the request.[1] The prospectus does not publish the fee percentage, because each loan's documents set it. Read the transfer section of the loan agreement for the number, and budget for the lender's legal costs and yours. One more limit: the assumption agreement may not change the loan's terms except through the servicer's separate modification process.[1] Do not expect to renegotiate the rate, extend the term or add proceeds on the way in. CMBS loans are typically [non-recourse with carve-outs](/glossary/non-recourse-carve-outs), so ask the servicer early what it will require from the buyer's guarantor: see [Can I get a non-recourse loan on a hotel?](/hotel-financing/non-recourse-loans) #### Can a buyer assume an SBA 7(a) or 504 loan? Yes, with the lender's approval and inside SBA's rules, and SBA's own manual says that in a complete change of ownership the buyer should be offered the option to assume the existing SBA debt. That sentence is in SOP 50 10 8, the SBA's lending manual effective June 1, 2025, in its discussion of debt refinancing: paying off debt as part of a change of ownership is not a refinance, and the option to assume the existing SBA debt should be offered to the buyer.[3] A revised manual, SOP 50 10 8.1, took effect October 1, 2026. We read both, and the 7(a) assumption fee paragraph is the same in each.[3] On fees, SBA does not require a new guaranty fee on an assumption, and lien positions are often kept, which avoids recording costs. A 7(a) lender may charge an assumption fee consistent with what it charges on its other loans. The fee must be reasonable and cannot exceed 1 percent of the principal balance outstanding at the time of assumption, and either the seller or the buyer may pay it. For 504 loans, the fee table caps the assumption fee at 1 percent of the outstanding principal balance of the loan being assumed, payable upon SBA's written approval.[3] The procedure is in SOP 50 57 4, the 7(a) servicing manual effective November 1, 2025. Unless the assumption is part of a workout, the lender must ensure the buyer satisfies the 7(a) eligibility requirements in effect when the assumption is approved, will be the primary owner of the business, has a satisfactory credit history and can repay the loan in full. The lender should ensure the buyer's business experience and management skills equal or exceed the seller's, should not release collateral, and should ask for more collateral if what exists is inadequate. New obligors must meet SBA's citizenship requirements.[4] Two terms surprise people. The assumption agreement must include a due on sale or death clause that prohibits any future assumption, so an SBA loan can be assumed once. And the seller may not keep title until the buyer pays an agreed amount, which rules out a contract-for-deed structure.[4] For how the two SBA programs differ, see [What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel?](/hotel-financing/sba-7a-vs-504). #### What about USDA and ordinary bank loans? A USDA B&I loan can be assumed with the agency's prior written approval, and a conventional bank loan can be assumed only if the bank chooses to allow it. USDA's regulation is specific. The lender must get the agency's written approval before any transfer and assumption. The buyer assumes at least the outstanding balance or the present market value of the collateral, whichever is less, and the full debt if the seller is receiving a payment for its equity. The buyer signs an agency application and gives guarantees under the usual rule, and the lender completes a full credit evaluation. Loan terms can stay the same or change with the agency's consent. USDA charges a one-time, nonrefundable $1,500 transfer fee for an eligible borrower, or 1 percent of the guaranteed loan balance for an ineligible one. A significant change in control of the borrower counts as a transfer and assumption.[5] The program itself is covered in [Can I get a USDA B&I loan for a hotel?](/hotel-financing/usda-b-and-i-loans) A conventional bank or credit union loan has no public rulebook. The due-on-sale clause applies, the bank has no obligation to consent, and a bank that does consent is in effect underwriting a new borrower. Banks do not publish assumption policies or fees. Ask, in writing, before the purchase agreement assumes the answer. Nothing requires a bank to pass along an old rate, so expect it to weigh a new loan at today's rate against consenting. #### Is the seller released when the buyer assumes the loan? Not automatically. A release of the seller and its guarantors is a separate decision, and each program has its own rule. Under USDA's regulation, the seller and any guarantor can be released from liability only with the agency's prior written approval, and only when the assumption is for the full outstanding balance.[5] Under SBA's servicing manual, a lender must not release existing obligors without SBA's prior written approval when the loan is in payment default or liquidation, and the manual handles guarantor substitution and release in its own chapter.[4] In a CMBS assumption, whether the original carve-out guarantor is released depends on the loan documents and the servicer's consent. Sellers should make the release a condition of closing in the purchase agreement, not an expectation. A seller who stays liable on a loan to a hotel it no longer controls has kept the risk and sold the upside. #### When is assuming the loan worth it? Assumption is worth pursuing when the rate savings over the remaining term outweigh the extra equity, the fees and the time, and when the loan's remaining term fits the buyer's plan. Work through four questions. How far below market is the rate, and for how many more years? How much more cash does the buyer need, given that the old balance is usually a smaller share of today's price than a new loan would be? Does the loan allow subordinate financing to fill the gap? The due-on-encumbrance clause applies, so a second lien needs the first lender's consent.[1] And what does the clock look like? None of the sources we read publishes a processing time for assumptions, so get the servicer's or lender's estimate before you set a closing date, and expect it to run alongside the franchise approval. The franchise does not travel with the loan. A buyer applies to the brand for its own franchise agreement and usually receives a PIP, which the assumed loan will not fund: see [What documents do I need to sell my hotel?](/sell-a-hotel/documents-needed) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans) If the loan matures soon, the low rate is worth less than it looks, because the buyer inherits the refinancing: see [How much hotel debt is maturing in 2026 and 2027?](/hotel-financing/loan-maturities-2026-2027) To compare the assumed payment with a new loan at current rates, use [the DSCR calculator](/tools/dscr-calculator). Table: Hotel loan assumption rules by loan type, from the public sources cited Loan type | Who approves | What the source says about fees | Other stated conditions CMBS | Master or special servicer, with the directing certificateholder on major decisions; rating agency confirmation on the largest loans[1] | Assumption fee and application fee set by the loan documents and paid to the servicers; borrower pays rating agency fees where the documents allow[1] | No default; creditworthy, experienced buyer; assumption agreement, legal opinions, title endorsements; terms cannot change[1] SBA 7(a) | The 7(a) lender, under SBA's servicing manual[4] | Not more than 1% of outstanding principal; no new SBA guaranty fee; seller or buyer may pay[3] | Buyer meets current 7(a) eligibility; primary owner; no collateral release; no future assumption[4] SBA 504 | The CDC, with SBA's written approval[3] | Not more than 1% of the outstanding principal balance of the loan assumed[3] | Set by SBA's 504 servicing rules; ask the CDC USDA B&I | The lender, with USDA's prior written approval[5] | $1,500 one-time transfer fee for an eligible borrower; 1% of the guaranteed balance for an ineligible one[5] | Full credit evaluation; new guarantees; release of seller only with agency approval[5] Conventional bank | The bank, at its discretion under the due-on-sale clause[2] | Not published | Not published; get the bank's answer in writing First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% as of September 30, 2026 and the SBA 7(a) maximum variable rate at 10.00%. An assumable fixed-rate loan is worth the most when its coupon sits well below what that index implies for new debt.[6] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: assuming a $4.2M loan on a $7.5M hotel purchase): Hypothetical. A buyer agrees to pay $7,500,000 for a hotel. The seller's fixed-rate loan has a $4,200,000 balance at 4.60 percent. For comparison, assume a new loan at 65 percent of price and 7.25 percent. Both the leverage and the new rate are assumptions for the arithmetic, not quotes. Interest is compared on a simple annual basis to keep the amortization out of it. Equity with the assumption. $7,500,000 minus $4,200,000 equals $3,300,000 of cash, or 44 percent of the price. The assumed loan is 56 percent of price. Equity with a new loan. 65 percent of $7,500,000 is $4,875,000, so the buyer brings $2,625,000. The assumption takes $675,000 more cash. Interest. On the same $4,200,000, 4.60 percent is $193,200 a year and 7.25 percent is $304,500 a year. The old rate saves $111,300 a year for as long as the loan has left to run. Fee. If this were an SBA 7(a) loan, the lender's assumption fee could not exceed 1 percent of the balance: $42,000.[3] If it were a USDA B&I loan and the buyer were eligible, the agency's transfer fee would be $1,500.[5] A CMBS loan's fee is whatever its documents say.[1] The trade. The buyer puts in $675,000 more equity and pays an assumption fee to save $111,300 a year. With six years left on the loan that is $667,800 of interest saved before fees, which is roughly the extra equity and no more. With two years left it is $222,600, and the buyer also inherits a refinancing in two years. The remaining term decides it. FAQ: - Q: Are hotel loans assumable? A: Some are, with the lender's consent. CMBS loan documents often set out conditions for a permitted transfer. SBA and USDA loans can be assumed under written program rules. A conventional bank loan is assumable only if the bank agrees. - Q: How much is a loan assumption fee? A: It depends on the loan. SBA caps a 7(a) or 504 assumption fee at 1 percent of the outstanding principal. USDA charges an eligible buyer $1,500. A CMBS loan's fee is set in its loan documents, and banks do not publish theirs. - Q: Who approves a CMBS loan assumption? A: The master servicer or the special servicer, depending on the loan's status and how the pooling agreement classes the decision. The directing certificateholder may have to consent, and the largest loans in a pool also need rating agency confirmation. - Q: Can I change the loan terms when I assume a CMBS loan? A: Generally no. The prospectus we read says an assumption agreement may not contain terms different from the mortgage or note, except through the servicer's separate modification provisions. Plan on the existing rate, maturity and covenants. - Q: Can an SBA hotel loan be assumed more than once? A: No. SBA's servicing manual requires the assumption agreement to include a due on sale or death clause that prohibits any future assumption of the 7(a) loan. - Q: Does the buyer have to qualify for an SBA loan to assume one? A: Yes. Unless the assumption is part of a workout, the lender must ensure the buyer meets the 7(a) eligibility requirements in effect when the assumption is approved, will be the primary owner, has satisfactory credit and can repay the loan. - Q: If the buyer assumes my loan, am I off the hook? A: Only if the lender releases you in writing. USDA requires agency approval and a full-balance assumption for a release. SBA restricts releases on troubled loans. Make your release a closing condition in the purchase agreement. - Q: Can I use a second loan to cover the gap between the old balance and the price? A: Only if the first lender allows it. Commercial mortgages generally carry a due-on-encumbrance clause, so subordinate debt on the property needs consent. Many buyers cover the gap with more equity instead. Sources: - [1] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): due-on-sale and due-on-encumbrance provisions (pp. 221-222), servicer compensation and assumption fees (pp. 408-409), servicer consent and rating agency confirmation (p. 430), Garn-St Germain discussion (p. 515) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1013454/000153949726000776/n5676_x16-424b2.htm - [2] 12 U.S.C. 1701j-3, Preemption of due-on-sale prohibitions (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/12/1701j-3 - [3] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): 7(a) assumption fee (p. 67), 504 assumption fee (p. 79), option to assume existing SBA debt in a change of ownership (p. 112); SOP 50 10 8.1 (effective October 1, 2026) posted on the same page (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [4] SOP 50 57 4, 7(a) Loan Servicing and Liquidation (effective November 1, 2025), Chapter 11, Assumption, Assignment or Sale of Loan (pp. 76-77) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-57-7a-loan-servicing-liquidation - [5] 7 CFR 5001.506, Loan transfers and assumptions, and 5001.509, Servicing fees (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.506 - [6] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much hotel debt is maturing in 2026 and 2027? URL: https://matthewshotelmarkets.com/hotel-financing/loan-maturities-2026-2027 Last updated: 2026-10-01 Trepp counts $18.7 billion of hotel CMBS maturing in 2026, and nearly 70 percent of it floats, reported August 3, 2026. No public source gives a hotel-specific 2027 figure, so this page does not state one. The number that decides your own outcome is smaller and local: does today's NOI support today's balance at today's rate? Key takeaways: - Trepp's published hotel CMBS figure is $18.7 billion maturing in 2026. Nearly 70 percent of it carries a floating rate. - There is no publicly published hotel-specific 2027 maturity volume as of September 2026. We do not estimate one. - A maturity default is a refinancing failure, not a payment failure. A loan can be current on every payment and still default at maturity. - The diagnostic is one calculation: does today's NOI support today's balance at today's rate? - Twelve months of lead time is the difference between five options and one. #### How much hotel debt is actually maturing, and who says so? Trepp counts $18.7 billion of hotel CMBS maturing in 2026, nearly 70 percent of it floating; nobody publishes a hotel-specific 2027 number, and the figures that do exist count different loan universes. Trepp's figure covers securitized hotel CMBS only.[1] It does not include bank balance-sheet hotel loans, life company loans, SBA loans, or debt-fund paper, none of which Trepp's CMBS count covers. So $18.7 billion is a real, dated, checkable number for one slice of the market, and it is not the size of the hotel maturity wall. The floating-rate detail matters more than the headline. If nearly 70 percent of that 2026 book floats, then SOFR, not the 10-year Treasury, is the number that decides whether those specific loans can extend.[1] SOFR was 3.90% for September 30, 2026.[4] A floating loan that was underwritten when SOFR was near zero has already repriced; the question for that borrower is whether the cap they bought is still in the money and what a replacement cap costs, which is covered on `/hotel-financing/bridge-loans`. For 2027 we found nothing publishable. The Mortgage Bankers Association's maturity survey says 30 percent of hotel/motel loan balances come due in 2026, but it gives no hotel dollar amount and no hotel breakdown for 2027, only a $652 billion total for all commercial and multifamily loans maturing that year.[2] Quoting that total here would imply a hotel figure that the release does not contain. The Federal Reserve publishes bank-held commercial real estate balances in H.8 with no hotel split at all.[3] A larger, round-number, multi-year hotel figure covering 2026 through year-end 2027 circulates in the trade press and, until this update, in three articles on this site. We could not source it to any publisher, so we removed it from those articles and we do not restate it here, not even to knock it down. Adding an unknown 2027 book to a sourced 2026 figure and attributing the total to a research house is not sourcing. The reasoning is on `/data/hotel-financing-statistics`, which lists every figure we rejected and why. #### How do I tell if my loan is at risk? Run one calculation: divide trailing NOI by your lender's coverage test to get maximum debt service, convert that to a loan amount at today's rate and amortization, and compare it to your balance. That number, the gap between what the asset supports today and what you owe, is the only maturity statistic that changes what you should do. A national maturity total does not. The worked example below runs the arithmetic twice on the same hypothetical loan, once at a healthy NOI and once at a soft one, because the same balance produces two completely different conversations. Three inputs move the answer and you can get all three in a week: your trailing twelve-month NOI from the P&L, your lender's stated coverage test, and today's index plus the spread a lender will actually quote you. The first two are yours. For the third, `/rates` publishes the index and says plainly which spreads are not published, and `/hotel-financing/refinance` walks the full process. #### What is a maturity default? A maturity default is a failure to repay the loan on its maturity date, even when every scheduled payment has been made on time. It is the reason a hotel with no payment history problem can end up in special servicing. The loan documents require the full remaining balance on a date. If the refinance does not close and the borrower does not write a check, the loan is in default on that date regardless of how the property is performing. That is a different event from a payment default, where the borrower misses a monthly payment because the property is not producing enough cash. The practical difference is timing and leverage. A payment default is visible to the lender the month it happens. A maturity default is visible to both sides years in advance, on the term sheet, which is why it is the one kind of default an owner can usually prevent. `/hotel-financing/loan-workouts` covers what happens once a loan does transfer. #### What do lenders do when a hotel loan cannot refinance? Most often they extend a performing loan on new terms rather than take the asset back, but that is a tendency driven by their own economics, not a policy you can rely on. A lender taking back a hotel takes back an operating business: a franchise agreement with transfer conditions, a management contract, payroll, and a property condition assessment it has not seen. That is expensive and slow, which is why an extension on new terms, often with a rate reset, a partial paydown, a cash-management sweep and a funded reserve, is the common outcome for a loan that is current and covering. The tendency weakens fast when the loan is not covering. The overall CMBS special servicing rate rose 33 basis points in August 2026 to 11.42%, its highest level since February 2013.[5] Special servicing leads delinquency, because a loan transfers before it misses a payment. The lodging CMBS delinquency rate was 5.35% in July 2026, up 13 basis points on the month.[6] Trepp reported a further lodging increase in August without publishing the August lodging number in any release we could open.[5] So the direction is clear and the current level is not; we publish July's figure rather than an August figure we cannot source. #### Which segments are seeing the most stress? Floating-rate loans on transitional assets with open PIPs, across segments, rather than any one brand or market that public data identifies. We are deliberately not naming brands or markets here. No public release we could open breaks hotel maturity or delinquency data down by flag or by metro, and inventing that breakdown from a handful of deals we happen to have seen would be a worse answer than saying so. What the public data does support is a structural read. The stress concentrates where three things overlap: a floating-rate loan originated in the 2019 to 2021 rate environment, an asset that has not stabilized or that carries an unfunded brand-mandated PIP, and a sponsor without the liquidity to write a paydown check. Any one of those is manageable. All three together is the profile that transfers to special servicing. `/hotel-financing/pip-and-renovation-loans` covers the PIP-funding piece specifically. #### What should I do 12 months before maturity? Order a fresh value opinion, get the PIP status in writing, run the coverage test at today's rate, and open the conversation with your incumbent lender before you need anything from it. Twelve months out, an owner has five real options: write a paydown check, negotiate an extension with the incumbent lender, bring in mezzanine or preferred equity, bridge to a later permanent takeout, or sell. Each of those takes time to arrange, and the ones that require a third party take the most. The sequence that works is boring: value opinion first, because it prices the equity and it is what a new lender will size against; franchise and PIP status second, in writing, because an unquantified PIP stalls every other track; coverage test third, at a quoted rate rather than a remembered one. `/hotel-financing/refinance-or-sell` is the decision page for the last of the five options, and it is not a defeat. A sale at 14 months out is a normal disposition. A sale at 60 days out is a distressed one. #### What if I am already inside 90 days? The five options have usually narrowed to whatever the incumbent lender will offer, so the work is to make that offer as good as it can be and to run a takeout search in parallel. Inside 90 days, a new permanent lender generally cannot complete third-party reports, franchise approval and closing in time, which removes the competitive tension that would otherwise improve terms. What is still available: a short extension to create runway for a proper process, a forbearance while a takeout is arranged, and a paydown sized to whatever the incumbent needs to re-underwrite. Go to the lender with the same package a new lender would want: trailing twelve-month P&L, a current STAR report, the franchise agreement and PIP status, and a written plan with dates. A borrower who arrives with that gets a materially different conversation than one who arrives asking for time. `/hotel-financing/loan-workouts` covers the mechanics from there. Table: Hotel loan maturity figures, by publisher, as of September 17, 2026 Publisher | What it counts | Figure | As of Trepp, read via Hotel Dive | Securitized hotel CMBS only, 2026 maturities | $18.7 billion, nearly 70% floating rate | August 3, 2026 Trepp, read via Hotel Dive | Securitized hotel CMBS only, 2027 maturities | Not published | n/a Mortgage Bankers Association | All commercial and multifamily lenders; hotel/motel share only, no hotel dollar amount | 30% of hotel/motel loan balances mature in 2026; no hotel figure for 2027 | February 10, 2026 Federal Reserve, H.8 | Bank-held commercial real estate; no hotel split published | Not published for hotels | n/a Widely repeated trade figure | Claimed hotel CMBS through year-end 2027 | Not used on this site. We could not source it to any publisher. | n/a First-party data point: Matthews Hotel Markets' October 2026 rate sheet gives you the index to run your own maturity stress test against: the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90% for September 30, 2026.[4] It marks the spread over each as not yet published, because we do not print a spread until three independent lenders quote the same structure in a month.[7] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: the one calculation that tells you if you are at risk): Hypothetical. Loan balance $12.60M maturing in 14 months. Trailing twelve-month NOI $1.42M. The lender's stated coverage test is 1.35x, on a 25-year schedule, at a 7.25 percent quote. Maximum debt service = $1.42M / 1.35 = $1,051,852. The annual constant at 7.25 percent over 25 years is about $86,800 per $1M of loan. Supportable loan = $1,051,852 / $86,800 per $1M = $12.12M. Gap = $12.60M minus $12.12M = $480,000, about 3.8 percent of the balance. A 3.8 percent gap is a check, not a crisis. Now rerun the identical loan with NOI at $1.15M: maximum debt service $851,852, supportable loan about $9.81M, gap $2.79M, or 22 percent of the balance. Same building, same balance, same rate. That second version is a different conversation and it needs to start today, not in month thirteen. FAQ: - Q: How much hotel CMBS debt matures in 2026? A: Trepp counts $18.7 billion, reported August 3, 2026, with nearly 70 percent of it carrying a floating rate. That covers securitized hotel CMBS only, not bank, life company, SBA or debt-fund loans. - Q: How much hotel debt matures in 2027? A: No public source we could open publishes a hotel-specific 2027 maturity figure as of September 2026. We do not estimate one. A widely repeated multi-year number is not attributable to any publisher. - Q: What is a maturity default on a hotel loan? A: A failure to repay the balance on the maturity date, even when every monthly payment has been made on time. It is a refinancing failure rather than a payment failure, and it is usually preventable. - Q: Will my lender extend my hotel loan? A: Often, if the loan is current and covering, because taking back an operating hotel is expensive for a lender. Expect new terms: a rate reset, a paydown, a cash sweep, or a funded reserve. - Q: How do I know if my hotel loan can refinance? A: Divide trailing NOI by your lender's coverage test, convert the result to a loan amount at today's rate and amortization, and compare it to your balance. The gap is your answer. - Q: What is special servicing? A: Transfer of a securitized loan to a servicer that handles troubled loans. It leads delinquency, because a loan usually transfers before it misses a payment. The overall rate hit 11.42 percent in August 2026. - Q: When should I start working on a maturity? A: Twelve months out. At that point an owner has five options: pay down, extend, add mezzanine or preferred equity, bridge, or sell. At ninety days out, most of those have closed off. Sources: - [1] 4 trends reshaping the 2026 hospitality investment market (Hotel Dive, citing Trepp, accessed 2026-09-17): https://www.hoteldive.com/news/trends-reshaping-2026-hospitality-investment-market/826807/ - [2] MBA: 17% of Commercial and Multifamily Mortgage Balances to Mature in 2026 (Mortgage Bankers Association (MBA NewsLink), accessed 2026-09-18): https://newslink.mba.org/cmf-newslinks/2026/february/mba-commercial-multifamily-newslink-thursday-feb-12-2026/mba-17-of-commercial-and-multifamily-mortgage-balances-to-mature-in-2026/ - [3] H.8 Assets and Liabilities of Commercial Banks in the United States (Board of Governors of the Federal Reserve System, accessed 2026-09-17): https://www.federalreserve.gov/releases/h8/ - [4] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [5] Multifamily CMBS servicing rate declined, delinquencies stayed flat in August (Multifamily Dive, citing Trepp, accessed 2026-09-17): https://www.multifamilydive.com/news/bank-reo-cmbs-servicing-multifamily-deliquency/830531/ - [6] Trepp: CMBS Delinquency Rate Up 51 Basis Points in July (MBA Newslink, citing Trepp, accessed 2026-09-17): https://newslink.mba.org/mba-newslinks/2026/august/mba-newslink-thursday-august-6-2026/trepp-cmbs-delinquency-rate-up-51-basis-points-in-july/ - [7] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-17): https://matthewshotelmarkets.com/rates ### What do lenders require for a hotel loan? URL: https://matthewshotelmarkets.com/hotel-financing/loan-requirements Last updated: 2026-10-01 A hotel lender wants three things: cash flow that clears its coverage test, a sponsor with hotel experience and liquidity, and a clean franchise position. The package is a trailing twelve-month P&L, a STAR report, a PIP status letter, the franchise agreement and a personal financial statement. As of September 2026, SBA 504 caps a hotel at 85 percent of project cost.[1][2][3] Key takeaways: - The trailing twelve-month P&L and the STAR report are the two documents that decide the deal. - A first-time buyer should expect to bring more equity than an experienced operator. The lender sets the amount. - An open PIP does not kill a loan, but an unfunded PIP does. - Most bank and SBA hotel loans carry a personal guarantee. Non-recourse usually means CMBS or a life company at a larger loan size. - Start the maturity conversation 12 months out, not 90 days out. #### What documents does a hotel lender ask for? Six documents move a hotel loan from an indication to a real term sheet, and the table below shows what each one tests. The trailing twelve-month profit and loss statement, ideally monthly, is the single most important document in the package, because it is the raw NOI a lender underwrites. A STAR report, produced by STR through the brand, shows occupancy, ADR and RevPAR against a defined competitive set and tells a lender whether performance is trending with, above, or below the market. The franchise agreement and any PIP letter show the lender what capital obligation, if any, is attached to keeping the flag. A personal financial statement and schedule of real estate from the sponsor show liquidity, net worth, and whether the sponsor has hotel operating experience. Recent capital expenditure history shows whether the trailing NOI was earned or bought with deferred maintenance. The lender orders its own appraisal and property condition assessment once the package is complete. #### What ratios do I have to clear? A hotel loan clears a debt service coverage test, a debt yield floor, and a loan-to-value cap, each set by the lender, with the lowest result setting the loan size. These three tests, and how they interact, are covered in full on `/hotel-financing`, the cluster hub. The short version for a loan-requirements checklist: bring the trailing twelve-month NOI, know your target leverage, and expect the lender to run all three tests independently rather than take your own math at face value. No conventional lender type publishes its thresholds, which is why our rate sheet marks them not yet published.[1] Ask for yours in writing. #### How much cash do I need to bring? The lender's leverage ceiling sets the down payment, a buyer without hotel operating experience usually brings more, and the cash needed at closing runs above the down payment alone. Whatever the loan-to-value, the equity check is the rest of the price, before closing costs, reserves, and franchise fees are added. SBA 504 is the one program with a written hotel ceiling: 85 percent of project cost, so the borrower puts in at least 15 percent.[1][2] Closing costs, a lender-required FF&E reserve, and franchise application and transfer fees add more. The franchise fees need to come from the specific brand's own FDD, not a general estimate. The worked example below shows how these add up on a hypothetical deal. #### What does a lender look for in the sponsor? A lender underwrites the sponsor's liquidity, net worth, and hotel operating experience separately from the asset, and a weak sponsor can sink a strong deal. Post-closing liquidity requirements are common, typically enough cash and marketable securities left over after closing to cover several months of debt service and a capital contingency. A sponsor with no hotel operating experience is not automatically disqualified but is typically required to bring a qualified management company or an experienced partner into the ownership or management structure, and the equity requirement generally rises. Personal credit history matters most on bank and SBA loans, where a personal guarantee is standard; it matters less on non-recourse CMBS and life company loans, where the sponsor's track record and the asset's own performance carry more of the underwriting weight. #### Will an open PIP stop my loan? An open PIP with a funding plan is routine; an open PIP with no funding source attached is the more common reason a loan stalls. Lenders expect PIPs on branded hotels and have standard ways to handle them: a capex reserve or holdback in a refinance, a future-funding facility in a bridge structure, or simply confirmation that the PIP is already funded and scheduled. What stops a loan is an owner who has not gotten the PIP scope letter in writing, has no financing plan for it, and cannot tell the lender when it will be complete. Get the scope letter first; everything downstream depends on it. More detail on financing a PIP specifically is on `/hotel-financing/pip-and-renovation-loans`. #### Can I get financed if occupancy dropped? Yes, if the lender believes the drop is temporary and can see a credible path back, and the trend line matters more than the single trailing number. A lender reviewing a hotel with softened occupancy will look at year-over-year and month-over-month trend, the comp-set performance over the same period, and whether a specific, identifiable cause explains the dip: a renovation, new supply that has not yet been absorbed, or a temporary demand disruption. A structural decline against a strengthening comp set is underwritten more conservatively, and in the more severe cases a lender will decline or require materially more equity and recourse. #### What should I be doing 12 months before my loan matures? Order a fresh valuation, get the PIP status in writing, and run today's rate against today's NOI, twelve months before maturity, not ninety days before. Twelve months out, an owner has five real options if the numbers do not immediately work: write a check, negotiate an extension with the incumbent lender, use mezzanine or preferred equity, bridge to a later permanent takeout, or sell. Ninety days out, most of those options have narrowed to whatever the incumbent lender is willing to offer. The full step-by-step refinance process, with the proceeds-gap comparison table, is on `/hotel-financing/refinance`. Table: Hotel loan document package, by purpose Document | Who produces it | What the lender is testing | Lead time Trailing 12-month P&L, monthly | Owner or management company | NOI, and whether it is trending | Days, if the books are current STAR report | STR, via the brand | Occupancy, ADR and RevPAR index versus the comp set | Request it early through the brand Franchise agreement + PIP letter | Brand | Remaining term, transfer rights, capital required | The brand's timeline; start here Personal financial statement, schedule of real estate | Sponsor | Liquidity, net worth, hotel experience | Days Capital expenditure history | Owner | Whether NOI was bought with deferred maintenance | Days Appraisal and PCA | Lender-ordered | Value, and deferred maintenance | Several weeks, ordered by the lender First-party data point: Matthews Hotel Markets' October 2026 rate sheet publishes one hotel leverage ceiling that is actually written down anywhere: SBA rules cap a 504 hotel structure at 85% of project cost. For every other lender type the sheet marks maximum LTV as not yet published, because no lender type prints one. Ask your lender for its ceiling in writing.[1] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what a first-time buyer brings to a $20.0M purchase): Hypothetical. A first-time hotel buyer under contract at $20.0M on a 95-key select-service asset with $1.60M of NOI. Loan at 60 percent LTV equals $12.00M. Equity for the purchase equals $20.00M minus $12.00M, or $8.00M. Closing costs, assumed at 2 percent of price, add $400,000. A lender-required FF&E reserve at closing, assumed at 4 percent of $4.20M of revenue, adds $168,000. Franchise application and transfer fees, assumed here and to be confirmed against the brand's own FDD, add $100,000. Total cash at closing is about $8.67M, not $8.00M. The 8 percent gap between the down payment and the actual check is the part first-time buyers miss most often. FAQ: - Q: What credit score do hotel lenders require? A: There is no single published number across all hotel lenders. SBA lenders generally want strong personal credit from every guarantor; banks weigh credit alongside liquidity and experience. Ask your specific lender for its minimum before you apply. - Q: How much equity do I need to buy a hotel? A: It depends on the lender's leverage ceiling. Under SBA 504, at least 15 percent of project cost on a hotel. Conventional lenders set their own ceilings. Add closing costs, reserves, and franchise fees on top. First-time hotel owners are usually asked for more. - Q: Do hotel lenders require hotel operating experience? A: Not always, but a sponsor without it is usually required to bring an experienced management company or partner into the structure, and the equity requirement generally rises. - Q: Is a personal guarantee required on a hotel loan? A: Standard on most bank and SBA hotel loans. Non-recourse structures are available through CMBS and life insurance companies, generally at larger loan sizes. - Q: Can I finance a hotel with an open PIP? A: Yes, if the PIP has a funding plan: a reserve, a future-funding facility, or confirmation it is already scheduled. An open PIP with no funding source is the more common reason a loan stalls. - Q: What is a comfort letter and who issues it? A: A franchise comfort letter is the brand's agreement to let a lender step into the franchise agreement if it forecloses. The franchisor issues it, and it is a closing condition on almost every branded hotel loan. - Q: How far in advance should I start a refinance? A: Twelve months before maturity. At that point an owner has five real options. At ninety days out, the options have usually narrowed to whatever the current lender offers. Sources: - [1] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [2] 13 CFR 120.910, How much must the Borrower contribute? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [3] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs ### What is a loan workout and how does it work for a distressed hotel? URL: https://matthewshotelmarkets.com/hotel-financing/loan-workouts Last updated: 2026-10-01 A workout is a negotiated change to loan terms after a default or an imminent one. In securitized loans, the file transfers to a special servicer whose duty runs to the bondholders, not to you. Trepp put the lodging CMBS special servicing rate at 8.63 percent in July 2026.[1] Workouts buy time. They do not fix an asset whose cash flow cannot carry the debt at any term. Key takeaways: - A special servicer is not your lender and does not have a relationship with you. It follows the pooling agreement. - Transfer usually happens at default or at imminent default, which you can often trigger deliberately to start the conversation. - Workout fees, servicing fees and legal costs are added to your balance. They are real money. - The servicer's options are extend, modify, take a discounted payoff, sell the note, or foreclose. - A workout buys time. If the asset cannot carry the debt at any rate or term, time is not the answer. #### What is a loan workout? A workout is a negotiated modification of loan terms, reached after the borrower defaults or shows a lender it is about to, aimed at getting the loan back to a status both sides can live with. A workout can take many forms: an extension of the maturity date, a temporary reduction or deferral of interest, a covenant waiver, a principal paydown in exchange for relaxed terms, or some combination. What a workout is not is a renegotiation of the original business deal. The lender or servicer is trying to maximize recovery on the loan as it stands, not to help the borrower's investment thesis succeed for its own sake, and every proposal should be read with that incentive in mind. #### How does a hotel loan get to special servicing? A securitized hotel loan transfers to a special servicer at an actual default or at imminent default, a threshold the borrower can often meet deliberately to start the workout conversation early. Imminent default typically means the borrower can demonstrate, in good faith, that a default is reasonably foreseeable, commonly because the loan cannot refinance at maturity on current terms or because cash flow no longer covers debt service. Borrowers sometimes request a transfer to imminent-default status specifically because it opens a workout conversation before an actual missed payment damages the relationship and the borrower's credit further. This is a real strategic choice, not just something that happens to you, and it should be made deliberately, ideally with counsel. #### Who is the special servicer and whose interest do they serve? The special servicer's fiduciary duty runs to the certificate holders of the securitization trust as a pool, governed by the pooling and servicing agreement, not to the individual borrower. This is the single fact borrowers most often misunderstand entering a workout. There is no relationship banker on the other side of the table who wants the deal to work for its own sake. The special servicer is evaluating whether extending, modifying, or foreclosing produces the best net present value recovery for the trust, under the specific standards written into the pooling and servicing agreement. Framing a proposal in terms of what maximizes the trust's recovery, rather than what is fair to the borrower, is more likely to land. #### What can a workout actually change? A workout can extend the maturity, adjust the rate or coverage covenants, defer interest, or restructure the balance, and each option fits a different underlying problem. The table below orders the realistic outcomes by how often they actually happen, not by how severe they sound. Extensions and modifications are the most common outcomes for a performing or near-performing asset with a temporary problem. Discounted payoffs and note sales come up when the servicer wants to exit the position and the borrower or a third party has capital ready to move. Foreclosure or a deed in lieu of foreclosure is the last resort, used when no other path is viable, not the default outcome of a transfer to special servicing. #### What does a workout cost me? Workout fees, extended servicing fees, and legal costs are typically added to the loan balance, and they are real cash costs, not paperwork. An extension fee is commonly quoted as a percentage of the outstanding balance. Special servicing fees accrue for as long as the loan remains with the special servicer, on top of whatever normal servicing fee already existed. Legal fees on both sides, the servicer's and often the borrower's own counsel, add up over a multi-month negotiation. The worked example below shows how these add up to a real total cost that should be compared directly against the alternative of selling. #### What do I do in the first 30 days? Get counsel experienced in CMBS workouts, assemble current financials and a realistic business plan, and decide deliberately whether you are asking for time or negotiating an exit. This is not legal advice, and every borrower in this position should retain counsel with specific special-servicing experience before engaging substantively with a servicer. What is universally true: the servicer will ask for current and projected financials, and the quality and honesty of that package shapes the servicer's view of what outcome makes sense. A borrower who shows up with a credible, conservative plan is in a materially better position than one who shows up with an optimistic story that does not survive scrutiny. #### When is selling better than working it out? Selling is the better answer when the asset's cash flow cannot support the debt at any realistic rate or term, because a workout only buys time, and time does not fix a structural problem. Before agreeing to any workout terms, run the honest comparison: what does the full cost of the proposed workout, fees, higher rate, and any paydown, actually total over its term, and how does that compare to what a sale nets today. That comparison, worked in full with a real example, is on `/hotel-financing/refinance-or-sell`. A workout that simply delays an inevitable outcome by two years, at real cost, is not automatically the better choice just because it keeps the asset in hand longer. Table: What a special servicer can do with a distressed hotel loan Outcome | What it means for the owner | Typical trigger | What it does not solve Extension | More time at modified terms | Performing asset, timing problem | A permanent NOI shortfall Modification | Rate, amortization or covenant changes | Coverage is tight but positive | Negative cash flow Forbearance | Temporary suspension of enforcement | Short, identifiable disruption | Anything structural Discounted payoff | Pay less than the balance to retire it | Owner has outside capital | Nothing, if you cannot fund it Note sale | A new holder buys the loan | Servicer wants out | Your position; it may improve or worsen Foreclosure or deed in lieu | You lose the asset | No viable path | The equity, which is gone First-party data point: Matthews Hotel Markets' October 2026 rate sheet is where a workout conversation starts, because an extension only makes sense if a takeout exists at today's index: the 10-year Treasury was 5.29% on September 30, 2026 and SOFR was 3.90% for September 30, 2026.[3] The spread over each is marked not yet published.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what a two-year extension actually costs): Hypothetical. Balance $14.0M. The servicer offers a 24-month extension: a 1 percent extension fee, the rate moves from 4.10 percent to 7.00 percent, and a $500,000 principal paydown. The extension fee at 1 percent of $14.0M is $140,000. The paydown is $500,000. The new balance is $14.0M minus $500K, or $13.5M. Added interest over 24 months at the higher rate, $13.5M times 2.90 percent times 2, is about $783,000. Total cost of the two years is about $1.42M, of which $640,000 is cash out of pocket today. That is the number to compare against selling now, not the headline balance, and not the emotion. FAQ: - Q: What is special servicing? A: Special servicing is the transfer of a securitized loan file, at default or imminent default, to a servicer whose job is to maximize the trust's recovery, through an extension, modification, sale, or foreclosure. - Q: Why did my hotel loan transfer to a special servicer? A: Either an actual default occurred, most commonly a missed payment or a maturity default, or you demonstrated imminent default, meaning a default is reasonably foreseeable even though the loan is technically current. - Q: Can I negotiate directly with a special servicer? A: Yes, and most borrowers do, generally with counsel experienced in CMBS workouts. The negotiation is framed around what maximizes the trust's recovery, not around fairness to the borrower. - Q: What fees does a workout add to my loan? A: Commonly an extension or modification fee quoted as a percentage of balance, ongoing special servicing fees for as long as the file stays with the servicer, and legal costs on both sides. All are typically added to the loan balance. - Q: How long does a hotel loan workout take? A: It varies widely with the complexity of the asset and the servicer's caseload, commonly several months from transfer to a signed modification. Retaining experienced counsel early tends to shorten the process. - Q: What percentage of hotel loans are in special servicing right now? A: Trepp put the lodging CMBS special servicing rate at 8.63 percent for July 2026, down 26 basis points on the month, as reported by CRE Daily. Trepp updates it monthly, so check the latest release before relying on it. - Q: Will a workout hurt my ability to borrow again? A: A workout or a special servicing transfer generally appears in credit history and lender due diligence on future deals. The severity of the impact depends on the outcome, an extension reads very differently than a foreclosure, and on how the borrower explains it going forward. - Q: Should I sell instead of working out the loan? A: Run the total cost of the proposed workout, fees, higher rate, any paydown, against net sale proceeds today. A workout that only delays an inevitable sale, at real cost, is not automatically the better choice. Sources: - [1] CMBS Special Servicing Rate Falls as Office, Lodging Recover (CRE Daily, citing Trepp, accessed 2026-09-18): https://www.credaily.com/briefs/cmbs-special-servicing-rate-falls-as-office-lodging-recover/ - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr ### Can I use New Markets Tax Credits on a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/new-markets-tax-credits Last updated: 2026-10-23 Sometimes. A hotel is not an excluded business, so a hotel in a qualifying low-income census tract can be financed with New Markets Tax Credits, worth 39 percent of the investment spread over 7 years.[1] The credit is rationed, though. Treasury put $5 billion of authority into the round whose applications are due November 10, 2026, and it goes to community development entities, not to hotel owners.[2] Key takeaways: - The hotel has to sit in a qualifying census tract: a poverty rate of at least 20 percent, or median family income no more than 80 percent of the state or metro figure.[1] - A hotel is not on the excluded-business list, but a private or commercial golf course, a gambling facility and an off-premises liquor store are.[3] - The credit totals 39 percent of the qualified equity investment: 5 percent on each of the first 3 allowance dates and 6 percent on each of the last 4.[1] - The investor in the community development entity claims the credit, not the hotel owner. What the owner gets is cheaper capital, and no public source prices it.[1] - Everything has to hold for 7 years. A recapture event inside that window claws the credits back with interest.[1][3] #### Does a hotel qualify for the New Markets Tax Credit? A hotel qualifies as a trade or business, because the rules exclude a specific list of businesses by name and lodging is not on it. The regulation says a qualified business means any trade or business, then excludes a short list: a private or commercial golf course, a country club, a massage parlor, a hot tub facility, a suntan facility, a racetrack or other facility used for gambling, and any store whose principal business is the sale of alcoholic beverages for consumption off the premises.[3] A hotel is not on that list. The list reaches the credit through section 1397C, whose qualified business definition section 45D borrows and which points at the facilities described in section 144(c)(6)(B).[4][5] A hotel bar is not a problem: the alcohol exclusion is written for off-premises sales.[5] Two hotel shapes do run into it. A resort that operates its own golf course is running an excluded business alongside the hotel. The regulation lets a community development entity treat a portion of a business as the qualifying business if that portion would pass on its own and keeps separate books and records, but the proceeds then have to be used for that portion and not the rest.[3] The second is leasing: where the qualifying business is the rental of real property, the entity's loan stops being a qualified investment to the extent a lessee is an excluded business.[3] A hotel with ground-floor retail should check its tenants against that list. Renting real property is a qualified business only if the property is not residential rental property and carries substantial improvements.[3] A transient hotel clears that: a unit in a hotel where more than half the units are used on a transient basis is not a dwelling unit.[6] #### Is the hotel's site in a qualifying low-income community? This is the test that disqualifies most hotels, and the census tract the building sits in decides it, not the owner and not the brand. Section 45D(e) defines a low-income community as a population census tract where either the poverty rate is at least 20 percent, or median family income does not exceed 80 percent of statewide median family income.[1] Inside a metropolitan area the income test runs against the greater of the statewide or metropolitan figure, which makes a tract in a wealthy metro harder to qualify.[1] The threshold rises to 85 percent in high-migration rural counties.[1] Nothing about the hotel itself changes this. A well-located select-service hotel at a suburban interchange usually sits in a tract that does not qualify, so this is the first thing to check, before any conversation with a lender or a community development entity. The projects that clear it tend to be downtown conversions, small-town hotels and redevelopment sites. Rural sites get a modest advantage. The CY 2026 notice says the CDFI Fund will endeavor to put 20 percent of the investments made with round proceeds into non-metropolitan counties, under section 102(b) of the Tax Relief and Health Care Act of 2006.[2] That does not lower the tract test. It means a qualifying rural project competes for a reserved share. #### What tests does the hotel entity have to pass every year? The hotel entity has to be a qualified active low-income community business, which is five tests it must meet for each year of the credit period. The five are: at least 50 percent of gross income from the active conduct of a qualified business within a low-income community; at least 40 percent of the use of its tangible property within one; at least 40 percent of its employees' services performed in one; less than 5 percent of the average of its aggregate unadjusted property bases in collectibles; and less than 5 percent in nonqualified financial property.[3] A single-site hotel in a qualifying tract passes the first three almost by construction. The 5 percent nonqualified financial property cap is the one that bites a construction deal, because cash counts toward it. Reasonable working capital in cash is carved out, and proceeds to be spent on construction of real property within 12 months of the investment count as reasonable working capital.[3] A draw schedule that runs past 12 months puts the test at risk. The community development entity has a test of its own. Substantially all of the investment, which the regulation defines as at least 85 percent, has to be out in qualified low-income community investments in each annual period of the 7-year credit period.[3] The entity is treated as meeting the business tests for the life of the investment if it reasonably expected at the outset that the business would pass throughout.[3] #### How much is the credit worth, and who actually claims it? The credit is 39 percent of the qualified equity investment, and the taxpayer who put money into the community development entity claims it, not the hotel. There are 7 credit allowance dates: the date the investment is made and each of the 6 anniversaries.[1] The applicable percentage is 5 percent on each of the first 3 and 6 percent on each of the remaining 4, so 15 plus 24 gives 39 percent.[1] On a $10,000,000 qualified equity investment that is $3,900,000 of federal credits, which the table below sets out year by year.[1] That $3,900,000 is not money the hotel receives. It is a reduction in someone else's federal tax over 7 years, and the project sees the benefit only to the extent an investor pays for those credits and that money arrives as cheaper capital. What investors pay per dollar of credit is negotiated privately and no public source publishes it, so this page prints no net subsidy figure. Ask the community development entity what its structure delivers in dollars to the project, in writing. The credit belongs to the holder of the equity investment, and recapture reaches both the original purchaser and every later holder, which is why these structures restrict transfers for the whole 7 years.[3] None of this changes how a senior lender sizes its loan. That still runs off the hotel's [net operating income](/glossary/noi) and the [debt service coverage ratio](/glossary/dscr) the lender tests. A New Markets structure changes the equity the project has to raise, not the price of the debt. #### Who gets the allocation, and how much is there? Community development entities apply for allocation and hotel owners do not, and the current round put $5 billion of authority on the table. The CDFI Fund runs a competitive round. For calendar year 2026 it published its Notice of Allocation Availability in the Federal Register on September 15, 2026, announcing $5 billion of allocation authority and saying it anticipates up to $100 million of tax credit investment authority per allocatee.[2] Applications are due November 10, 2026 at 5:00 p.m. eastern time, and an applicant had to be a certified community development entity at publication or have applied for certification by September 22, 2026.[2] As of its September 17, 2026 news release the Fund said it had completed 21 allocation rounds and awarded $91 billion of tax credit allocation authority since the program began in 2000.[7] It is also no longer temporary. The One Big Beautiful Bill Act of 2025, Public Law 119-21, made the credit permanent, and the notice cites section 45D(f)(1)(D) as the authority for the $5 billion it is offering.[2][8] The IRS says the same law changed the limit on carryforwards of unused allocation to an up to five-year rule, where unused carryovers were previously allowed through 2030; that page was last reviewed September 15, 2026.[8] For an owner this means searching for an entity that holds allocation and wants the deal, which is not the same exercise as shopping a loan. #### What has the program funded, and does it fund hotels? The CDFI Fund publishes project-level data, and it does not say how many of the projects were hotels, because the file carries no industry code. The FY 2025 public data release, updated August 7, 2026, lists 8,439 projects with origination years running from 2001 to 2023.[9] Those projects received $71,018,792,859 of qualified low-income community investments against $127,615,323,405 of estimated total project cost.[9] The Fund's summary report for the same release prints $71.019 billion and the same project count.[10] The median project received $5,362,148, which is the size range a single hotel conversion occupies.[9] Of the 8,439 projects, 2,938 are coded as real estate and 3,960 as non-real estate.[9] 6,776 sat in metropolitan counties and 1,663 in non-metropolitan ones, which is 19.7 percent and close to the 20 percent the CY 2026 notice aims for.[2][9] What the file does not carry is an industry field. Its only classification of the business is whether the project was a real estate investment, a non-real estate investment, an investment in another community development entity, or a special purpose entity, and the release's own data dictionary describes only the first three of those codes.[9] Neither the data file nor the summary report mentions hotels, lodging or NAICS codes anywhere.[9][10] So no public source states how many New Markets projects were hotels, and this page does not estimate it. Ask an entity for its own closed hotel deals by name. #### What does the 7-year compliance period do if I want to sell? Selling the hotel is not itself a recapture event, but repaying the investment out of a sale starts a clock that can cause one. Recapture runs for the 7-year period that begins on the date the qualified equity investment is issued.[1] The regulation lists three recapture events: the entity ceases to be a community development entity, the proceeds cease to satisfy the substantially-all requirement, or the investment is redeemed or otherwise cashed out by the entity.[3] A sale of the hotel is not on that list. The exposure is indirect: a sale that pays off the entity's loan hands it cash, and amounts received in payment of principal have to be reinvested in another qualified investment within 12 months to count as continuously invested.[3] Miss that and the 85 percent test fails, which is a recapture event. Three reliefs matter. Amounts the entity receives during the seventh year of the credit period need not be reinvested at all.[3] Bankruptcy of the entity is not a recapture event.[3] And the Commissioner may waive a requirement or extend a deadline where that does not materially frustrate the purposes of the statute.[3] The recapture amount is the credit decrease for prior years plus interest at the section 6621 underpayment rate, and that interest is not deductible.[1] By statute the increased tax falls on the investor holding the investment. Whether the hotel owner ends up paying for it is a question for the deal documents, which are private. Plan the hold for 7 years. Table: New Markets Tax Credit allowance schedule on a $10,000,000 qualified equity investment Credit allowance date | Statutory percentage | Credit claimed | Cumulative Date of the investment | 5% | $500,000 | $500,000 First anniversary | 5% | $500,000 | $1,000,000 Second anniversary | 5% | $500,000 | $1,500,000 Third anniversary | 6% | $600,000 | $2,100,000 Fourth anniversary | 6% | $600,000 | $2,700,000 Fifth anniversary | 6% | $600,000 | $3,300,000 Sixth anniversary | 6% | $600,000 | $3,900,000 Total over 7 years | 39% | $3,900,000 | $3,900,000 First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and Prime at 7.00% as of September 30, 2026, and carries no New Markets row, because what a community development entity charges on a qualified investment is negotiated deal by deal and is not published anywhere.[11] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 110-key conversion in a qualifying tract, $10,000,000 of New Markets investment): Assume a developer converts a vacant downtown building into a 110-key hotel for $26,000,000 all in. The tract has a 24 percent poverty rate, so it is a low-income community.[1] A community development entity with allocation puts a $10,000,000 qualified equity investment into the project. Every figure here is an assumption except the statutory percentages and thresholds. The credit. 5 percent on each of the first 3 allowance dates is $500,000 a year, and 6 percent on each of the last 4 is $600,000 a year. $1,500,000 plus $2,400,000 is $3,900,000 over 7 years, which is 39 percent of the $10,000,000.[1] The entity's test. At least 85 percent of the $10,000,000, so $8,500,000, has to be out in qualified low-income community investments in every annual period of the 7 years.[3] The hotel entity's test. On a $26,000,000 property base, less than 5 percent, so under $1,300,000, may sit in nonqualified financial property.[3] Construction proceeds to be spent within 12 months count as reasonable working capital and stay outside that cap, so an 11-month build is safe on this point and an 18-month one is not.[3] Selling early. If the owner sells in year 5 and the entity's loan is repaid, the credits already claimed are $500,000 times 3 plus $600,000 times 2, which is $2,700,000. The entity then has 12 months to reinvest, and if it does not, that $2,700,000 is recaptured with interest at the section 6621 rate.[1][3] A sale in year 7 raises no such question: seventh-year repayments need no reinvestment.[3] FAQ: - Q: Can I apply to the CDFI Fund for New Markets Tax Credits myself? A: No. Allocation goes to certified community development entities, which apply in a competitive round. For calendar year 2026 applications are due November 10, 2026. An owner's route is to find an entity that already holds allocation.[2] - Q: Is a hotel an excluded business for the New Markets Tax Credit? A: No. The excluded list names golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks, gambling facilities and off-premises liquor stores. Lodging is not on it.[3] - Q: What if my resort has a golf course? A: A private or commercial golf course is an excluded business. An entity may treat the hotel portion as the qualifying business if it would pass on its own and keeps separate books, but the proceeds must then be used for that portion.[3] - Q: Is a hotel residential rental property under these rules? A: No. A unit in a hotel where more than half the units are used on a transient basis is not a dwelling unit, so the building is not residential rental property and the rental route stays open.[6] - Q: What happens if I sell the hotel inside the 7 years? A: A sale is not itself a recapture event. But repaying the investment gives the entity 12 months to reinvest, and if it does not, the substantially-all test fails and the credits are recaptured with interest.[1][3] - Q: Is the New Markets Tax Credit permanent now? A: Yes. Public Law 119-21, the One Big Beautiful Bill Act of 2025, made it permanent, and the CY 2026 notice offers $5 billion under section 45D(f)(1)(D). The IRS notes an up to five-year carryforward for unused allocation.[2][8] - Q: How many New Markets projects have been hotels? A: No public source says. The CDFI Fund's project-level file lists 8,439 projects through 2023 but carries no industry code, only whether the project was real estate. Neither it nor the summary report mentions lodging.[9][10] Sources: - [1] 26 U.S.C. 45D, New markets tax credit: the 5 percent and 6 percent applicable percentages and the 7 credit allowance dates (subsections (a)(2) and (a)(3)), the national limitation of $5,000,000,000 for each calendar year after 2019 (subsection (f)(1)), the low-income community definition with its 20 percent poverty rate and 80 percent median family income tests and the 85 percent high-migration rural figure (subsection (e)), and the 7-year recapture period with interest at the section 6621 underpayment rate (subsection (g)) (United States Code, via Legal Information Institute, accessed 2026-10-23): https://www.law.cornell.edu/uscode/text/26/45D - [2] Funding Opportunity; Notice of Allocation Availability Inviting Applications for the Calendar Years 2026 Allocation Round of the New Markets Tax Credit Program, 91 FR 58526 (September 15, 2026): $5 billion of allocation authority under IRC 45D(f)(1)(D) and the One Big Beautiful Bill Act of 2025 (P.L. 119-21), up to $100 million anticipated per allocatee, the November 10, 2026 application deadline and September 22, 2026 certification deadline in Table 1, and the 20 percent non-metropolitan target under section 102(b) of the Tax Relief and Health Care Act of 2006 (Community Development Financial Institutions Fund, Department of the Treasury, via govinfo, accessed 2026-10-23): https://www.govinfo.gov/content/pkg/FR-2026-09-15/html/2026-18883.htm - [3] 26 CFR 1.45D-1, New markets tax credit (published December 28, 2004, as amended), read through the eCFR versioner API for the October 1, 2026 issue of title 26: substantially all defined as at least 85 percent for each annual period of the 7-year credit period (paragraph (c)(5)(i)), the five qualified active low-income community business tests (paragraph (d)(4)(i)), the portions-of-business rule (paragraph (d)(4)(iii)), the construction working capital rule (paragraph (d)(4)(i)(E)(2)), the qualified business exclusions and the rental and lessee rules (paragraph (d)(5)), the reasonable-expectations rule (paragraph (d)(6)(i)), the 12-month reinvestment rule and seventh-year relief (paragraph (d)(2)(i)), and the recapture events, the bankruptcy carve-out and the waiver provision (paragraph (e)) (Code of Federal Regulations, via the eCFR versioner API, accessed 2026-10-23): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-26.xml?part=1§ion=1.45D-1 - [4] 26 U.S.C. 1397C, Enterprise zone business: subsection (d), the qualified business definition that section 45D borrows, including the rental of real property rule in (d)(2) and the exclusion at (d)(5)(A) of any trade or business consisting of the operation of a facility described in section 144(c)(6)(B) (United States Code, via Legal Information Institute, accessed 2026-10-23): https://www.law.cornell.edu/uscode/text/26/1397C - [5] 26 U.S.C. 144(c)(6)(B): the facilities whose operation is an excluded trade or business, namely any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises (United States Code, via Legal Information Institute, accessed 2026-10-23): https://www.law.cornell.edu/uscode/text/26/144 - [6] 26 U.S.C. 168(e)(2): residential rental property is a building 80 percent or more of whose gross rental income is from dwelling units, and a dwelling unit does not include a unit in a hotel, motel or other establishment more than one-half of the units in which are used on a transient basis (United States Code, via Legal Information Institute, accessed 2026-10-23): https://www.law.cornell.edu/uscode/text/26/168 - [7] CDFI Fund Opens CY 2026 Round of New Markets Tax Credit Program (September 17, 2026): $5 billion of allocation authority, the round's deadlines, and the statement that the CDFI Fund has completed 21 allocation rounds and awarded $91 billion in tax credit allocation authority since the program began in 2000 (Community Development Financial Institutions Fund, Department of the Treasury, accessed 2026-10-23): https://www.cdfifund.gov/news/741 - [8] New markets credit updated and made permanent (page last reviewed or updated September 15, 2026): P.L. 119-21, the One Big Beautiful Bill Act, made the section 45D credit permanent and changed the limit on carryforwards of unused credit amounts to an up to five-year carryforward, where unused carryovers were previously allowed through 2030 (Internal Revenue Service, accessed 2026-10-23): https://www.irs.gov/forms-pubs/new-markets-credit-updated-and-made-permanent - [9] FY 2025 NMTC Public Data Release: 2003-2023 Data File (updated August 7, 2026), Projects sheet: 8,439 projects with origination years 2001 to 2023, $71,018,792,859 of project QLICI amounts, $127,615,323,405 of estimated total project cost, a median project QLICI of $5,362,148, QALICB types of 2,938 real estate and 3,960 non-real estate, and 6,776 metropolitan against 1,663 non-metropolitan projects; the Data Point Description sheet carries no industry or NAICS field (Community Development Financial Institutions Fund, Department of the Treasury, accessed 2026-10-23): https://www.cdfifund.gov/system/files?file=2026-08/NMTC_Public_Data_Release_includes_FY2003_FY_2023_Data_Final_08062026.xlsx - [10] FY 2025 NMTC Public Data Release: 2003-2023 Summary Report (updated August 7, 2026): $71.019 billion of total QLICIs and 8,439 projects, and no breakdown of investments by industry, NAICS code or property type (Community Development Financial Institutions Fund, Department of the Treasury, accessed 2026-10-23): https://www.cdfifund.gov/system/files?file=2026-08/2025_NMTC_Public_Data_Release_Summary_FY2003toFY2023_Final_08052026.pdf - [11] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-23): https://matthewshotelmarkets.com/rates ### Can I get a non-recourse loan on a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/non-recourse-loans Last updated: 2026-10-01 Yes, on a stabilized hotel from the right lender. CMBS conduits, life companies and many debt funds lend non-recourse with carve-outs. Banks usually want a guaranty, and SBA rules generally require one from every owner of 20 percent or more.[1] The 10-year Treasury, the index for a fixed-rate non-recourse quote, was 5.29 percent on September 30, 2026.[2][3] Non-recourse is never unconditional. Key takeaways: - Non-recourse means the lender's remedy for an ordinary default is the hotel, not your other assets. It does not mean nobody signs anything. - A person or entity with real net worth signs a carve-out guaranty. Public hotel borrowers list the usual triggers: fraud, misrepresentation, waste, misappropriated rents, voluntary bankruptcy, unpermitted transfers and environmental liabilities.[4] - Some carve-outs only cover the lender's losses. Others make the whole loan recourse. The second kind is the one to negotiate.[4] - SBA loans are recourse by rule: holders of at least 20 percent generally must guarantee the loan.[1] Bank regulators require every bank to set limits on non-recourse lending.[5] - Recourse changes the tax result of a foreclosure. With non-recourse debt there is no cancellation of debt income, but the full loan balance counts as your sale price.[6] #### Which hotel lenders offer non-recourse loans? CMBS conduits, life insurance companies and many debt funds lend non-recourse; banks and credit unions usually do not, and SBA lenders cannot. CMBS is the most common source of non-recourse debt for a stabilized select-service hotel. Our rate sheet describes the CMBS row as fixed-rate, non-recourse and securitized, priced as a spread over the matched-term Treasury.[2] Life companies lend non-recourse at lower leverage on the best assets. Debt funds and bridge lenders often lend non-recourse on transitional hotels, sometimes with a completion or carry guaranty attached. `/hotel-financing/hotel-lenders-by-type` compares all five types, and `/hotel-financing/cmbs-loans` covers the conduit execution in detail. Banks are a different business. The interagency real estate lending guidelines require each bank's loan policy to set limits on partial recourse or nonrecourse loans and requirements for guarantor support.[5] In practice a community or regional bank lending on a hotel asks for a full or partial personal guaranty, and trades a lower rate and more flexibility for it. SBA is recourse by design. The regulation says holders of at least a 20 percent ownership interest generally must guarantee the loan, and SBA or the lender may require guaranties from others regardless of ownership.[1] #### What does non-recourse actually protect me from? It protects your other assets from a deficiency claim if the hotel fails for ordinary business reasons and the collateral is worth less than the debt. If revenue falls, the loan defaults and the hotel sells for less than the balance, a non-recourse lender absorbs the shortfall. A recourse lender can pursue the guarantor for it. That is the whole value of the structure, and it matters most in the scenario owners least like to model. A public example shows how borrowers describe it. Ashford Hospitality Trust's 10-K for 2025 says its mortgage and mezzanine loans are non-recourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability in certain limited instances, and that the assets of the borrowing subsidiaries are pledged to those loans and are not available to satisfy the parent's other debts.[4] That second half is the other feature of non-recourse lending: the hotel sits in a single-purpose entity, walled off from the rest of what you own. #### What are the carve-outs, and who signs for them? Carve-outs are a list of acts that turn a non-recourse loan into a recourse one, and a creditworthy person or entity guarantees them in a separate document. Ashford's filing lists the typical triggers: fraud, misrepresentation, willful conduct resulting in waste, misappropriation of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral and certain environmental liabilities. A second passage in the same filing adds delinquency of trade payables.[4] The filing also draws the line that matters. Recourse obligations typically include only the costs and liabilities the lender suffers from the bad act, but in certain cases carve-outs can trigger recourse for all or a portion of the outstanding principal.[4] Lawyers call these loss carve-outs and full-recourse carve-outs. Misapplied insurance proceeds are usually a loss item. A voluntary bankruptcy filing or an unpermitted transfer is usually a full-recourse item. For a private owner, the guarantor is usually the key principal, and the lender will test that person's net worth and liquidity. Read the full-recourse list line by line. Items such as trade payables, a failure to stay solvent, or any violation of the single-purpose covenants are where an honest operator can trip a guaranty in a bad year. #### Can a carve-out make me liable just because the hotel ran out of money? It can if the documents make a solvency covenant a carve-out, which is why at least one state has banned the practice and why that language deserves a lawyer's attention. Loan documents often require the borrowing entity to remain solvent and adequately capitalized. If a breach of that covenant is also a full-recourse carve-out, then the ordinary failure of the hotel, the exact risk non-recourse is supposed to shift, triggers the guaranty. Michigan's Nonrecourse Mortgage Loan Act, effective March 29, 2012, addresses this directly. It says a post closing solvency covenant shall not be used, directly or indirectly, as a nonrecourse carveout, and that a loan provision that does so is invalid and unenforceable. The legislature's enacting section states that it is inherent in a nonrecourse loan that the lender takes the risk of a borrower's insolvency.[7] The act's definition of a solvency covenant leaves out a covenant not to file a voluntary bankruptcy, so that carve-out survives.[8] Most states have no such statute. Negotiate the language instead: limit solvency and capitalization covenants to the extent the property's own cash flow allows, and keep them out of the full-recourse list. #### What does non-recourse cost me? You pay for it in leverage, flexibility and closing cost more than in headline rate. No conventional lender publishes its spread, DSCR floor or leverage ceiling, so we do not print a recourse premium.[2] The trade shows up in structure. Non-recourse lenders size to in-place cash flow, want a single-purpose borrower with separateness covenants, control cash through lockboxes when coverage falls, and restrict transfers and prepayment. A CMBS loan is serviced by the documents, not by a banker who knows you; `/hotel-financing/loan-workouts` explains what that means when something goes wrong. A bank loan with a guaranty is usually more flexible on prepayment, future funding and covenant relief. Some owners split the difference with partial recourse that burns off once the hotel reaches an agreed coverage level. If a PIP or a repositioning is ahead, see `/hotel-financing/bridge-loans` for how transitional lenders handle recourse. #### Does recourse change what happens at tax time if I lose the hotel? Yes. The IRS treats a foreclosure differently depending on whether you were personally liable for the debt. IRS Publication 4681 sets out both cases. With recourse debt, the amount realized on a foreclosure is the property's fair market value, and any canceled debt above that is ordinary income from cancellation of debt unless an exclusion applies. With nonrecourse debt, the entire unpaid balance is treated as the amount realized, even if the property is worth less, and there is no cancellation of debt income.[6] The Treasury regulation says the same thing in one line: the disposition of property that secures a nonrecourse liability discharges the transferor from the liability.[9] So a non-recourse owner who hands back an underwater hotel can owe tax on a gain without receiving any cash, because the full loan balance is the sale price. The worked example runs both cases. This page is not tax advice. Work through the numbers with your CPA before a workout, a deed in lieu or a foreclosure. Table: Recourse by hotel lender type, September 2026 Lender type | Recourse position | Who signs | Source or note SBA 7(a) and 504 | Recourse | Holders of at least 20% generally must guarantee; others can be required | 13 CFR 120.160[1] Bank and credit union | Usually full or partial recourse | Principals, under the bank's own policy | Regulators require each bank to set limits on non-recourse loans[5] CMBS conduit | Non-recourse with carve-outs | Carve-out guarantor, usually the key principal | Described as non-recourse on our rate sheet[2] Life company | Non-recourse with carve-outs | Carve-out guarantor | Lower leverage, most selective on asset quality[2] Debt fund or bridge | Often non-recourse with carve-outs; sometimes partial recourse or a completion guaranty | Carve-out guarantor; sponsor for any completion or carry guaranty | Varies by lender and business plan Construction | Recourse during the build at banks | Repayment and completion guarantors | See the construction loans page First-party data point: Matthews Hotel Markets' October 2026 rate sheet lists the SBA 7(a) and 504 rows as recourse and describes the CMBS row as fixed-rate, non-recourse and securitized, struck against a 10-year Treasury of 5.29% as of September 30, 2026. It marks the CMBS spread as not yet published, so it prints no recourse premium.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: the same failed hotel under recourse and non-recourse debt): Hypothetical. A hotel has a $9,000,000 loan balance. Its fair market value has fallen to $7,500,000. The owner's adjusted tax basis is $8,000,000. The lender forecloses. The tax treatment follows IRS Publication 4681.[6] Recourse loan. The amount realized is the fair market value, $7,500,000. Against an $8,000,000 basis, that is a $500,000 loss on the property. The shortfall is $9,000,000 minus $7,500,000, or $1,500,000. The lender can pursue the guarantor for that $1,500,000. If the lender forgives it instead, the $1,500,000 is ordinary income from cancellation of debt unless an exclusion such as insolvency applies. Non-recourse loan. The amount realized is the full $9,000,000 balance. Against an $8,000,000 basis, that is a $1,000,000 gain, with no cash received. There is no deficiency claim and no cancellation of debt income, as long as no carve-out was triggered. The non-recourse owner keeps $1,500,000 of personal exposure off the table and takes a taxable gain in exchange. The recourse owner has a loss on the property and a $1,500,000 problem with the bank. Neither result is free, and the carve-out guaranty is what stands between the two. FAQ: - Q: Which lenders do non-recourse hotel loans? A: CMBS conduits, life insurance companies and many debt funds. All of them require a carve-out guaranty. Banks and credit unions usually want a personal guaranty, and SBA rules generally require one from every owner of 20 percent or more. - Q: I don't want to sign a personal guarantee on my hotel loan. What are my options? A: A stabilized hotel can go to CMBS or a life company. A transitional hotel can go to a debt fund. Expect lower leverage than a recourse bank loan, a single-purpose borrowing entity, and a carve-out guaranty that still has your name on it. - Q: What are bad boy carve-outs? A: They are the acts that make a non-recourse loan recourse. A public hotel borrower's 10-K lists fraud, misrepresentation, waste, misappropriation of rents after a default, voluntary bankruptcy filings, unpermitted transfers and certain environmental liabilities. - Q: If my hotel loan is non-recourse, can the lender come after me personally? A: Not for an ordinary default where the hotel simply cannot pay. Yes if a carve-out is triggered. Some carve-outs cover only the lender's actual loss. Others, such as a voluntary bankruptcy or an unpermitted transfer, can make the whole balance recourse. - Q: Is an SBA hotel loan non-recourse? A: No. Under 13 CFR 120.160, holders of at least a 20 percent ownership interest generally must guarantee the loan, and SBA or the lender can require guaranties from others. That applies to both 7(a) and 504. - Q: Is a non-recourse hotel loan more expensive? A: Lenders do not publish spreads, so there is no honest single premium to quote. The cost usually shows up as lower leverage, prepayment restrictions, cash management triggers and higher legal costs at closing, not only in the rate. - Q: Can I get a non-recourse loan under $5 million on a hotel? A: It is harder. Conduits and life companies generally prefer larger loans, so small hotel loans usually come from banks, credit unions and SBA lenders, which are recourse. See our page on lenders for hotels under $5 million. - Q: Is it better for taxes to have recourse or non-recourse debt in a foreclosure? A: Neither is simply better. Recourse debt can produce cancellation of debt income. Non-recourse debt makes the full loan balance your amount realized, which can create a taxable gain without cash. IRS Publication 4681 explains both. Ask your CPA. Sources: - [1] 13 CFR 120.160, Loan conditions (personal guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [4] Ashford Hospitality Trust, Inc. Form 10-K for fiscal year 2025: non-recourse indebtedness and carve-out guaranty disclosures (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1232582/000123258226000067/aht-20251231.htm - [5] 12 CFR Part 34, Subpart D, Appendix A: Interagency Guidelines for Real Estate Lending Policies (loan policy must limit partial recourse or nonrecourse loans) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [6] Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p4681 - [7] Nonrecourse Mortgage Loan Act, Act 67 of 2012, MCL 445.1593 (post closing solvency covenant; prohibited use) and enacting section (Michigan Legislature, accessed 2026-09-18): https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-445-1593 - [8] Nonrecourse Mortgage Loan Act, MCL 445.1592 (definitions of nonrecourse loan, nonrecourse carveout and post closing solvency covenant) (Michigan Legislature, accessed 2026-09-18): https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-445-1592 - [9] 26 CFR 1.1001-2, Discharge of liabilities (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/1.1001-2 ### What will it cost to pay off my hotel loan early? URL: https://matthewshotelmarkets.com/hotel-financing/prepayment-penalties Last updated: 2026-10-12 It depends on who your lender is, and the range is wide. An SBA 7(a) loan costs 5, 3 or 1 percent of the amount prepaid, and only in the first three years.[1] A CMBS loan usually cannot be prepaid at all: 21 of the loans in one conduit priced on June 16, 2026, 67.0 percent of that pool, could only be defeased.[6] Key takeaways: - On an SBA 7(a) loan the fee is SBA's, not the lender's. A 7(a) lender may not charge a prepayment fee at all, and the agency's fee applies only when the maturity is 15 years or more, the prepayment falls in one of the first three 12-month periods, and it exceeds 25 percent of the highest balance in that period.[1][2] - The SBA 504 premium is a published formula, not a negotiation: RP = D x (I x P), where the factor P falls from 1.00 in year 1 to 0.10 in year 10 on a 20- or 25-year debenture and is zero from year 11.[3] - A CMBS loan is not prepayable during its lockout. Both hospitality loans in BANK 2026-BNK52 are locked for 27 and 28 months, then defeasance only for 86 and 85, then open for the last 7.[6] - Defeasance is a purchase, not a penalty. You buy government securities that pay every remaining payment plus the balloon, so the cost moves with Treasury yields: on October 8, 2026 the 5-year constant maturity was 4.99 percent and the 7-year 5.11 percent.[7] - No bank, credit union, life company or debt fund publishes its prepayment schedule. The only place to read yours is your note. #### Can I prepay my hotel loan at all? On an SBA loan, yes, at any time. On a CMBS loan, usually not for the first two to three years, and after that only by substituting collateral. Both SBA programs allow a full payoff whenever the borrower wants one. The 7(a) note SBA requires says so in terms: notwithstanding any provision to the contrary, the borrower may prepay, and may prepay 20 percent or less of the unpaid principal balance at any time without notice.[2] On the 504 side, 13 CFR 120.940 lets the borrower prepay on paying the entire principal balance, unpaid interest, any unpaid fees and any prepayment premium established in the note.[4] CMBS is the opposite, and the reason is tax law rather than lender preference. A securitized loan sits in a real estate mortgage investment conduit, and 26 CFR 1.860G-2(a)(8) says that when the REMIC releases its lien the loan stops being a qualified mortgage unless the release is a non-significant modification or the loan is defeased in a specific way, which may not happen within two years of the trust's startup day.[5] The lockout is not a bargaining position; it is the condition on which the trust keeps its tax treatment. The prospectus for BANK 2026-BNK52, a conduit priced on June 16, 2026, writes each loan's rules as a code: L is locked against both prepayment and defeasance, D allows defeasance only, YM allows prepayment with a yield maintenance charge, and O is the open period, where prepayment is free.[6] That pool's select-service hotel loan, on a Courtyard by Marriott in Bellevue, Washington, reads L(27), D(86), O(7); its full-service loan, on a Marriott in Anchorage, reads L(28), D(85), O(7).[6] Twenty-one of the loans in the deal, 67.0 percent of the pool, permit defeasance, and for all of them the lock-out ends at least two years after closing.[6] #### What does the SBA charge to pay off a 7(a) loan early? Five, three or one percent of the amount prepaid, and only when three conditions are all true, which on most payoffs they are not. The fee is a subsidy recoupment fee, payable to SBA rather than to your bank, and 13 CFR 120.223 sets three conditions that must all hold. The loan has a maturity of 15 years or more. The borrower makes a voluntary prepayment, meaning principal in excess of the amortization schedule, in one of the first three successive 12-month periods after first disbursement. And prepayments in that period exceed 25 percent of the highest outstanding principal balance of the loan in that same period.[1] When all three hold, the charge is 5 percent of the total prepayments made in the first period, 3 percent in the second and 1 percent in the third.[1] The 25 percent test is where owners both lose money and miss savings, because the fee attaches to the prepayments in that period rather than to the whole balance. A prepayment inside the line costs nothing, so an owner with spare cash can pay down a quarter of the balance in each of the first three years and never pay the fee. SOP 50 10 8.1, effective October 1, 2026, adds three things the regulation does not say: a loan originally written under 15 years picks up the fee if its maturity is extended to 15 years or more in the first 36 months, and earlier prepayments are caught too; a prepayment caused by a death is not voluntary; and a lender that thinks a prepayment is otherwise involuntary asks the Commercial Loan Servicing Center for a determination.[2] The more useful fact is what your lender may not charge. The same SOP lists prepayment fees among the fees prohibited by 13 CFR 120.221, alongside points, add-on interest, commitment fees and origination fees.[2] So on a 7(a) loan under 15 years, or past the third year, a payoff should cost nothing but principal and accrued interest. One exception: on a loan sold into the secondary market, prepaying more than 20 percent requires written notice and 21 days of interest if the money arrives inside 21 days.[2] #### What does it cost to prepay an SBA 504 loan? A published formula: the remaining debenture balance times the rate on the face of the debenture times a factor that falls to zero after year 10. The 504 structure is a bank first lien plus a CDC second lien funded by selling a debenture into a monthly pool, so prepaying the loan means repurchasing the debenture. SOP 50 10 8.1 puts the repurchase price at the outstanding principal balance of the debenture, plus interest accrued and unpaid to the repurchase date, plus a repurchase premium.[2] SBA Form 1504, the debenture itself, gives the premium as an equation:[3] RP = D x (I x P), where D is the remaining principal balance of the debenture, I is the interest rate stated on the face of the debenture expressed in decimals, and P is a factor set by the year of the repurchase. On a 20- or 25-year debenture, P runs 1.00 in year 1, then 0.90, 0.80, 0.70, 0.60, 0.50, 0.40, 0.30, 0.20 and 0.10 in year 10, and is zero from year 11.[3] On a 10-year debenture it runs 1.00, 0.80, 0.60, 0.40, 0.20 and is zero from year 6.[3] The worst case is roughly one year of interest, and the premium disappears after the first half of the term. The same document requires the debenture to be repurchased as a whole and not in part, on a payment date, after at least 30 days' written notice to SBA.[3] Two gaps. The published 504 debenture rate is an all-in effective rate including the CDC, SBA and central servicing agent fees, while the formula uses the rate on the face of the debenture, so ask the CDC for that figure. And the bank first lien has its own prepayment terms, which no bank publishes. #### Why does a CMBS loan have to be defeased instead of prepaid? Because the trust that owns the loan needs the payment stream to continue, so you buy Treasuries that make the payments and the lien moves onto them. 26 CFR 1.860G-2(a)(8)(ii) sets four conditions. The borrower pledges substitute collateral consisting solely of government securities within the meaning of section 2(a)(16) of the Investment Company Act of 1940. The mortgage documents allow the substitution. The lien is released to facilitate a disposition of the property or another customary commercial transaction. And the release is not within two years of the startup day.[5] The loan documents add the machinery. In BANK 2026-BNK52 the borrower gives at least 30 days' written notice of the release date, pays accrued and unpaid interest to that date and all other sums due, and funds a defeasance deposit sufficient to buy non-callable United States government securities that pay on or before each remaining scheduled due date, in the amounts due, including the balloon. It also delivers a security agreement granting the trust a first priority lien on the deposit, and an opinion of counsel.[6] So defeasance is a purchase, not a penalty, and its cost is a market price rather than a schedule. When the coupon sits above Treasury yields for the remaining term, a portfolio that makes the loan's payments costs more than the balance, and the gap is what you pay; when Treasury yields rise above the coupon, it costs less. The Federal Reserve's H.15 release of October 9, 2026 put the 5-year Treasury constant maturity at 4.99 percent and the 7-year at 5.11 percent for October 8.[7] Against a loan written at 6.45 percent, that gap is the whole bill. What nobody publishes is the rest: the consultant's fee, the accommodator's fee, the servicer and rating agency fees and the legal cost. #### How is a yield maintenance charge calculated, and when is it cheap? It is the lender's lost interest, discounted at an interpolated Treasury yield, and it collapses to a stated floor when Treasury yields are above your coupon. The BANK 2026-BNK52 prospectus defines a yield maintenance charge as any premium, fee or other amount paid in connection with a prepayment, calculated in whole or in part under a yield maintenance formula or another formula reflecting the lost interest, including any specified minimum amount.[6] The formula itself lives in each note. The discount rate does not: where a note does not specify one, the trust uses the yield from linear interpolation of the Treasury constant maturities one longer and one shorter than the loan's remaining term, as reported in H.15 for the week before the prepayment, converted to a monthly equivalent yield.[6][7] The direction of rates decides everything, because the charge compensates a lender for interest it loses by being repaid early and having to reinvest lower. If the reinvestment rate is above your coupon, the lender loses nothing and the figure goes to zero. That is why the notation is a greater-of: YM@(#) means prepayment is permitted on payment of the greater of a yield maintenance charge and a premium equal to a stated percentage of the amount prepaid.[6] The floor is what you pay in a rising-rate year. On a hotel this matters less than it sounds, because conduit hotel loans tend to be defeasance-only. Both hospitality loans in BANK 2026-BNK52 carry D codes with no yield maintenance alternative, while that pool's yield maintenance loans are self storage, retail and residential cooperative credits.[6] One deal is not a market, but check your own documents: if your loan says D, a yield maintenance quote is not available at any price. #### What do banks, bridge lenders and life companies charge? Nobody knows from the outside, because no bank, credit union, life company or debt fund publishes its prepayment terms. This page can tell you what SBA charges because SBA writes it into a regulation and a form, and what a conduit charges because the prospectus is filed with the SEC. Balance-sheet lenders file nothing. A bank note might carry a step-down premium, a fixed percentage, a yield maintenance clause of its own design, a minimum interest or exit fee, a make-whole on the swap behind a fixed rate, or nothing at all. A bridge or debt fund loan commonly carries a minimum interest period instead of a percentage, which does not shrink as the date approaches; it simply has to be paid. Any page printing a typical range for these is guessing. So read the note before you need it, and ask for a dated payoff quote in writing with the premium broken out. On a fixed-rate bank loan the clause is often tied to the lender's swap rather than to a Treasury, which makes that quote matter more. One caveat cuts the other way. The same prospectus warns that provisions requiring yield maintenance charges, prepayment premiums or lockout periods may not be enforceable in some states or under federal bankruptcy law, that they may be read as the collection of interest for usury purposes, that certain states limit what a lender may collect on a prepayment, and that enforceability on an involuntary prepayment is unclear in many states.[6] That is a question for counsel in your state, not a reason to assume the clause is void. #### How should the payoff cost change a refinance or sale decision? Treat it as a line in the net proceeds, not as a reason to do nothing, and price the alternative of leaving the loan in place. The payoff cost is the one number that makes the refinance-or-sell question concrete, because it is the same number on both sides. Refinancing pays it. Selling free and clear pays it. Only two routes avoid it: waiting for the open period, and selling subject to the existing loan through an assumption. Waiting usually loses. A defeasance premium is a one-time cost against a sale at today's price, while waiting means carrying the asset at today's rate and taking whatever the market pays later. The hypothetical below puts the premium at 7.6 percent of the loan balance and 14.4 percent of the seller's net proceeds, with 72 months to run before the open period. Assumption is the real alternative, and on a low-coupon CMBS loan with years left it can be worth more than the premium it avoids, because the buyer gets debt it cannot replace. It needs servicer approval and carries its own fees, and this site covers it at the loan assumption page. Run the decision in this order: get the written payoff quote, then price the assumption, then set the asking price. Table: What an early payoff costs on a hotel loan, by lender, October 2026 Loan type | What an early payoff costs | Where the term is set SBA 7(a), maturity 15 years or more | 5, 3 or 1 percent of the amount prepaid in the first, second or third 12-month period, and only if prepayments in that period exceed 25 percent of the highest balance in it | 13 CFR 120.223; SOP 50 10 8.1 SBA 7(a), maturity under 15 years, or after year 3 | Nothing to SBA, and the lender may not charge a prepayment fee | 13 CFR 120.221 and 120.223; SOP 50 10 8.1, Section A, Chapter 4 SBA 7(a) sold on the secondary market | Written notice above 20 percent, plus 21 days' interest if the money arrives inside 21 days | SOP 50 10 8.1, required 7(a) note language SBA 504 debenture, 20 or 25 years | RP = D x (I x P), with P falling from 1.00 in year 1 to 0.10 in year 10 and zero from year 11 | SBA Form 1504; 13 CFR 120.940 SBA 504 debenture, 10 years | The same formula, with P running 1.00, 0.80, 0.60, 0.40, 0.20 and zero from year 6 | SBA Form 1504 CMBS, lockout period | No voluntary prepayment and no defeasance at any price. 27 and 28 months on the two hospitality loans in BANK 2026-BNK52 | BANK 2026-BNK52 prospectus, Annex A-1 CMBS, defeasance window | Government securities that pay every remaining payment and the balloon, plus 30 days' notice, a security agreement, an opinion of counsel and unpublished fees | 26 CFR 1.860G-2(a)(8)(ii); BANK 2026-BNK52 CMBS, yield maintenance window | The greater of a lost-interest formula discounted at the interpolated H.15 Treasury constant maturity and a stated percentage of the amount prepaid | BANK 2026-BNK52 prospectus CMBS, open period | Nothing. 7 months on both hospitality loans in that deal | BANK 2026-BNK52 prospectus, Annex A-1 Bank, credit union, life company, bridge or debt fund | Not published by any lender. The schedule is in your note, and the payoff quote is the only reliable number | No public source First-party data point: Matthews Hotel Markets' October 2026 rate sheet is the other half of this question. It shows the 10-year Treasury at 5.29 percent as of September 30, 2026, Prime at 7.00 percent, and the 25-year SBA 504 debenture at 6.54 percent all in from the September 10, 2026 sale; the CMBS row carries the note that defeasance or yield maintenance applies on prepayment, and the debt service coverage and loan-to-value cells are marked not yet published, because lenders do not publish them.[8] A payoff cost only makes sense next to the rate you would be refinancing into. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one 118-key hotel, three payoff bills): This hotel does not exist. The 118 keys, the $4,800,000 7(a) loan, the $1,780,000 remaining debenture balance, its 6.00 percent face rate, the $12,400,000 CMBS loan at 6.45 percent, the $19,500,000 sale price and the 3.0 percent of brokerage and closing costs are assumptions. The rules applied to them are not, and every figure was recomputed with scripts/check-prepayment-math.mjs. The 7(a) loan runs 25 years, so it clears the 15-year test. The owner pays it off in the second 12-month period, with a balance of $4,655,000 against a highest balance of $4,690,000 in that period. The 25 percent line is $1,172,500 and the payoff is four times that, so the fee applies at the second-period rate: 3 percent of $4,655,000, or $139,650.[1] In the first period it would have been $232,750 and in the third $46,550, and a $1,000,000 partial prepayment, 21.3 percent of the highest balance, would have cost nothing.[1] The 504 second lien is a 25-year debenture in its second year, so RP = $1,780,000 x (0.06 x 0.90), or $96,120, 5.4 percent of that balance.[3] The two SBA bills come to $235,770. The CMBS loan is the expensive one. It is a 120-month interest-only loan carrying L(27), D(86), O(7), so the open period starts at month 114. The owner sells in month 42: past lockout, 72 months short of open, defeasance only.[5][6] The payment on a 30/360 basis is $12,400,000 x 0.0645 / 12, or $66,650, and 78 payments remain, months 43 through 120, the last carrying the $12,400,000 balloon. Seventy-eight months is 6.5 years, so the discount rate interpolates between the 4.99 percent 5-year and the 5.11 percent 7-year constant maturities for October 8, 2026: 4.99 plus 0.75 times 0.12, or 5.08 percent.[6][7] Discounted at 5.08 percent that stream costs $13,338,751, which is $938,751 above the balance: 7.6 percent of it, or $7,956 per key. Real collateral is priced security by security off the actual curve rather than at one blended rate, and the consultant, accommodator and legal fees sit on top, so this is the shape of the bill and not the bill. Run the same payments at a 7.00 percent discount rate and the stream costs $12,044,666, below the balance, which is why the yield maintenance notation is a greater-of; a 1 percent floor here would be $124,000.[6] At a $19,500,000 price, 3.0 percent of costs takes $585,000 and the loan takes $12,400,000, leaving $6,515,000 before the premium. The $938,751 takes 14.4 percent of that, and the seller nets $5,576,249. FAQ: - Q: Is there a prepayment penalty on an SBA 7(a) hotel loan? A: Only SBA's subsidy recoupment fee, and only if the maturity is 15 years or more, the prepayment falls in one of the first three 12-month periods, and prepayments in that period exceed 25 percent of the highest balance in it.[1] - Q: Can my bank charge me a prepayment fee on a 7(a) loan? A: No. SOP 50 10 8.1 lists prepayment fees among the fees prohibited by 13 CFR 120.221, alongside points, add-on interest, commitment fees and origination fees.[2] The subsidy recoupment fee is payable to SBA, not to the lender. - Q: How much is the SBA 504 prepayment penalty? A: SBA Form 1504 sets it as RP = D x (I x P): the remaining debenture balance times the face rate times a factor that starts at 1.00 and falls 0.10 a year, reaching zero in year 11 on a 20- or 25-year debenture.[3] - Q: Can I prepay a CMBS hotel loan? A: Usually not. Both hospitality loans in BANK 2026-BNK52 prohibit voluntary prepayment for 27 and 28 months and then permit defeasance only.[6] 26 CFR 1.860G-2(a)(8) bars a defeasance within two years of the trust's startup day.[5] - Q: What is defeasance and what does it cost? A: You buy US government securities that make every remaining payment plus the balloon, and the lien moves to them.[5][6] The cost is the market price of that portfolio against your loan balance, so it rises as Treasury yields fall below your coupon. - Q: Does a defeasance get cheaper if rates go up? A: Yes. The portfolio is priced off Treasury yields, so when those yields rise toward or above your coupon the premium shrinks and can disappear. On October 8, 2026 the 5-year constant maturity was 4.99 percent and the 7-year 5.11 percent.[7] - Q: Is a prepayment premium always enforceable? A: Not necessarily. The BANK 2026-BNK52 prospectus says such provisions may be unenforceable in some states or under federal bankruptcy law, may be read as interest for usury purposes, and are of unclear effect on an involuntary prepayment in many states.[6] - Q: Is it cheaper to let a buyer assume my loan? A: Often, on a low-coupon CMBS loan with years left, because the buyer gets debt it cannot replace and nobody pays a premium. It needs servicer approval and carries its own fees, which no public source publishes. Sources: - [1] 13 CFR 120.223, Subsidy recoupment fee payable to SBA by Borrower: the three conditions in (a), being a maturity of 15 years or more, a voluntary prepayment in one of the first three successive 12-month periods after first disbursement, and prepayments exceeding 25 percent of the highest outstanding principal balance in that period; and the 5, 3 and 1 percent schedule in (b), each applied to the total prepayments made in that period (Legal Information Institute, Cornell Law School, accessed 2026-10-12): https://www.law.cornell.edu/cfr/text/13/120.223 - [2] SBA SOP 50 10 8.1, Lender and Development Company Loan Programs, effective October 1, 2026: the subsidy recoupment fee with the maturity-extension trap and the death exception, and the prohibited-fee list including prepayment fees under 13 CFR 120.221 (Section A, Chapter 4, Ethics, Fees, and Agents); the required 7(a) note language permitting prepayment of 20 percent or less without notice and setting the 21-day notice and interest rule for a larger prepayment on a secondary-market loan (Section B, Chapter 6); and the 504 debenture repurchase price of outstanding principal plus accrued interest plus a repurchase premium (Section C, Chapter 2) (U.S. Small Business Administration, accessed 2026-10-12): https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] SBA Form 1504 (4-18), Development Company 504 Debenture: the repurchase premium RP = D x (I x P), with D the remaining principal balance, I the interest rate stated on the face of the debenture in decimals and P the year factor; the factors 1.00, .90, .80, .70, .60, .50, .40, .30, .20, .10 and zero from year 11 for a 20- or 25-year debenture, and 1.00, .80, .60, .40, .20 and zero from year 6 for a 10-year debenture; and the requirements that the debenture be repurchased as a whole and not in part, on a payment date, after at least 30 days' written notice to SBA (U.S. Small Business Administration, accessed 2026-10-12): https://caweb.sba.gov/library/pdf/Form_1504.pdf - [4] 13 CFR 120.940, Prepayment of the 504 loan or Debenture: the borrower may prepay on paying the entire principal balance, unpaid interest, any unpaid fees and any prepayment premium established in the note, and the CDC must then prepay the corresponding debenture with interest and premium (Legal Information Institute, Cornell Law School, accessed 2026-10-12): https://www.law.cornell.edu/cfr/text/13/120.940 - [5] 26 CFR 1.860G-2(a)(8), Release of a lien on an interest in real property securing a qualified mortgage; defeasance: the four conditions in (ii), being substitute collateral consisting solely of government securities as defined in section 2(a)(16) of the Investment Company Act of 1940, mortgage documents that allow the substitution, a release to facilitate a disposition of the property or another customary commercial transaction, and a release not within two years of the startup day (Legal Information Institute, Cornell Law School, accessed 2026-10-12): https://www.law.cornell.edu/cfr/text/26/1.860G-2 - [6] BANK 2026-BNK52 prospectus, SEC Form 424B2 filed June 16, 2026 by Morgan Stanley Capital I Inc.: the prepayment provision symbols L, D, O, YM and DorYM; Annex A-1, showing L(27), D(86), O(7) on the Courtyard by Marriott Seattle Bellevue Downtown loan and L(28), D(85), O(7) on the Marriott Anchorage Downtown loan; the statement that 21 of the mortgage loans, 67.0 percent of the pool, are defeasance loans whose lock-out period ends at least two years after the closing date; the defeasance conditions including 30 days' notice, the defeasance deposit, the security agreement and the opinion of counsel; the definitions of Yield Maintenance Charge, Prepayment Premium and Discount Rate, the last interpolated from Treasury constant maturities in Federal Reserve statistical release H.15; the property type table showing hospitality at 13.8 percent of the pool; and the risk and legal discussion of enforceability, usury and limits certain states place on charges collected on prepayment (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-10-12): https://www.sec.gov/Archives/edgar/data/1547361/000153949726001769/n5947_x17-424b2.htm - [7] Federal Reserve statistical release H.15, Selected Interest Rates, release date October 9, 2026: Treasury constant maturities for October 8, 2026 of 4.99 percent at 5 years, 5.11 percent at 7 years and 5.22 percent at 10 years, and the bank prime loan rate at 7.00 percent (Board of Governors of the Federal Reserve System, accessed 2026-10-12): https://www.federalreserve.gov/releases/h15/ - [8] Daily Treasury Par Yield Curve Rates: the October 9, 2026 curve, with the 5-year at 5.02 percent, the 7-year at 5.13 percent and the 10-year at 5.24 percent, the series behind the Treasury benchmarks on the Matthews Hotel Markets rate sheet (U.S. Department of the Treasury, accessed 2026-10-12): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve ### Do opportunity zones still help hotel investors? URL: https://matthewshotelmarkets.com/hotel-financing/opportunity-zones Last updated: 2026-10-01 Yes, and the rules change on January 1, 2027. Under the original law, tax deferred through a qualified opportunity fund comes due on December 31, 2026.[1] Public Law 119-21, enacted July 4, 2025, made the program permanent for money invested after that date: a 5-year deferral, a 10 percent basis increase, or 30 percent in a rural fund, and new zones running from January 1, 2027 through December 31, 2036.[1][2] Key takeaways: - Old rules, for money invested through December 31, 2026: the deferred gain is taxed on the earlier of the sale of the fund interest or December 31, 2026, so a new investment made now defers almost nothing.[1][3] - New rules, for money invested after December 31, 2026: deferral lasts until the earlier of a sale or 5 years after the investment, with a 10 percent basis increase at 5 years, or 30 percent in a qualified rural opportunity fund.[1] - The 10-year benefit survives in both versions: hold the fund interest at least 10 years and the basis steps up to fair market value, so the appreciation is not taxed.[1][3] - The map is being redrawn. Governors nominate new tracts in a window that began July 1, 2026, and zones designated in that round run from January 1, 2027 through December 31, 2036. The 2018 zones expire December 31, 2028.[2] - A purchased hotel has to be substantially improved: within 30 months the fund must add more than the building's adjusted basis, or more than 50 percent of it in an all-rural zone. The land under an operating hotel generally does not need separate improvement.[1][3] #### What is an opportunity zone investment, in one paragraph? An opportunity zone investment is a capital gain reinvested, within 180 days of the sale, into a qualified opportunity fund that holds at least 90 percent of its assets in designated low-income census tracts. The program came in with the Tax Cuts and Jobs Act of 2017.[4] The taxpayer elects to leave out of income the part of a gain that is invested in a qualified opportunity fund during the 180-day period beginning on the date of the sale, and only gain from a sale to an unrelated person qualifies.[1] The fund is a corporation or partnership organized to invest in qualified opportunity zone property, and it must hold at least 90 percent of its assets in that property.[1] Note what is invested: the gain, not the whole sale price. That is one of the main differences from a like-kind exchange, covered in [Can I use a 1031 exchange to buy or sell a hotel?](/hotel-financing/1031-exchange-hotels) A hotel is an operating business in a fixed location, which suits the tests below. The IRS FAQ even uses a hotel purchase as its example for the land rule.[3] #### What happens on December 31, 2026? December 31, 2026 is the date every gain deferred under the original rules comes into income, unless the fund interest was sold earlier. The original section 1400Z-2(b) includes the deferred gain in income in the taxable year that includes the earlier of the date the investment is sold or exchanged, or December 31, 2026.[1] The IRS FAQ, last updated September 14, 2026, says the same, and adds that the gains eligible for deferral under those rules are gains that would be recognized before January 1, 2027.[3] Two consequences for hotel owners. First, anyone who invested a gain in a fund in earlier years owes tax on that deferred gain for the tax year that includes December 31, 2026, whether or not the hotel the fund owns has been sold. Plan the cash. Second, the original basis increases, 10 percent after 5 years and another 5 percent after 7 years, reward holding periods that a new investment can no longer reach before the deadline.[1][3] A gain invested in a fund in late 2026 is deferred only until December 31, 2026. What the old rules still offer a late-2026 investor is the 10-year benefit: hold the fund interest for at least 10 years, elect, and the basis becomes fair market value on the date of sale, so the appreciation is never taxed.[3] #### What changes for money invested after December 31, 2026? For amounts invested in a qualified opportunity fund after December 31, 2026, the program no longer has an end date, and the deferral runs on a rolling 5-year clock. Section 70421 of Public Law 119-21, signed July 4, 2025 and commonly called the One, Big, Beautiful Bill Act, rewrote the deferral rules for amounts invested after December 31, 2026.[1][2] The old sentence that barred elections for sales after December 31, 2026 is removed. The deferred gain is included in income on the earlier of the date the investment is sold or the date 5 years after the investment was made. An investment held at least 5 years gets a basis increase equal to 10 percent of the deferred gain, which means 90 percent of the gain is taxed at year 5. In a qualified rural opportunity fund the increase is 30 percent. The 7-year increase is gone.[1] The 10-year rule stays and gets a ceiling. For an investment held at least 10 years, the basis equals fair market value on the date of sale if the sale comes before the 30th anniversary of the investment, and fair market value on the 30th anniversary after that.[1] If you are selling a hotel in late 2026, the 180-day window can straddle the change. The statute's effective date turns on when the money is invested in the fund, not when the hotel was sold.[1] Whether to invest before or after December 31, 2026 is a question for your tax advisor, with the statute in hand. Your other sale taxes are covered in [What taxes do I pay when I sell a hotel?](/sell-a-hotel/taxes-when-selling-a-hotel) #### Which census tracts will be opportunity zones in 2027? Nobody could say for certain on September 18, 2026, because governors were still nominating tracts and Treasury had not finished certifying them. Rev. Proc. 2026-14, published in Internal Revenue Bulletin 2026-20 on May 11, 2026, sets the process. The first decennial determination date is July 1, 2026. Each governor has 90 days from that date to nominate low-income census tracts, and a governor who asks for the 30-day extension has until October 28, 2026 at the latest. Treasury then has 30 days to certify, which with its own extension runs to December 28, 2026 at the latest. Zones designated in this round are in effect from January 1, 2027 through December 31, 2036, and the process repeats every 10 years.[1][2] Fewer tracts will qualify. The 2025 law replaced the old cross-reference with a narrower test: a tract qualifies if its median family income does not exceed 70 percent of the area median, or if its poverty rate is at least 20 percent and its median family income does not exceed 125 percent of the area median. Tracts that merely border a low-income tract no longer qualify, and a state can designate no more than 25 percent of its low-income tracts.[2][5] The zones designated in 2018 remain in effect until December 31, 2028, and Puerto Rico's until December 31, 2027.[2] A hotel in a 2018 zone is not automatically in a 2027 zone. Before you pay for a site because of its zone status, confirm the tract's designation for the period your fund will actually own the hotel. The IRS page we read listed the revenue procedure but no 2027 zone list yet.[4] #### How does a hotel meet the opportunity zone tests? A fund that buys an existing hotel has to substantially improve it within 30 months; a fund that builds a new hotel meets the original use test instead. Tangible property qualifies if the fund or its operating business bought it after December 31, 2017, and either its original use in the zone starts with the fund or the fund substantially improves it.[1] Substantial improvement means that during any 30-month period after the purchase, additions to basis exceed the property's adjusted basis at the start of the period. In a zone made up entirely of a rural area the threshold is 50 percent of that basis, a change that took effect July 4, 2025.[1] Rural here means outside any city or town of more than 50,000 people and outside the urbanized area next to one.[1] The IRS FAQ answers the hotel question directly. If a fund buys a hotel in a zone, the land under the building generally does not need to be substantially improved, because the building is used in an active trade or business. Unimproved or minimally improved land is treated differently.[3] So the test runs against the building's basis, not the whole purchase price. A brand-mandated renovation can do double duty here: see [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans) A building that has been vacant can count as original use in some cases, which matters for conversions.[3] One exclusion matters to resorts. A qualified opportunity zone business cannot be one of the businesses listed in section 144(c)(6)(B): a private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcohol for consumption off premises.[1][6] A hotel with a golf course, casino or spa needs tax counsel on structure before it assumes it qualifies. #### Do opportunity zones change how a hotel gets financed? No. The benefit belongs to the investors' tax returns, and the hotel still borrows on its own income and value. A lender sizes an opportunity zone hotel the way it sizes any other: see [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements) What the program changes is the equity. Investors who expect tax-free appreciation after 10 years may accept a longer hold, and the fund has to keep 90 percent of its assets in qualifying property, which shapes how much cash it can hold and when it can refinance or sell.[1] The substantial improvement clock also sets the project timeline. A fund that must add more than the building's basis within 30 months is committing to a heavy renovation or a conversion, which usually means a construction or bridge loan first and permanent debt after: see [How do I finance hotel construction in 2026?](/hotel-financing/construction-loans) and [What is a bridge loan and when should a hotel owner use one?](/hotel-financing/bridge-loans) Opportunity zone equity can sit in the same project as historic tax credits when the building qualifies for both: see [Can I use historic tax credits to renovate a hotel?](/hotel-financing/historic-tax-credits) This page explains the rules. It is not tax advice, and the choice of investment date in particular needs a tax advisor. Table: Opportunity zone rules by investment date, as the statute stood on September 18, 2026 Rule | Invested through December 31, 2026 | Invested after December 31, 2026 When the deferred gain is taxed | Earlier of sale of the fund interest or December 31, 2026[1] | Earlier of sale or 5 years after the investment[1] Basis increase at 5 years | 10% of the deferred gain, if reached before the gain is taxed[1] | 10%; 30% in a qualified rural opportunity fund[1] Basis increase at 7 years | Additional 5%, if reached before the gain is taxed[1] | None[1] Hold 10 years or more | Basis steps up to fair market value at sale[1][3] | Same, with value frozen at the 30th anniversary[1] Program end date | No election for sales after December 31, 2026[1] | None; that limit is repealed for these investments[1] Zones in effect | 2018 designations, through December 31, 2028[2] | New designations, January 1, 2027 through December 31, 2036, plus 2018 zones until they expire[2] Substantial improvement of a purchased hotel | More than 100% of the building's adjusted basis in 30 months; 50% in an all-rural zone since July 4, 2025[1] | More than 100%; 50% in an all-rural zone[1] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and SOFR at 3.90% as of September 30, 2026. An opportunity zone hotel borrows against those same indexes. The tax benefit changes the investors' return, not the lender's price.[7] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $3.0M gain from a hotel sale, under the old and new rules): Hypothetical. An owner sells a hotel to an unrelated buyer and realizes a $3,000,000 capital gain. The owner is weighing a qualified opportunity fund that will buy a different hotel for $8,000,000, of which $1,500,000 is land and $6,500,000 is building. No tax rates are assumed. The figures show how much gain is taxed and when. Invested under the old rules, on or before December 31, 2026. The $3,000,000 gain is deferred only until December 31, 2026. The 5-year basis increase cannot be reached by then, so all $3,000,000 is taxed for the year that includes December 31, 2026.[1] The 10-year rule still applies to the fund interest.[3] Invested under the new rules, after December 31, 2026. The gain is deferred for 5 years from the investment date. At 5 years the basis increases by 10 percent of the deferred gain: 10 percent of $3,000,000 is $300,000, so $2,700,000 is taxed. In a qualified rural opportunity fund the increase is 30 percent: $900,000, so $2,100,000 is taxed.[1] If the fund interest is worth less than the deferred gain on that date, the lower value is used.[1] Substantial improvement. The building's basis is $6,500,000. In a standard zone the fund must add more than $6,500,000 to the building's basis within 30 months. In an all-rural zone the threshold is 50 percent: more than $3,250,000.[1] The $1,500,000 of land under the operating hotel generally does not need to be improved.[3] Ten years on. If the fund interest bought for $3,000,000 is worth $5,000,000 when it is sold after 10 years, an election sets the basis at $5,000,000 and the $2,000,000 of appreciation is not taxed.[1] FAQ: - Q: Did Congress extend opportunity zones? A: Yes. Public Law 119-21, enacted July 4, 2025, removed the program's end date for amounts invested after December 31, 2026 and set up new zone designations every 10 years, the first in effect from January 1, 2027 through December 31, 2036. - Q: I invested in an opportunity fund in 2020. When is my deferred gain taxed? A: On December 31, 2026, unless you sold the fund interest earlier. For a calendar-year taxpayer the gain goes on the 2026 return even if the fund still owns the hotel. Basis increases you earned by holding 5 or 7 years before that date reduce the amount. - Q: Can I invest my whole hotel sale price in an opportunity fund? A: Only the gain qualifies for the deferral election, and it must be invested within 180 days of a sale to an unrelated person. Money beyond the gain can go in, but it does not receive the opportunity zone tax benefits. - Q: Is an opportunity zone better than a 1031 exchange for a hotel seller? A: They solve different problems. A 1031 exchange defers the gain by reinvesting the proceeds in like-kind real estate. An opportunity fund takes only the gain, defers it for a limited time, and can eliminate tax on the new investment's appreciation after 10 years. - Q: How much do I have to renovate a hotel I buy in an opportunity zone? A: Within 30 months, the fund must add more to the building's basis than its adjusted basis at the start, or more than 50 percent of it in a zone made up entirely of rural area. Land under an operating hotel generally is excluded. - Q: What is a qualified rural opportunity fund? A: A fund holding at least 90 percent of its assets in zone property located in zones made up entirely of rural area, meaning outside any city or town of more than 50,000 people and adjacent urbanized areas. Its investors get a 30 percent basis increase at 5 years. - Q: Will my hotel's census tract still be an opportunity zone in 2027? A: Not automatically. The 2018 zones run through December 31, 2028. New zones are being nominated under a narrower income test, with designations effective January 1, 2027. Check the Treasury list once it is published before relying on a tract. - Q: Can a resort with a golf course or casino qualify? A: The statute excludes businesses listed in section 144(c)(6)(B), which include golf courses, country clubs, massage parlors, hot tub facilities and gambling facilities. A resort with those amenities needs tax counsel on how the business is structured. Sources: - [1] 26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones, with the Public Law 119-21 section 70421(c) amendments and effective dates (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1400Z-2 - [2] Rev. Proc. 2026-14, Internal Revenue Bulletin 2026-20 (May 11, 2026), p. 910: nominating census tracts as qualified opportunity zones effective January 1, 2027 (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/irb/2026-20_IRB - [3] Opportunity zones frequently asked questions (page last reviewed September 14, 2026): deferral, 10-year basis adjustment, original use, substantial improvement, hotel land example at Q51 (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions - [4] Opportunity zones (page last reviewed July 15, 2026) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/credits-deductions/businesses/opportunity-zones - [5] 26 U.S.C. 1400Z-1, Designation: low-income community definition, decennial determination date, 25 percent limit, designation period (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1400Z-1 - [6] 26 U.S.C. 144(c)(6)(B), businesses excluded by cross-reference from qualified opportunity zone businesses (United States Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/144 - [7] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How do I finance a hotel PIP or renovation? URL: https://matthewshotelmarkets.com/hotel-financing/pip-and-renovation-loans Last updated: 2026-10-01 A PIP is funded four ways: cash from reserves, a future-funding facility inside a bridge loan, a capex holdback in a refinance, or a price reduction when you sell. The brand sets the scope and the deadline. A future-funding facility floats over SOFR, which was 3.90 percent for September 30, 2026.[1] Get the scope in writing before you price any of the four. Key takeaways: - The PIP scope letter is the document. Everything downstream is priced off it, so get it first. - Per-room cost varies by brand, scope and market. Cite the brand's own published requirement or a public benchmark, never a remembered figure. - A bridge loan with future funding is a common financing route for a large PIP. - A permanent lender will usually reserve for a PIP rather than fund it. - Missing a PIP deadline puts the franchise agreement at risk, which puts the loan at risk. #### What exactly is a PIP and who decides the scope? A Property Improvement Plan is the franchisor's written requirement for renovation and brand-standard upgrades, and the brand alone sets its scope and deadline. A PIP is issued at brand conversion, at a change of ownership, or periodically during the franchise term as the brand updates its standards. The scope letter itemizes required work, room by room and area by area, from soft goods and case goods to structural and systems upgrades, and it is the single document that everything else in this page depends on. Full definitional detail on PIP scope and typical categories is on `/glossary/pip`; this page focuses specifically on how the cost gets paid for. #### How long do I have to finish it? The PIP completion window is set by the specific brand in the PIP notice, based on the scope of work, not by a single industry-wide rule. The exact deadline depends on the brand, the scope of work, and sometimes negotiated extensions tied to permitting or supply timelines. Because this figure varies by brand and by deal, cite the specific brand's own Franchise Disclosure Document for the deadline that applies to a specific property, rather than treating any single number as universal. #### What does a PIP cost per room? Per-room PIP cost varies by brand, scope, and market, and any specific figure needs to come from the brand's own published requirement or a public industry benchmark, with a date attached. A light refresh, soft goods only, costs meaningfully less per key than a full renovation that includes case goods, bathrooms, and public space. A brand conversion PIP, moving a property to a new flag entirely, typically costs more than a standard-cycle PIP on an existing flag. The worked example on this page uses a hypothetical $25,000-per-key figure purely to illustrate the financing arithmetic; it is explicitly not a market benchmark, and a real PIP estimate should come from the brand's own FDD or a published industry study, dated and cited. One line item sits outside the brand's scope entirely: where the work moves a wall it becomes an alteration under the ADA, which carries its own required room counts and a cap on path-of-travel spending. See [hotel ADA requirements and renovations](/hotel-industry/ada-requirements). On an older hotel a second line sits outside it too: the Clean Air Act requires the work area to be inspected for asbestos before the job starts, whatever its size, and the notice that follows runs 10 working days. See [asbestos rules for a hotel renovation](/hotel-industry/asbestos-renovation-rules). A third sits in the telephone scope: replacing the phone system ends the grandfathering of a pre-2020 system and brings three federal 911 duties with it. See [Kari's Law and hotel phone systems](/hotel-industry/karis-law-911-requirements). #### How do I pay for it? Four financing routes exist, and the right one depends on how much cash is on hand, how large the scope is, and whether a refinance or sale is already happening for other reasons. Cash from an accumulated FF&E reserve is the lowest-cost, fastest option when the reserve is large enough to cover the scope. A bridge loan with a future-funding facility, which draws capital as the work progresses, is a common route for a large PIP that exceeds available reserves; full detail on bridge structures is on `/hotel-financing/bridge-loans`. A capex holdback inside a refinance works when the owner is refinancing anyway and the scope is moderate. A price reduction at sale shifts the cost to the buyer's side of the ledger entirely, covered in the next section. #### Will my PIP block a refinance? Not by itself. A lender expects PIPs on branded hotels and has standard structures to handle them; what blocks a refinance is a PIP with no funding plan attached. A permanent lender will typically reserve for a known, scoped PIP rather than fund the renovation itself, which is a structural reason bridge debt, not permanent debt, is the more common financing vehicle for a large PIP in progress. The interaction between refinance timing and PIP status, including what to do when both are happening at once, is covered on `/hotel-financing/refinance`. #### Who pays for the PIP in a sale, the buyer or the seller? In practice, the buyer prices the PIP into the offer, which functions as the seller paying for it through a reduced sale price rather than through direct capital outlay. A buyer underwriting an acquisition with a known, open PIP will typically reduce the offer price by roughly the estimated cost of the work, sometimes with an additional discount for the disruption and execution risk of completing it post-closing. Some transactions instead require the seller to complete or fully escrow the PIP before closing, which shifts execution risk back to the seller but preserves headline price. Either structure is common; which one applies is a negotiated deal term, not a fixed rule. #### What happens if I miss the deadline? Missing a PIP deadline puts the franchise agreement at risk of termination, which in turn puts any loan tied to that franchise agreement at risk, because most branded hotel loans require the flag to remain in place. Franchise agreements typically give the franchisor the right to terminate for an uncured PIP default, and a terminated franchise agreement is very often an event of default under the loan documents as well, because the lender underwrote the property as a branded asset with a specific demand-generation system attached. An owner who sees a deadline is genuinely at risk should contact the brand proactively about an extension request well before the deadline, not after it has passed. Table: Four ways to fund a hotel PIP Method | Cost | Speed | Best fit FF&E reserve and cash | Lowest | Immediate | Small scope, funded reserve Bridge loan with future funding | Highest ongoing | Weeks to a few months to close | Large scope, transitional asset Capex holdback in a refinance | Moderate | The refinance timeline | Refinancing anyway, moderate scope Price reduction at sale | Paid out of proceeds | Sale timeline | Owner is exiting and does not want the project First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts SOFR, the index a future-funding PIP facility floats over, at 3.90% for September 30, 2026, and marks the spread and the cost of the capex facility as not yet published.[1][2] Get both in writing from the lender before you sign the PIP scope letter. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: funding a $2.6M PIP on 104 keys): Hypothetical. 104 keys, a $2.6M PIP, which works out to $25,000 per key in this hypothetical, not a market figure. Twenty months to complete. NOI today $1.35M. FF&E reserve on hand, assumed at 4 percent of $4.6M revenue accrued over 3 years, is about $552,000. The remaining need is $2.6M minus $552K, or $2.05M. On the bridge path, a future-funding facility draws the $2.05M as the work progresses. At an 8.75 percent all-in floating rate, with average outstanding of roughly half the facility over 20 months, the carry is about $2.05M times 0.5 times 8.75 percent times (20/12), or $149,000. On the sale path, a buyer discounts the price by the full $2.6M, and usually a bit more for the disruption. So funding it yourself costs about $149,000 of carry. Handing it to a buyer costs $2.6M or more of price. That spread is why owners with the liquidity usually do the work. FAQ: - Q: What is a hotel PIP? A: A Property Improvement Plan is a franchisor's written renovation requirement, issued at conversion, sale, or periodically during the franchise term, itemizing the work required to bring the property to current brand standards. - Q: How much does a hotel PIP cost per room? A: It varies by brand, scope and market. Get the specific figure from the brand's own scope letter and FDD, or a dated public industry benchmark. A hypothetical figure used for financing math is not a market estimate. - Q: How long do I have to complete a PIP? A: The brand sets it in the PIP notice, based on the scope of work. There is no single industry-wide deadline. Confirm the exact date in your scope letter and franchise agreement. - Q: Can I finance a PIP with a bridge loan? A: Yes. A bridge loan with a future-funding facility, drawing capital as the work progresses, is a common financing route for a PIP that exceeds available reserves. - Q: Does an open PIP stop a refinance? A: Not by itself. Lenders expect PIPs and typically reserve for them. What stalls a refinance is a PIP with no funding plan or completion timeline attached. - Q: Who pays for the PIP when a hotel sells? A: In practice, the buyer, through a reduced offer price that accounts for the estimated PIP cost, or the seller directly, if the deal requires completion or escrow before closing. Both structures are common. - Q: What happens if I miss the PIP deadline? A: The franchisor can move to terminate the franchise agreement, which very often triggers a default under the loan documents as well. Contact the brand about an extension before the deadline, not after. Sources: - [1] Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### Should I refinance my hotel or sell it instead? URL: https://matthewshotelmarkets.com/hotel-financing/refinance-or-sell Last updated: 2026-10-01 Run both numbers before you decide. Refinancing works when today's NOI supports today's balance at today's rate and you still believe the hold thesis. Selling works when the proceeds gap is permanent, the PIP is larger than your appetite, or the equity is better deployed elsewhere. The binding variable is usually NOI, not the rate. The 10-year Treasury was 5.29 percent on September 30, 2026.[1] Key takeaways: - This is an arithmetic question first and a preference question second. Do the arithmetic first. - Refinance proceeds are set by NOI, not by what you paid or what you owe. - Net sale proceeds are price minus fee minus debt payoff minus tax. Compare that to the equity you would inject to refinance. - A PIP due inside 24 months belongs in both columns, because it is cash you spend or a price reduction you take. - A broker who never says hold is not giving you advice. #### How do I compare the two paths in dollars? Compare the cash you would inject to refinance against the net cash you would collect from a sale, using the same NOI and the same PIP assumption in both columns. The comparison only works if both sides use consistent inputs. The refinance side starts with today's NOI, sizes a new loan against a current rate using the DSCR, debt yield, and LTV tests described on `/hotel-financing`, and nets against your current balance to find the equity gap. The sale side starts with the same NOI, applies a current cap rate to get value, then subtracts a brokerage fee, the debt payoff, and any tax due, to find net proceeds. Put both numbers side by side before you talk about preference. #### What does refinancing require me to bring? Refinancing requires equity to close any gap between the new loan and the existing balance, plus any cash the PIP requires that the new lender will not fund. The full mechanics of sizing a refinance, and the five ways to close a proceeds gap, are covered on `/hotel-financing/refinance`. For this comparison, the number that matters is the total cash the refinance path requires: the equity gap plus PIP cash plus closing costs. That total is what you are choosing to keep spending on the asset, in exchange for keeping it. #### What do I actually net from a sale? Net sale proceeds equal price minus the brokerage fee minus the debt payoff minus any tax due, and a PIP typically reduces the price a buyer will pay before any of that math starts. Buyers underwrite a known PIP into their offer, either as a direct price reduction or as a condition that the seller complete or escrow for it before closing. The Matthews Hotel Index for Q1 2026 gives the cap-rate band the sale side of this comparison should be run at, broken out by market and segment on `/research/mhi/q1-2026`.[2] Tax is a real cost on the sale side. A sale produces a gain when the amount realized exceeds adjusted basis, and depreciation taken on the building lowers adjusted basis, which makes that gain larger.[3] A refinance is not a sale, so it does not realize that gain. #### Where does the PIP belong in the comparison? A PIP due inside 24 months belongs on both sides of the comparison: as cash you spend or reserve if you refinance and keep the asset, or as a price reduction a buyer prices in if you sell. Treating the PIP as a cost only on the sale side, or ignoring it entirely on the refinance side, is the most common error in this comparison. A funded, in-progress PIP is a sunk cost on both sides and should be excluded from the marginal comparison; an unfunded, upcoming PIP is a live cost that belongs in both columns, sized consistently. #### How do taxes change the answer? Selling triggers capital gains tax and depreciation recapture unless the proceeds go into a 1031 exchange; refinancing is not a sale, so it does not realize a gain. This asymmetry is real and often decisive for owners who have held a hotel long enough to accumulate significant depreciation. A 1031 exchange, covered in full on `/hotel-financing/1031-exchange-hotels`, can defer the tax on a sale if the proceeds go into qualifying replacement real property, identified within 45 days and received within 180 days.[4] This page states the tax mechanics at a high level only; consult a CPA before finalizing any sale-versus-refinance decision, because the specific basis, depreciation schedule, and holding structure change the answer for every owner. #### When is holding clearly right? Holding is clearly right when the refinance equity requirement is modest relative to the asset's ongoing cash flow and the hold thesis, the market, the brand, the competitive position, still holds. A hotel that clears its refinance with little or no injected equity, in a market with continuing demand growth, with a manageable or already-funded PIP, is a straightforward hold. The math confirms the decision most owners already lean toward in this case, which is why the arithmetic matters most in the harder cases below. #### When is selling clearly right? Selling is clearly right when the equity required to refinance is large relative to the asset's value, the PIP is bigger than the owner's appetite, or the capital is better used somewhere else entirely. A large, unfunded PIP stacked on top of a meaningful refinance equity gap is the clearest case for selling: the owner is being asked to fund two large cash needs to keep an asset whose sale would instead return capital. The worked example below runs exactly this scenario with real numbers on both sides. Table: Refinance versus sell: the comparison that matters Line | Refinance | Sell Sets the number | NOI, rate, DSCR test | NOI, cap rate, buyer pool Cash in or out today | Equity injection if there is a gap | Net proceeds after fee, payoff and tax PIP treatment | You fund it, or the lender reserves for it | The buyer prices it into the bid Tax | No sale, so no gain is realized[3] | Capital gain and depreciation recapture, unless 1031[3][4] What you keep | The asset and the upside | The capital and the optionality Biggest risk | NOI does not recover and you did it again in 5 years | You sold the bottom First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate band the sale side of this comparison should be run at.[2] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: 78-key select-service hotel, Georgia): Hypothetical, matching the shape of the question people ask. 78 keys, NOI $1.05M, loan balance $8.40M maturing in 13 months, a $1.10M PIP due within 24 months. On the refinance path, at 7.25 percent, 25-year schedule, 1.35x test, maximum debt service is $777,778, supporting a loan of $8.96M. That clears the $8.40M balance. But the lender reserves for the PIP, so figure $1.10M of cash or reserve. Net cash out of pocket is about $1.10M, and you keep the asset. On the sale path, at an 8.25 percent cap on $1.05M of NOI, value is $12.73M, or $163,000 per key. A buyer prices the PIP in, call it a $900,000 reduction, for $11.83M. Less a brokerage fee at 2 percent, $237,000. Less the $8.40M payoff. Pre-tax net is $3.19M. So: spend $1.10M and keep an asset producing $1.05M, or collect $3.19M pre-tax and redeploy. Neither answer is obvious, which is the point. Run your own version with your own cap rate and your own tax basis before anyone gives you a recommendation. FAQ: - Q: Should I sell my hotel now or wait? A: Run the refinance-versus-sell arithmetic with your current NOI, current rate, and current cap-rate band from the Matthews Hotel Index. Waiting is a bet that NOI, rate, or cap rate improves; make sure you can name which one you are betting on. - Q: How do I know if my hotel can refinance? A: Run today's NOI against today's rate through the DSCR, debt yield, and LTV tests on the hub page. If the resulting loan covers your balance with acceptable equity, it can refinance. - Q: Does a PIP make selling better than refinancing? A: It shifts the comparison, because a buyer prices the PIP into the offer while a refinance requires you to fund or reserve for it directly. Run both totals; a large unfunded PIP often tips the answer toward selling. - Q: What do I net from a hotel sale after fees and debt? A: Price minus the brokerage fee minus the debt payoff minus any capital gains and depreciation recapture tax, unless the proceeds go into a 1031 exchange. Run the specific numbers for your basis with a CPA. - Q: Can I 1031 exchange out of a hotel sale? A: Yes, into another qualifying real property, under the 45-day identification and 180-day closing rules. Full detail is on the 1031 exchange page. - Q: What if my lender will not extend? A: Then your realistic options are a new refinance, a bridge loan to a later permanent takeout, or a sale. Waiting without a plan is what turns a performing loan into a maturity default. - Q: Will a broker tell me not to sell? A: A broker showing you the honest refinance arithmetic alongside the sale arithmetic, including cases where refinancing is cheaper, is doing the job correctly. One who only ever presents a sale is not giving you a full picture. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [3] Publication 544, Sales and Other Dispositions of Assets (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p544 - [4] 26 U.S.C. Section 1031 (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 ### How do I refinance a hotel loan before it matures? URL: https://matthewshotelmarkets.com/hotel-financing/refinance Last updated: 2026-10-01 Start twelve months before maturity. Order a fresh valuation, get the PIP status in writing, and size the new loan against today's rate, not the old one. The 10-year Treasury, the index a fixed refinance prices from, was 5.29 percent on September 30, 2026.[1] If the new loan is smaller than the balance, the gap closes with equity, an extension, mezzanine, or a sale. Key takeaways: - Twelve months out is the right time to start. Ninety days out, your options narrow to whatever the incumbent lender offers. - A higher rate means a higher payment on every dollar borrowed, so the same NOI supports a smaller loan than it did at 2021 rates. - The gap between the old balance and the new proceeds has four honest solutions and one bad one, which is waiting. - An unresolved PIP deadline is the most common reason a hotel refinance stalls. - Budget a few months from complete application to funding, and more if anything is missing. #### When should I start a hotel refinance? Twelve months before maturity, while every option is still on the table. At twelve months out, an owner can order a fresh appraisal, resolve any open PIP with the brand, shop the loan across multiple lender types, and still have time left over if the first plan does not work. At ninety days out, the appraisal and PIP conversations are compressed or skipped, the lender universe narrows to whoever can close fast, and the incumbent lender knows it. Owners who start early keep leverage in the negotiation. Owners who start late lose it, regardless of how strong the asset is. #### How do I size the new loan? The new loan is sized the same way a purchase loan is sized: against today's NOI, at today's rate, through the DSCR, debt yield and LTV tests, not against the existing balance. The existing balance is not an input to what a new lender will lend. A refinance lender runs the same three tests covered on `/hotel-financing`: DSCR, debt yield, and LTV, against the trailing twelve-month NOI and a fresh appraisal. The rate that was available in 2019 or 2021 is irrelevant to the new loan's sizing. The only thing that matters is what today's NOI supports at today's rate and today's underwriting standards. #### What happens if the new loan is smaller than my balance? A proceeds gap has four real solutions and one that only postpones the problem. Writing a check closes the gap with cash if the owner has liquidity and conviction in the hold. An extension from the incumbent lender buys time, usually for a fee and often a rate bump, and fits when cash flow is fine but the timing is the issue. Mezzanine or preferred equity is the most expensive capital in the stack and fits when a near-term value event is expected. A bridge loan followed by permanent takeout fits when a PIP or repositioning stands between today and a stabilized refinance. Selling is the clean answer when the gap is permanent and the hold thesis no longer holds. Waiting, doing nothing and hoping the gap closes itself, is not a sixth option; it is how a performing loan becomes a maturity default. #### My hotel appraised lower than I paid. Now what? A lower appraisal shrinks the loan the LTV test supports, but it does not automatically shrink the loan the DSCR and debt yield tests support. Because a hotel loan is sized by the lowest of three tests, a disappointing appraisal only changes the outcome if LTV was the binding constraint. If DSCR or debt yield was already binding at a higher implied value, a lower appraisal may not move the loan amount at all. The worked example below shows exactly this: the same loan sizes very differently depending on which test binds, and the appraisal alone does not tell you which one that is. #### Does a PIP deadline block the refinance? It can, but usually because the funding plan is missing, not because the PIP itself exists. A lender expects to see a PIP on a branded hotel and has standard ways to handle one: a capex reserve, a holdback, or confirmation that the scope is already funded and scheduled. What actually stalls a refinance is a PIP notice with no financing plan attached and no completion date the lender can rely on. Get the scope letter and a funding plan in place before you go to market for the refinance, not after. More detail on financing the PIP itself is on `/hotel-financing/pip-and-renovation-loans`. #### How long does the process take, step by step? Budget a few months from a complete application package to funding, and add time for anything that is not yet in hand. The rough sequence, in our experience: assemble the document package (see `/hotel-financing/loan-requirements` for the full list), collect and compare term sheets if running a competitive process, wait on the lender's appraisal and property condition assessment, which typically run in parallel with underwriting, and close once terms are agreed. Each step takes weeks, not days. That timeline assumes the T-12, STAR report and PIP status are ready on day one. Anything missing adds time directly. #### When is refinancing the wrong answer? When the proceeds gap is structural, not temporary, and no combination of equity, extension or bridge closes it without simply postponing a sale that was always coming. If the NOI shortfall reflects a declining submarket, an aging asset losing share to new supply, or a brand position that is not recovering, refinancing, even successfully, resets the clock without fixing the underlying problem. In that case the honest comparison is refinance versus sell, worked in full on `/hotel-financing/refinance-or-sell`, not another round of extensions. Table: Closing a proceeds gap at refinance Option | What it costs | When it fits | What it does not fix Write a check | Cash out of pocket | You have liquidity and conviction on the hold | A structurally weak asset Extension with the incumbent lender | Fee, often a rate bump, sometimes a paydown | Cash flow is fine and the issue is timing | A permanent value shortfall Mezzanine or preferred equity | Highest cost in the stack | Bridging to a near-term value event | Thin coverage; it makes coverage worse Bridge loan, then permanent | Floating rate plus a cap, short term | PIP or repositioning is in front of you | A market that is not coming back Sell | Brokerage fee and a taxable event | The gap is permanent and the hold thesis is gone | Nothing. It is the clean answer when it is the answer. First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury, the index a permanent refinance is sized against, at 5.29% as of September 30, 2026, and marks the spread over it as not yet published. Stress-test your own refinance against the index plus your lender's quoted spread, not against a remembered coupon.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 2021 loan maturing in 2027): Hypothetical. A 110-key hotel financed in 2021: $14.0M at 3.75 percent, 30-year amortization. Current balance $12.6M. NOI is $1.75M, roughly flat since origination. The old annual debt service is about $778,000, for a DSCR of $1.75M divided by $778K, or 2.25x. A new quote at 7.25 percent, 25-year amortization, with a 1.35x test: maximum debt service equals $1.75M divided by 1.35, or $1,296,296. The annual constant per $1M at 7.25 percent over 25 years is about $86,800, so the new loan equals $1,296,296 divided by $86,800 per $1M, or $14.93M. In this case the refinance covers the balance with room to spare, because the DSCR was 2.25x at origination. Now rerun it with NOI at $1.20M instead: maximum debt service $888,889, new loan $10.24M, against a $12.6M balance. The gap is $2.36M. The difference between the two outcomes is entirely NOI, not the rate. Diagnose which one you have before you shop. FAQ: - Q: When should I start refinancing my hotel loan? A: Twelve months before maturity. At that point you can order a fresh appraisal, resolve any PIP, and shop the loan. At ninety days out, your options narrow sharply. - Q: How long does a hotel refinance take? A: Budget a few months from a complete application package to funding. Add time for anything not yet in hand, especially an unresolved PIP or a slow appraisal. - Q: Can I refinance if my hotel is worth less than I paid? A: Possibly. A lower appraisal only reduces your loan if the LTV test was the binding constraint. If DSCR or debt yield already binds first, a lower value may not change the loan amount. - Q: Will my lender extend instead of refinancing? A: Sometimes, for a fee and often a rate bump. Extensions fit when cash flow is fine and the issue is timing, not when the NOI shortfall is structural. - Q: How much equity do I need for a hotel refinance? A: It depends entirely on the size of the proceeds gap between your balance and what today's NOI supports at today's rate. Run the numbers before assuming any specific percentage. - Q: Does an open PIP stop a refinance? A: Usually not by itself. What stalls a refinance is a PIP with no funding plan or completion date. Get the scope letter and a plan in place before you go to market. - Q: Can I refinance a hotel loan with a prepayment penalty outstanding? A: Yes, but the penalty is a real cost that has to be included in the refinance economics. Bank loans typically step down; CMBS loans use defeasance or yield maintenance, both expensive early in the term. Sources: - [1] Daily Treasury Par Yield Curve Rates (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/sba-7a-vs-504 Last updated: 2026-10-01 Both programs finance hotels. 7(a) is one loan from one lender, capped at $5 million, and it can cover working capital.[1] 504 is two loans: a bank first lien plus a fixed-rate CDC debenture capped at $5 million for a hotel.[3][9] The 25-year debenture rate for September 2026 funding was 6.54 percent.[4] 7(a) is simpler. 504 fixes part of the cost for up to 25 years. Key takeaways: - Hotels are eligible for both programs. SBA bars passive landlords, not operators, and a hotel owner runs an active business.[5] - A 7(a) loan caps at $5 million.[1] A 504 debenture on a hotel caps at $5 million, and the bank's first lien sits alongside it.[9] - Under 504, a hotel buyer contributes at least 15 percent of project cost, or 20 percent for a business two years old or less.[6][9] Under 7(a), the lender's credit policy sets the equity. - 504's debenture is fixed for 10, 20 or 25 years.[2] 7(a) is usually variable off Prime, with a maximum spread SBA sets.[1] - 504 never finances 100 percent of a hotel purchase, because the borrower contribution is a regulatory minimum.[6] #### Is a hotel eligible for an SBA loan at all? Yes. Hotels qualify as owner-occupied small business real estate because the owner operates the hotel as an active business, not as a passive landlord. SBA rules exclude passive businesses owned by developers and landlords that do not actively use or occupy the assets they finance.[5] A hotel owner runs an active business in the building, which is what separates a hotel from a pure real estate investment like an apartment building or a net-leased retail box. The 504 program also excludes speculation or investment in rental real estate.[2] Both programs have size and eligibility tests of their own; confirm them with the lender before you apply. #### What is the actual structural difference between 7(a) and 504? 7(a) is a single loan from a single lender with an SBA guaranty; 504 is two loans closing together, a conventional bank first lien and a fixed-rate CDC debenture. Under 7(a), the borrower deals with one lender, one closing, and one set of loan documents, and the SBA guarantees a portion of that single loan. Under 504, a Certified Development Company (CDC) partners with a conventional lender: the bank takes the first lien, the CDC-issued debenture usually takes a second lien on the property, and the borrower contributes equity.[3] Two closings, two sets of documents, but a portion of the debt, the debenture, comes with a long-term fixed rate.[2] Both programs generally require a personal guarantee from anyone who owns 20 percent or more of the business.[8] #### How much do I have to put down under each? Under 504, a hotel buyer contributes at least 15 percent of project cost, or 20 percent if the business is two years old or less; under 7(a), the lender sets the equity requirement.[6] The 504 figures are regulatory minimums, not typical amounts.[6] SBA lists hotels, motels and other lodging facilities as Limited or Special Purpose Property, which is why the 504 minimum is 15 percent rather than the 10 percent an ordinary building with an established operator needs.[6][9] Lenders can ask for more, based on the borrower's experience, the asset's condition, and their own credit policy. SBA's 7(a) program page publishes no single equity percentage, so get your lender's requirement in writing before relying on any number.[1] #### Are the rates fixed or variable? 504's debenture piece is fixed for the life of that portion of the loan; 7(a) is usually variable off Prime, though a fixed-rate 7(a) option exists. The 504 debenture is fixed for 10, 20 or 25 years and is pegged to an increment above the 10-year Treasury.[2] The 25-year rate for September 2026 funding was 6.54 percent, fees included.[4] The bank's first lien in a 504 structure is priced by the bank and can be fixed or variable depending on the lender. A standard 7(a) loan is usually variable, pegged to Prime or an optional peg rate, with a maximum spread SBA sets by loan size: Prime plus 3.00 percent above $350,000.[1] With Prime at 7.00 percent since September 17, 2026,[10][11] that caps the rate at 10.00 percent.[7] SBA also publishes maximum fixed rates for 7(a).[1] #### How big a hotel can each program finance? A 7(a) loan caps at $5 million; a 504 debenture on a hotel caps at $5 million, and the bank's first lien in a 504 structure is sized by the bank.[1][9] The $5 million cap under 7(a) applies to the loan itself,[1] which caps the size of hotel that 7(a) alone can finance without a second, non-SBA source of capital layered in. In a 504 structure on a hotel, the bank loan must be at least 50 percent of project cost,[3] and the debenture caps at $5 million,[9] so the total project can be far larger than the debenture. That is why 504 suits bigger, real-estate-heavy hotel purchases. Program limits can change, so confirm the current caps on SBA.gov. #### Which is faster to close? 7(a) is generally faster because it involves one lender and one closing; 504's two-closing structure adds coordination time between the bank and the CDC. A straightforward 7(a) loan can close in a matter of weeks once the package is complete. A 504 loan requires the bank and the CDC to coordinate two sets of loan documents and often two closing dates, which typically adds time versus a single-lender 7(a) transaction of similar size and complexity. Speed is one input, not the deciding one; a slower close that locks a long-term fixed rate can be worth the extra weeks on a large purchase. #### Which one fits my deal? 7(a) fits a smaller purchase that needs working capital and speed; 504 fits a larger, real-estate-heavy purchase where a long-term fixed rate on part of the stack is worth the extra closing complexity. The worked example below runs the same $6.0 million hotel purchase through both programs side by side. Neither program is categorically better; the right choice depends on deal size, how much of the purchase is real estate versus working capital and FF&E, and how much the borrower values a fixed rate on part of the stack against the speed and simplicity of a single closing. Both programs run the same environmental investigation, and which report it starts with is at [Am I liable for contamination on a hotel I buy?](/buy-a-hotel/environmental-liability). Table: SBA 7(a) versus SBA 504 for a hotel purchase Category | SBA 7(a) | SBA 504 Structure | One loan, one lender, SBA guaranty | Bank first lien + CDC debenture + borrower equity Maximum SBA exposure | $5,000,000 loan maximum[1] | Debenture up to $5,000,000 on a hotel; bank first lien sized by the bank[9] Typical borrower equity | Set by the lender's credit policy | At least 15% for a hotel, 20% if a new business[6] Rate type | Usually variable off Prime; SBA caps the spread and publishes fixed maximums[1] | Debenture fixed for 10, 20 or 25 years[2] Use of proceeds | Real estate, equipment, working capital, change of ownership, some refinancing[1] | Real estate and long-lived equipment; no working capital[2] Prepayment | On terms of 15 years or more: 5%, 3% and 1% fees in years one to three if 25% or more is prepaid[1] | Prepayment penalty in the early years; ask the CDC for the schedule Best fit | Smaller purchase, needs working capital, wants speed | Larger real-estate-heavy purchase, wants fixed rate First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the SBA 7(a) maximum allowable rate at 10.00%, which is the 7.00% Prime in effect since September 17, 2026 plus the 3.00% cap SBA sets on loans over $350,000, and the 25-year 504 debenture at 6.54% as of September 10, 2026.[7] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: $6.0M hotel purchase under each program): Hypothetical. A 62-key exterior-corridor hotel at a $6.0M purchase price. Under the 7(a) path, the loan is capped at $5.0M. At 85 percent of price that would be $5.1M, so the cap binds: the loan is $5.0M, borrower equity is $1.0M, or 16.7 percent. One closing, one lender. Under the 504 path, the bank first lien at 50 percent equals $3.0M. The CDC debenture at 35 percent equals $2.1M. Borrower equity at 15 percent equals $900,000. Two closings, and the $2.1M debenture piece is fixed for 25 years. The 504 path costs $100,000 less at closing and fixes a third of the stack for 25 years. The 7(a) path closes faster and leaves room for working capital. Neither is wrong. Confirm the current percentage splits against SBA.gov before you rely on this. FAQ: - Q: Can I buy a hotel with an SBA loan? A: Yes. Hotels qualify as owner-occupied small business real estate because the owner actively operates the hotel, unlike a passive real estate investment. - Q: What is the maximum SBA 7(a) loan for a hotel? A: A 7(a) loan caps at $5 million. A larger project can layer non-SBA financing on top, or use SBA 504, where the debenture on a hotel caps at $5 million and a bank first lien sits alongside it. - Q: How much do I need to put down on an SBA hotel loan? A: Under 504, at least 15 percent of project cost for a hotel, or 20 percent if the business is two years old or less. Under 7(a), the lender's credit policy sets it. Get the requirement in writing. - Q: Is an SBA 504 loan fixed rate? A: The CDC debenture portion is fixed for 10, 20 or 25 years. The bank's first lien portion can be fixed or variable depending on the lender. - Q: Can I use an SBA loan to refinance an existing hotel loan? A: Yes, with conditions. 7(a) can refinance certain existing debt, and 504 can refinance qualified debt. Confirm eligibility with an SBA lender before you apply. - Q: How long does an SBA hotel loan take to close? A: 7(a) can close in a matter of weeks with a complete package. 504's two-closing structure, coordinating a bank and a CDC, typically takes longer. - Q: Does an SBA loan require a personal guarantee? A: Yes. SBA rules generally require a guarantee from anyone holding 20 percent or more of the business, under both 7(a) and 504, and lenders can ask others to guarantee too. Sources: - [1] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [2] 504 loans (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/loans/504-loans/ - [3] 13 CFR 120.920, Required participation by Third Party Lenders (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.920 - [4] SBA 504 rates and rate history, September 2026 funding (CDC Small Business Finance, republishing NADCO debenture pricing, accessed 2026-09-18): https://cdcloans.com/sba-504-rates/ - [5] 13 CFR 120.110, What businesses are ineligible for SBA business loans? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.110 - [6] 13 CFR 120.910, How much must the Borrower contribute? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [7] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [8] 13 CFR 120.160, Loan conditions (guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 - [9] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [10] BNY Increases Prime Lending Rate to 7.00% (The Bank of New York Mellon Corporation, via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html - [11] PNC Bank, N.A. Changes Prime Rate (PNC Bank, N.A., via PR Newswire, accessed 2026-09-18): https://www.prnewswire.com/news-releases/pnc-bank-na-changes-prime-rate-302881163.html ### Does my hotel brand have to be on the SBA Franchise Directory? URL: https://matthewshotelmarkets.com/hotel-financing/sba-franchise-directory Last updated: 2026-10-14 Yes, if the brand meets the FTC definition of a franchise. SBA's rule is flat: a brand that meets the definition must be on the SBA Franchise Directory to obtain SBA financing.[2] The October 9, 2026 edition lists 3,461 brands, 2,438 of them as franchises, including all 24 hotel brands this site covers.[1] Key takeaways: - If the brand meets the FTC definition of a franchise, it must be on the Directory before a lender can submit the application to SBA or approve it under delegated authority.[2] - The October 9, 2026 edition carries 3,461 brands: 2,438 marked as meeting the FTC definition, 1,009 marked as not meeting it, and 14 eligible only for SBA disaster loans.[1] - A listing is not just a yes. Every hotel listing read for this page carries a condition, and the sharpest says the applicant is not eligible if the management company is, or is affiliated with, the franchisor.[1] - SBA ran 22 months without a Directory. SOP 50 10 7, effective August 1, 2023, dropped the franchise review; SOP 50 10 8 restored it on June 1, 2025.[5][6] #### What is the SBA Franchise Directory? It is SBA's published list of the franchise and other brands it has reviewed and found eligible for SBA financing, kept as a dated spreadsheet on SBA's own site. SOP 50 10 8.1 describes it plainly: SBA has created the Directory of all franchise and other brands it has reviewed that are eligible for SBA financial assistance.[2] The file published on October 9, 2026 is named Franchise Directory Oct 9 2026_REM01.xlsx, is 280 KB, and carries 3,461 brand rows.[1] Each row answers three questions: whether SBA determined that the brand meets the Federal Trade Commission definition of a franchise; the SBA Franchise Identifier Code, which SBA issues only when it does; and whether there are additional issues the lender must consider.[2] On this edition 2,438 rows are marked as meeting the definition and 2,437 of those carry a code. Another 1,009 are marked as not meeting it, and 14 are eligible only for SBA disaster assistance loans. Those three groups add to the 3,461 total. A fourth column records whether the franchisor certification has been received, and 281 rows carry a recertified date.[1] The definition doing the work is not SBA's. 16 CFR 436.1(h) makes a relationship a franchise when the franchisee gets the right to operate under the franchisor's trademark, the franchisor has or can exert significant control over the method of operation, and the franchisee makes a required payment.[3] A hotel franchise agreement satisfies all three. The SOP widens the net: a licence or dealer agreement counts if SBA determines it meets the definition, and agreements exempt from FTC disclosure are still inside it.[2] The FTC rule drops its disclosure requirements once the franchisee's initial investment reaches $1,469,600, which a hotel purchase clears easily.[4] Not owing a disclosure document is not the same as not being a franchise. #### Is my hotel brand on it? Every hotel brand with a franchise-cost page on this site, all 24 of them, is on the October 9, 2026 edition with an identifier code.[1] The table below carries twelve listings as the Directory prints them, with the code a lender keys into the SBA Loan System and the conditions SBA attaches.[1][2] Two things in it are worth reading twice. The first is the brand name. The lender must ensure that the brand, and where applicable the agreement type, the applicant will operate under matches what the Directory lists.[2] Best Western appears as a membership agreement and several extended-stay brands carry an ES suffix, so the agreement and the row have to be the same thing, not the same logo. The second is the last row. Fairbridge Inn Express and Fairbridge Inn & Suites sit on the Directory marked as not meeting the FTC definition, with no identifier code.[1] That is not a rejection: SBA adds such brands at their request to reduce confusion over relationships that look like franchises but are not.[2] It changes the procedure, not the answer. Where a brand is uncoded and the lender concludes the agreement does not meet the definition, the lender documents its own determination and bears the risk of getting it wrong on a delegated 7(a) loan. On a delegated 504 loan the documents go to SBA for a final determination before approval.[2] #### Why does SBA care who manages my hotel? Because a hotel whose operations are handed to someone else is a passive business, and passive businesses are ineligible.[7] 13 CFR 120.110(c) makes passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds ineligible for SBA business loans.[7] SOP 50 10 8.1 turns that into a test a hotel can fail: a business whose management agreement gives the management company sole discretion over operations is an ineligible passive business. The applicant stays eligible where the manager lacks sole discretion and the owner exercises meaningful oversight, which the SOP defines as an agreement letting the applicant approve the annual operating budget, approve expenditures over a significant threshold, control the bank accounts, and oversee the staff, who must be the applicant's employees.[2] Then the Directory adds a harder line. The note on every hotel listing read for this page says that if the applicant also operates under a third-party management agreement, the lender must review it for affiliation, and that the applicant is not eligible if the management company is, or is affiliated with, the franchisor.[1] A brand-managed hotel and an SBA loan do not go together, whatever the economics look like. One exception saves paperwork rather than deals. Unless the management agreement sits inside the franchise disclosure documents for a listed brand, lenders must review it on every loan, delegated or not.[2] The manager inside the brand's FDD is covered by the listing; the manager hired separately is not. #### What else does the listing make the lender check? The notes column adds brand-specific conditions, and on hotel brands they cluster around length of stay, the comfort letter and lien position. Length of stay comes first. The SOP makes hotels, motels, recreational vehicle parks, marinas and campgrounds eligible only where more than 50 percent of the business's prior-year revenue came from transients who stay 30 days or less at a time, with projections standing in for a start-up.[2] Twenty-two listings on this edition repeat that test in their notes, and they are the extended-stay and apartment-branded ones: Residence Inn by Marriott, Extended Stay America, ECHO Suites and StudioRes among them.[1] The test applies to any hotel under the SOP, so a note repeating it flags the asset type rather than a rule unique to that flag. [Is extended-stay hotel financing different?](/hotel-financing/extended-stay-financing) works the revenue test through in detail. The comfort letter comes second. Nineteen listings mention one, and they split two ways. The eight Hyatt brands, Hyatt Place and Hyatt House included, carry a note that the Hyatt comfort letter has been approved by SBA. The extended-stay listings carrying the 30-day test say the opposite: the comfort letter may not be used with SBA transactions.[1] A [franchise comfort letter](/glossary/comfort-letter) is routine on a conventional hotel loan, so learning at closing that the brand's version is barred is an avoidable surprise. Lien position comes third. Many listings tell the lender to secure the appropriate lien position on all collateral, and others bar a lease addendum, a collateral assignment of lease or a franchisor purchase option where the real estate secures the SBA loan.[1] That is SBA naming the franchise documents the borrower may sign. #### Did SBA not get rid of the Franchise Directory? It did, for 22 months, and that is why a stale answer to this question is still in wide circulation. SOP 50 10 7, effective August 1, 2023, contains no mention of a Franchise Directory and none of the FTC definition of a franchise.[5] The franchise review was gone. Behind it was the final rule on Affiliation and Lending Criteria for the SBA Business Loan Programs, published April 10, 2023 at 88 FR 21074 and effective May 11, 2023, which removed the principle of control as establishing affiliation between entities.[2] The current affiliation regulation, 13 CFR 121.301(f), reads on ownership and says nothing about franchise or licence agreements.[8] SOP 50 10 8, effective June 1, 2025, brought the Directory back with the listing requirement intact, and 8.1 carried it into the edition effective October 1, 2026.[6][2] What did not come back is the document a franchisee used to sign. Neither edition mentions an addendum to the franchise agreement; SBA now sends a Franchisor or Distributor Certification to the franchisor and lists the brand once the signed certification is returned.[2] The Directory's fourth column is the record of that certification.[1] Both halves of the stale answer are wrong in 2026. The Directory exists, the brand has to be on it, and what changed is who signs: the franchisor certifies once for the whole system instead of each franchisee signing an addendum. #### What happens if the brand is not on the Directory? The loan stops. For a non-delegated loan the lender cannot submit the application to SBA, and for a delegated loan the lender cannot approve it.[2] That is the SOP's own wording, and it applies before processing, not at closing.[2] The lender's instruction is to tell the applicant or franchisor how to get the brand added. The franchisor submits the agreement, the disclosure document where there is one, and every other document a franchisee must sign, to franchise@sba.gov. New brands are reviewed in the order received, and SBA lists the brand and issues the code once the signed certification is back.[2] SBA publishes no turnaround time for that review, and this page is not going to invent one. The only clock written down runs the other way: before removing a brand, SBA gives the franchisor notice and 30 days to respond.[2] A buyer on a financing contingency is holding the risk of a review with no published duration, which is the argument for checking the current edition before signing. Two structures catch hotel buyers. Where an applicant operates under several qualifying agreements, all must be listed or the application cannot proceed, so a hotel with a branded restaurant has more than one row to check. And a franchise development agreement, or master franchise agreement, has been determined to be passive, which makes an applicant operating under one ineligible outright.[2] #### What should a buyer do before signing the franchise agreement? Pull the current edition, find the exact row, read the notes column against the management plan, and do it before the franchise application goes in. Download the dated file rather than a summary of it, because each edition replaces the last.[1] Match the row to the agreement type, not to the logo. Then read the notes column as a condition list: a third-party manager, a long-stay revenue mix and a comfort letter can each end the SBA path on a deal that prices well. The Directory question only binds SBA loans. A bank, a credit union, a debt fund or a CMBS lender runs its own franchise review and its own comfort letter negotiation, and none of them publishes the terms of either. [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements) covers that side, and [SBA 7(a) versus 504](/hotel-financing/sba-7a-vs-504) covers which program fits once the brand clears. Table: Hotel brands on the SBA Franchise Directory, October 9, 2026 edition Brand, as the Directory lists it | SBA Franchise Identifier Code | Listed since | Conditions in the Directory's notes column Hampton Inn by Hilton | S0781 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Hilton Garden Inn | S0802 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Home 2 Suites by Hilton | S0812 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Tru by Hilton | S1816 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Holiday Inn Express / Holiday Inn Express & Suites | S2794 | March 22, 2018 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Staybridge Suites | S8889 | August 4, 2026 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Hyatt Place | S2805 | March 22, 2018 | Management review, plus a note that the Hyatt comfort letter has been approved by SBA Courtyard by Marriott | S0433 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Residence Inn by Marriott | S1425 | October 1, 2017 | Management review, plus the 30-day transient revenue test repeated in the note Best Western, membership agreement (with Plus, Premier, Executive Residency, GLo and Aiden) | S2125 | October 1, 2017 | Management review, plus the 30-day transient revenue test repeated in the note WoodSpring Suites ES | S1944 | October 1, 2017 | Third-party management agreement reviewed; ineligible if the manager is or is affiliated with the franchisor Fairbridge Inn Express / Fairbridge Inn & Suites | None issued | October 1, 2017 | Marked as not meeting the FTC definition of a franchise, so SBA issues no code and the lender makes its own determination First-party data point: Matthews Hotel Markets' October 2026 rate sheet prices both SBA paths a listed brand opens: the 7(a) ceiling at 10.00%, which is the 7.00% Prime of September 29, 2026 plus SBA's 3.00% maximum spread above $350,000, and the 25-year 504 debenture at 6.54% as priced on September 10, 2026.[9] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what the management condition costs on a 92-key select-service hotel): Hypothetical, and the coverage test is this example's own assumption, because no lender publishes its DSCR floor. A buyer is under contract on a 92-key branded select-service hotel doing $2,400,000 of revenue, and plans to hire the brand's management affiliate at 3.0 percent, or $72,000 a year. At that fee the NOI is $720,000, 30.0 percent of revenue. The Directory note on the flag makes that plan ineligible: the applicant is not eligible if the management company is, or is affiliated with, the franchisor.[1] So the comparison is not cheap manager against expensive. It is SBA against no SBA. Switch to an independent manager at 3.5 percent and the fee is $84,000, or $12,000 more. NOI falls to $708,000. At an assumed 1.35x coverage test, $720,000 of NOI supports $533,333 of annual debt service and $708,000 supports $524,444, a difference of $8,889. Price that at the 7(a) ceiling of 10.00 percent over a 25-year amortization and the monthly payment factor is 0.00908701 per dollar borrowed, or 0.10904409 a year. The higher NOI supports a $4,890,988 loan and the lower one $4,809,472: $81,516 less. Both sit under the $5,000,000 7(a) cap, so the coverage test binds rather than the cap. The condition costs $12,000 a year of fee and about $81,500 of loan capacity. The alternative is a conventional loan whose terms no lender publishes. FAQ: - Q: Does my hotel brand have to be on the SBA Franchise Directory? A: Yes, if the brand meets the FTC definition of a franchise. SOP 50 10 8.1 says such a brand must be on the Directory to obtain SBA financing. All 24 hotel brands covered here are on the October 9, 2026 edition. - Q: What is an SBA Franchise Identifier Code? A: A code SBA assigns to a listed brand, issued only where the agreement meets the FTC definition of a franchise. The lender keys it into the SBA Loan System. Hilton Garden Inn is S0802 on the October 9, 2026 edition. - Q: Did SBA eliminate the Franchise Directory? A: It did for 22 months. SOP 50 10 7, effective August 1, 2023, dropped the franchise review. SOP 50 10 8 restored the Directory on June 1, 2025, and 8.1 kept it from October 1, 2026. - Q: Can I use a management company on an SBA hotel loan? A: Only one that is not the franchisor or a franchisor affiliate, and only where the agreement leaves the owner meaningful oversight: the budget, large expenditures, the bank accounts and the staff, who must be the borrower's employees. - Q: Is being on the Directory the same as SBA approving my loan? A: No. SBA says placement is not an endorsement or a guaranty of the brand's success. The hotel still has to pass every other test, including the rule that more than half of prior-year revenue comes from stays of 30 days or less. - Q: How does a hotel brand get added to the Directory? A: The franchisor sends the agreement, the disclosure document and every document a franchisee must sign to franchise@sba.gov. SBA reviews new brands in the order received, then sends a certification to sign before listing it. SBA publishes no turnaround time. Sources: - [1] SBA Franchise Directory, October 9, 2026 edition (Franchise Directory Oct 9 2026_REM01.xlsx): 3,461 brand rows, identifier codes, FTC determination, certification status and the per-brand notes column (U.S. Small Business Administration, accessed 2026-10-14): https://legacy.sba.gov/document/support-sba-franchise-directory - [2] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section A, Ch. 1: the Franchises paragraphs on the Directory, the FTC definition, lender use, the procedure to add a brand and the 30-day removal notice; the passive-business and meaningful-oversight tests; the hotel transient-revenue rule; and the statement of the April 10, 2023 affiliation final rule at 88 FR 21074 (U.S. Small Business Administration, accessed 2026-10-14): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 16 CFR 436.1(h), definition of franchise (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-14): https://www.law.cornell.edu/cfr/text/16/436.1 - [4] 16 CFR 436.8, exemptions from the FTC franchise rule, including the $1,469,600 large-investment exemption (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-14): https://www.law.cornell.edu/cfr/text/16/436.8 - [5] SOP 50 10 7 (effective August 1, 2023), the edition with no Franchise Directory and no FTC franchise definition (U.S. Small Business Administration, accessed 2026-10-14): https://legacy.sba.gov/sites/default/files/2023-05/SOP%2050%2010%207%20effective%2008.01.2023_0.docx - [6] SOP 50 10 8 (effective June 1, 2025), the edition that restored the Franchise Directory (U.S. Small Business Administration, accessed 2026-10-14): https://legacy.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx - [7] 13 CFR 120.110(c), passive businesses owned by developers and landlords are ineligible (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-14): https://www.law.cornell.edu/cfr/text/13/120.110 - [8] 13 CFR 121.301(f), affiliation for applicants in SBA's business loan programs, which now turns on ownership (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-14): https://www.law.cornell.edu/cfr/text/13/121.301 - [9] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-14): https://matthewshotelmarkets.com/rates ### Is my hotel company too big for an SBA loan? URL: https://matthewshotelmarkets.com/hotel-financing/sba-size-standards Last updated: 2026-10-22 Probably not. The size standard for NAICS 721110, Hotels (except Casino Hotels) and Motels, is $40.0 million in average annual receipts for the applicant and its affiliates combined.[1][2] An owner over that line can still qualify on $20 million of tangible net worth and $6.5 million of average net income, a test in force since March 18, 2024.[3][4] What binds first is usually the $3,750,000 guaranty cap.[5] Key takeaways: - The $40.0 million is a ceiling on a group, not on a hotel. The size standards section says in its own words that the figure is the maximum allowed for a concern and its affiliates.[1][2] - Affiliation has been ownership only since May 11, 2023, and the tests that run through an owner reach only businesses in the same 3-digit NAICS subsector.[6][3] - The alternative standard is the door most portfolio owners use: tangible net worth of $20 million or less and average net income of $6.5 million or less for the last two fiscal years, affiliates included.[3][4] - The real ceiling is money. The SBA portions of all loans to one borrower and its affiliates cap at a $3,750,000 guaranty, and one 7(a) loan caps at $5,000,000.[5][7] - Size is fixed on the day the application is accepted for processing, and growing after that does not disqualify you.[8] #### What size standard applies to a hotel? A hotel sits in NAICS 721110, and its size standard is $40.0 million in average annual receipts. SBA sets a standard for every industry code and publishes the table in 13 CFR 121.201. For 721110, Hotels (except Casino Hotels) and Motels, the entry reads $40.0 million, and casino hotels at 721120 get the same. The rest of the subsector gets far less: $9.0 million for bed-and-breakfast inns (721191) and all other traveler accommodation (721199), $10.0 million for RV parks and campgrounds (721211) and $14.0 million for rooming and boarding houses, dormitories and workers' camps (721310). Read twice for this page, through the eCFR versioner API for the October 1, 2026 issue of title 13 and on Cornell's copy, which agree line for line.[1][2] Two sentences at the head of that section do the work people get wrong. The standards are expressed either in number of employees or in annual receipts in millions of dollars, so a hotel is tested on revenue, not on rooms or staff. And the figure is the maximum allowed for a concern and its affiliates. That second sentence is what catches portfolio owners.[1] The number also moves: the November 17, 2022 inflation rule added 13.65 percent, taking 721110 from $35.0 million to a computed $39.78 million, rounded to $40.0 million and effective December 19, 2022,[9] and those interim provisions were finalized without change on July 19, 2023.[10] Codes measured by headcount use a 24-month employee average instead.[11] #### How does SBA count a hotel's receipts? Receipts are total income plus cost of goods sold as reported on the filed Federal income tax return, averaged over five completed fiscal years, or three if the applicant elects it. Receipts means all revenue in whatever form received or accrued, reduced by returns and allowances. SBA takes total income plus cost of goods sold as reported on the return, and relies on the return and any amendments filed with the IRS on or before the date of self-certification.[12] Three exclusions matter to a hotel. Net capital gains and losses are out, so selling a hotel at a gain inside the measured years does not inflate the figure. Taxes collected for and remitted to a taxing authority are out, which is why transient occupancy tax and sales tax collected from guests do not count, though taxes levied on the business itself do. Proceeds from transactions between a concern and its affiliates are out, so an intercompany management fee is not counted twice. Nothing else comes out, payroll taxes and franchise fees included.[12] The period of measurement is where an owner has a real choice. The general rule is total receipts over the five most recently completed fiscal years divided by five. But the Business Loan Programs, which the regulation defines to include the 7(a) and 504 programs by name, let a concern in business three or more completed fiscal years elect either the five-year or the three-year average.[12] For a portfolio that grew after 2021 the five-year average is the lower of the two, because it still carries the depressed years. #### Which of my other hotels count against me? Every hotel company you own more than half of, and every hotel company more than half owned by someone who owns more than half of you, counted at its full receipts rather than your share. The final rule effective May 11, 2023 removed affiliation based on management and control, on franchise and license agreements, on identity of interest between close relatives, and the power-to-control principle behind all three. What is left in 13 CFR 121.301(f) is ownership, with a three-digit subsector limit SBA added to restrict affiliates to businesses in the same field.[6][3] The six ownership tests are not symmetrical, and the asymmetry decides most hotel cases. If the applicant itself owns more than half of another business, the two are affiliated with no industry limit. Where the link runs through an owner instead, the other business is an affiliate only if it is in the same 3-digit NAICS subsector. Every lodging code above sits in subsector 721, so one individual's two hotel companies are affiliated and that same individual's restaurant company, in subsector 722, is not. Where no owner holds more than half of the applicant the threshold drops to 20 percent. Spouses' and minor children's interests combine, ownership through entities counts pro rata, and options and agreements to merge count as already exercised.[3] Three traps sit outside that list. Receipts are added average to average, each affiliate in full rather than at your percentage, and across the whole period of measurement rather than only the part after the affiliation arose, so buying into a hotel company in 2025 pulls its 2021 revenue in.[12] The two-entity structure most hotel loans use does not help: the Eligible Passive Company holding the real estate and the Operating Company running the hotel must each be small, and the loan counts against both limits.[13][5] And a new entity holding substantially a predecessor's assets is not a separate concern.[14] #### Is there another way to qualify if my receipts are too high? Yes. For 7(a) and 504 an applicant can qualify on the alternative standard instead: $20 million of tangible net worth and $6.5 million of average net income, including affiliates.[3] 13 CFR 121.301(b) gives a 7(a) or 504 applicant two independent doors and asks it to walk through one. The first is the industry test: small alone, and small with its affiliates against the higher of the two applicable standards. The second is the alternative test: including affiliates, tangible net worth not in excess of $20 million and average net income after Federal income taxes, excluding carry-over losses, not in excess of $6.5 million for the two most recently completed fiscal years. Failing the receipts test does not end the application.[3] For a pass-through entity, which is most hotel ownership, the regulation builds a hypothetical corporate tax bill out of the marginal state and Federal rates rather than using book income.[3] Depreciation is usually what keeps a large portfolio's net income under $6.5 million when its receipts are well over $40.0 million. The levels are recent. The Small Business Jobs Act of 2010 set an interim standard of $15 million and $5 million. SBA made it permanent effective March 18, 2024, adjusted upward by 34.46 percent for the inflation since 2010.[4] One lever is easy to miss. Every applicable size standard for SBA's financial assistance programs, the surety bond program aside, rises 25 percent when the applicant agrees to use all of the assistance within a labor surplus area, taking a hotel's receipts standard to $50.0 million.[3] A jurisdiction needs a two-year unemployment rate of 6.0 percent or higher to be on the Department of Labor's list; the fiscal year 2027 list runs October 1, 2026 through September 30, 2027.[15] #### If I am small enough, how much can I actually borrow? Less than the size test implies. The SBA portions of all loans to a borrower and its affiliates cap at a $3,750,000 guaranty, and one 7(a) loan caps at $5,000,000.[5] This is the ceiling that stops repeat hotel buyers, and it is not a size standard at all. The aggregate SBA portions of all loans to a single borrower, including its affiliates as defined in 121.301(f), must not exceed a guaranty amount of $3,750,000, and any one 7(a) loan caps at $5,000,000.[5] SBA guarantees 85 percent at or below $150,000 and 75 percent above that, and puts its maximum exposure at $3.75 million.[7] One $5,000,000 loan at 75 percent therefore consumes $3,750,000, the entire cap for the whole group. SBA's own loan-level data shows how often that binds. Of the 3,879 7(a) loans to hotels and motels approved in fiscal years 2021 through 2025, 499 fell in the $5.0 million and over band, and those 499 total $2,495,000,000, an average of exactly $5,000,000 each. Since $5,000,000 is the program maximum, all 499 sat precisely at the cap: 12.9 percent of hotel 7(a) loans were written at the largest number the statute allows. At the other end, 1,593 of the 3,879, or 41.1 percent, were under $2 million.[16] When the guaranty room is gone the conversation is conventional, not federal. A 504 structure helps, because the bank's first lien carries no SBA guaranty, though the debenture counts. Beyond that it is [bank, credit union, life company, CMBS or bridge debt](/hotel-financing/hotel-lenders-by-type) priced on the hotel. #### When is my size measured, and what will a lender check? Size is fixed when the application is accepted for processing, or when a Preferred Lender approves the loan, and the evidence is the filed tax returns, the ownership chart and the existing SBA exposure.[8][12] 13 CFR 121.302 fixes the date: for an ordinary application, the date SBA accepts it for processing, and under the Preferred Lenders Program, the date the lender approves the loan. Paragraph (e) is the part to hold on to, that changes in size after the applicable date will not disqualify an applicant.[8] An acquisition closing before acceptance is inside the calculation; one closing after approval is not. Size is also only one of the five basic eligibility requirements in 13 CFR 120.100.[17] The documents are knowable in advance: returns for the measured years for the applicant and every affiliate, with books of account standing in where a year has none;[12] an ownership chart showing percentages and industry codes;[6] and the guaranty outstanding across the group.[5] What is not published is appetite. No bank, credit union or certified development company publishes how many hotels one sponsor may own before it stops lending, how much exposure to one borrower it will carry, or a coverage threshold that moves with portfolio size. That is credit policy, set institution by institution and not disclosed. The one number a borrower can check alone is the industry code, because the gap between $40.0 million and $9.0 million decides small or not small for a property that calls itself an inn.[1] Table: The numbers that decide whether a hotel owner is small enough for SBA Test | The number | What it is measured on | Where it is set Industry size standard, NAICS 721110 | $40.0 million | Average annual receipts of the applicant and every affiliate, added average to average | 13 CFR 121.201[1][12] Alternative standard, tangible net worth | $20 million | The applicant including its affiliates | 13 CFR 121.301(b)(2)[3] Alternative standard, average net income | $6.5 million | After Federal income taxes, excluding carry-over losses, for the two most recently completed fiscal years, including affiliates | 13 CFR 121.301(b)(2)[3] Labor surplus area increase | 25 percent, taking the receipts standard to $50.0 million | Applies when the applicant agrees to use all of the financial assistance inside a labor surplus area | 13 CFR 121.301(e)[3][15] Aggregate SBA guaranty to one borrower | $3,750,000 | The SBA portions of all loans to the borrower and its affiliates | 13 CFR 120.151[5] Maximum single 7(a) loan | $5,000,000 | One loan, whatever the group's size | 13 CFR 120.151[5][7] First-party data point: Matthews Hotel Markets' October 2026 rate sheet prints the two SBA numbers a size-eligible hotel borrower actually prices against: the 7(a) maximum allowable rate of 10.00%, which is the 7.00% Prime plus the 3.00% spread cap SBA sets above $350,000, and the 25-year 504 debenture at 6.54% as of September 10, 2026.[18] Our own extract of SBA's loan-level data, at /data/sba-hotel-lending, shows why the size test is rarely the binding one: 499 of the 3,879 7(a) hotel loans approved in fiscal years 2021 through 2025 were written at exactly the $5,000,000 program maximum.[16] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: eleven hotels in three companies, buying a twelfth): Hypothetical, not a transaction. One individual owns 100 percent of the applicant, a company holding four hotels; 100 percent of a second holding four; 60 percent of a third holding three; and 100 percent of a restaurant company. The hotel companies are all NAICS 721110. Who is an affiliate. The second and third hotel companies are: one individual owns more than half of the applicant and of each of them, and all three sit in subsector 721.[3] The 60 percent stake counts the same as the 100 percent stake, and the receipts come in whole.[12] The restaurant company is not, because 722 is not 721 and the test running through an individual owner reaches only the same subsector. Had the applicant held it directly, there would be no subsector limit.[3] The five-year test, on receipts for fiscal 2021 through 2025. Applicant: $9,200,000, $12,400,000, $14,100,000, $15,300,000, $16,000,000, averaging $13,400,000. Second: $8,600,000, $11,800,000, $13,500,000, $14,600,000, $15,500,000, averaging $12,800,000. Third: $6,100,000, $8,300,000, $9,600,000, $10,400,000, $11,100,000, averaging $9,100,000. Added average to average the group is at $35,300,000, $4,700,000 under the standard. Small.[1][12] The three-year test, which is the applicant's choice. Taking 2023 to 2025 only, the three averages are $15,133,333, $14,533,333 and $10,366,667, a group total of $40,033,333. That is $33,333 over the line. Not small: the same eleven hotels, the same returns, and the election worth $4,733,333 of measured receipts.[12] Had the applicant held the restaurant company's $7,400,000 of average receipts, the five-year figure would be $42,700,000, $2,700,000 over, leaving the alternative test as the only door. This group passes that anyway: tangible net worth $18,400,000 and average net income after Federal income taxes for the two most recent fiscal years $4,900,000, each $1,600,000 inside its line.[3] What actually stops the loan. The applicant carries $2,100,000 of SBA guaranty on an existing 7(a) loan and the second company $1,200,000, a total of $3,300,000 against the $3,750,000 cap. The room left is $450,000, which at 75 percent supports a gross 7(a) loan of $600,000.[5][7] On a hotel purchase that is not a financing: comfortably small, completely out of program. A county on the fiscal year 2027 labor surplus area list would lift the receipts standard to $50.0 million, fixing a size problem this group does not have and doing nothing about the cap.[15] FAQ: - Q: What is the SBA size standard for a hotel? A: $40.0 million in average annual receipts for NAICS 721110, Hotels (except Casino Hotels) and Motels, measured across the applicant and all its affiliates together.[1][2] - Q: How many hotels can I own and still get an SBA loan? A: No limit on the count. The tests are combined receipts under $40.0 million, or $20 million tangible net worth and $6.5 million net income, plus the $3,750,000 guaranty cap.[1][3][5] - Q: Do my other hotels' revenues count against me? A: Yes, if they are affiliates by ownership under 13 CFR 121.301(f) and sit in subsector 721. An affiliate's receipts are added in full, not at your percentage.[3][12] - Q: Does my restaurant or gas station business count? A: Only if the applicant entity itself owns more than half of it. Where an individual owns both, it counts only if it is in the same 3-digit NAICS subsector as the applicant.[3] - Q: Can I use three years of receipts instead of five? A: Yes. For 7(a) and 504, a concern in business three or more completed fiscal years may elect either the five-year or the three-year average.[12] - Q: Does the occupancy tax I collect count as receipts? A: No. Taxes collected for and remitted to a taxing authority are excluded, as are net capital gains and payments between a concern and its affiliates. Payroll taxes are not.[12] - Q: Can I get a second SBA loan on another hotel? A: Only within the cap. All SBA portions of loans to the borrower and its affiliates are limited to a $3,750,000 guaranty, so one $5,000,000 loan at 75 percent uses the whole allowance.[5][7] - Q: What if my company grows after I apply? A: It does not matter. Size is determined when the application is accepted for processing, or when a Preferred Lender approves the loan; later changes do not disqualify an applicant.[8] Sources: - [1] 13 CFR 121.201, What size standards has SBA identified by North American Industry Classification System codes? The header sentences on receipts in millions and the maximum for a concern and its affiliates, and subsector 721: 721110 and 721120 at $40.0 million, 721191 and 721199 at $9.0 million, 721211 at $10.0 million, 721214 at $9.0 million and 721310 at $14.0 million (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=121§ion=121.201 - [2] 13 CFR 121.201, the same table read a second time as a cross-check, agreeing on every line of subsector 721 (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-22): https://www.law.cornell.edu/cfr/text/13/121.201 - [3] 13 CFR 121.301, What size standards and affiliation principles are applicable to financial assistance programs? Paragraph (a)'s two criteria, (b)(2)'s $20 million tangible net worth and $6.5 million average net income with the pass-through gross-up in (b)(2)(i) to (iii), (e)'s 25 percent labor surplus area increase, and (f)(1)'s ownership tests, (f)(2)'s present effect for options, and (f)(3)'s counting of every domestic and foreign affiliate (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=121§ion=121.301 - [4] Small Business Size Standards: Adjustment of Alternative Size Standard for SBA's 7(a) and CDC/504 Loan Programs for Inflation; and Surety Bond Limits: Adjustments for Inflation, 89 FR 11703 (February 15, 2024), effective March 18, 2024: the Jobs Act interim standard of $15 million and $5 million, the 34.46 percent inflation adjustment to $20 million and $6.5 million, and the adoption of the July 28, 2023 proposal without change (U.S. Small Business Administration, in the Federal Register via govinfo, accessed 2026-10-22): https://www.govinfo.gov/content/pkg/FR-2024-02-15/html/2024-02776.htm - [5] 13 CFR 120.151, What is the statutory limit for total loans to a Borrower? The $3,750,000 aggregate guaranty across a single borrower and its affiliates as defined in 121.301(f), the $5,000,000 maximum for any one 7(a) loan, and the rule that an Eligible Passive Company's loan applies to the limit of both it and the Operating Company (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-22): https://www.law.cornell.edu/cfr/text/13/120.151 - [6] Affiliation and Lending Criteria for the SBA Business Loan Programs, 88 FR 21074 (April 10, 2023), effective May 11, 2023: the removal of affiliation based on management and control, franchise and license agreements and identity of interest between close relatives, and the preamble at 21079 on adding the three-digit subsector limit to restrict affiliates to businesses in the same field (U.S. Small Business Administration, in the Federal Register via govinfo, accessed 2026-10-22): https://www.govinfo.gov/content/pkg/FR-2023-04-10/html/2023-07173.htm - [7] 7(a) loan program: terms, conditions and eligibility, for the $5 million maximum loan, the 85 percent guaranty at or below $150,000, the 75 percent guaranty above it and SBA's stated maximum exposure of $3.75 million (U.S. Small Business Administration, accessed 2026-10-22): https://www.sba.gov/sba-lenders - [8] 13 CFR 121.302, When does SBA determine the size status of an applicant? The date the application is accepted for processing, the Preferred Lenders Program exception at the date of the lender's approval, and paragraph (e), that changes in size afterwards do not disqualify an applicant (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=121§ion=121.302 - [9] Small Business Size Standards: Adjustment of Monetary-Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation, 87 FR 69118 (November 17, 2022), effective December 19, 2022: the 13.65 percent increase, and the table entry moving NAICS 721110 from $35.0 million to a computed $39.78 million, adopted as $40.0 million (U.S. Small Business Administration, in the Federal Register via govinfo, accessed 2026-10-22): https://www.govinfo.gov/content/pkg/FR-2022-11-17/html/2022-24595.htm - [10] Small Business Size Standards: Adjustment of Monetary-Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation, 88 FR 46048 (July 19, 2023), the final rule that finalized the November 17, 2022 interim provisions without change (U.S. Small Business Administration, in the Federal Register via govinfo, accessed 2026-10-22): https://www.govinfo.gov/content/pkg/FR-2023-07-19/html/2023-15078.htm - [11] 13 CFR 121.106, How does SBA calculate number of employees? The average across the pay periods of the preceding completed 24 calendar months, including affiliates (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-22): https://www.law.cornell.edu/cfr/text/13/121.106 - [12] 13 CFR 121.104, How does SBA calculate annual receipts? The total income plus cost of goods sold definition, the exclusions for net capital gains, taxes collected and remitted and transactions with affiliates, (a)(1)'s reliance on the filed Federal income tax return, (c)(1)'s five-year period of measurement, (c)(4)'s three-year election for the Business Loan Programs, and (d)'s aggregation of affiliate receipts across the whole period of measurement (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=121§ion=121.104 - [13] 13 CFR 120.111, What conditions must an Eligible Passive Company satisfy? Paragraph (a)(2), that the Eligible Passive Company and the Operating Company each must be small under part 121 (Code of Federal Regulations, via Legal Information Institute, accessed 2026-10-22): https://www.law.cornell.edu/cfr/text/13/120.111 - [14] 13 CFR 121.105, How does SBA define business concern or concern? Paragraph (c), that a firm holding substantially the same assets or liabilities as a predecessor is not a separate concern and the predecessor's receipts are taken into account (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=121§ion=121.105 - [15] Labor Surplus Area, the fiscal year 2027 list in effect October 1, 2026 through September 30, 2027, built on unemployment data from January 2024 through December 2025, with a 6.0 percent floor for classification (U.S. Department of Labor, Employment and Training Administration, accessed 2026-10-22): https://www.dol.gov/agencies/eta/lsa - [16] SBA loans to hotels: who lends, how much, and where. Our extract of SBA's 7(a) and 504 FOIA dataset filtered to NAICS 721110, as of June 30, 2026: 3,879 7(a) hotel loans approved in fiscal years 2021 through 2025, of which 499 totalling $2,495,000,000 fell in the $5.0 million and over band, and 1,593 under $2 million (Matthews Hotel Markets, accessed 2026-10-22): https://matthewshotelmarkets.com/data/sba-hotel-lending - [17] 13 CFR 120.100, What are the basic eligibility requirements for all applicants for SBA business loans? Including (d), small under the size requirements of part 121 including affiliates (Code of Federal Regulations, via the eCFR versioner API, October 1, 2026 issue of title 13, accessed 2026-10-22): https://www.ecfr.gov/api/versioner/v1/full/2026-10-01/title-13.xml?part=120§ion=120.100 - [18] Matthews Hotel Markets October 2026 rate sheet, the SBA rows (Matthews Hotel Markets, accessed 2026-10-22): https://matthewshotelmarkets.com/rates ### Can I get a USDA B&I loan for a hotel? URL: https://matthewshotelmarkets.com/hotel-financing/usda-b-and-i-loans Last updated: 2026-10-26 Yes, if the hotel is in an eligible rural area. The regulation names hotels and motels as eligible Business and Industry projects, and a borrower can carry up to $25 million of B&I guaranteed loans.[1][2] For loans obligated in fiscal 2026, under a notice effective October 1, 2025, USDA guarantees 80 percent of a loan from $5 million to $25 million and charges a 3.0 percent guarantee fee.[3] Key takeaways: - A bank makes the loan and USDA guarantees part of it. Hotels, motels and bed and breakfasts are named in 7 CFR 5001.105 as eligible tourist and recreation facilities.[1] - The borrower limit is $25 million of B&I guaranteed loans, with a $100 million limit per guarantor, so B&I reaches loans that SBA 7(a) cannot.[2] - Equity is a balance sheet test, not a down payment rule: 10 percent for an existing business, and for most new businesses 20 percent balance sheet equity or 25 percent of project cost invested.[1] - Fiscal 2026 terms: 85 percent guarantee under $5 million, 80 percent from $5 million to $25 million, a 3.0 percent guarantee fee and a 0.55 percent annual retention fee.[3] - The appraisal must strip out going-concern value. Any business or going-concern value is deducted from market value before the lender discounts the collateral.[4] #### Is a hotel eligible for a USDA B&I guaranteed loan? Yes. The OneRD guaranteed loan regulation lists tourist and recreation facilities, including hotels, motels and bed and breakfast establishments, among eligible B&I projects. The list is in 7 CFR 5001.105(b)(8).[1] The same section covers the uses a hotel deal needs: purchase and development of land and buildings, business acquisitions when jobs are created or saved, machinery and equipment, and permanent working capital.[1] A business acquisition means buying the entire business, not part of its stock.[1] One hotel-specific rule: if the owner lives on site, the pro rata value of the owner's living quarters, measured by square footage, is deducted from the loan. The regulation says so twice, once in the eligible list and again under ineligible projects.[1] The borrower can be a corporation, partnership, cooperative, tribe, public body or an individual. An individual borrower must be a U.S. citizen or a lawful permanent resident holding a green card, and the loan must be collateralized with fixed assets that stay in the United States.[5] The short version of the program, side by side with SBA and bank options, is on [Who lends on hotels under $5 million?](/hotel-financing/lenders-under-5-million) #### How does USDA define a rural area? Rural means anywhere outside a city or town of more than 50,000 people and outside the urbanized area next to one, measured by the latest decennial census. The definition in 7 CFR 5001.3 adds a point that catches buyers out: an application cannot be approved subject to meeting the rural requirement. The site qualifies on the day USDA looks, or the loan does not.[6] Areas contiguous and adjacent to an urbanized area show as ineligible on the Rural Development property eligibility map, which the regulation names as the reference.[6] A project that straddles rural and non-rural ground gets a guarantee only for the rural part.[1] For a hotel that is rarely an issue, since the building sits on one parcel, but check the address on the map before you spend money on a purchase agreement. Many interstate-exit and small-college-town hotels qualify. A hotel on the edge of a metro area often does not. #### How much can I borrow, and how much does USDA guarantee? One borrower can have up to $25 million of B&I guaranteed loans outstanding, and under the most recent published notice USDA guarantees 85 percent of a loan under $5 million or 80 percent of a loan from $5 million to $25 million. The $25 million figure counts the guaranteed and unguaranteed portions of every B&I loan to the borrower, existing balances included. There is also a $100 million limit per guarantor.[2] The regulation caps any guarantee at 90 percent of eligible loss and tells the agency to set the percentage each year by Federal Register notice.[7] The fiscal 2026 notice was published March 9, 2026, with fees effective October 1, 2025. It sets an 85 percent guarantee for B&I loans under $5 million and 80 percent for B&I loans of $5 million to $25 million.[3] That is where B&I earns its place for hotels: a $12 million loan on a rural hotel is too large for SBA 7(a), but well inside B&I. See [What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel?](/hotel-financing/sba-7a-vs-504) for those limits. The notice set these rates for fiscal 2026, which ended September 30, 2026, and says USDA will publish a subsequent notice in the Federal Register should the fees need to be adjusted.[3] Checked against the Federal Register on October 26, 2026: the March 9, 2026 notice is still the most recent OneRD annual notice, and no fiscal 2027 notice has published. USDA has published these notices mid-year before, so ask the lender to confirm the rates in force on the day your loan is obligated. #### What fees does USDA charge on a B&I loan? For fiscal 2026 the one-time guarantee fee is 3.0 percent and the annual retention fee is 0.55 percent, each applied to the guaranteed portion of the loan. The guarantee fee is the loan amount times the guarantee percentage times the fee rate. The lender pays it at or before closing and may pass it to the borrower.[8] The retention fee is the fee rate times the outstanding principal on December 31 times the guarantee percentage, paid once a year.[3][8] The rate in effect when the loan is obligated stays in place for the life of the guarantee, so a later notice does not reprice an existing loan.[8] Two other lines in the notice matter to hotels. A lender that wants the guarantee issued before construction is finished pays an extra 0.50 percent. That fee applies only to those loans, not to every construction loan.[3] The notice also lists a reduced-fee B&I category at 1.0 percent and 0.50 percent with an 80 percent guarantee.[3] It does not say which projects qualify for it, so ask the lender or the state Rural Development office. The lender's own fees sit on top. The regulation lets a lender charge reasonable, customary fees like the ones it charges on similar loans without a guarantee, and customary prepayment penalties if they are written into the loan documents.[9] #### How much equity do I need? An existing business needs 10 percent; most new businesses, which includes most first-time hotel buyers forming a new entity, need 20 percent balance sheet equity or a 25 percent investment in the project. The rule is in 7 CFR 5001.105(d). An existing business meets it one of three ways: at least 10 percent balance sheet equity at closing, a borrower investment of at least 10 percent of eligible project cost, or owner-contributed capital of at least 10 percent of net fixed assets plus depreciation.[1] A new business building a hotel, where the lender wants the guarantee before construction is complete, needs 25 percent either way. All other new businesses need 20 percent balance sheet equity or 25 percent of project cost invested.[1] Equity has to be cash or earning assets on the balance sheet. It cannot include appraisal surplus or a bargain-purchase gain. Subordinated debt counts only if it was exchanged for cash that stays in the business for the life of the loan under a standstill agreement.[1] USDA can raise the requirement for a loan it considers higher risk, and it weighs industry conditions and its own portfolio concentration when it does. It can lower the requirement for an existing business with strong guarantees and ratios.[1] These are program minimums. The bank sets its own requirement on top and does not publish it. For how lenders size the loan itself, see [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements) #### What are the rate, term and guarantee rules? The rate is negotiated with the bank and can be fixed or variable, the loan must fully amortize with no balloon over a term of up to 40 years, and anyone owning 20 percent or more guarantees the loan. USDA does not set the rate. The regulation says the rate is negotiated between lender and borrower, can be fixed, variable or a mix, and cannot exceed what the lender customarily charges on similar loans without a guarantee. A variable rate must track a published base rate and can adjust no more often than quarterly.[10] For context, Prime has been 7.00 percent since September 17, 2026.[11] The maximum term is the justified useful life of the assets, not more than 40 years. Balloon maturities are not allowed. If the note has an interest-only period, the first full principal and interest payment must start within three years.[12] That is the feature owners notice most next to a bank loan that balloons in five or ten years. More on payment structures: [Can I get an interest-only hotel loan?](/hotel-financing/interest-only-loans) Unsecured personal or corporate guarantees for the full term are required from any person or entity owning 20 percent or more of the borrower, in an amount at least equal to that owner's percentage times the loan. USDA can require more, and a lender can request an exception for a borrower with above-average strength. Passive investors are outside the rule.[13] #### How does USDA treat the hotel appraisal? USDA requires a real estate appraisal by a state certified general appraiser, and any going-concern or business value in it is deducted before the lender discounts the collateral. This is the rule that surprises hotel borrowers. 7 CFR 5001.203 says that if an appraisal contains value attributed to business valuation or to a going concern, that value must be deducted from the reconciled market value prior to discounting.[4] A hotel appraisal normally values the operating business and the real estate together, so the collateral value USDA's lender works from can be lower than the number on the cover page. The term is explained at [going-concern value](/glossary/going-concern-value). The lender then discounts the collateral under its own loan-to-discounted-value practice and has to justify the discounts it uses.[14] The regulation does not publish a discount rate or a loan-to-value ceiling, and lenders do not either. Appraisals cannot be more than one year old, and for construction the lender needs both an as-is value and a prospective value at completion.[4] #### Can I refinance an existing hotel loan with B&I? Yes. B&I can refinance debt owed to another lender with no limit on its share of the loan, and debt owed to the same lender within limits. Under 7 CFR 5001.102(d), a new lender refinancing another creditor's debt faces no cap on the share of loan funds used for that purpose. When the applicant lender refinances its own debt, that debt cannot exceed 50 percent of the new loan, must have been current for the past six months, and the new loan must offer better rates or terms.[15] USDA must find the project viable and the refinancing necessary to improve cash flow. Where refinancing is the majority purpose for an existing business, the borrower must show historical debt service coverage of at least 1.1 times on the proposed payments, or show it has recovered from whatever hurt past results, with current coverage of at least 1 to 1.[15] A 1.1 times program floor is not the bank's test. The lender will apply its own coverage requirement, which it does not publish. If your current loan matures soon, read [How much hotel debt is maturing in 2026 and 2027?](/hotel-financing/loan-maturities-2026-2027) Table: USDA B&I guarantee terms for a hotel loan obligated in fiscal 2026 Term | Loan under $5 million | Loan of $5 million to $25 million Guarantee percentage | 85%[3] | 80%[3] One-time guarantee fee | 3.0% of the guaranteed amount[3][8] | 3.0% of the guaranteed amount[3][8] Annual retention fee | 0.55% of the guaranteed share of the December 31 balance[3] | 0.55% of the guaranteed share of the December 31 balance[3] Guarantee issued before construction completion | Additional 0.50%[3] | Additional 0.50%[3] Minimum equity, existing business | 10% by one of three tests[1] | 10% by one of three tests[1] Minimum equity, most new businesses | 20% balance sheet equity or 25% of project cost[1] | 20% balance sheet equity or 25% of project cost[1] Maximum term | Useful life of the assets, up to 40 years, no balloon[12] | Useful life of the assets, up to 40 years, no balloon[12] Guarantors | Owners of 20% or more[13] | Owners of 20% or more[13] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows Prime at 7.00% since September 17, 2026 and the 10-year Treasury at 5.29% on September 30, 2026. B&I rates are negotiated between the bank and the borrower, so the sheet publishes the indexes and not a B&I coupon.[11] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: an $8.0M purchase of an 85-key hotel in a town of 12,000): Hypothetical. A buyer forms a new company to purchase an 85-key branded hotel for $8,000,000 in a town of 12,000 people, outside any urbanized area. The hotel's net operating income is $800,000. The 80 percent loan-to-price and the 8.00 percent rate are assumptions for the arithmetic, not quotes or program rules. Loan and guarantee. 80 percent of $8,000,000 is a $6,400,000 loan and $1,600,000 of equity. The loan is between $5 million and $25 million, so the fiscal 2026 guarantee is 80 percent: $5,120,000 guaranteed, $1,280,000 held by the bank without a guarantee.[3] Fees. Guarantee fee: $5,120,000 times 3.0 percent equals $153,600, paid once. Retention fee: $5,120,000 times 0.55 percent equals $28,160 in the first year, falling as the balance amortizes.[3][8] Equity test. The borrower is a new business. $1,600,000 is exactly 20 percent of an $8,000,000 balance sheet, which meets the 20 percent balance sheet test only if closing costs and the guarantee fee are paid with additional cash and not borrowed. The alternative test, 25 percent of project cost, would take $2,000,000.[1] Payment. At the assumed 8.00 percent, a 25-year amortization costs $49,396 a month, or $592,755 a year, which is 1.35 times coverage on $800,000. A 30-year amortization costs $46,961 a month, or $563,531 a year, which is 1.42 times. The longer term B&I allows buys about $29,000 a year of cash flow, with no balloon at the end of either schedule.[12] One more check. If the appraisal supports $8,000,000 only as a going concern, the business value is deducted before the lender discounts the collateral, and the bank may ask for more equity.[4] FAQ: - Q: What is the maximum USDA B&I loan for a hotel? A: A borrower can have up to $25 million of B&I guaranteed loans, counting guaranteed and unguaranteed portions and existing balances. The $40 million exception is only for rural cooperatives processing agricultural commodities, so it does not help a hotel. - Q: What town size qualifies for a USDA hotel loan? A: The hotel must be outside any city or town of more than 50,000 people and outside the urbanized area next to one, using the latest decennial census. Check the address on USDA's eligibility map. Approval cannot be made conditional on qualifying later. - Q: What are the USDA B&I fees for 2026? A: Under the most recent published notice, which set fiscal 2026 rates: a 3.0 percent one-time guarantee fee and a 0.55 percent annual retention fee, both on the guaranteed portion, plus 0.50 percent if the guarantee is issued before construction completion. Fiscal 2026 ended September 30, 2026 and USDA had not published a fiscal 2027 notice as of October 26, 2026. - Q: Does USDA lend the money directly? A: No. A bank or other approved lender makes and services the loan, and USDA guarantees a percentage of it against loss. You apply through the lender, and the agency reviews and approves the guarantee. - Q: Do I have to personally guarantee a USDA B&I loan? A: Generally yes. Anyone owning 20 percent or more of the borrower gives an unsecured guarantee for the full term, at least equal to their ownership share of the loan. Passive investors are outside the rule, and lenders can request exceptions for unusually strong borrowers. - Q: Can a non-U.S. citizen get a USDA B&I hotel loan? A: An individual borrower must be a U.S. citizen or a lawful permanent resident with a green card, or a citizen or resident of certain Pacific territories. USDA will not approve an application subject to meeting that requirement later. - Q: Can a buyer assume my USDA B&I loan when I sell the hotel? A: Yes, with prior written USDA approval. The regulation sets a one-time $1,500 transfer fee for an eligible borrower, and the seller is released only with the agency's written approval.[16] The loan assumption page has the details. - Q: Is a USDA B&I loan better than an SBA loan for a hotel? A: It reaches larger loans, up to $25 million, and allows terms up to 40 years with no balloon. SBA works anywhere, not only in rural areas, and 504 offers a fixed debenture rate. Price both if the hotel qualifies for both. Sources: - [1] 7 CFR 5001.105, Eligible B&I projects and requirements: hotels and motels at (b)(8), capital and equity at (d) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.105 - [2] 7 CFR 5001.406, Guaranteed loan amounts (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.406 - [3] OneRD Annual Notice of Guarantee Fee Rates, Periodic Retention Fee Rates, Loan Guarantee Percentage and Fee for Issuance of the Loan Note Guarantee Prior to Construction Completion for Fiscal Year 2026 (91 FR 11272, March 9, 2026) (Federal Register, U.S. Department of Agriculture Rural Development, accessed 2026-09-18): https://www.federalregister.gov/documents/2026/03/09/2026-04581/onerd-annual-notice-of-guarantee-fee-rates-periodic-retention-fee-rates-loan-guarantee-percentage - [4] 7 CFR 5001.203, Appraisals (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.203 - [5] 7 CFR 5001.126, Borrower eligibility (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.126 - [6] 7 CFR 5001.3, Definitions: rural and rural area (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.3 - [7] 7 CFR 5001.407, Percentage of loan guarantee (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.407 - [8] 7 CFR 5001.454, Guarantee fee, and 5001.455, Periodic guarantee retention fee (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.454 - [9] 7 CFR 5001.403, Lender fees (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.403 - [10] 7 CFR 5001.401, Interest rate provisions (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.401 - [11] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [12] 7 CFR 5001.402, Term length, loan schedule, and repayment (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.402 - [13] 7 CFR 5001.204, Personal, partnership, and corporate guarantees (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.204 - [14] 7 CFR 5001.202, Lender's credit evaluation: collateral and discounting (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.202 - [15] 7 CFR 5001.102, Project eligibility, general: debt refinancing at (d) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.102 - [16] 7 CFR 5001.506, Loan transfers and assumptions, and 5001.509, Servicing fees (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/7/5001.506 ### What is a hotel capital stack, and how do I build one? URL: https://matthewshotelmarkets.com/hotel-financing/capital-stack Last updated: 2026-10-01 A hotel capital stack is every source of money that pays for the hotel, ranked by who is repaid first: senior debt, then C-PACE or mezzanine debt, then preferred equity, then your common equity. One stack is fixed by rule. Under the SBA procedures effective June 1, 2025, a 504 hotel project is 50 percent bank loan, 35 percent debenture and 15 percent owner cash.[1] Key takeaways: - Order matters more than labels. Each layer is repaid after the one above it, so each layer costs more than the one above it. - The senior lender decides what else is allowed. C-PACE needs the mortgage holder's written consent, and mezzanine debt needs an intercreditor agreement.[2][3] - Federal bank guidelines set a supervisory loan-to-value limit of 85 percent for improved property and 80 percent for commercial construction. Banks set their own internal limits and do not publish them.[4] - Key money from a brand is a source of funds, but it is a contingent liability that burns off over the franchise term, not free equity.[5] - Every layer added between the first mortgage and your equity shrinks the fall in NOI the deal can survive. Build the stack around the downside, not the closing. #### What are the layers of a hotel capital stack? A hotel capital stack has up to six layers: senior debt, C-PACE, mezzanine debt, preferred equity, key money and common equity. Senior debt is the first mortgage, from a bank, a CMBS lender, a life company, a debt fund or an SBA lender. It is the largest and cheapest layer because it is repaid first and holds a lien on the hotel. `/hotel-financing/hotel-lenders-by-type` compares the lenders. C-PACE is long-term financing for energy, water and resiliency work, repaid through an assessment on the property. In Texas the lien has the same priority as a property tax lien, which is why an existing mortgage holder must consent in writing.[2] `/hotel-financing/c-pace-financing` covers it. Mezzanine debt is a loan secured by the ownership interests in the borrower, and preferred equity is an ownership stake with a priority return. A CMBS prospectus filed in February 2026 notes that a mezzanine lender has no security interest in the property, and that preferred equity in some respects functions like mezzanine debt.[3] `/hotel-financing/mezzanine-debt-and-preferred-equity` compares the two. Key money is a payment from the brand, covered below. Common equity is your cash and your partners' cash. It is paid last and keeps whatever is left. #### How much of the stack can senior debt cover? Senior debt covers whatever the smallest of the lender's sizing tests allows, and no conventional lender publishes those tests. A hotel lender runs DSCR, debt yield and loan-to-value tests against the same NOI and lends the smallest result. `/hotel-financing/loan-requirements` walks through the tests and `/tools/hotel-loan-sizing-calculator` runs them on your numbers. Our rate sheet prints the public indexes and marks conventional thresholds as not yet published, because lenders do not publish them.[6] One public boundary does exist for banks. The interagency real estate lending guidelines say a bank's internal loan-to-value limits should not exceed supervisory limits of 85 percent for improved property and 80 percent for commercial construction.[4] Those are ceilings for the bank's whole policy, not an offer. The guidelines also say institutions should establish their own internal limits, so ask the bank for its hotel limit in writing. Government programs publish their structures. SBA's 504 program treats hotels, motels and other lodging facilities as limited or special purpose property. The borrower must contribute at least 15 percent, the debenture finances no more than 35 percent, and at least 50 percent comes from a bank or other third party lender. A new business in a special purpose property contributes 20 percent and the debenture drops to 30 percent. The debenture is limited to $5,000,000 for most projects.[1] `/hotel-financing/sba-7a-vs-504` has the detail. #### What can fill the gap between the senior loan and my equity? C-PACE, mezzanine debt, preferred equity and seller financing can each fill part of the gap, and each needs the senior lender's permission. C-PACE only funds eligible improvements, so it fits a renovation, a PIP with energy and water scope, or new construction. The Texas program's guidance is that the assessment should generally be no more than 20 percent of the property's value, and the mortgage holder must receive thirty days' notice and give written consent.[2] Some securitized loans address it in advance: one 2026 CMBS loan on a retail property permits the borrowers to obtain a PACE loan of up to $10,000,000 without the lender's approval.[7] Where the loan documents do not address PACE, the Texas program still requires the mortgage holder's written consent.[2] Mezzanine debt and preferred equity fund anything, including purchase price, and cost more. A 2026 public example shows the scale a small mezzanine layer can take: a $39.0 million first mortgage, a $3.8 million mezzanine loan and $351,439 of sponsor equity funded a refinance of a student housing property, with the mezzanine loan at 11.00 percent against 7.43333 percent on the first mortgage.[7] That is one non-hotel loan, not a market rate. Seller financing, covered on `/buy-a-hotel/seller-financing`, is a note held by the seller, and it needs the senior lender's consent like any other subordinate debt. Under SBA's 504 procedures, a borrower's required contribution may come from borrowed funds only if that debt is subordinate to the third party loan and the debenture.[1] #### Does key money count as equity? Key money counts as a source of funds, but it arrives after opening and must be repaid on a declining scale if the franchise ends early. Hilton's 2025 Hampton franchise disclosure document describes the mechanics. The brand may offer a development incentive at its sole discretion. The owner and its principals sign a development incentive note when they sign the franchise agreement. The incentive is disbursed within 30 days after the hotel opens, as long as any required PIP is complete and the application fee is paid. The document states that an incentive is not a loan, it is a contingent liability: if the franchise terminates before the end of the term, the owner must pay the then-current repayable amount, which falls by 1/20th a year on a 20-year term.[5] Two consequences follow. First, key money cannot fund the closing, because it is paid after opening or after the PIP. It reimburses equity or pays down debt later. Second, a lender will treat the repayment obligation as a liability when it underwrites a sale or an early exit. Brands do not publish key money amounts. `/glossary/key-money` has a worked burn-off example. #### How do I decide how many layers to use? Use the fewest layers that close the deal, and test the stack against a fall in NOI before you test it against the purchase price. Each added layer has three costs. The first is the rate or return, which rises as the layer moves further from the lien. The second is time, because every layer adds a negotiation with the senior lender: a consent for C-PACE, an intercreditor agreement for mezzanine debt, a review of the operating agreement for preferred equity.[2][3] The third is control, because a mezzanine lender can take the ownership entity and a preferred investor can take over decisions if it is not paid.[3] Hotels make the downside test necessary. Revenue reprices nightly, so NOI can move faster than on a leased property. The worked example below shows the same $20.0 million project with two layers and with six. Both close. One survives a 61 percent fall in NOI before the owner's cash flow reaches zero, and the other survives 33 percent. #### In what order should I assemble a hotel capital stack? Start with the senior loan, because its documents decide what every other layer is allowed to be. Size the first mortgage on trailing NOI and find out which test binds. Then ask the senior lender, in the term sheet, what subordinate capital it will permit and on what conditions. Securitized loans write this down: a 2026 hotel loan in a CMBS pool lists future mezzanine debt as not permitted, while another loan in the same pool permits it subject to combined loan-to-value, DSCR and debt yield tests.[7] Only then price the gap capital, and price all of it on the same basis: total dollars paid over your expected hold, including fees, reserves and exit costs. Closing costs and lender-required reserves are uses of funds too, and they are routinely left out of early stacks. `/hotel-financing/closing-costs` and `/hotel-financing/covenants-and-cash-management` cover both. `/hotel-financing/how-debt-placement-works` explains the sequence from quote to closing. Table: Layers of a hotel capital stack, in order of repayment, September 2026 Layer | Secured by | Senior lender's say | Public rule or evidence Senior debt | First mortgage on the hotel | Sets the terms for every layer below | Bank supervisory LTV limits: 85% improved property, 80% commercial construction[4] SBA 504 debenture | Lien on the project property behind the bank loan | Built into the program | Hotel project: 50% bank, 35% debenture, 15% owner; $5,000,000 debenture limit[1] C-PACE | Assessment lien with property tax priority (Texas) | Written consent of the mortgage holder | Generally no more than 20% of property value (Texas guidance)[2] Mezzanine debt | Pledge of ownership interests in the borrower | Intercreditor agreement | One 2026 public example at 11.00% behind a 7.43% first mortgage[7] Preferred equity | Nothing; rights under the operating agreement | Often requires consent under the loan documents | Described in CMBS prospectus risk factors; pricing not published[3] Key money | Development incentive note to the brand | Reviewed as a contingent liability | Paid within 30 days after opening; burns off 1/20th a year on a 20-year term[5] Common equity | Nothing; paid last | Minimum cash equity is a lender condition | SBA 504 minimum for a hotel: 15%, or 20% for a new business[1] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29%, SOFR at 3.90% and the 25-year SBA 504 debenture at 6.54% as of September 30, 2026. It prints no mezzanine, preferred equity or C-PACE pricing, because none is published.[6] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $20.0M hotel acquisition and PIP, built two ways): Hypothetical. Total cost is $20,000,000: a $16,000,000 purchase, a $3,000,000 PIP and $1,000,000 of closing costs and reserves. Stabilized NOI is $2,000,000. Every rate and percentage below is an assumption for the arithmetic, not a quote or a lender rule. Few deals use every layer; the six-layer version is here to show the order. Two layers. Senior loan $11,000,000 (55 percent of cost) at 7.00 percent interest-only: $770,000 a year. Common equity $9,000,000 (45 percent). Cash flow to the owners is $2,000,000 minus $770,000, or $1,230,000. NOI can fall 61.5 percent before that reaches zero. Six layers. Senior loan $11,000,000 (55 percent). C-PACE $2,000,000 (10 percent) at 7.50 percent over 25 years: $14,780 a month, or $177,358 a year. Mezzanine debt $2,000,000 (10 percent) at 11.00 percent: $220,000. Preferred equity $1,500,000 (7.5 percent) at a 12.00 percent return: $180,000. Key money $500,000 (2.5 percent), which arrives after the PIP and must be bridged with cash until then. Common equity $3,000,000 (15 percent). The layers total $20,000,000. Cumulative position. The senior loan ends at 55 percent of cost, C-PACE at 65 percent, mezzanine debt at 75 percent and preferred equity at 82.5 percent. Cash flow. Fixed payments are $770,000 plus $177,358 plus $220,000 plus $180,000, or $1,347,358. Cash flow to the common owners is $652,642. The owners put in $6,000,000 less cash, and NOI can now fall only 32.6 percent before their cash flow reaches zero. SBA 504 comparison. An $8,000,000 owner-operated hotel project under the published structure is a $4,000,000 bank loan, a $2,800,000 debenture and $1,200,000 of owner cash. FAQ: - Q: I'm buying a $20 million hotel and my lender will only do 55 percent. How do I fill the rest? A: With some mix of C-PACE for eligible renovation scope, mezzanine debt or preferred equity, and your own equity. Ask the senior lender first which of those its documents allow. Each added layer raises fixed payments and shrinks the NOI decline the deal can absorb. - Q: Can I use C-PACE and mezzanine debt on the same hotel? A: Only if the senior lender agrees to both. C-PACE needs the mortgage holder's written consent because its lien has property tax priority in states like Texas. Mezzanine debt needs an intercreditor agreement. Expect the senior lender to test combined debt against its own limits. - Q: Does key money count as equity in a hotel capital stack? A: It is a source of funds, not equity at closing. Hilton's Hampton disclosure document says the incentive is paid within 30 days after opening and is a contingent liability that must be repaid on a declining scale if the franchise ends early. - Q: How is an SBA 504 hotel loan structured? A: Hotels are special purpose property under SBA's procedures. A bank or other third party lends at least 50 percent, the SBA debenture covers up to 35 percent, and the owner contributes at least 15 percent, or 20 percent for a new business. The debenture limit is $5,000,000. - Q: How much equity do I need to refinance my hotel? A: It depends on which sizing test binds. If the new loan is smaller than the payoff plus closing costs and reserves, the difference is cash you bring. No conventional lender publishes a minimum equity figure. SBA's 504 refinance program caps the loan at 90 percent of value. - Q: What is the cheapest way to fill a gap in my hotel financing? A: Usually the layer closest to the lien. A larger senior loan costs less than C-PACE or mezzanine debt, and those cost less than preferred equity. But the cheapest rate is not always available, so compare total dollars over your hold period, fees included. - Q: What is the maximum loan-to-value a bank can lend on a hotel? A: Federal guidelines set supervisory loan-to-value limits of 85 percent for improved property and 80 percent for commercial construction, and tell banks to set their own internal limits at or below those. Banks do not publish their hotel limits, so ask for it in writing. Sources: - [1] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section C, Ch. 1: debenture limits (Para. D.1, p. 351); borrower's contribution and the Limited or Special Purpose Property list (Para. E.1.c, pp. 354-355); 504 refinance loan-to-value limit (Para. C.10, p. 342) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [2] Property Owner FAQ: 20 percent of value guideline, mortgage holder consent process, lien priority (Texas PACE Authority, accessed 2026-09-18): https://www.texaspaceauthority.org/home/resources/faqs/property-owner-faq/ - [3] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): mezzanine financing and preferred equity (pp. 115, 231-232) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000776/n5676_x16-424b2.htm - [4] 12 CFR Part 34, Subpart D, Appendix A: Interagency Guidelines for Real Estate Lending Policies (supervisory loan-to-value limits) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [5] 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025, Item 10 (development incentive) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [6] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [7] BMO 2026-5C16 Mortgage Trust, free writing prospectus: structural and collateral term sheet dated August 4, 2026 (Loan No. 3 permitted PACE loan; Loan No. 7 sources and uses and mezzanine loan; Loan Nos. 8 and 10 permitted future mezzanine debt) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2136643/000153949726002077/n6057_x4-ts.htm ### How do I take cash out when I refinance my hotel? URL: https://matthewshotelmarkets.com/hotel-financing/cash-out-refinance Last updated: 2026-10-01 You take cash out when the new loan is larger than the old loan's payoff, the closing costs and the reserves combined. The difference is wired to you at closing. Lenders size the loan on NOI first. In one Marriott refinance dated May 28, 2026, $17.8 million of a $46.5 million loan, 38.2 percent, went back to the owner.[1] SBA loans largely rule out cash to owners.[2][3] Key takeaways: - Cash out is what is left after the payoff, prepayment costs, closing costs and lender reserves. Build a sources and uses table before you count on a number. - The loan is sized by DSCR, debt yield and loan-to-value, and the smallest result wins. No conventional lender publishes its limits, for cash-out loans or any others.[4] - Conduit lenders do fund cash-out hotel loans. Two 2026 public examples returned 38.2 percent and 11.0 percent of the loan to the sponsor.[1][5] - SBA 7(a) proceeds may not be used for payments or distributions to the owners, and a 504 refinance can only add eligible business expenses, up to 90 percent of value.[2][3] - The IRS says loan proceeds are not included in gross income, because you have to repay them. How you use the cash decides whether the interest is deductible.[6][7] #### How does a hotel cash-out refinance work, step by step? A hotel cash-out refinance is a new first mortgage sized on the hotel's current NOI, with the amount above the payoff and closing costs paid to the owner. The lender sizes the loan the same way it sizes any hotel loan: DSCR, debt yield and loan-to-value against trailing twelve-month NOI, lending the smallest result. `/hotel-financing/loan-requirements` explains the tests and `/tools/hotel-loan-sizing-calculator` runs them. At closing, the loan proceeds pay the uses in order. First the existing loan, including any prepayment cost; `/glossary/defeasance` and `/glossary/yield-maintenance` explain the two common ones. Then closing costs. Then the reserves the new lender requires, which on a hotel can include taxes, FF&E, a seasonality reserve and the full cost of an open PIP. Whatever remains is the cash out. A public example shows the proportions. The $46.5 million loan on the 310-room Marriott Tampa Westshore, dated May 28, 2026, paid off $22,424,487 of existing debt (48.2 percent of the loan), funded $5,507,309 of upfront reserves (11.8 percent), including a $4,414,900 PIP reserve, paid $811,172 of closing costs (1.7 percent), and returned $17,757,032 of equity to the sponsor (38.2 percent).[1] #### How much cash can I take out of my hotel? The cash you can take out of a hotel is capped by the lender's sizing tests, not by your equity, and those tests are not published. The two public 2026 examples show how different the answers can be. The Tampa loan was underwritten at a 1.84 times net cash flow DSCR, a 16.8 percent NOI debt yield and a loan-to-value of 56.6 percent on the as-is appraised value, and returned 38.2 percent of the loan to the sponsor.[1] The $76.5 million Holiday Inn Hotel Chelsea loan, dated June 5, 2026, was underwritten at 1.40 times, 11.6 percent and 67.1 percent. Its uses were $66,776,840 of loan payoff, $8,401,598 listed as borrower sponsor equity, $905,203 of closing costs and $416,359 of upfront reserves.[5] Those are two loans on large full-service hotels, not a rule. Banks work under a supervisory ceiling. The interagency guidelines say a bank's own loan-to-value limit for improved property should not exceed 85 percent, and tell each bank to set its internal limits.[8] Banks do not publish their hotel limits, and our rate sheet marks conventional thresholds as not yet published.[4] Lenders also look at the purpose. Cash that goes into the hotel, such as a PIP, is an easier request than cash that leaves. Say what the money is for, and show that the hotel covers the larger payment with room to spare. #### Can I take cash out with an SBA loan? Not for yourself. SBA rules bar using loan proceeds for payments or distributions to the owners, and the 504 refinance program only adds cash for defined business expenses. The regulation on uses of proceeds is direct. SBA will not authorize, and a borrower may not use, loan proceeds for payments, distributions, or loans to Associates of the applicant, except for ordinary compensation for services rendered or to facilitate changes of ownership.[3] A 7(a) refinance also has a payment-history rule in the SOP: the debt to be refinanced must be, and must have been, current for at least the last 12 months or for the life of the loan, whichever is less.[2] The 504 program's debt refinance without expansion is the closest SBA comes to cash out. The SOP says that for projects that refinance only Qualified Debt, the maximum loan to value of the Refinancing Project allowed is 90 percent, and the same 90 percent maximum applies to projects that include Eligible Business Expenses. Those expenses are limited to operating expenses of the business, such as salaries, rent, utilities and inventory, that were incurred but not paid before the application or will come due within 18 months after it. They must be itemized.[2] Hotels get one more limit. When the refinancing involves a limited or special purpose property, which includes hotels and motels, the borrower contribution rules apply, and that contribution is at least 15 percent.[2] `/hotel-financing/sba-7a-vs-504` compares the two programs. #### Do I have to own the hotel for a certain time first? SBA's 504 refinance program has written seasoning rules, and conventional lenders set their own and do not publish them. Under the SOP, debt is Qualified Debt for a 504 refinance only if it was incurred not less than 6 months prior to the date of application and has been secured by the eligible fixed assets for at least 6 months. The applicant must also have been in operation for all of the 2-year period ending on the date the application is submitted.[2] Conventional lenders have no public rule. In practice the questions are how long you have owned the hotel, what you paid, what you have invested since, and whether the value increase comes from NOI you can document. A recent purchase price is strong evidence of value, so a cash-out request soon after a purchase has to explain what changed. A completed PIP, a reflag or a documented ramp in NOI are the usual answers. `/hotel-valuation/how-to-value-a-hotel` covers how value is built up, and `/hotel-valuation/broker-opinion-of-value` explains a free first estimate. #### Is the cash I take out taxable? Loan proceeds are generally not income, because you are obligated to repay them, but the structure of your ownership entity and your use of the cash both matter. The IRS states the principle in Tax Topic 432: when you borrow money, you do not include the loan proceeds in gross income because you have an obligation to repay the lender later. If the lender later cancels the debt, the canceled amount may be income.[6] A refinance is not a sale of the hotel. `/sell-a-hotel/taxes-when-selling-a-hotel` covers what a sale triggers. Two cautions apply. First, many hotels are held in partnerships or LLCs taxed as partnerships. Under the Internal Revenue Code, a partner recognizes gain on a distribution to the extent the money distributed exceeds the adjusted basis of the partner's interest.[9] An increase in a partner's share of partnership liabilities is treated as a contribution of money by that partner.[10] How those two rules net out for each partner in a cash-out refinance is a calculation for your CPA. Second, interest deductibility follows the use of the money. Treasury's interest tracing rules allocate debt, and the interest on it, by tracing disbursements of the debt proceeds to specific expenditures. Interest allocated to a personal expenditure is treated as personal interest.[7] Matthews Hotel Markets does not give tax advice. Ask your CPA before closing, not after. #### What are the risks of taking cash out? A larger loan means a larger payment against the same NOI, so the hotel has less room before a DSCR covenant or cash sweep trigger is tripped. The worked example below adds about $301,000 a year of debt service to take out $3.05 million. That is cash the hotel no longer has in a weak year. Hotel NOI moves faster than income on leased property, and lender covenants are written around it. `/hotel-financing/covenants-and-cash-management` shows real trigger levels from 2026 loans. The second risk is the next maturity. A larger balance has to be refinanced or repaid at the end of the term, and an interest-only loan does not shrink along the way. `/hotel-financing/interest-only-loans` and `/hotel-financing/loan-maturities-2026-2027` cover both. The third is recourse. If the larger loan comes from a bank with a personal guaranty, you have converted hotel equity into cash and added a personal obligation. If selling would raise more than borrowing, compare the two directly with `/tools/refinance-vs-sell` and `/hotel-financing/refinance-or-sell`. Table: Sources and uses in two hotel cash-out refinances securitized in 2026 Item | Marriott Tampa Westshore, 310 rooms[1] | Holiday Inn Hotel Chelsea, 226 rooms[5] Loan amount and note date | $46,500,000; May 28, 2026 | $76,500,000 whole loan; June 5, 2026 Existing loan payoff | $22,424,487 (48.2%) | $66,776,840 (87.3%) Cash returned to the sponsor | $17,757,032 (38.2%) | $8,401,598 (11.0%) Upfront reserves | $5,507,309 (11.8%) | $416,359 (0.5%) Closing costs | $811,172 (1.7%) | $905,203 (1.2%) Underwritten NCF DSCR | 1.84x | 1.40x Underwritten NOI debt yield | 16.8% | 11.6% Loan-to-value at cut-off | 56.6% on the as-is value; 50.0% on the as-complete value | 67.1% First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and SOFR at 3.90% as of September 30, 2026. It marks conventional DSCR, debt yield and loan-to-value limits as not yet published, for cash-out loans as for any other, because no lender publishes them.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: taking cash out of a $15.0M hotel with a $6.2M loan balance): Hypothetical. The hotel is worth $15,000,000 and earns $1,450,000 of NOI. The existing loan balance is $6,200,000 with no prepayment cost. The new lender's tests, the 7.00 percent rate, 25-year amortization, the 1.5 percent closing cost figure and the reserves are all assumptions for the arithmetic, not quotes or lender rules. Sizing. At an assumed 65 percent loan-to-value, the loan is $9,750,000. Debt service is $68,911 a month, or $826,932 a year. DSCR is $1,450,000 divided by $826,932, or 1.75 times. Debt yield is $1,450,000 divided by $9,750,000, or 14.9 percent. In this example loan-to-value is the binding test. Sources and uses. Loan proceeds $9,750,000. Less payoff of $6,200,000. Less closing costs at 1.5 percent, or $146,250. Less reserves of $350,000. Cash to the owner is $3,053,750, which is 31.3 percent of the loan. Cost of the cash. A $6,200,000 loan on the same terms would cost $525,844 a year. The larger loan costs $826,932, so the owner pays about $301,088 more each year, part of it principal, to hold $3,053,750 of cash. SBA 504 contrast. On a $6,000,000 owner-operated hotel with $4,200,000 of qualified debt, the 90 percent ceiling is $5,400,000. A hotel owner must also contribute at least 15 percent, which leaves 85 percent, or $5,100,000. The $900,000 above the debt could fund only itemized eligible business expenses, not a distribution to the owner. FAQ: - Q: I own my hotel free and clear. Can I borrow against it and pull cash out? A: Yes, from conventional lenders. With no payoff, nearly all of the loan after closing costs and reserves is cash to you. The lender will still size the loan to NOI and ask what the money is for. SBA loans cannot be used for distributions to owners. - Q: How much cash can I take out of my hotel on a refinance? A: The new loan amount minus the payoff, prepayment cost, closing costs and reserves. Lenders do not publish their limits. In two public 2026 hotel refinances, 38.2 percent and 11.0 percent of the loan went back to the sponsor, at loan-to-value ratios of 56.6 and 67.1 percent. - Q: Can I do a cash-out refinance on my hotel with an SBA loan? A: Not to pay yourself. SBA's regulation bars using proceeds for payments or distributions to the owners. A 504 refinance can add itemized eligible business expenses up to 90 percent of value, and a hotel must meet the 15 percent borrower contribution rule. - Q: Is the cash I take out of a hotel refinance taxable? A: Generally no. The IRS says loan proceeds are not included in gross income because you must repay them. But a partnership distribution above a partner's basis can trigger gain, and interest deductibility depends on how the cash is used. Ask your CPA first. - Q: How long do I have to own a hotel before I can do a cash-out refinance? A: Conventional lenders publish no rule, but a recent purchase price anchors value, so expect to document what changed. SBA's 504 refinance requires debt incurred at least 6 months before application and a business operating for 2 years. - Q: I want to pull equity out of my hotel to buy a second one. How do lenders look at that? A: As a business purpose, which helps. They will test whether the first hotel covers the larger payment on its own, and the second hotel's lender will count the new debt in your global cash flow. Interest tracing rules also tie deductibility to that use. - Q: Do I pay closing costs on a cash-out refinance? A: Yes, and they come out of the proceeds. In two public 2026 hotel refinances, closing costs were 1.7 percent and 1.2 percent of the loan. Reserves came out too: one loan held back $5.5 million, mostly for a PIP. Sources: - [1] BANK5 2026-5YR23, free writing prospectus: structural and collateral term sheet dated June 22, 2026 (Loan No. 9, Marriott Tampa Westshore: sources and uses, underwriting, reserves, pp. T-104 to T-108) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2140978/000153949726001820/n5964_x2-ts.htm - [2] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): 7(a) debt refinancing (Section B, Ch. 1, Para. A.1, p. 111); 504 debt refinance without expansion, Qualified Debt, Eligible Business Expenses and the 90% loan-to-value limit (Section C, Ch. 1, Para. C.10, pp. 338-342); borrower contribution for special purpose property (pp. 354-355) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 13 CFR 120.130, Restrictions on uses of proceeds (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.130 - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] BMO 2026-5C16 Mortgage Trust, free writing prospectus: structural and collateral term sheet dated August 4, 2026 (Loan No. 10, Holiday Inn Hotel Chelsea: sources and uses, underwriting, p. 135) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2136643/000153949726002077/n6057_x4-ts.htm - [6] Topic no. 432, Form 1099-A and Form 1099-C (page last reviewed September 5, 2026) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/taxtopics/tc432 - [7] 26 CFR 1.163-8T, Allocation of interest expense among expenditures (temporary) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/1.163-8T - [8] 12 CFR Part 34, Subpart D, Appendix A: Interagency Guidelines for Real Estate Lending Policies (supervisory loan-to-value limits) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [9] 26 U.S.C. 731, Extent of recognition of gain or loss on distribution (U.S. Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/731 - [10] 26 U.S.C. 752, Treatment of certain liabilities (U.S. Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/752 ### What happens at a hotel loan closing, and what does it cost? URL: https://matthewshotelmarkets.com/hotel-financing/closing-costs Last updated: 2026-10-05 At closing the lender funds, the old loan is paid off, title and lien documents are recorded, and reserves and fees are paid from the proceeds. Cost varies by loan. In two hotel refinances securitized in 2026, closing costs were 1.7 percent and 1.2 percent of the loan.[1][2] Some items are published: Texas title premium on a $10 million policy is $38,216 under rates effective March 1, 2026.[3] Key takeaways: - Closing costs are separate from reserves. One 2026 hotel loan had $811,172 of closing costs and $5,507,309 of upfront reserves. Budget for both.[1] - A few line items have public prices: title premiums in states that set them, mortgage recording taxes, and SBA guaranty fees.[3][4][5] - Most line items do not: origination, lender legal, borrower legal, survey and third-party reports are quoted deal by deal, and our rate sheet does not print them.[6] - The SBA 7(a) upfront fee on a $5,000,000 loan approved between October 1, 2026 and September 30, 2027 is $138,125, which is 2.76 percent of the loan.[5] - What a term sheet calls closing costs can include a rate buydown. One 2026 loan's closing costs included a $780,000 interest rate buydown.[2] #### What actually happens at a hotel loan closing? A hotel loan closing is the day the loan documents are signed, the lender wires the proceeds to the title company, and the title company pays everyone in order. The title company, acting as escrow agent, collects the signed documents and the lender's funds. It pays off the existing lender, pays the closing costs on the settlement statement, funds the reserves the new lender requires, records the mortgage or deed of trust, issues the lender's title policy, and wires what is left to the borrower, or collects what is short. Hotels add steps that other property types do not have. On a loan with a lockbox, the borrower delivers direction letters at origination telling its credit card banks and processors to send receipts to the lender-controlled account.[1] On a branded hotel, the franchisor issues a comfort letter to the lender, and the lender may reserve for replacing it later: the 2026 loan on the Marriott Tampa Westshore reserved $2,500 for the cost of replacement or reissued comfort letters in a secondary market transaction.[1] `/glossary/comfort-letter` explains the document. The work that makes closing day uneventful happens in the weeks before. `/hotel-financing/how-debt-placement-works` covers the path from term sheet to closing, and `/hotel-financing/loan-requirements` lists the documents. #### How much are closing costs on a hotel loan? In two hotel refinances disclosed in 2026 CMBS term sheets, closing costs were 1.7 percent and 1.2 percent of the loan amount, and no standard percentage is published. The $46.5 million loan on the 310-room Marriott Tampa Westshore, dated May 28, 2026, shows $811,172 of closing costs in its sources and uses, 1.7 percent of the loan.[1] The $76.5 million loan on the 226-room Holiday Inn Hotel Chelsea, dated June 5, 2026, shows $905,203, or 1.2 percent.[2] Both are large loans, and many closing costs do not scale down with loan size, so a smaller loan should expect a higher percentage. The label hides a lot. A third loan in the same 2026 pool, on a non-hotel property, shows closing costs of $2,007,290, which is 4.7 percent of total uses, and a footnote explains that the figure includes an interest rate buydown of $780,000.[2] Lenders sometimes lower the rate in exchange for an upfront fee. One lender's underwriting guidelines in a 2026 prospectus say so directly and note that the lower rate raises the DSCR.[7] Ask for a closing cost estimate with the term sheet and ask what is in it. `/hotel-financing/hotel-loan-rates` covers how to compare quotes that trade rate against fees. #### Which hotel closing costs have published prices? Title insurance premiums in states that set them, state mortgage recording taxes, and SBA guaranty fees are published, and nearly everything else is quoted. Texas sets title premiums by rule. Under the Texas Department of Insurance schedule effective March 1, 2026, the basic premium on a policy between $5,000,001 and $15,000,000 is $21,466 plus 0.335 percent of the amount over $5,000,000. On a $10,000,000 policy that is $38,216, before any credits or endorsements.[3] Outside Texas, rules differ by state, so ask the title company for a quote early. Some states tax the mortgage itself. Florida charges documentary stamp tax of 35 cents per $100 on the full amount of indebtedness secured by a recorded mortgage, with no cap, payable when the mortgage is recorded. On a $10,000,000 mortgage that is $35,000. Florida also lists a separate nonrecurring intangible tax.[4] Mortgage taxes vary widely by state, so check your own before you build a budget. SBA publishes its fees each fiscal year. For 7(a) loans approved from October 1, 2026 through September 30, 2027 with a maturity over 12 months, the upfront fee on loans of $700,001 to $5,000,000 is 3.5 percent of the guaranteed portion up to $1,000,000, plus 3.75 percent of the guaranteed portion over $1,000,000.[5] SBA's maximum guarantee on a 7(a) loan above $150,000 is 75 percent.[8] The lender's 0.55 percent annual service fee may not be passed on to the borrower.[5] The fiscal 2027 notice, published September 3, 2026 and effective October 1, 2026, sets the same tiers and the same service fee as fiscal 2026, so none of these figures changed at the fiscal year end.[5] #### What third-party reports will the lender order, and who pays? A hotel lender orders an appraisal, an environmental assessment and a property condition report, and the borrower pays for them, usually through a deposit made when the term sheet is signed. A 2026 CMBS prospectus lists what a loan seller's underwriting file contains: appraisals, environmental assessment reports, property condition reports, seismic studies, zoning reports and insurance review summaries.[7] For banks, the appraisal is a legal requirement. Federal regulations require an appraisal by a state certified appraiser for federally related commercial real estate transactions of more than $500,000.[9] The lender engages the vendors, so the reports are addressed to the lender even though the borrower pays. No public price list exists for these reports and we do not print a range. Which environmental report an SBA lender has to order on a hotel, and what escalates it, is at [Am I liable for contamination on a hotel I buy?](/buy-a-hotel/environmental-liability). Lenders also typically ask for a current survey and a zoning report. SBA's 504 rules show how the agency classifies these costs: title insurance, title searches and abstract costs, surveys and zoning matters are project-related professional fees that can be financed in the project, while attorney's fees for closing the interim and third party loans cannot.[10] #### What lender fees and legal fees should I expect? Expect an origination fee, the lender's legal fees, your own legal fees, and on some loans an exit fee or a rate cap premium, none of which is published. Origination is quoted in points on the loan amount and is negotiable. The borrower pays the lender's counsel as well as its own, and on securitized, mezzanine or multi-lender deals the legal work grows with each added document. `/hotel-financing/mezzanine-debt-and-preferred-equity` explains the intercreditor agreement that adds a second set of lawyers. Floating-rate loans add a rate cap premium, paid at closing. `/hotel-financing/interest-rate-caps` shows what one public hotel owner paid for caps from 2023 to 2025. Bridge loans often add an exit fee, paid at payoff, not at closing, so it belongs in your total cost even though it is not on the settlement statement. `/hotel-financing/bridge-loans` covers both. Our rate sheet prints public indexes and published program fees. It does not print origination points or legal fees, because no lender publishes them.[6] #### How much cash do I need on closing day besides the closing costs? Reserves are often larger than closing costs on a hotel loan, because the lender funds taxes, PIP work and seasonal shortfalls up front. The Marriott Tampa Westshore loan is a clear example. Against $811,172 of closing costs, the lender held back $5,507,309 of upfront reserves: $4,414,900 for the PIP, $595,000 for seasonality, $410,837 for real estate taxes, $84,072 for ground rent and $2,500 for comfort letters.[1] Reserves are still your money, but you do not control them. On a purchase, add the franchise application fee, which is paid to the franchisor, not the lender. `/hotel-franchise-costs` lists those fees brand by brand from each franchise disclosure document. `/hotel-financing/covenants-and-cash-management` explains the reserves, and `/buy-a-hotel/how-much-money-do-you-need` adds up the full cash requirement for a purchase. Table: Hotel loan closing line items: what is published and what is quoted, September 2026 Line item | Paid to | Published figure, if any | Notes Lender's title policy | Title company | Texas: $38,216 basic premium on a $10,000,000 policy, rates effective March 1, 2026[3] | Set by rule in Texas; ask the title company elsewhere Mortgage recording tax | State or county | Florida: 35 cents per $100 of debt secured, no cap[4] | Varies by state SBA 7(a) upfront fee | SBA, through the lender | 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% above it, for loans of $700,001 to $5,000,000 approved by September 30, 2027[5] | Charged on the guaranteed portion, not the whole loan Appraisal | Appraiser, engaged by the lender | Not published | Required by regulation on bank loans over $500,000[9] Environmental, property condition, zoning, seismic | Vendors, engaged by the lender | Not published | Listed in CMBS underwriting files[7] Origination and rate buydown | Lender | Not published; one 2026 loan disclosed a $780,000 buydown inside closing costs[2] | Negotiable Lender's and borrower's legal | Law firms | Not published | Grows with each added document Upfront reserves | Lender-controlled accounts | One 2026 hotel loan: $5,507,309, or 11.8% of the loan[1] | Your money, held by the lender First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and the SBA 7(a) maximum rate at 10.00% as of September 30, 2026. It prints published program fees and marks origination points and lender legal fees as not published, because no lender publishes them.[6] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: closing budget for a $10.0M hotel refinance in Texas): Hypothetical. Loan $10,000,000 on a Texas hotel. The 1.5 percent total is an assumption that sits between the two public 2026 examples of 1.2 and 1.7 percent. It is not a quote, and a smaller loan should expect a higher percentage. Total budget. $10,000,000 times 1.5 percent is $150,000. The published piece. The Texas basic title premium on a $10,000,000 policy is $21,466 plus 0.335 percent of $5,000,000, which is $16,750, for a total of $38,216 before credits and endorsements. That is about 25 percent of the budget. The quoted pieces. The remaining $111,784 has to cover origination, lender's counsel, borrower's counsel, the appraisal, the environmental and property condition reports, the survey and zoning report, and recording fees. None of those has a public price, so get each one in writing. The same loan in Florida. Documentary stamp tax on the mortgage is $10,000,000 divided by $100, times $0.35, or $35,000, before the state's intangible tax. SBA contrast. A $5,000,000 7(a) loan approved by September 30, 2027 has a guaranteed portion of 75 percent, or $3,750,000. The upfront fee is 3.5 percent of $1,000,000, or $35,000, plus 3.75 percent of $2,750,000, or $103,125. The total is $138,125, which is 2.76 percent of the loan, before any other closing cost. FAQ: - Q: How much are closing costs on a $10 million hotel loan? A: There is no published standard. Two hotel refinances in 2026 CMBS filings showed 1.2 and 1.7 percent of the loan, on loans of $76.5 million and $46.5 million. Smaller loans usually run higher as a percentage, because legal fees and reports do not shrink with the loan. - Q: What origination fees or points should I expect on a hotel loan? A: Origination is quoted in points on the loan amount and is negotiable. No lender publishes it. Ask whether the quote includes a rate buydown, since one 2026 public loan's closing costs included a $780,000 buydown. Compare offers on total cost, not rate alone. - Q: Who pays for the appraisal and environmental report on a hotel loan? A: The borrower pays, but the lender orders them. Banks must get an appraisal from a state certified appraiser on commercial real estate transactions over $500,000. Expect to fund a deposit for third-party reports when you sign the term sheet. - Q: How much is title insurance on a hotel loan in Texas? A: Texas sets the rate. Under the schedule effective March 1, 2026, a $10,000,000 policy has a basic premium of $38,216: $21,466 plus 0.335 percent of the amount over $5,000,000. Credits and endorsements change the final figure. - Q: What is the SBA guaranty fee on a $5 million hotel loan? A: For a 7(a) loan approved by September 30, 2027, the upfront fee is 3.5 percent of the first $1,000,000 of the guaranteed portion plus 3.75 percent of the rest. On a $5,000,000 loan with a 75 percent guaranty, that is $138,125. - Q: How much cash do I need to bring to a hotel loan closing? A: On a refinance, often none: costs and reserves come out of the proceeds, and you bring cash only if the new loan is smaller than the payoff plus costs. On a purchase, bring the equity, closing costs, reserves and franchise fees. - Q: Why is my lender holding back reserves at closing? A: To make sure taxes, insurance, PIP work and seasonal debt service get paid. One 2026 hotel loan held $5,507,309 at closing, including $4,414,900 for the PIP and $595,000 for seasonality. The money is yours, released as the work is done or the bills come due. - Q: Can closing costs be financed in the hotel loan? A: On a refinance they are paid from proceeds, which has the same effect. SBA's 504 rules allow title insurance, surveys and zoning costs in the financed project but exclude attorney's fees for closing the interim and third party loans. Sources: - [1] BANK5 2026-5YR23, free writing prospectus: structural and collateral term sheet dated June 22, 2026 (Loan No. 9, Marriott Tampa Westshore: sources and uses, reserves, lockbox, pp. T-104 to T-108) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2140978/000153949726001820/n5964_x2-ts.htm - [2] BMO 2026-5C16 Mortgage Trust, free writing prospectus: structural and collateral term sheet dated August 4, 2026 (Loan No. 10, Holiday Inn Hotel Chelsea sources and uses, p. 135; Loan No. 7 sources and uses and closing cost footnote) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2136643/000153949726002077/n6057_x4-ts.htm - [3] Texas Title Insurance Basic Premium Rates, effective March 1, 2026 (Texas Department of Insurance, accessed 2026-09-18): https://tdi.texas.gov/title/titlerates2026.html - [4] Florida Documentary Stamp Tax: mortgages, liens and other evidences of indebtedness (section 201.08, Florida Statutes) (Florida Department of Revenue, accessed 2026-09-18): https://floridarevenue.com/taxes/taxesfees/Pages/doc_stamp.aspx - [5] SBA Information Notice 5000-881797, 7(a) Fees Effective October 1, 2026 for Fiscal Year 2027 and 90-Day Rule Clarification (published September 3, 2026; effective October 1, 2026; expires October 1, 2027) (U.S. Small Business Administration, accessed 2026-10-05): https://legacy.sba.gov/document/information-notice-5000-881797-fy-2027-7a-program-fees - [6] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [7] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): loan seller review of third-party reports (pp. 289-290); upfront fee in exchange for a reduced interest rate and escrow requirements (p. 292) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000776/n5676_x16-424b2.htm - [8] 7(a) loan program: terms, conditions, and eligibility (maximum SBA guarantee percentages) (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [9] 12 CFR 34.43, Appraisals required; transactions requiring a State certified or licensed appraiser (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.43 - [10] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section C, Ch. 1: eligible project costs, professional fees (p. 337) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs ### What covenants and cash management will my hotel lender require? URL: https://matthewshotelmarkets.com/hotel-financing/covenants-and-cash-management Last updated: 2026-10-01 Expect a lockbox for hotel revenue, a cash sweep that starts if coverage falls, an FF&E reserve and often a seasonality reserve. Thresholds are set loan by loan. One 310-room Marriott loan dated May 28, 2026 traps cash if DSCR falls below 1.25 times and reserves at least 4.0 percent of revenue for FF&E.[1] Bank loans add guarantor net worth and liquidity covenants.[2] Key takeaways: - A hard lockbox means credit card receipts go straight to a lender-controlled account. Springing cash management means the lender only keeps the cash after a trigger.[1][3] - The trigger is usually a DSCR test. Two hotel loans securitized in 2026 used 1.25 times and 1.30 times. Those are two loans, not a standard.[1][3] - FF&E reserves in both loans were the greater of 4.0 percent of revenue and the amount the franchise agreement requires.[1][3] - A seasonality reserve collects cash in strong months to cover debt service in weak ones. One 2026 loan took $595,000 up front.[1] - A tripped covenant is not a payment default, but it moves control of the hotel's cash to the lender. At December 31, 2025, one public hotel REIT had 43 hotels in cash traps.[4] #### What is a lockbox, and what does springing cash management mean? A lockbox is a lender-controlled bank account that receives the hotel's revenue, and springing cash management means the lender starts holding that cash only after a trigger event. Public CMBS term sheets spell the mechanics out. On a $46.5 million loan secured by the 310-room Marriott Tampa Westshore, dated May 28, 2026, the borrower had to deliver direction letters at closing telling its credit card banks and processors to send all receipts to the lender-controlled lockbox account, and must deposit all other revenue within three business days of receipt. Funds in the lockbox are transferred to the borrower each business day unless a cash trap event period exists. During one, all funds are swept daily to a cash management account under the lender's control, applied under the loan documents, and any excess cash flow may be held by the lender as additional collateral.[1] A $76.5 million loan on the 226-room Holiday Inn Hotel Chelsea in New York, dated June 5, 2026, uses the same structure: a hard lockbox with springing cash management.[3] A 2026 CMBS prospectus defines the two types for hotels. A hospitality property has a hard lockbox if credit card receivables must be deposited directly into the lender-controlled account, even though the manager deposits cash and checks. It has a soft lockbox if the borrower or property manager deposits the credit card receivables, cash and checks.[6] The direction letters to the card processors are what make a hotel lockbox hard. #### What triggers a cash sweep on a hotel loan? A cash sweep on a hotel loan is usually triggered by an event of default or by DSCR falling below a stated level, and some loans add more triggers. The Marriott Tampa Westshore loan has two triggers: an event of default, or net cash flow DSCR falling below 1.25 times for any calendar quarter. The sweep ends when the default is cured or DSCR is at least 1.25 times for one calendar quarter.[1] The Holiday Inn Hotel Chelsea loan has six: an event of default, DSCR below 1.30 times, any outstanding PIP requirement, a bankruptcy of the borrowers, the guarantor or an affiliated manager, any period in which a mezzanine loan is outstanding, and a breach of the guarantor's financial covenants or a failure to deliver the guarantor's financial reports. The DSCR trigger is cured only after DSCR stays at or above 1.30 times for two consecutive calendar quarters.[3] Those are two loans. No lender publishes its trigger levels, and our rate sheet does not print one.[5] The terms that matter as much as the number are how DSCR is defined, how many quarters it takes to cure, and whether trapped cash is released to pay operating expenses and the PIP. #### How much FF&E reserve will a hotel lender require? In two hotel loans securitized in 2026, the FF&E reserve was the greater of 4.0 percent of revenue and whatever the franchise or management agreement requires. The Marriott Tampa Westshore loan requires monthly FF&E deposits, initially $65,645, equal to the greater of the existing deposit and the greater of 1/12th of 4.0 percent of underwritten revenue for the prior fiscal year and the amount the franchise agreement requires.[1] The Holiday Inn Hotel Chelsea loan requires the greater of 4.0 percent of projected gross revenue, the amount under the management agreement and the amount under the franchise agreement, initially about $68,494 a month.[3] PIPs get their own reserve. The Tampa loan took $4,414,900 at closing for an existing PIP, and requires cash or a letter of credit for 100 percent of the estimated cost of any new PIP within 15 days of notice, less amounts already reserved.[1] The Chelsea loan requires 110 percent of estimated PIP costs before work starts.[3] One lender's underwriting guidelines in a 2026 prospectus add that on certain hotel loans the FF&E reserve may be held by the franchisor or the manager instead of the lender.[6] `/glossary/ffe-reserve` explains the reserve itself and `/hotel-financing/pip-and-renovation-loans` covers PIP funding. #### What is a seasonality reserve? A seasonality reserve is cash the lender collects during a hotel's strong months and releases to pay debt service during its weak months. The Tampa loan took $595,000 up front. The funds may be used for debt service in January and June through November if operating cash flow is short. The borrower refills the reserve with four deposits of $148,750 in February through May, only if the balance is below the required amount. The lender may resize the reserve to cover projected shortfalls at a 1.30 times DSCR, based on the prior twelve months.[1] The Chelsea loan works on the opposite calendar. The borrowers deposit $250,000 on each payment date in October through January to protect payments in February, March and April.[3] Prospectus risk factors explain why lenders ask. The lodging industry is generally seasonal, and seasonality can be expected to cause periodic fluctuations in room revenue, occupancy, rates and operating expenses.[6] The OCC's examiner handbook lists revenue seasonality among the property-specific factors a bank should consider on a hotel loan.[2] #### What financial covenants do bank hotel loans carry? Bank hotel loans commonly carry DSCR, debt yield, loan-to-value and guarantor net worth or liquidity covenants, tested from financial statements the borrower must deliver. The OCC's Comptroller's Handbook on commercial real estate lending lists the most common financial covenants for income-producing property loans: debt yield, DSCR, loan-to-value, loan-to-cost, and borrower or guarantor minimum net worth or liquidity.[2] It says loan covenants should require periodic financial information on the project, the borrowing entities and the guarantors. It also says that properties with volatile cash flows, such as hotels, may warrant a higher DSCR.[2] Two definitions deserve attention. The handbook notes that DSCR calculated for covenant compliance may differ from the DSCR used in underwriting, and that when loan documents contain coverage covenants, income and expenses should be clearly defined.[2] Ask whether the covenant DSCR deducts an FF&E reserve and a management fee, and whether it uses the actual payment or an assumed one. A bank covenant breach works differently from a CMBS trigger. It is typically a default under the loan agreement, which the bank may waive or use to renegotiate terms. `/hotel-financing/loan-workouts` covers that conversation. #### What are completion and carry guaranties? A completion guaranty is the sponsor's promise to finish a construction or renovation project, and a carry guaranty is a promise to cover interest and operating shortfalls until the hotel supports itself. The OCC handbook recognizes both as limited guarantees: some guarantees may be limited in nature, such as interest only or construction completion only, reduced in amount, or released during the loan term as conditions are met.[2] On construction loans it also describes what happens when a budgeted interest reserve runs out before the project is complete: the bank generally requires the borrower or guarantor to provide additional cash to cover interest or replenish the reserve.[2] For construction and development loans, the handbook lists covenants that include limits on additional debts, guarantees and liens, the borrower's or guarantor's minimum liquidity and net worth, and restrictions on distributions to owners before repayment.[2] `/hotel-financing/construction-loans` covers the loan itself. Non-recourse permanent loans still carry a guaranty of the carve-outs, and that guarantor may have its own financial covenants. In the Chelsea loan, a guarantor covenant breach is a cash management trigger.[3] `/hotel-financing/non-recourse-loans` and `/glossary/non-recourse-carve-outs` explain the carve-outs. #### What happens when a covenant or trigger is tripped? When a cash management trigger is tripped, the hotel keeps operating, but the lender controls the cash left after debt service until the trigger is cured. Ashford Hospitality Trust, a public hotel owner, describes the effect in its annual report. When cash trap provisions are triggered, substantially all of the profit generated by the hotels is deposited into lockbox accounts and swept into cash management accounts for the benefit of the lenders, and certain disbursements require lender consent. At December 31, 2025, 43 of its hotels were in cash traps and approximately $4.5 million of its restricted cash was subject to them.[4] For a private owner the consequences are practical. Distributions stop. Owner-funded projects need lender approval. And trapped cash is additional collateral, not a prepayment, so it does not reduce the loan. In the Chelsea loan, the lender must return the excess cash reserve to the borrowers once the trigger is cured and no other trigger exists.[3] The best time to negotiate is before signing: the trigger level, the DSCR definition, the cure period, and the right to use trapped cash for operating expenses, taxes, insurance and PIP work. Table: Cash management and reserve terms in two hotel loans securitized in 2026 Term | Marriott Tampa Westshore, 310 rooms[1] | Holiday Inn Hotel Chelsea, 226 rooms[3] Loan and note date | $46,500,000; May 28, 2026 | $76,500,000 whole loan; June 5, 2026 Rate and amortization | 6.6130%; 300-month amortization | 7.43100%; interest-only for 60 months Underwritten DSCR and debt yield | 1.84x NCF DSCR; 16.8% NOI debt yield | 1.40x NCF DSCR; 11.6% NOI debt yield Lockbox and cash management | Hard lockbox; springing cash management | Hard lockbox; springing cash management DSCR trigger | Below 1.25x for any calendar quarter | Below 1.30x; cured after two consecutive quarters FF&E reserve | Greater of 1/12th of 4.0% of prior-year revenue and the franchise requirement; initially $65,645 a month | Greater of 4.0% of projected gross revenue and the management or franchise requirement; about $68,494 a month Seasonality reserve | $595,000 up front; $148,750 deposits February to May if below the required balance | $250,000 on each payment date October to January PIP reserve | $4,414,900 up front; 100% of any new PIP within 15 days of notice | 110% of estimated PIP costs before work starts Future mezzanine debt | Not permitted | Not permitted First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and SOFR at 3.90% as of September 30, 2026. It marks conventional DSCR and debt yield thresholds as not yet published, because no lender publishes them. The covenant levels on this page come from individual public loan filings.[5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: how far NOI can fall before a 1.25x cash sweep trigger on a $10.0M hotel loan): Hypothetical. Loan $10,000,000 at an assumed 7.00 percent with 25-year amortization. Hotel revenue $4,200,000. Net cash flow after the FF&E reserve $1,450,000. The 1.25 times trigger is an assumption borrowed from one public loan, not a standard. Debt service. The payment is $70,678 a month, or $848,135 a year. DSCR today is $1,450,000 divided by $848,135, or 1.71 times. Trigger level. Cash management springs when net cash flow falls below 1.25 times $848,135, or $1,060,169. That is a decline of $389,831, or 26.9 percent, from today's level. After the trigger. Suppose net cash flow falls to $1,000,000. DSCR is 1.18 times. The hotel still covers its payment with $151,865 to spare, so there is no payment default. But that $151,865 is held by the lender as additional collateral instead of being distributed, until DSCR recovers to the cure level for the number of quarters the documents require. FF&E reserve. At 4.0 percent of $4,200,000 revenue, the reserve is $168,000 a year, or $14,000 a month. It is deducted before net cash flow, so a lender that tests DSCR on net cash flow has already counted it. FAQ: - Q: My hotel term sheet says hard lockbox with springing cash management. What does that mean? A: Your credit card processors will send receipts directly to a lender-controlled account. In normal times that cash is passed to you each business day. If a trigger is tripped, such as DSCR falling below the stated level, the lender keeps the cash and pays expenses under a waterfall. - Q: What triggers a cash sweep on a hotel loan? A: An event of default and a DSCR test are the usual triggers. In two 2026 securitized hotel loans the DSCR levels were 1.25 and 1.30 times. One also listed an open PIP, a bankruptcy, a mezzanine loan and a guarantor covenant breach. - Q: How much FF&E reserve will my hotel lender require? A: Two hotel loans securitized in 2026 both required the greater of 4.0 percent of revenue and the amount the franchise or management agreement requires. Your lender sets its own figure, so check the term sheet and your franchise agreement together. - Q: My hotel's DSCR dropped below the covenant. What happens now? A: On a securitized loan, cash management usually springs and excess cash is held until DSCR recovers for the required number of quarters. On a bank loan it is usually a covenant default the bank can waive or use to renegotiate. Call the lender or servicer before the test date. - Q: Do bank hotel loans have DSCR covenants? A: Commonly, yes. The OCC's examiner handbook lists DSCR, debt yield, loan-to-value, loan-to-cost and borrower or guarantor net worth or liquidity as the most common financial covenants on income-producing property loans, and says volatile properties such as hotels may warrant a higher ratio. - Q: Is trapped cash applied to my loan balance? A: Usually not. In the public examples, excess cash is held as additional collateral and returned once the trigger is cured and no other trigger exists. After an event of default, the lender may apply the funds to the debt in whatever order it chooses. - Q: What is a completion guaranty on a hotel construction loan? A: It is the sponsor's personal or corporate promise to finish the project and pay cost overruns. The OCC handbook describes construction completion guarantees as a limited form of guarantee that may be released as conditions are met. A carry guaranty covers interest and shortfalls until stabilization. - Q: Can I negotiate hotel loan covenants? A: Yes, before you sign. The points worth negotiating are the trigger level, how DSCR is defined, how many quarters it takes to cure, and whether trapped cash can pay operating expenses and PIP costs. After closing, changes need lender or servicer consent. Sources: - [1] BANK5 2026-5YR23, free writing prospectus: structural and collateral term sheet dated June 22, 2026 (Loan No. 9, Marriott Tampa Westshore: reserves, lockbox and cash management, pp. T-104 to T-108) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2140978/000153949726001820/n5964_x2-ts.htm - [2] Comptroller's Handbook: Commercial Real Estate Lending, Version 2.0 (March 2022, updated March 20, 2025): interest reserves (p. 8), construction covenants (p. 24), guarantees (p. 30), financial covenants (p. 41), DSCR and hotels (p. 43), reporting covenants (p. 49), hospitality (p. 124) (Office of the Comptroller of the Currency, accessed 2026-09-18): https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf - [3] BMO 2026-5C16 Mortgage Trust, free writing prospectus: structural and collateral term sheet dated August 4, 2026 (Loan No. 10, Holiday Inn Hotel Chelsea: reserves, lockbox and trigger period, pp. 135-140) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2136643/000153949726002077/n6057_x4-ts.htm - [4] Ashford Hospitality Trust, Inc., Form 10-K for the year ended December 31, 2025 (filed March 23, 2026): cash trap provisions, risk factors and liquidity (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1232582/000123258226000067/aht-20251231.htm - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [6] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): hospitality seasonality risk factor (p. 85); hard and soft lockbox definitions for hospitality properties (pp. 166, 168); escrow requirements, FF&E reserves held by franchisor or manager (p. 292) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000776/n5676_x16-424b2.htm ### Do I need an interest rate cap on a floating-rate hotel loan? URL: https://matthewshotelmarkets.com/hotel-financing/interest-rate-caps Last updated: 2026-10-01 If the loan is floating-rate bridge or debt fund money, expect the lender to require one. A cap pays you whenever SOFR resets above a strike rate, so your index cost stops rising there. SOFR was 3.90 percent on September 30, 2026.[1] One public hotel owner paid $5.1 million in 2025 for caps on $1.64 billion of notional, struck between 4.00 and 5.25 percent.[2] Key takeaways: - A cap is a one-time purchase, paid at closing. It is insurance on the index, not a change to your loan.[3] - The payout formula is simple: day count fraction times notional times the amount by which the index exceeds the strike.[3] - Price moves with four things: the strike, the term, the notional amount, and where the market expects SOFR to go and how volatile it is.[2] - A lender-required cap is assigned to the lender as collateral, and an extension usually needs a new cap bought at that day's price.[3][2] - No one publishes cap prices for private deals. The dated public evidence is what hotel REITs disclose: caps cost one public owner $28.3 million in 2023 and $5.1 million in 2025.[2] #### What is an interest rate cap, and how does it pay out? An interest rate cap is a contract that pays the buyer when a floating index such as SOFR resets above an agreed strike rate. Chatham Financial, a hedging adviser, describes a cap as an insurance policy on a floating-rate index. It pays out to the purchaser if the index rises above a pre-determined threshold, the strike rate. Once the cap is in the money, the cap provider makes monthly payments for the difference between the strike and where the index resets each period.[3] Chatham's published formula is: cap payout equals the monthly day count fraction, times the notional amount, times the index rate minus the cap strike. Its example is a $50 million cap on SOFR with a 0.50 percent strike. When SOFR reset at 0.76 percent for a 31-day period, the payout was 31 divided by 360, times $50,000,000, times 0.26 percent, or $11,194.44.[3] The cap does not change your loan. You still pay the lender the full floating rate. The cap provider, usually a bank, pays you the excess, so your net index cost stops at the strike. Your spread over the index is unaffected. `/glossary/sofr` explains the index. #### Who requires a rate cap on a hotel loan? Lenders that make floating-rate, interest-only hotel loans, mainly bridge lenders, debt funds and floating-rate CMBS lenders, commonly make a cap a condition of closing. The reason is coverage. A floating-rate loan sized to today's SOFR can fail its DSCR test if the index rises, and a hotel in transition has little room for that. The lender fixes the worst case by requiring a cap at a strike where the hotel's cash flow still covers interest. Chatham's guidance distinguishes two cases. With a lender-required cap, the cap is collaterally assigned to the lender, and lenders often require cap payments to be sent to a lender-controlled lockbox account. With an elective cap, the owner chooses the terms and receives the payments directly.[3] Public hotel owners show how common caps are on floating-rate hotel debt. Ashford Hospitality Trust reported $2.4 billion of variable-rate debt at December 31, 2025, and held caps with $2.07 billion of notional against mortgage loans with $1.76 billion of principal.[2] Fixed-rate loans from banks, CMBS conduits, life companies and SBA 504 debentures do not need one. `/hotel-financing/bridge-loans` covers the loans that do. #### What does a rate cap cost? A rate cap's price is a single upfront premium set by the strike, the term, the notional amount and the market's expectations for SOFR, and no one publishes prices for private deals. A lower strike costs more, because the cap is more likely to pay. A longer term costs more. A larger notional costs more in proportion. And the same cap costs more when the forward curve is higher or rates are more volatile. Ashford's annual report describes the standard valuation method: discount the expected future receipts, using SOFR forward curves and volatilities as the inputs.[2] Our rate sheet marks the cap strike and cost on the bridge row as not yet published, because nobody publishes either.[4] What is public and dated is what REITs disclose. Ashford entered into caps with $2.58 billion of notional in 2023 at a total cost of $28.3 million, $2.34 billion in 2024 for $15.5 million, and $1.64 billion in 2025 for $5.1 million. Strikes ranged from 2.50 to 6.90 percent in 2023 and from 4.00 to 5.25 percent in 2025.[2] By our arithmetic that is about 1.09 percent of notional in 2023, 0.66 percent in 2024 and 0.31 percent in 2025. Those ratios mix many caps with different terms and strikes across a large portfolio, so they show direction, not a quote for your loan. Get a live indication from a hedge adviser or the cap desk of a bank before you sign the term sheet, and put the premium in your sources and uses. `/hotel-financing/closing-costs` lists the other closing line items. #### How do I choose the strike and the term? On a lender-required cap the lender sets the maximum strike and the minimum term, and the owner's choice is whether to buy more protection than required. The lender's strike is usually set so that interest at the strike plus the spread still meets its coverage test. The term usually matches the initial loan term. You can buy a lower strike or a longer term than required, and pay more for it. A practical way to choose is to run your DSCR at the capped rate. If the hotel cannot cover interest at the strike plus the spread, the cap the lender asked for protects the lender's loan more than it protects your cash flow. `/tools/dscr-calculator` makes that check quick, and the worked example below shows it on a $12.0 million loan. Notional should match the loan balance you expect to have outstanding. If the loan funds in stages for a PIP, ask whether the cap can step up with the draws, because an oversized cap is wasted premium. #### What happens to the cap when I extend or refinance? A cap ends on its termination date, so an extension option usually requires buying a new cap at whatever the market charges that day. This is the most common surprise. Bridge loans are often written with a short initial term and extension options subject to conditions. Ashford's February 2025 refinancing of 16 hotels is a public example of the shape: a $580 million interest-only loan at SOFR plus 4.37 percent, with a two-year initial term and three one-year extension options subject to conditions.[2] A large portfolio loan is not a quote for a single hotel, but the structure is the same. One extension condition is usually a replacement cap. When Ashford failed to meet the conditions of an extension on a separate eight-hotel loan in February 2026, the lender's default notice demanded, among other things, delivery of a replacement interest rate cap agreement.[2] If you refinance or sell before the cap expires, the cap is yours. It can be terminated for whatever value it has left, which may be little. If rates have risen, a cap that is in the money has real value, and Ashford reported $3.0 million of proceeds from in-the-money caps in 2025.[2] `/hotel-financing/loan-maturities-2026-2027` covers extension planning. #### Is a cap better than a swap or a fixed-rate loan? A cap limits your rate and lets you benefit if rates fall, a swap fixes your rate in both directions, and a fixed-rate loan removes the question but adds prepayment cost. A cap costs cash up front and nothing afterward. If SOFR falls, your interest falls with it. A swap has no upfront premium, but it locks the rate, and ending it early when rates have fallen means paying a termination amount. That matters on a transitional hotel loan, where the plan is to repay early. It is why short-term hotel bridge loans are usually hedged with caps. Fixed-rate permanent loans solve rate risk differently and carry their own exit cost. `/glossary/yield-maintenance` and `/glossary/defeasance` explain the two common prepayment structures, and `/hotel-financing/hotel-loan-rates` compares the indexes each loan type is priced from. The 10-year Treasury was 5.29 percent on September 30, 2026.[4] If the hotel is stabilized and you plan to hold, the better question may be whether you need floating-rate debt at all. `/hotel-financing/refinance` covers moving from bridge to permanent debt. Table: Interest rate caps a public hotel owner entered into, 2023 to 2025 Year | Notional amount | Strike rate range | Total cost | Cost as a share of notional (our arithmetic) 2023 | $2,583,271,000 | 2.50% to 6.90% | $28,256,000 | 1.09% 2024 | $2,341,742,000 | 3.10% to 7.31% | $15,532,000 | 0.66% 2025 | $1,642,505,000 | 4.00% to 5.25% | $5,120,000 | 0.31% First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts SOFR, the index a hotel bridge loan floats over, at 3.90% for September 30, 2026. It marks the bridge spread and the cap strike as not yet published, because no lender publishes either.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 4.50% SOFR cap on a $12.0M hotel bridge loan): Hypothetical. Loan $12,000,000, interest-only, floating at SOFR plus an assumed 3.50 percent spread. The lender requires a cap with a 4.50 percent strike. The spread and the strike are assumptions for the arithmetic, not quotes. The table above is from Ashford Hospitality Trust's 2025 annual report.[2] Today. With SOFR at 3.90 percent, the loan rate is 7.35 percent and interest is $882,000 a year. SOFR is below the strike, so the cap pays nothing. SOFR at 5.00 percent. The loan rate is 8.50 percent. The cap pays 0.50 percent on $12,000,000, or $60,000 a year. For a 30-day period that is 30 divided by 360, times $12,000,000, times 0.50 percent, or $5,000. SOFR at 6.00 percent. The loan rate is 9.50 percent, and uncapped interest is $1,140,000 a year. The cap pays 1.50 percent on $12,000,000, or $180,000 a year, which is $15,000 for a 30-day period. Net interest is $960,000, an effective rate of 8.00 percent. That is the strike plus the spread, and it is the worst case for as long as the cap lasts. Coverage check. If the hotel's NOI is $1,200,000, DSCR at the capped rate is $1,200,000 divided by $960,000, or 1.25 times. Without the cap at 6.00 percent SOFR it would be 1.05 times. That difference is why the lender requires the cap. FAQ: - Q: What's a rate cap and do I need one to refinance my hotel? A: A rate cap pays you when SOFR rises above a strike rate. You need one only if the new loan floats, which usually means a bridge or debt fund loan, and the lender requires it. A fixed-rate bank, CMBS, life company or SBA 504 refinance does not use one. - Q: My bridge lender is requiring a SOFR cap on my hotel loan. How does it work? A: You buy the cap at closing for a one-time premium and assign it to the lender as collateral. If SOFR resets above the strike, the cap provider pays the difference on the notional amount each period, often into a lender-controlled account that offsets your interest. - Q: How much does an interest rate cap cost on a $12 million hotel bridge loan? A: No public price list exists. Cost depends on strike, term, notional and the SOFR forward curve on the day you buy. One public hotel owner's caps cost about 0.31 percent of notional in 2025 and 1.09 percent in 2023. Get a live indication before signing. - Q: Who pays me when SOFR goes above my cap strike? A: The cap provider, usually a bank, pays you each period. If the cap was required by your lender and assigned to it, the payment typically goes to a lender-controlled account and is netted against your interest or reimbursed to you. - Q: My hotel loan extension requires a new rate cap. What should I expect? A: Expect to buy a replacement cap for the extension period at that day's market price, at a strike the lender sets. Budget for it a year ahead. If rates or volatility are higher than when you closed, the new cap can cost more than the first one. - Q: Is a rate cap or a swap better for a floating-rate hotel loan? A: For a short transitional loan, usually a cap. It has a known upfront cost, no termination payment, and lets your rate fall if SOFR falls. A swap has no premium but can be expensive to end early, which works against a plan to refinance or sell. - Q: Can I get money back on a rate cap if I pay off the loan early? A: Sometimes. The cap belongs to you, and it can be terminated for its remaining market value. If SOFR is well below the strike and little time is left, that value may be close to zero. Sources: - [1] Secured Overnight Financing Rate (SOFR): 3.90% for September 30, 2026 (Federal Reserve Bank of New York, accessed 2026-09-18): https://www.newyorkfed.org/markets/reference-rates/sofr - [2] Ashford Hospitality Trust, Inc., Form 10-K for the year ended December 31, 2025 (filed March 23, 2026): Note 9, Derivative Instruments and Hedging; interest rate risk; indebtedness; financing cash flows (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1232582/000123258226000067/aht-20251231.htm - [3] Interest rate cap payout mechanics (definition, payout formula, lender-required and elective caps; example data as of May 16, 2022) (Chatham Financial, accessed 2026-09-18): https://cf.com/insights/interest-rate-cap-payout-mechanics - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How do mezzanine debt and preferred equity work on a hotel deal? URL: https://matthewshotelmarkets.com/hotel-financing/mezzanine-debt-and-preferred-equity Last updated: 2026-10-01 Both fill the gap between the first mortgage and your own cash. Mezzanine debt is a loan secured by a pledge of the company that owns the hotel, not by the hotel. Preferred equity is an ownership stake with a priority return. In one CMBS pool dated August 4, 2026, a $3.8 million mezzanine loan carried 11.00 percent behind a senior loan at 7.43 percent.[1] Key takeaways: - Mezzanine debt is a loan to the borrower's parent company, secured by the ownership interests. The mezzanine lender has no lien on the hotel itself.[2] - Preferred equity is not a loan. The investor becomes a member of the ownership entity and is paid a preferred return before the common owners.[2] - The senior lender controls whether either one is allowed. In one 2026 CMBS pool, a hotel loan prohibited future mezzanine debt outright and another loan permitted it only if combined tests were met.[1] - If a mezzanine loan defaults, the lender can sell the pledged ownership interests under UCC Article 9 and take control of the borrower, with the first mortgage still in place.[3][2] - No lender publishes mezzanine or preferred equity pricing. Public loan disclosures are the only dated evidence, and they are single examples, not a market rate.[4] #### Where do mezzanine debt and preferred equity sit in a hotel deal? Mezzanine debt and preferred equity both sit behind the first mortgage and ahead of the owner's common equity. The first mortgage is secured by the hotel. Everything behind it is secured by, or invested in, the company that owns the hotel. A CMBS prospectus filed with the SEC in February 2026 puts it plainly: a mezzanine lender has no security interest in the mortgaged property, but a default under the mezzanine loan could cause a change in control of the borrower.[2] Preferred equity goes one step further from debt. The same prospectus describes it as a structure where one or more special limited partners or members receive a preferred return in exchange for an infusion of capital, and notes that because preferred equity often pays a higher rate of return, it in some respects functions like mezzanine debt.[2] The order of payment follows the order of risk. Hotel cash flow pays operating costs, then the first mortgage, then the mezzanine loan or the preferred return, then the common owners. `/hotel-financing/capital-stack` shows all the layers together, including C-PACE and key money, and `/glossary/mezzanine-debt` has the short definition. #### What is an intercreditor agreement, and what does it let each lender do? An intercreditor agreement is the contract between the senior lender and the mezzanine lender that sets who gets paid first and who can act after a default. The February 2026 prospectus describes the usual terms. The mezzanine lender's rights, including the right to payment, are subordinate to the mortgage lender's rights, and the mezzanine lender may not take enforcement action against the mortgage borrower or the property.[2] In exchange, the mezzanine lender generally gets two protections: a right to cure certain defaults on the senior loan, and in certain default scenarios a right to purchase the senior loan. So long as its cure right has not expired, it may also hold approval rights over certain modifications of the senior loan.[2] For a hotel owner, the practical point is that the two lenders negotiate this document with each other, not with you, and it can slow a closing. In securitized loans, a future mezzanine loan usually also needs an intercreditor agreement acceptable to the senior lender and a rating agency confirmation.[1][2] Bring the mezzanine lender into the process early. `/hotel-financing/how-debt-placement-works` explains the closing sequence. #### What happens if I default on a hotel mezzanine loan? A mezzanine lender forecloses on the ownership interests, not on the hotel, and the process runs under the Uniform Commercial Code instead of state mortgage law. UCC section 9-610 lets a secured party sell or otherwise dispose of collateral after default, and requires every aspect of the sale, including the method, manner, time, place and other terms, to be commercially reasonable.[3] There is no judicial mortgage foreclosure, because the collateral is a membership interest, not real estate. The result is that the mezzanine lender, or whoever buys at the sale, becomes the owner of the company that owns the hotel. The first mortgage stays in place. The prospectus notes that this transfer of equity may not trigger the due-on-sale clause under the mortgage, but it could cause a change in control of the borrower.[2] The franchise agreement is a separate question. A change of control is usually a transfer under the franchise agreement, so check the brand's consent requirements before assuming the flag stays. `/hotel-financing/loan-workouts` covers the options before a default gets that far. #### How is preferred equity different for a hotel owner? Preferred equity gives the investor ownership rights instead of a lender's foreclosure right, so the remedy for a missed payment is written into the operating agreement. A preferred equity investor is a member of your ownership entity. The investor is owed a specified return, or a share of excess cash flow, before the common owners receive anything. The prospectus lists what that means for the owner: dilution of the borrower's equity in the property, stress on cash flow from the preferred return, and potential changes in the management of the property if the preferred return is not satisfied.[2] That last item is the remedy. Instead of a UCC sale, the operating agreement usually gives the preferred investor the right to take over decision-making when a payment or a deadline is missed. The terms are negotiated deal by deal and are not published anywhere. Senior lenders care about the difference. Some loan documents that prohibit mezzanine debt still allow preferred equity, and some treat preferred equity with debt-like features as the same thing. Whether a preferred investment is treated as debt or equity for tax purposes depends on its terms, which is a question for your tax adviser. Matthews Hotel Markets does not give legal or tax advice. #### Will my senior lender allow mezzanine debt or preferred equity? Only if the senior loan documents say so, and many hotel loans say no. Public CMBS disclosures show the range. A $76.5 million loan on a 226-room Manhattan hotel, dated June 5, 2026, lists permitted future subordinate or mezzanine debt as not permitted, and makes any period during which a mezzanine loan is outstanding a trigger for lender-controlled cash management.[1] Another loan in the same pool, on a non-hotel property, gives the borrower a one-time right to add a mezzanine loan if the combined loan-to-value is no greater than 41.7 percent, the combined DSCR is at least 2.88 times, the combined debt yield is at least 20.5 percent, and an intercreditor agreement is signed.[1] Those thresholds belong to that loan. They are not a market standard. The lesson is to settle the whole structure before the senior loan closes. Adding a layer afterward needs the senior lender's consent, and a lender with no reason to say yes usually says no. Bank loans follow the same logic. The OCC's examiner handbook lists limits on additional debts, guarantees and liens among the covenants a bank may require.[5] `/hotel-financing/covenants-and-cash-management` covers those covenants. #### What does mezzanine debt or preferred equity cost? More than the first mortgage, because the capital is repaid second and has no lien on the building, but no lender publishes a rate. Our rate sheet prints public indexes and published program rules. It prints no mezzanine or preferred equity pricing, because none is published.[4] What exists publicly is individual loan disclosure. In the BMO 2026-5C16 term sheet dated August 4, 2026, a student housing property in the pool carried a $39.0 million senior loan at 7.43333 percent and a $3.8 million mezzanine loan at 11.00 percent, interest-only for a five-year term, for a weighted average of about 7.75 percent on the total debt.[1] That property is not a hotel, and one loan is not a market. The same disclosure shows what the extra layer does to the tests. The senior loan alone was 61.4 percent of value with a 1.26 times DSCR and a 9.7 percent debt yield. With the mezzanine loan, total debt was 67.3 percent of value with a 1.10 times DSCR and an 8.8 percent debt yield.[1] Beyond the rate, expect an origination fee, the mezzanine lender's legal costs, and often an exit fee or a minimum return. Ask for every one of them in writing and compare offers on total dollars over your hold period. `/tools/dscr-calculator` lets you test the combined payment against your NOI. #### When does this kind of capital make sense on a hotel? When the gap is temporary and the hotel's income after the business plan can refinance both layers out. Three situations come up most. An acquisition where the senior lender sizes to trailing cash flow and the buyer has a funded renovation plan; see `/hotel-financing/pip-and-renovation-loans`. A recapitalization, where an owner needs to pay off a maturing loan that a new first mortgage alone will not cover; see `/hotel-financing/loan-maturities-2026-2027`. And a partner buyout. It fits poorly when the hotel's income is already thin. The worked example below shows why: every layer added above the first mortgage shrinks the drop in NOI the deal can absorb. If the gap is permanent, not temporary, the fix is usually more common equity or a lower price, not more expensive capital. Table: Mezzanine debt and preferred equity compared with the first mortgage, September 2026 Feature | First mortgage | Mezzanine debt | Preferred equity Legal form | Loan to the hotel-owning borrower | Loan to the borrower's parent company[2] | Membership or partnership interest in the ownership entity[2] Collateral | Mortgage or deed of trust on the hotel | Pledge of the ownership interests in the borrower; no lien on the hotel[2] | None; rights come from the operating agreement Remedy after default | Mortgage foreclosure under state law | Sale of the pledged interests under UCC 9-610, which must be commercially reasonable[3] | Control rights, such as replacing the manager of the entity[2] Agreement with the senior lender | Not applicable | Intercreditor agreement: subordination, cure rights, purchase option[2] | Set by the senior loan documents; often needs consent Paid from | Hotel cash flow, first | Cash flow after senior debt service | Cash flow after all debt service Published pricing | Indexes only; spreads are not published[4] | Not published; one public 2026 example at 11.00%[1] | Not published First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the 10-year Treasury at 5.29% and SOFR at 3.90% as of September 30, 2026. It prints no mezzanine or preferred equity pricing, because no lender publishes any and we do not print a number without a public source.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a $3.0M mezzanine loan behind a $12.0M first mortgage on a $20.0M hotel): Hypothetical. Hotel value $20,000,000, NOI $1,900,000. The first mortgage is $12,000,000 at an assumed 7.00 percent, interest-only. The mezzanine loan is $3,000,000 at an assumed 11.00 percent, interest-only. Both rates are assumptions for the arithmetic, not quotes. Payments. Senior interest is $12,000,000 times 7.00 percent, or $840,000 a year. Mezzanine interest is $3,000,000 times 11.00 percent, or $330,000 a year. Total debt service is $1,170,000. The blended rate is $1,170,000 divided by $15,000,000, or 7.80 percent. Tests. On the first mortgage alone, loan-to-value is 60 percent, DSCR is $1,900,000 divided by $840,000, or 2.26 times, and debt yield is 15.8 percent. On total debt, loan-to-value is 75 percent, DSCR is $1,900,000 divided by $1,170,000, or 1.62 times, and debt yield is 12.7 percent. Cushion. Cash left for the owners falls from $1,060,000 to $730,000 a year. With the first mortgage alone, NOI could fall about 56 percent before it no longer covered interest. With both loans, that cushion is about 38 percent. Preferred equity instead. The same $3,000,000 as preferred equity at an assumed 12.00 percent return costs $360,000 a year and leaves $700,000 for the common owners. The senior lender's tests are unchanged, but the owner has a new partner with control rights if the return is missed. FAQ: - Q: My bank will only lend 60 percent on my hotel purchase. Can mezzanine debt cover the gap? A: Possibly, if the bank's loan documents allow it and the hotel's income covers both payments. Many senior lenders prohibit subordinate financing or require their consent. Raise it before the bank issues its commitment, because adding a mezzanine loan after closing needs the bank's approval. - Q: Can a mezzanine lender take my hotel if I miss a payment? A: It can take the company that owns the hotel. After default, the lender can sell the pledged ownership interests under UCC 9-610 in a commercially reasonable sale. The buyer controls the borrower, and the first mortgage stays in place. - Q: Is preferred equity safer for me than a mezzanine loan? A: Not automatically. There is no UCC foreclosure, but the operating agreement usually lets the preferred investor take control if its return is not paid. A CMBS prospectus lists dilution, cash flow stress and changes in management as the risks. Read the control provisions closely. - Q: Does my CMBS loan allow me to add mezzanine debt later? A: Check the permitted future mezzanine debt section of your loan agreement. In a 2026 pool, one hotel loan listed it as not permitted, while another loan allowed it only if combined loan-to-value, DSCR and debt yield tests were met and an intercreditor agreement was signed. - Q: How much does mezzanine debt cost on a hotel deal? A: No lender publishes a rate. One public 2026 example, on a student housing property, shows a $3.8 million mezzanine loan at 11.00 percent behind a senior loan at 7.43 percent. Expect origination, legal and often exit fees on top of the rate. - Q: What is the difference between mezzanine debt and a second mortgage? A: A second mortgage is a lien on the hotel itself. Mezzanine debt is secured only by ownership interests in the borrower. CMBS loans generally carry a due-on-encumbrance clause that lets the lender accelerate if the property is encumbered without consent, so gap capital is usually mezzanine debt or preferred equity. - Q: Do I need a lawyer for a mezzanine or preferred equity deal? A: Yes. The intercreditor agreement, the pledge and the operating agreement decide who controls your hotel after a missed payment. Matthews Hotel Markets arranges the capital and does not give legal or tax advice. Sources: - [1] BMO 2026-5C16 Mortgage Trust, free writing prospectus: structural and collateral term sheet dated August 4, 2026 (Loan No. 7 mezzanine loan terms; Loan No. 8 permitted future mezzanine debt; Loan No. 10 Holiday Inn Hotel Chelsea, pp. 135-140) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2136643/000153949726002077/n6057_x4-ts.htm - [2] Benchmark 2026-B42 Mortgage Trust, prospectus (Form 424B2, filed February 25, 2026): mezzanine financing and preferred equity risk factors (p. 115), mezzanine lender cure and purchase rights (p. 148), due-on-encumbrance clauses (p. 221), Mezzanine Indebtedness and Preferred Equity (pp. 231-232) (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/2110410/000153949726000776/n5676_x16-424b2.htm - [3] UCC 9-610, Disposition of collateral after default (Uniform Commercial Code, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/ucc/9/9-610 - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] Comptroller's Handbook: Commercial Real Estate Lending, Version 2.0 (March 2022, updated March 20, 2025), covenants (pp. 24, 41) (Office of the Comptroller of the Currency, accessed 2026-09-18): https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf ## What is involved in selling a hotel? ### What is involved in selling a hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel Last updated: 2026-09-18 Selling a hotel is a marketed process. As of September 2026, our published playbook runs about 24 weeks from engagement to close.[1] It moves from a value opinion to a document package, a buyer list, a call for offers, then due diligence and franchise approval. Hilton's 2025 Hampton disclosure document gives the brand 60 days to rule on a completed transfer application.[2] Key takeaways: - Our playbook budgets about 24 weeks from engagement to close.[1] Due diligence and franchise approval own the back half. - A broker opinion of value comes first. You cannot price a process you have not valued. - An open PIP does not kill a sale. An undisclosed PIP does. - Confidential and marketed are both real options, and they produce different buyer pools. - The document package is the deal. Buyers price uncertainty, and missing documents are uncertainty. #### What are the steps to sell a hotel? Eight stages, in order: value opinion, package, marketing, call for offers, PSA negotiation, due diligence, franchise approval, close. A value opinion sets the number the rest of the process tests. The broker's package, usually a confidential information memorandum with the trailing financials, photos and market context, goes to a targeted list of buyers under NDA. In our playbook, marketing runs from week 3 to week 8 and ends in a call for offers on a fixed date, so bids can be compared side by side instead of trickling in.[1] The seller and broker pick a buyer, negotiate a purchase and sale agreement, and the buyer's deposit goes hard. From there, due diligence and franchise approval run at the same time, not back to back, because that parallel path is what keeps the calendar near 24 weeks. The Matthews Hotel Index for Q1 2026 gives the cap-rate band your value opinion will be built against.[3] A stage-by-stage view, with realistic durations for each, is below and in more detail at [How to sell a hotel, step by step](/sell-a-hotel/how-to-sell-a-hotel). #### How long does it take? About 24 weeks from engagement to close in our published playbook, with due diligence and franchise approval running in parallel in the back half.[1] That plan assumes a prepared seller with a clean trailing twelve months and a written PIP scope letter in hand before marketing starts. An unprepared seller, one still assembling financials or waiting on a brand response, should expect it to run longer. On the brand side, Hilton's 2025 Hampton franchise agreement gives the franchisor 60 days from a completed application to consent to a change of ownership.[2] The full breakdown by stage, plus what a prepared versus unprepared timeline looks like side by side, is at [How long does it take to sell a hotel](/sell-a-hotel/how-long-it-takes). #### What does it cost? A success fee at closing that scales down as price rises, plus title, legal, transfer tax and prorations that are not part of the commission. The brokerage fee is the largest single line item, but it is not the only cost. Title insurance, escrow, state transfer taxes, seller's counsel, and, on a CMBS loan, defeasance can add up to a large share of the total, especially when a loan must be paid off early. The full cost stack, with a worked example, is at [Hotel broker fees](/sell-a-hotel/broker-fees). Tax on the gain is separate and is covered at [What taxes do I pay when I sell a hotel?](/sell-a-hotel/taxes-when-selling-a-hotel) #### What do I have to prepare? A trailing twelve-month P&L that reconciles to bank statements, a current STAR report, a written PIP scope letter, and three years of capital expenditure history. In our experience, those four documents decide more of the outcome than anything else an owner controls, and a T-12 that does not tie out to the bank is a leading cause of re-trades in due diligence. The full document checklist, tier by tier, from teaser to closing, is at [Documents needed to sell a hotel](/sell-a-hotel/documents-needed). #### Should I sell confidentially or market it openly? Confidential protects staff and vendor relationships and narrows the buyer pool; marketed reaches more buyers and creates price tension at the cost of discretion. A confidential process works when the owner cannot risk staff, guests or lenders learning the asset is for sale before a deal is signed, common on a single trophy asset or a family-owned property with long-tenured management. A broadly marketed process, syndicated to a wider buyer list, produces more competitive tension and typically a tighter timeline to a call for offers, because more buyers are underwriting at once. Most owners land somewhere in between: a targeted, NDA-gated list that is broad enough to create competition without a public listing. The three methods are compared side by side at [Should I sell my hotel off-market or list it publicly?](/sell-a-hotel/off-market-vs-marketed) #### Does an open PIP kill my deal? No. An open PIP with a written scope letter gets priced into the offer; an undisclosed one that surfaces in due diligence is what kills deals. A franchisor can require the buyer to agree to upgrades, written up as a PIP, as a condition of approving a change of ownership.[2] So a branded hotel that trades should expect one. Buyers underwrite that cost the same way they underwrite any other capital item: as a deduction from the unencumbered value, plus a premium for the risk that the scope grows once work starts. What actually derails a sale is a PIP letter the seller did not disclose, because it makes the buyer distrust every other number in the package, not because a PIP exists. The arithmetic on exactly how much a PIP costs a seller is worked through in the example below and in more depth at [What is my hotel worth, and who decides?](/hotel-valuation) #### Can I sell without a broker? Yes, and it narrows the buyer pool to people who already know the asset is available. An owner-direct sale is legal and it happens, most often when the buyer is already known, a neighboring operator, a family member, or an existing tenant. What an owner gives up is the underwriting discipline, the buyer-list breadth, and the negotiating power a call-for-offers process creates. The trade-offs, honestly stated, are at [How do I choose a hotel broker?](/sell-a-hotel/how-to-choose-a-hotel-broker), which also covers what a broker should be doing for that fee. Table: The hotel sale process, stage by stage (our planning ranges) Stage | What happens | Typical duration | Who drives it Value opinion | Broker opinion of value on current financials | 1 to 2 weeks | Broker Package | CIM, financial model, photos, data room | 2 to 3 weeks | Broker and owner Marketing | Targeted outreach, NDAs, tours | 4 to 6 weeks | Broker Call for offers | Offers due on a common date, then best and final | 2 to 3 weeks | Broker PSA negotiation | Contract, deposit, access | 2 to 3 weeks | Attorneys Due diligence | Buyer inspection, financial audit, PCA, survey | 30 to 60 days | Buyer Franchise approval | Buyer application, PIP scope, comfort letter | Up to 60 days for the brand to rule, run in parallel[2] | Brand Close | Funding, title, FF&E and inventory settlement | 1 week | Everyone First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate band your value opinion will be built against.[3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what an open PIP does to a bid): Hypothetical. A 96-key select-service hotel with $1.42 million of NOI. At an 8.25 percent cap the unencumbered value is $1.42 million divided by 0.0825, or $17.21 million. Now add a brand PIP scoped at $2.30 million, due within 18 months. The buyer deducts the PIP cost: $17.21 million minus $2.30 million is $14.91 million. The buyer also deducts displacement during the renovation, say 60 rooms out for 90 days, roughly $310,000. Then the buyer adds an assumed risk premium for scope uncertainty, here $300,000, about 13 percent of the PIP. The indicative bid comes to $14.30 million, versus $17.21 million unencumbered. The PIP cost $2.30 million and the price fell $2.91 million. The extra $610,000 is what uncertainty costs. Getting the scope letter in writing before you go to market is how you get most of that back. FAQ: - Q: How long does it take to sell a hotel? A: About 24 weeks from engagement to close in our published playbook, as of September 2026. Roughly 12 weeks to a selected buyer, then about 12 weeks of contract, due diligence and parallel franchise approval.[1] - Q: What does it cost to sell a hotel through a broker? A: A success fee paid at closing, quoted as a percentage of price that falls as price rises, plus title, legal, transfer tax and prorations. See the full breakdown at /sell-a-hotel/broker-fees. - Q: What documents do I need to sell my hotel? A: A teaser before an NDA, a CIM after it, and a full data room in due diligence. The trailing twelve-month P&L, STAR report, franchise agreement with PIP status, and capex history matter most. - Q: Can I sell my hotel confidentially? A: Yes. A confidential process limits marketing to a targeted, NDA-bound buyer list instead of public syndication. It protects staff and vendor relationships at some cost to competitive price tension. - Q: Does an open PIP stop a hotel sale? A: No. A disclosed PIP with a written scope letter gets priced into the offer. An undisclosed PIP that surfaces in due diligence is what actually kills deals. - Q: Can I sell a hotel without a broker? A: Yes. It is legal, and it narrows the buyer pool to people who already know the asset is for sale, which usually means fewer offers and less price tension. - Q: Do I need a broker opinion of value first? A: Not legally, but pricing a hotel without one is guessing. A BOV gives comps, a cap rate and a buyer-pool view before you set an asking price. - Q: What happens to my staff when the hotel sells? A: Staff are commonly terminated by the seller's operator and rehired by the buyer's operator at closing. Federal WARN notice rules can apply to employers with 100 or more employees.[4] Use employment counsel to plan notices. Sources: - [1] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [2] 2025 Hampton Franchise Disclosure Document, Item 17 and Franchise Agreement section 12.2.2 (change of ownership transfers) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [4] 20 CFR 639.3, WARN Act definitions (employer) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.3 ### Can I do a 1031 exchange without buying another hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/1031-without-buying-another-hotel Last updated: 2026-10-12 Yes. Section 1031 requires like-kind real property, not another hotel.[1] Revenue Ruling 2004-86, published August 16, 2004, holds that an interest in a properly structured Delaware statutory trust is treated as an interest in the trust's real property, so it qualifies.[2] The price is control: that trust's trustee may not refinance, re-lease or sell the building. Key takeaways: - All real property held for investment or business use is like kind to all other such real property, so a hotel seller may exchange into retail, industrial or a qualifying trust interest.[1] - Revenue Ruling 2004-86 works because the trust is a grantor trust: each owner is treated as owning an undivided fractional interest in the building, not a certificate.[2] - Five trustee powers break it. Sell and reinvest, re-lease, refinance, trade cash for profit, or make more than minor structural changes, and the trust becomes a business entity.[2] - The ruling's fact pattern is a net lease at fixed rent not contingent on gross sales or net profits.[2] A hotel does not pay rent like that, so one held this way sits under a master lease. - These interests are securities sold under Rule 506(c), so only verified accredited investors may buy.[5][6] Matthews Hotel Markets is a brokerage, not a broker-dealer, and does not sell them. #### Does a 1031 exchange require me to buy another hotel? No. The statute asks for real property of like kind held for productive use in a trade or business or for investment, and every category of real property held that way is like kind to every other.[1] Section 1031(a)(1) suspends gain when real property held for productive use in a trade or business or for investment is exchanged solely for real property of like kind to be held the same way.[1] Nothing in it mentions asset class. A seller leaving a 120-key select-service hotel may exchange into a shopping center, a warehouse, raw land held for investment, or a fractional interest in a single larger building. Two limits matter more than the like-kind test. Section 1031 now reaches real property only, so the furniture, fixtures and equipment sold with a hotel, and the [going-concern value](/glossary/going-concern-value) element of the price, fall outside it. That split is covered at [1031 exchanges into and out of hotels](/hotel-financing/1031-exchange-hotels) and [What taxes do I pay when I sell my hotel?](/sell-a-hotel/taxes-when-selling-a-hotel). And section 1031(a)(2) excludes real property held primarily for sale, so a developer's inventory does not qualify.[1] #### What is a Delaware statutory trust and why does an interest in one qualify? It is an unincorporated entity formed under Delaware law that holds property for investment, and it qualifies because the Internal Revenue Service treats a properly limited one as a trust rather than a business entity.[2][8] The Delaware Statutory Trust Act, at title 12, chapter 38 of the Delaware Code, recognises the trust as an entity separate from its owners and gives beneficial owners the same limitation on personal liability Delaware extends to corporate stockholders.[8] Federal tax law then asks a narrower question. Under 26 CFR 301.7701-4(c)(1), an investment trust with a single class of interests representing undivided beneficial interests in its assets is classified as a trust only if there is no power to vary the investment of the certificate holders. A power to vary exists where a managerial power lets the trust take advantage of market variations to improve the investment.[3] Revenue Ruling 2004-86 applied that test to a trust holding one net-leased building subject to one nonrecourse loan, and held two things. The trust is an investment trust classified as a trust. And a taxpayer may exchange real property for an interest in it without recognising gain or loss under section 1031, if the other requirements of section 1031 are met.[2] The reasoning is what makes it work. Because the trust is a grantor trust, each beneficial owner is treated as owning an undivided fractional interest in the building itself. So the exchange is an exchange of real property for an interest in real property, not for a certificate of beneficial interest.[2] #### What is the trustee forbidden to do? Five things. Revenue Ruling 2004-86 says that if the trustee holds any one of them, the trust is a business entity, which for two or more owners means a partnership, and the exchange no longer qualifies.[2] The ruling lists them plainly. The trustee may not dispose of the property and acquire new property. It may not renegotiate the lease or enter into leases with other tenants. It may not renegotiate or refinance the debt used to buy the property. It may not invest cash received to profit from market fluctuations. And it may not make more than minor non-structural modifications that are not required by law.[2] In the ruling's own facts the trustee's activities are limited to collecting and distributing income, it must distribute available cash less reserves quarterly, and between distributions it may hold cash only in short-term government obligations or bank certificates of deposit held to maturity.[2] The trust terminates on the earlier of ten years or the sale of the property. From an owner's chair that list says something blunt. The lease is fixed, the loan is fixed, the exit is fixed, and the owner has no vote. The powers that would make the trust a business are the same powers that would make it fail the test. #### Can one of these trusts hold a hotel? Hotel offerings exist and are filed with the Securities and Exchange Commission, but a hotel does not throw off the fixed rent the ruling's fact pattern assumes, so the operating business has to sit outside the trust under a master lease.[2][5] In the ruling, the property is leased to a single tenant at a fixed rent, adjustable only by a formula tied to a fixed rate or an objective index outside the parties' control, and expressly not contingent on the tenant's gross sales or net profits.[2] A hotel's income is operating income. It moves nightly with rate and occupancy, and a trustee forbidden to renegotiate a lease cannot manage that. So a hotel held this way puts the trust in as landlord and an operating lessee in as tenant under a master lease, which keeps the trust passive and moves the operating risk to the lessee. Revenue Ruling 2004-86 does not address that structure, and no public source publishes what master-lease rent a sponsor sets or how a deal splits the economics. Those terms live in a private placement memorandum that only a prospective investor sees. The offerings themselves are public record. Driftwood Hotel Income I, DST, a Delaware entity based in Coral Gables, Florida, filed a Form D with the Securities and Exchange Commission on June 25, 2026 reporting a first sale on April 15, 2026, a total offering of $23,975,543, $4,862,787 sold, $19,112,756 remaining and a minimum investment of $25,000.[5] That is one filing, not a market, but it is evidence the structure is being used for hotels. #### How do the 45-day and 180-day clocks work if I go this route? They are unchanged. Replacement property must be identified within 45 days of transferring the hotel and received within 180 days, or by the return due date for that tax year if that is earlier.[1] Section 1031(a)(3) sets both deadlines and they are not extended because the replacement is a trust interest.[1] The identification rules in 26 CFR 1.1031(k)-1(c) set what may go on the list. A taxpayer may identify three properties without regard to value under the 3-property rule, or any number of properties whose aggregate fair market value at the end of the identification period does not exceed 200 percent of the value of everything relinquished, under the 200-percent rule.[4] Identify more than either rule allows and the taxpayer is treated as if nothing had been identified at all, subject to a narrow saving rule: an identification still counts for replacement property received before the identification period ends, and for property received before the exchange period ends if what is received is worth at least 95 percent of everything identified.[4] The description has to be unambiguous, by legal description, street address or distinguishable name.[4] This is where these interests get used defensively: an owner whose main target is another hotel can name a trust interest as a backup on the same list, because it is subscribed for a stated dollar amount rather than negotiated. #### Who is actually allowed to buy one? Verified accredited investors, in the offerings sold under Rule 506(c), which is the exemption the Driftwood filing claims.[5][6] An interest in one of these trusts is a security. The Driftwood Form D claims the exemption at 17 CFR 230.506(c).[5] Under that rule the issuer must take reasonable steps to verify that every purchaser is an accredited investor. The rule lists methods that satisfy it: reviewing two years of income tax forms, reviewing asset and liability documentation dated within the prior three months, or obtaining written confirmation from a registered broker-dealer, a registered investment adviser, a licensed attorney or a certified public accountant who verified the purchaser within the prior three months.[6] The threshold itself is at 17 CFR 230.501(a). A natural person qualifies on individual or joint net worth above $1,000,000, excluding the primary residence, or on individual income above $200,000 in each of the two most recent years, or joint income with a spouse above $300,000 in each of those years, with a reasonable expectation of the same in the current year.[7] Two things follow. Verification is documentary, not a checkbox, so it takes time a 45-day clock does not give back. And the interest is sold through securities professionals. Matthews Hotel Markets sells hotels and represents buyers on hotel acquisitions. It is a real estate brokerage, not a broker-dealer, and does not sell, recommend or take compensation on these interests. An owner considering one needs a CPA and a securities-licensed adviser engaged before the hotel closes, not after. #### What are the alternatives if this does not fit? Buying another hotel, buying a single-tenant net-leased property outright, taking a tenancy-in-common interest, or paying the tax and keeping the cash. Buying another hotel keeps control and keeps the depreciation running. The buy side is at [How do I make an offer on a hotel?](/buy-a-hotel/how-to-make-an-offer) and [How do I underwrite a hotel acquisition?](/buy-a-hotel/how-to-underwrite-a-hotel-deal). Buying a net-leased building outright gets most of the passivity without the securities wrapper, at the cost of needing enough proceeds for a whole asset and of concentrating the risk in one tenant. It is priced off a [cap rate](/glossary/cap-rate) on contractual rent rather than on operating income, which is a different risk to underwrite than a hotel's. A tenancy-in-common interest is direct co-ownership rather than a trust interest, so it reaches section 1031 on different reasoning and gives co-owners votes a trust beneficiary does not have. It also requires those co-owners to agree. Paying the tax deserves saying out loud. An exchange defers tax; it does not forgive it. Sizing the bill starts with knowing what the hotel is worth, which is what a [broker opinion of value](/glossary/bov) is for. An owner who takes a structure they do not understand, cannot exit, and would not have bought on its merits has paid more than the tax bill to avoid the tax bill. A 45-day deadline is exactly the condition under which that decision gets made badly. Table: Where hotel sale proceeds can go under section 1031, September 2026 Option | What the seller owns | Who runs the asset | Basis for 1031 treatment | Main constraint Another hotel | The real property, plus FF&E and the business outside the exchange | The seller, or their manager | Real property of like kind, 26 U.S.C. 1031(a)(1)[1] | Back in the operating business; FF&E and going-concern value fall outside it[1] Single-tenant net-leased property, bought outright | The whole building | The tenant, under its lease | Real property of like kind, 26 U.S.C. 1031(a)(1)[1] | Needs enough proceeds to buy a whole asset; risk sits in one tenant Delaware statutory trust interest | An undivided fractional interest in the trust's real property[2] | Nobody, by design; the trustee only collects and distributes income[2] | Rev. Rul. 2004-86, on 26 CFR 301.7701-4(c)(1)[2][3] | Five trustee powers are forbidden;[2] a security under Rule 506(c), so accredited investors only[5][6][7] Tenancy-in-common interest | A direct undivided interest in the real property | The co-owners, through their agreement | Direct co-ownership of real property, 26 U.S.C. 1031(a)(1)[1] | Co-owners must agree; lenders and buyers price that friction Pay the tax | Cash | Not applicable | Not applicable | Federal and state tax on gain and recapture, due in the year of sale First-party data point: The choice is partly a debt question, because a replacement hotel's return depends on what the loan costs. Matthews Hotel Markets' October 2026 rate sheet prints the 10-year Treasury at 5.29% on September 30, 2026 and Prime at 7.00%, unchanged since September 17, and marks every lender-set spread, leverage ceiling and coverage floor not yet published, because lenders do not publish them.[9] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a four-property identification list on a $9,000,000 hotel sale): Hypothetical. Every figure is an assumption for the arithmetic. An owner sells a hotel for $9,000,000 with a $3,600,000 mortgage and pays selling costs of 3.5 percent, or $9,000,000 x 0.035 = $315,000. Cash to the seller is $9,000,000 - $3,600,000 - $315,000 = $5,085,000. To defer the whole gain the replacement side has to absorb the cash and the debt: $5,085,000 + $3,600,000 = $8,685,000. Now the 45-day list. Two hundred percent of the $9,000,000 relinquished is $18,000,000.[4] The owner identifies four properties: a hotel at $6,000,000, a second hotel at $4,000,000, a net-leased building at $3,000,000 and a trust interest at $2,500,000. That is $6,000,000 + $4,000,000 + $3,000,000 + $2,500,000 = $15,500,000. Four properties fails the 3-property rule, but $15,500,000 is below the $18,000,000 cap, so the 200-percent rule carries the list.[4] Change one entry and it breaks. Identify $6,000,000, $5,000,000, $4,500,000 and $3,000,000 and the total is $18,500,000, which is $500,000 over the cap. With four properties and no rule satisfied, the taxpayer is treated as having identified no replacement property at all, and the exchange fails unless the narrow saving rule in 26 CFR 1.1031(k)-1(c)(4)(ii) applies.[4] The margin is arithmetic, and it is checked on day 45, not on day 180. FAQ: - Q: Can I 1031 out of a hotel into something other than a hotel? A: Yes. Section 1031 asks for real property of like kind held for productive use or investment, not for the same asset class.[1] Retail, industrial, land held for investment and qualifying fractional interests all reach it. - Q: What is a DST in a 1031 exchange? A: A Delaware statutory trust holding real property for investment. Revenue Ruling 2004-86 holds that an interest in a properly limited one is treated as an interest in the underlying real property, so it qualifies under section 1031.[2] - Q: Why can't the trustee refinance or re-lease the property? A: Because those powers would let the trust vary the investment, making it a business entity rather than a trust under 26 CFR 301.7701-4(c)(1). Revenue Ruling 2004-86 lists five such powers, any one of which breaks the exchange.[2][3] - Q: Can a Delaware statutory trust own a hotel? A: Hotel offerings are filed with the SEC.[5] A hotel does not pay fixed rent, so the operating business sits outside the trust under a master lease. Revenue Ruling 2004-86 does not address that structure.[2] - Q: Do I still get 45 and 180 days? A: Yes, unchanged.[1] Identify within 45 days under the 3-property rule or the 200-percent rule, and close within 180 days or by your return due date for that year, whichever comes first.[1][4] - Q: Do I have to be an accredited investor? A: For offerings sold under Rule 506(c), yes, and the issuer must verify it.[6] The thresholds are net worth above $1,000,000 excluding your home, or income above $200,000 individually or $300,000 jointly for two years.[7] - Q: Does Matthews Hotel Markets sell these interests? A: No. Matthews Hotel Markets sells hotels and represents hotel buyers. It is a real estate brokerage, not a broker-dealer, so it does not sell or recommend trust interests. Use a CPA and a securities-licensed adviser. - Q: Should I line this up before I sell? A: Yes. Verification of accredited status is documentary and takes time, and the 45-day identification clock starts when the hotel transfers.[1][6] Engage a qualified intermediary and a CPA before closing, not after. Sources: - [1] 26 U.S.C. 1031, Exchange of real property held for productive use or investment (subsections (a)(1), (a)(2) and (a)(3)) (Legal Information Institute, Cornell Law School, accessed 2026-09-28): https://www.law.cornell.edu/uscode/text/26/1031 - [2] Rev. Rul. 2004-86, Internal Revenue Bulletin 2004-33, August 16, 2004 (classification of a Delaware statutory trust and section 1031 treatment) (Internal Revenue Service, accessed 2026-09-28): https://www.irs.gov/irb/2004-33_IRB - [3] 26 CFR 301.7701-4, Trusts (paragraph (c), investment trusts) (Legal Information Institute, Cornell Law School, accessed 2026-09-28): https://www.law.cornell.edu/cfr/text/26/301.7701-4 - [4] 26 CFR 1.1031(k)-1, Treatment of deferred exchanges (paragraph (c), identification: the 3-property rule, the 200-percent rule and the 95-percent rule) (Legal Information Institute, Cornell Law School, accessed 2026-09-28): https://www.law.cornell.edu/cfr/text/26/1.1031(k)-1 - [5] Form D, Driftwood Hotel Income I, DST (CIK 0002142222), filed June 25, 2026: first sale April 15, 2026; total offering $23,975,543; sold $4,862,787; remaining $19,112,756; minimum investment $25,000; exemption claimed 06c (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-28): https://www.sec.gov/Archives/edgar/data/2142222/000214222226000001/primary_doc.xml - [6] 17 CFR 230.506, Exemption for limited offers and sales without regard to dollar amount of offering (paragraph (c), verification of accredited investor status) (Legal Information Institute, Cornell Law School, accessed 2026-09-28): https://www.law.cornell.edu/cfr/text/17/230.506 - [7] 17 CFR 230.501, Definitions (paragraph (a)(5) and (a)(6), accredited investor net worth and income tests) (Legal Information Institute, Cornell Law School, accessed 2026-09-28): https://www.law.cornell.edu/cfr/text/17/230.501 - [8] Delaware Statutory Trust Act, title 12, chapter 38 of the Delaware Code (State of Delaware, accessed 2026-09-28): https://delcode.delaware.gov/title12/c038/index.html - [9] Hotel loan rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-28): https://matthewshotelmarkets.com/rates ### How much does it cost to sell a hotel through a broker? URL: https://matthewshotelmarkets.com/sell-a-hotel/broker-fees Last updated: 2026-09-18 Hotel brokerage is usually paid as a success fee at closing, quoted as a percentage of the sale price. Broker pay is not set by law and is negotiable.[1] It is not the whole cost. Title, legal, transfer taxes and loan payoff costs add up. A brand transfer adds an application fee, $0 to $200,000 on Hampton deals in 2024, which the buyer pays.[2] Key takeaways: - The fee is a percentage of price, paid at closing. In our experience the percentage falls as deal size rises. - The seller pays it, and it covers the buy-side broker when there is one. - It is negotiable, because broker pay is not set by law.[1] So is what you get for it, which matters more. - Retainers are uncommon on marketed dispositions and more common on complex or confidential assignments. - Commission is only one line. Budget title, transfer tax, legal and any loan payoff cost separately. #### How is a hotel broker paid? A success fee at closing, calculated as a percentage of the sale price, with no fee owed if the deal does not close. That structure aligns the broker's incentive with the seller's: the broker is paid for a closed transaction at the price and terms achieved, not for hours logged. Some engagements also include reimbursable, out-of-pocket marketing costs (photography, a data room platform, travel for tours), agreed in writing up front and typically small relative to the commission. #### What percentage is typical, and how does it scale? There is no single published industry rate. Broker pay is not set by law, and any specific percentage should be stated in writing before engagement, not assumed.[1] Owners sometimes hear a number from a prior deal, a friend, or a general commercial real estate convention and assume it applies. Hotel brokerage fee schedules vary by brokerage, by deal complexity, and by price, and the National Association of REALTORS Code of Ethics requires members to tell sellers that broker compensation is not set by law and is fully negotiable.[1] The honest answer is to ask for the fee in writing before signing an engagement letter, and to ask what services sit behind it, covered in the last section below. #### Who pays it, buyer or seller? The seller pays the commission at closing, and that fee typically covers a cooperating buyer's broker when one is involved. This is standard practice in hotel investment sales: the listing broker's agreement with the seller sets the total fee, and when a buyer arrives with their own broker, the listing broker splits a cooperating commission out of that same fee rather than charging the seller twice. A buyer who is unrepresented does not reduce the seller's fee automatically; that is itself a negotiation point. #### Is it negotiable? Yes, and so is the scope of work behind it, which is the part owners negotiate too rarely. Negotiating the percentage down without asking what marketing, underwriting depth, and reporting cadence come with it can cost more than it saves. A broker who cuts the fee by discounting the story, fewer buyer conversations, a thinner CIM, less reporting, is not actually cheaper. The nine questions worth asking before signing, including this one, are at [How do I choose a hotel broker?](/sell-a-hotel/how-to-choose-a-hotel-broker) #### Do brokers charge retainers? Not commonly on a standard marketed sale; retainers show up more often on confidential, complex or distressed assignments where the broker's time commitment is heavier upfront. An owner asked for a retainer on a routine marketed disposition should ask why: it can be a legitimate reflection of unusual complexity, or it can be a sign the broker is not confident enough in the assignment to work purely on success. #### What else do I pay at closing? Title insurance and escrow, transfer taxes, seller's legal fees, prorations, and, on a CMBS loan, defeasance. The table above lays these out with who typically pays and how negotiable each one is. Transfer taxes vary by state and can stack a local rate on a state rate. Washington, for example, charges a graduated state rate by sale price and adds a local rate on top.[3] Check the specific jurisdiction rather than assuming a percentage. Defeasance, the usual way to retire a CMBS loan before maturity, costs whatever a bond portfolio big enough to cover the remaining loan payments costs, plus fees, and its terms can only be negotiated before the loan is made.[4] On a loan with years left to run it can be a large line, shown in the worked example below. For federal income tax purposes, selling expenses reduce the gain on the sale.[5] #### What should the fee actually buy me? Underwriting, a buyer list, negotiating power from a call-for-offers process, and a document package that survives due diligence. A fee is worth paying when it buys real underwriting work (the person doing it, by name, not a template), a buyer list specific to the asset's chain scale and price band, and a marketing and call-for-offers process that creates competitive tension. A cheap fee attached to none of that usually costs more in a lower sale price than it saves in commission. Table: Selling costs on a hotel, beyond the brokerage fee Cost | Who pays | Typical size | Negotiable? Brokerage fee | Seller | Percentage of price | Yes, not set by law[1] Title insurance and escrow | Varies by state and custom | Basis points on price | Somewhat Transfer tax or documentary stamps | Varies by state | State and local specific[3] | No Seller legal | Seller | Hourly, deal-size dependent | By scope Franchise transfer and application fees | Buyer applies and pays the brand[2] | Per the brand's FDD; Hampton reported $0 to $200,000 in 2024[2] | Sometimes Prorations and FF&E / inventory settlement | Split at closing | Deal specific | By contract Loan prepayment or defeasance | Seller | Set by bond prices at payoff, plus fees[4] | No First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate bands that drive price, and price drives where a fee lands.[6] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: total cost of sale on a $17.0 million hotel): Hypothetical, with each line labeled as an assumption rather than a market rate. Sale price: $17.00 million. Brokerage fee at an assumed 2.0 percent: $340,000. Title, escrow and survey, assumed at 0.3 percent: $51,000. Transfer tax, assumed at 0.2 percent, which varies enormously by state and should be checked locally: $34,000. Seller legal, assumed: $45,000. Defeasance on a CMBS loan, assumed: $260,000. Total costs: $730,000, or 4.3 percent of price. The brokerage fee is 47 percent of that total. Owners who negotiate the fee hard and ignore the defeasance number are optimizing the smaller line. FAQ: - Q: What is a typical hotel broker commission? A: There is no single published industry rate. Broker pay is not set by law, so the fee is a negotiated percentage of price.[1] Ask any broker to quote their fee in writing before you engage. - Q: Who pays the hotel broker fee? A: The seller, at closing, out of sale proceeds. That fee typically covers a cooperating buyer's broker when one represents the purchaser. - Q: Is a hotel broker fee negotiable? A: Yes. So is the scope behind it: what marketing, underwriting and reporting the fee actually buys. Negotiate both together, not the percentage alone. - Q: Do hotel brokers charge a retainer? A: Not commonly on a standard marketed sale, where the fee is success-based. Retainers appear more often on confidential, complex or distressed assignments. - Q: When is the broker fee paid? A: At closing, out of sale proceeds, as a success fee. No fee is owed if the transaction does not close. - Q: Does the fee cover the buyer's broker too? A: Typically yes, when a buyer's broker is involved. The listing broker's fee usually includes a cooperating commission split with the buy-side broker. - Q: What are total closing costs on a hotel sale? A: Commission plus title, escrow, transfer tax, seller legal, prorations and, on a CMBS loan, defeasance. Budget each line separately; the worked example above shows how they add up. Sources: - [1] 2026 Code of Ethics and Standards of Practice (Article 1; Standards of Practice 1-3 and 1-12) (National Association of REALTORS, accessed 2026-09-18): https://www.nar.realtor/sites/default/files/2025-12/2026-COE-Standards-of-Practice-2026-01-01.pdf - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] Real estate excise tax (Washington State Department of Revenue, accessed 2026-09-18): https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax - [4] Defeasance FAQs (Chatham Financial, accessed 2026-09-18): https://cf.com/insights/defeasance-frequently-asked-questions - [5] Publication 544, Sales and Other Dispositions of Assets (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p544 - [6] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### What documents do I need to sell my hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/documents-needed Last updated: 2026-09-25 Three tiers: the marketing package a buyer sees before an NDA, the CIM they see after, and the data room they get in due diligence. As of September 2026, in our experience, the four documents that decide the deal are the trailing twelve-month P&L, the STAR report, the franchise agreement with the PIP status letter, and three years of capital expenditure history. Key takeaways: - A hotel CIM carries operating detail a standard commercial OM does not: segmentation, index, departmental margins under USALI, brand position.[1] - The T-12 is a monthly profit and loss for the trailing twelve months. It must reconcile to bank statements. - The PIP status letter is the document buyers price uncertainty against. Get it in writing before marketing. - Employees are commonly terminated and rehired by the buyer's operator at closing. Plan the communication. - Missing documents do not delay a deal. They reduce the price. #### What goes in the package before an NDA? An anonymized teaser: key count, market, chain scale and price guidance, with nothing that identifies the property. This is the first thing a prospective buyer sees, before signing anything. It is deliberately thin, enough to let an unqualified buyer self-select out and a qualified one ask for the NDA. Nothing in a teaser should let a competitor, employee or guest identify the specific hotel. #### What is in a hotel CIM? Trailing and stabilized financials, a market and competitive-set analysis, segmentation and brand position, PIP status, capital expenditure history, and photos. A hotel CIM covers everything a commercial real estate offering memorandum covers, plus the operating-business layer that makes a hotel different from an apartment or office asset: revenue segmentation by source (transient, group, contract), a competitive-set index position, departmental profit margins under the Uniform System of Accounts for the Lodging Industry,[1] and a clear PIP status. The market context section draws on the Matthews Hotel Index for Q1 2026 without republishing any licensed STAR or CoStar tables.[2] #### What is a T-12 and why does it matter so much? A month-by-month profit and loss for the trailing twelve months, and it is the single document a buyer's accountant will try to break. Every number in a hotel CIM traces back to the T-12: NOI, margin, segmentation, all of it. A buyer's diligence team reconciles the T-12 line by line against bank deposits and vendor payments. In our experience, a T-12 that does not tie out, whether from a genuine bookkeeping error or an undisclosed add-back, is a leading reason a deal re-trades or dies, shown in the worked example below. #### What does the buyer ask for in due diligence? Everything behind the CIM: the franchise and management agreements, title and survey, a property condition assessment, environmental reports, tax bills, insurance loss runs, and the employee census. The data room row in the table above lists the full set. Two items deserve specific attention: a Phase I Environmental Site Assessment under the ASTM E1527-21 standard,[3] and current title and an ALTA/NSPS land title survey,[4] both of which take time to order and should start as soon as the PSA is signed, not after. #### What franchise documents do I need? The current franchise agreement, brand correspondence on standards compliance, and a written PIP status or scope letter. A buyer cannot simply assume the seller's franchise agreement. Under Hilton's 2025 Hampton agreement, for example, the buyer must meet the requirements for new franchisees, submit a change of ownership application, sign the current form of franchise agreement and agree to requested upgrades.[5] The seller's job is to make the brand relationship as legible as possible: no ambiguity about current compliance status, and a written answer on what PIP, if any, is coming due. #### What happens to my staff at closing? Employees are commonly terminated by the seller's operator and rehired by the buyer's operator, and employers with 100 or more employees may owe federal WARN Act notice.[6] This is standard in hotel transactions because the operating agreement, not just the real estate, changes hands. Sellers should plan the employee communication timeline with counsel. Where WARN applies, notice generally must be served 60 days before a plant closing or mass layoff, and in a sale the seller is responsible for notice of any layoff up to and including the closing, the buyer after it.[7] The thresholds, the state laws that sit below the federal ones, and what the purchase agreement should say about it are at [What happens to my employees when I sell my hotel?](/sell-a-hotel/employees-when-you-sell). #### What should I start gathering today? Twelve months of bank statements to reconcile against the P&L, the current STAR report, and a written PIP scope letter, regardless of when you plan to list. None of these require a broker engagement to begin, and starting early is one of the biggest things an owner can do to shorten the process, covered at [How long does it take to sell a hotel?](/sell-a-hotel/how-long-it-takes). If the hotel sits in a city that requires energy benchmarking, add the Portfolio Manager account and the last three filings to the pile: [Does my hotel have to report energy use or cut its carbon emissions?](/hotel-industry/energy-benchmarking-and-emissions-limits) Table: Hotel sale document package, by tier Tier | Documents | When it is shared | Who prepares it Teaser | Anonymized summary, keys, market, price guidance | Pre-NDA | Broker CIM | T-12 and T-36 P&L, STAR summary, segmentation, brand position, PIP status, capex history, photos, market analysis | Post-NDA | Broker and owner Data room | Franchise agreement, management agreement, ground lease, title, survey, PCA, environmental, tax bills, insurance loss runs, service contracts, employee census, permits, licenses, liquor license | Under contract | Owner and counsel Closing | Payoff letter, estoppels, transfer applications, FF&E inventory, prorations | Final 2 weeks, weeks 22 to 24 in our playbook[8] | Attorneys and broker First-party data point: The Matthews Hotel Index for Q1 2026 supplies the market context section of the CIM without republishing any licensed data.[2] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what a T-12 that does not reconcile costs): Hypothetical. A hotel goes under contract at $17.0 million on reported NOI of $1.42 million, an 8.35 percent cap. In due diligence the buyer's accountant finds $94,000 of owner-paid expenses that were booked below the NOI line. Corrected NOI: $1.42 million minus $94,000 is $1.326 million. At the same 8.35 percent cap, that recalculates to $15.88 million. The re-trade is $1.12 million, or 6.6 percent of price. And the re-trade is the good outcome. The other outcome is that the buyer stops trusting every other number in the package and walks in week 18, after the property has been off the market for four months. Reconcile the T-12 to bank statements before you list. FAQ: - Q: What is a T-12 in a hotel deal? A: A month-by-month profit and loss statement for the trailing twelve months. Buyers reconcile it against bank statements, and in our experience discrepancies are a leading reason deals re-trade or fail. - Q: What documents do I need to sell my hotel? A: A teaser, a CIM with trailing financials and market data, and a due diligence data room with the franchise agreement, title, survey, PCA and employee census. See the tier breakdown above. - Q: What is in a hotel CIM? A: Trailing and stabilized financials, competitive-set positioning, segmentation, brand and PIP status, capital expenditure history, and photos, all under NDA. - Q: How is a hotel CIM different from a normal commercial OM? A: It carries operating-business detail an apartment or office OM does not: revenue segmentation, competitive index, departmental margins, franchise standing and PIP status. - Q: What does a buyer ask for in hotel due diligence? A: The franchise and management agreements, title and survey, a property condition assessment, environmental reports, tax bills, insurance loss runs, service contracts and the employee census. - Q: What happens to my employees when the hotel sells? A: They are commonly terminated by the seller's operator and rehired by the buyer's operator at closing. Employers with 100 or more employees can owe 60 days' WARN Act notice.[6][7] Use employment counsel. - Q: Can my franchise agreement transfer to the buyer? A: Not automatically. The buyer applies to the franchisor as a new franchisee, subject to approval and typically a PIP, rather than assuming the seller's existing agreement.[5] - Q: Do I need a PIP letter before I list? A: Not legally, but it removes the single biggest source of re-trade risk. Request the brand's current PIP status in writing before marketing starts. Sources: - [1] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (adopted January 1, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [2] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [3] E1527-21 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (ASTM International, accessed 2026-09-18): https://store.astm.org/e1527-21.html - [4] ALTA/NSPS Land Title Survey Standards (2026 standards, effective February 23, 2026) (American Land Title Association, accessed 2026-09-18): https://www.alta.org/topics/topic-land-survey-standards - [5] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [6] 20 CFR 639.3, WARN Act definitions (employer) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.3 - [7] 20 CFR 639.4, who must give notice (including in a sale of a business) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.4 - [8] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process ### What happens to my employees when I sell my hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/employees-when-you-sell Last updated: 2026-10-07 At closing the seller's operator usually terminates the staff and the buyer's operator rehires them the same day. Federal WARN reaches employers with 100 or more employees, and the average US hotel employed about 25 people in 2025, so most single-asset sales sit outside it.[1][2] California's threshold is 75.[3] Key takeaways: - Federal WARN covers employers with 100 or more employees, excluding part-time.[1] The average US hotel employed 25.1 people in 2025.[2] - On a sale, the seller owns the notice duty up to and including the closing date and the buyer owns it after.[4][5] Staff employed by the seller at closing are treated as the buyer's employees immediately after.[1] - State thresholds are lower and notice periods longer. California covers establishments of 75 or more and New York requires 90 days.[3][6][7] - A California hotel with 50 or more guest rooms can carry recall obligations that survive a change of ownership, until the statute goes inoperative on January 1, 2027.[8] - Nobody at a brokerage should answer this for you. Get employment counsel on the file before the purchase agreement is signed. #### What actually happens to the staff at closing? In the standard structure the seller's operator terminates the employees effective at closing and the buyer's operator hires them back the same day, usually at the same wage. A hotel sale transfers a business, not just a building. Almost every hotel purchase agreement excludes the employees from the assets conveyed, so the seller's employing entity, often a third-party management company rather than the owner, ends the employment relationship at the closing hour. The buyer's operator extends offers, usually to nearly everyone, and the staff works the next shift for a new employer. For a line-level employee that means a new W-2, new benefit enrollment and often a reset of internal seniority. For the seller it means a final payroll, a final accrual settlement, and making sure the terminations do not count as an employment loss the law required notice for. The money and the notice are what the purchase agreement allocates. #### Does selling my hotel trigger WARN notice? Usually not, because federal WARN only reaches employers with 100 or more employees and the statute treats a sale's employees as continuing with the buyer.[1] Two tests have to be met before the federal Worker Adjustment and Retraining Notification Act applies. The employer test: a business enterprise that employs 100 or more employees excluding part-time, or 100 or more who in the aggregate work at least 4,000 hours a week excluding overtime.[1] A part-time employee is one averaging fewer than 20 hours a week, or employed fewer than 6 of the preceding 12 months.[1] The event test: a plant closing is 50 or more employment losses at a single site in any 30-day period, and a mass layoff is 50 or more losses that are also at least 33 percent of the workforce, or 500 or more outright.[1] Most single-asset hotel sales fail the first test. Bureau of Labor Statistics quarterly census data for hotels and motels except casino hotels puts 1,548,238 average employment across 61,618 establishments in 2025, or 25.1 employees per hotel.[2] A full-service or resort property can clear 100; a 90-key select-service hotel almost never does. Even where the employer test is met, the sale itself is not automatically an employment loss. Any person who is an employee of the seller, other than a part-time employee, as of the effective date of the sale is considered an employee of the purchaser immediately after that date.[1] Same-day terminate-and-rehire therefore does not create the 50 losses on its own. What creates them is the buyer declining to take a large part of the staff, after closing, on the buyer's notice duty. #### Who gives the notice, the buyer or the seller? The seller is responsible for notice of any closing or mass layoff up to and including the effective date of the sale, and the buyer for any that happens after.[4][5] Congress drew the line at the closing hour and the Department of Labor's regulation repeats it: the seller gives notice for a plant closing or mass layoff up to and including the effective date of the sale, the buyer for one that takes place thereafter, and affected employees are always entitled to notice.[5] The regulation adds a point that belongs in every letter of intent. If the seller is made aware of definite plans by the buyer to carry out a closing or mass layoff within 60 days of purchase, the seller may give notice as agent of the buyer where it is empowered to do so, and if the seller does not, the buyer is still responsible.[5] The regulation then says it may be prudent for buyer and seller to work out the impact on workers between them in advance.[5] That is the drafting instruction. If the buyer intends to cut headcount in the first two months, decide before signing who serves the notice and when, because the 60-day federal clock runs backward from the layoff date, not from closing.[4] #### Which state laws are stricter than federal WARN? Several. California covers establishments of 75 or more persons and New York requires 90 days' notice from employers with 50 or more full-time employees.[3][7] California's Cal/WARN Act defines a covered establishment as any industrial or commercial facility, or part of one, that employs or has employed within the preceding 12 months 75 or more persons.[3] There is no part-time carve-out in that count, and an employee is anyone employed at least 6 of the preceding 12 months.[3] A mass layoff is 50 or more employees at a covered establishment in any 30-day period, and a termination is the cessation or substantial cessation of operations.[3] Notice runs 60 days and goes to the affected employees, the Employment Development Department, the local workforce development board and the chief elected official of each city and county involved, with required content including rapid-response and CalFresh information.[6] New York is longer on timing. Its WARN Act applies to private businesses with 50 or more full-time employees in the state and covers closings affecting 25 or more, mass layoffs of 25 or more full-time employees that are at least 33 percent of the site, and mass layoffs of 250 or more. Notice is 90 days.[7] Other states have their own versions with their own numbers. Check the law where the hotel sits. We are hotel brokers, not employment lawyers, and nothing here is legal advice. #### Does California's hotel recall law follow the sale? Yes. Section 2810.8 applies to hotels of 50 or more guest rooms and reaches a buyer that acquires substantially all the assets and runs the same operations, until the section goes inoperative on January 1, 2027.[8] Section 2810.8 gives recall rights to a laid-off employee, defined as someone employed 6 months or more whose most recent separation happened on or after March 4, 2020 for a reason related to the COVID-19 pandemic, including lack of business or a reduction in force.[8] A separation for an economic, nondisciplinary reason is presumed pandemic-related unless the employer proves otherwise.[8] A hotel means a lodging building with 50 or more guest rooms or suites.[8] When a position opens, the employer has five business days to offer it in writing to qualified laid-off employees in order of length of service, and each has five business days to respond.[8] Layoff records must be kept three years.[8] The part that matters on a sale is subdivision (b)(6): the section also applies where ownership of the employer changed after the separation but the enterprise conducts the same or similar operations, and where substantially all of the assets were acquired by another entity running the same or similar operations.[8] A buyer can inherit a recall list. Remedies run to reinstatement, front pay or back pay for each day the violation continues, benefit value, a $100 civil penalty per employee and $500 per employee per day in liquidated damages.[8] The section is operative only until January 1, 2027, though a violation occurring on or before December 31, 2026 stays enforceable.[8] Any California hotel closing in 2026 should ask for the recall records in diligence. The wage a buyer must pay those employees is a separate local question, covered at [What is the hotel worker minimum wage, and what does it do to my hotel's value?](/hotel-industry/hotel-worker-minimum-wage). #### What does the buyer inherit if the hotel is union? Not the contract, but usually the duty to bargain, if a majority of the buyer's workforce came from the seller's. The Supreme Court held in Fall River Dyeing & Finishing Corp. v. NLRB that a successor employer is not bound by the substantive provisions of its predecessor's collective bargaining agreement, but must bargain with the union so long as it is in fact a successor and a majority of its employees worked for the predecessor.[9] Successorship turns on the totality of the circumstances, with the emphasis on substantial continuity between the enterprises, judged largely from the retained employees' view of whether their job situations are essentially unaltered.[9] The counting moment is when the successor has a substantial and representative complement of employees.[9] A hotel that reopens the next morning with the same rooms, the same guests and most of the same staff is close to the paradigm case. A buyer changing the operator, the brand and most of the staff is not, and that is a question for labor counsel before the offer. #### What does it cost to get the notice wrong? Back pay and benefits for each day of violation, capped at 60 days, plus a civil penalty of up to $500 a day, enforced only in court.[10][11] Under the federal statute an employer that orders a covered closing or layoff without notice owes each aggrieved employee back pay for each day of violation, at the higher of the average regular rate over the last three years or the final regular rate, plus benefits including medical expenses a plan would have covered.[10] Liability is capped at 60 days, and never more than half the days the employee worked there.[10] Wages actually paid in the period, voluntary unconditional payments and third-party benefit payments reduce it.[10] A separate civil penalty of up to $500 a day runs to the unit of local government, and does not apply if the employer pays every aggrieved employee in full within three weeks of ordering the layoff.[10] California's remedy is built the same way, with the same 60-day cap and the same $500 daily penalty and three-week cure.[12][13] One detail sellers get wrong: the Department of Labor does not enforce this. Its own guidance says the federal court solely enforces the Act and that DOL's answers are not binding on courts.[11] There is no agency to call for a ruling and no safe harbor letter to obtain. The exposure is decided by a judge, years later, on facts the parties created at closing. #### What should the purchase agreement say about employees? Who terminates and when, who offers and on what terms, who pays accrued time off, who serves any notice, and an indemnity that follows those lines. Five points do the work. The termination mechanic: the seller's employing entity terminates effective at the closing hour, with a stated employee list. The buyer's offer covenant: whether the buyer must offer employment to a set share of the staff, at what wage, and for how long it holds headcount. That clause decides whether a post-closing layoff becomes the buyer's notice problem. Accrued paid time off: the seller pays it out at closing, or the buyer assumes it and takes a credit against the price. Notice allocation: who serves any federal or state notice, and by what date. And an indemnity on each side of the closing line. Payroll tax is the easy part. Where an acquisition meets the requirements, wages paid by the predecessor count toward the social security wage base, $184,500 for 2026, and the $200,000 Additional Medicare Tax threshold.[14] A buyer that skips it restarts every employee's wage base and overpays employer social security tax on the rehired staff. Ask the seller's payroll provider for the detail before closing, not in February. Table: Layoff notice thresholds that can apply to a hotel sale, September 2026 Rule | Employer or site size | Event that triggers notice | Notice period | Who enforces Federal WARN | 100 or more employees excluding part-time, or 100 or more working 4,000 or more hours a week[1] | 50 or more employment losses at one site in 30 days; or 50 or more that are 33 percent of the site; or 500 or more[1] | 60 days[4] | Federal district court only; DOL has no enforcement role[11] California Cal/WARN | Establishment employing, or having employed in the preceding 12 months, 75 or more persons[3] | Mass layoff of 50 or more in 30 days, a termination of operations, or a relocation 100 miles or more away[3] | 60 days[6] | Back pay plus up to $500 a day civil penalty[12][13] New York WARN | 50 or more full-time employees in New York State[7] | Closing affecting 25 or more; mass layoff of 25 or more that is 33 percent of the site; or 250 or more[7] | 90 days[7] | New York State Department of Labor[7] First-party data point: The Matthews Hotel Index for Q1 2026 publishes observed transaction counts by market, which is the count of hotels whose staff changed employers in the quarter.[15] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 120-key California hotel with 114 people on the payroll): Hypothetical, and illustrative rather than a quote for any real hotel. A 120-key full-service hotel in California employs 96 full-time people averaging 38 hours a week and 18 part-time people averaging 15 hours. The buyer's operator will rehire almost everyone. Federal test one, headcount: 96 employees excluding part-time, below the 100 threshold.[1] Federal test two, aggregate hours: 96 times 38 is 3,648, plus 18 times 15, which is 270, for 3,918 hours a week. That is 82 hours short of the 4,000-hour alternative.[1] Not a federal WARN employer, by a margin one new full-time hire would erase. California is a different answer. Cal/WARN counts persons employed at the establishment in the preceding 12 months with no part-time carve-out, so the count is 114, above the 75-person threshold.[3] If the closing is structured as a termination of all 114, that clears the 50-employee mass layoff trigger too, and 60 days' notice is owed.[3][6] What missing that notice would cost, using the national average hotel wage as a stand-in for this hotel's actual payroll: Bureau of Labor Statistics quarterly census data puts the 2025 average weekly wage at hotels and motels except casino hotels at $857.[2] Sixty calendar days is 60 divided by 7, or 8.571 weeks. 8.571 times $857 is $7,345.71 per employee. Across 114 employees that is $837,411, before the value of benefits, and before a civil penalty of $500 a day for 60 days, which is $30,000.[12][13] The statute caps liability at 60 days or half the days the employee worked there, whichever is smaller, and reduces it by wages actually paid in the period, so a real number lands lower.[12] It is still large next to the cost of one question to employment counsel in week one. FAQ: - Q: Does the buyer have to keep my hotel employees? A: Not as a matter of federal law. The buyer decides who to offer jobs to, subject to any covenant in the purchase agreement and to state laws such as California's hotel recall statute, which can follow a change of ownership.[8] - Q: Do I have to give my hotel staff 60 days' notice before selling? A: Only if federal or state WARN applies. Federal WARN reaches employers with 100 or more employees excluding part-time, and the average US hotel employed 25.1 people in 2025.[1][2] California's threshold is 75 persons.[3] - Q: Who is responsible for WARN notice, me or the buyer? A: The seller is responsible for any closing or mass layoff up to and including the effective date of the sale, the buyer for any afterward.[4][5] If the buyer plans cuts inside 60 days, settle who notices before signing. - Q: When should I tell my hotel employees the hotel is selling? A: That is a timing decision for you and employment counsel. Where notice is legally required the deadline is fixed: 60 days before the event under federal and California law, 90 days in New York.[4][6][7] - Q: What happens to accrued vacation when a hotel changes hands? A: It is a negotiated line in the purchase agreement. Either the seller pays it out at closing or the buyer assumes the liability and takes a credit against the price. State wage law can force the payout, so confirm it locally. - Q: Does a union contract transfer to the hotel buyer? A: The substantive contract terms do not bind a successor, but the duty to bargain with the union usually does where a majority of the buyer's employees came from the seller and there is substantial continuity in the business.[9] - Q: Does the buyer restart payroll taxes on rehired hotel staff? A: Not if the acquisition qualifies. Wages the predecessor paid can count toward the social security wage base, $184,500 for 2026, and the $200,000 Additional Medicare Tax threshold.[14] Get the predecessor wage detail before closing. - Q: Can my broker answer the WARN question for me? A: No. Matthews Hotel Markets sells hotels and arranges hotel financing; we do not practice employment law. Put employment counsel on the file before the purchase agreement is signed, because the answer sets the closing date. Sources: - [1] 29 U.S.C. 2101, Definitions; exclusions from definition of loss of employment (Cornell Law School, Legal Information Institute, accessed 2026-09-25): https://www.law.cornell.edu/uscode/text/29/2101 - [2] Quarterly Census of Employment and Wages, 2025 annual averages, NAICS 72111 hotels and motels except casino hotels, private ownership, United States (U.S. Bureau of Labor Statistics, accessed 2026-09-25): https://data.bls.gov/cew/data/api/2025/a/industry/72111.csv - [3] California Labor Code section 1400.5, Cal/WARN Act definitions (California Legislative Information, accessed 2026-09-25): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=1400.5 - [4] 29 U.S.C. 2102, Notice required before plant closings and mass layoffs (Cornell Law School, Legal Information Institute, accessed 2026-09-25): https://www.law.cornell.edu/uscode/text/29/2102 - [5] 20 CFR 639.4(c), Who must give notice, sale of part or all of a business (Electronic Code of Federal Regulations, U.S. Department of Labor, accessed 2026-09-25): https://www.ecfr.gov/current/title-20/chapter-V/part-639/section-639.4 - [6] California Labor Code section 1401, required notice and its contents (California Legislative Information, accessed 2026-09-25): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=1401 - [7] Worker Adjustment and Retraining Notification (WARN), how WARN works (New York State Department of Labor, accessed 2026-09-25): https://dol.ny.gov/worker-adjustment-and-retraining-notification-warn - [8] California Labor Code section 2810.8, rehiring and retention of displaced hotel and hospitality workers (amended by Stats. 2025, Ch. 280) (California Legislative Information, accessed 2026-09-25): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=2810.8 - [9] Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27 (1987) (Cornell Law School, Legal Information Institute, accessed 2026-09-25): https://www.law.cornell.edu/supremecourt/text/482/27 - [10] 29 U.S.C. 2104, Administration and enforcement of requirements (Cornell Law School, Legal Information Institute, accessed 2026-09-25): https://www.law.cornell.edu/uscode/text/29/2104 - [11] Worker Adjustment and Retraining Notification Act (WARN), program page (U.S. Department of Labor, Employment and Training Administration, accessed 2026-09-25): https://www.dol.gov/agencies/eta/layoffs/warn - [12] California Labor Code section 1402, employer liability for failure to give notice (California Legislative Information, accessed 2026-09-25): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=1402 - [13] California Labor Code section 1403, civil penalty (California Legislative Information, accessed 2026-09-25): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=1403 - [14] Publication 15 (2026), Circular E, Employer's Tax Guide, successor employer and the 2026 social security wage base (Internal Revenue Service, accessed 2026-09-25): https://www.irs.gov/publications/p15 - [15] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-25): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Should I sell my hotel or hold it for the step-up in basis? URL: https://matthewshotelmarkets.com/sell-a-hotel/estate-tax-and-basis-step-up Last updated: 2026-10-27 Hold and your heirs take the hotel at its fair market value on the date of death, under section 1014, so the deferred gain and all the depreciation you took disappear.[1] Sell and you pay that tax now. For 2026 the estate tax exclusion is $15,000,000 per person at a 40 percent top rate, so a single-hotel estate under that figure owes no estate tax at all.[3][4][5] Key takeaways: - The step-up is worth the entire income tax you would have paid on a sale. In the example below, $2,874,358.98 on an $18,000,000 hotel bought for $11,000,000 in 2001.[1][6] - The 2026 basic exclusion amount is $15,000,000, set by section 70106 of the July 4, 2025 reconciliation act, and it is not indexed until 2027.[3][4] - Above the exclusion the rate is a flat 40 percent at the margin, so the estate tax question is a question about the size of the whole estate, not about the hotel.[5] - If the hotel is more than 35 percent of the adjusted gross estate, section 6166 can stretch the tax over 14 years, with 2 percent interest on the first $776,000 of it in 2026.[9][11] - That deferral dies if the heirs sell. A disposition of 50 percent or more of the business interest makes the whole unpaid balance due on demand.[9] #### What happens to the tax on my hotel if I hold it until I die? Your heirs take the hotel at its fair market value on the date of death, and the gain you had built up is never taxed as income to anyone.[1] Section 1014(a)(1) sets the basis of property acquired from a decedent at the fair market value of the property at the date of death. IRS Publication 551 says the same thing in plain English, and lists the three alternatives: the date-of-death value, the value on the alternate valuation date if the executor elects it, and the special-use value under section 2032A.[1][2] Two things vanish at once. The appreciation goes, which is the part everyone expects. The depreciation goes too. Every dollar of the 39-year straight-line deduction you have taken against the building since you bought the hotel would have come back as unrecaptured section 1250 gain at a maximum 25 percent rate on a sale.[6][8] On a death it does not come back at all. A third effect keeps paying after the estate closes: the heir's depreciation runs on the new basis, so a building written down to a stub restarts at its stepped-up value over a fresh 39 years.[2][8] One trap. Section 1014(e) turns the rule off for appreciated property you or your spouse gave the decedent within one year before death, which is the obvious gambit and the statute closes it.[1] #### How much estate tax would my hotel actually trigger? For a 2026 death, none on the first $15,000,000 of taxable estate, then 40 percent at the margin.[3][4][5] Section 2010(c)(3)(A) sets the basic exclusion amount at $15,000,000. Section 70106 of Public Law 119-21, signed July 4, 2025, put that figure in place for estates of decedents dying and gifts made after December 31, 2025, and the inflation adjustment does not start until calendar year 2027.[3] Rev. Proc. 2025-32 confirms the $15,000,000 for 2026 and sets the generation-skipping transfer exemption at the same amount.[4] The rate schedule in section 2001(c) is graduated only up to $1,000,000 of taxable transfers, where it reaches $345,800 plus 40 percent of the excess.[5] Because the exclusion is many times that, the arithmetic above the exclusion is a flat 40 percent. An estate $1,000,000 over the line owes $400,000. For a married couple the number doubles, but only if the first estate files. Section 2010(c)(4) gives the survivor the deceased spousal unused exclusion, and section 2010(c)(5)(A) makes it available only if the executor of the first estate files a return and elects it.[3] A widowed hotel owner who skipped that filing because no tax was due may have thrown away $15,000,000 of exclusion. The estate tax is not a hotel question. It is a question about every asset the owner holds, and because the mortgage is deductible under section 2053, an $18,000,000 hotel carrying $6,000,000 of debt contributes $12,000,000 of net value. #### Is the step-up worth more than the capital gains tax I would pay today? Yes on the tax itself, because the step-up erases it rather than deferring it, and no exchange or installment structure does that.[1][6] A sale today is taxed in layers. Gain equal to the depreciation taken on the building is unrecaptured section 1250 gain at a maximum 25 percent. The rest of the long-term gain is taxed at up to 20 percent. A 3.8 percent net investment income tax can sit on top, and whether it reaches a hotel owner turns on whether that owner materially participates, which is a question of fact for a CPA.[6][7] The layer-by-layer mechanics are at [How is the sale of a hotel taxed?](/sell-a-hotel/taxes-when-selling-a-hotel). A 1031 exchange defers that tax into the replacement property and carries the old basis forward. Death ends the chain: the deferred gain in the replacement hotel gets the same step-up, which is why an owner who has exchanged more than once has the most to lose by selling for cash. The mechanics are at [Can I do a 1031 exchange on a hotel?](/hotel-financing/1031-exchange-hotels), and the alternatives at [Can I do a 1031 exchange without buying another hotel?](/sell-a-hotel/1031-without-buying-another-hotel). What the comparison cannot tell you is when. An owner who holds a declining asset for another decade to save a tax bill can lose more in value than the tax was worth. That is a valuation judgement, not a tax one. #### Does a hotel count as a closely held business for the 14-year deferral? It depends on who runs it, and Rev. Rul. 2006-34 says that handing everything to an unrelated management company weighs against it.[13] Section 6166 lets an executor pay estate tax in up to 10 equal installments when an interest in a closely held business exceeds 35 percent of the adjusted gross estate, and the first installment can be deferred up to 5 years past the normal due date.[9] That is 14 years in total against the 9 months section 6075(a) otherwise allows.[10] The catch is section 6166(b)(9): the value of the interest excludes any part attributable to passive assets, and a passive asset is anything other than an asset used in carrying on a trade or business.[9] Rev. Rul. 2006-34 applies that to real property with a six-factor test covering time devoted, whether an office was maintained, involvement in leasing, services beyond furnishing the premises, who supervised repairs and who handled complaints. It says plainly that if the owner "uses an unrelated property management company to perform most of the activities associated with the real estate interests, that fact suggests that an active trade or business does not exist", and it held that way on an office park. Where the owner held 20 percent of the management company, the same facts came out the other way.[13] A hotel sits far better under that test than a net-leased building, because it sells a service nightly rather than merely furnishing premises, which is the fourth of the ruling's six factors. But two otherwise identical hotels can get different answers on a 14-year deferral depending on who signs the management agreement and who owns the manager. How those structures differ is at [Who actually owns, brands and runs a hotel?](/hotel-industry/owner-franchisor-management-company). #### What does the deferral cost, and what kills it? Two percent on the first $776,000 of deferred tax in 2026, then 3.15 percent on the rest, and a sale of half the hotel ends it immediately.[9][11][12] Section 6601(j) charges 2 percent on the "2-percent portion" and 45 percent of the ordinary underpayment rate above it. The 2-percent portion is the tax on $1,940,000 plus the exclusion, less the credit, which for 2026 is exactly 40 percent of $1,940,000, or $776,000.[4][11] The underpayment rate for the quarter beginning October 1, 2026 is 7 percent, so the second leg is 3.15 percent.[12] Both sit below the 7.00 percent Prime rate on our October 2026 rate sheet, which makes the federal government the cheapest lender available to a hotel estate.[17] Two conditions. The election has to be made on the return, no later than the extended due date under section 6075(a), so it is closed to an executor who files late and asks afterwards.[9][10] And section 6166(g)(1)(A) accelerates the whole unpaid balance, on notice and demand, once distributions, sales and withdrawals reach 50 percent of the value of the business interest. Transfers to the people who inherit under the will are carved out, so passing the hotel to the children is fine. Selling it is not.[9] That is the decision the deferral forces. An estate that elects section 6166 has committed the family to keeping the hotel for up to 14 years, paying the installments out of hotel cash flow. If the heirs do not want to run a hotel, selling into the step-up is the cleaner answer. #### What about special-use valuation and the alternate valuation date? A hotel can qualify for section 2032A, but the election takes at most $1,460,000 off the estate value in 2026 and locks the heir in for 10 years.[4][14] Section 2032A(b)(2)(B) defines qualified use to include use in a trade or business other than farming, so a hotel is not excluded on its face. Three things limit it. The method: the farm formula in section 2032A(e)(7) does not apply, so a hotel falls to the multi-factor method in section 2032A(e)(8), which capitalizes the income the property can be expected to yield in that business, close to how the asset is already valued.[14] The cap: section 2032A(a)(2), as indexed for 2026, limits the aggregate decrease to $1,460,000, or 9.73 percent of the exclusion.[4][14] The clawback: section 2032A(c)(1) adds estate tax if the heir disposes of the property within 10 years. And electing it sets the heir's basis at the special-use value rather than fair market value under section 1014(a)(3), so a lower estate value buys a lower basis.[1][14] The alternate valuation date is simpler and sometimes free money. Section 2032 lets the executor value everything as of six months after death, and section 2032(c) allows the election only when it decreases both the gross estate and the tax.[15] For a hotel in a falling market that is worth running. It moves the step-up down by the same amount, which is the trade. #### Should I gift the hotel to my children during my lifetime instead? A gift gives up the step-up entirely: section 1015 carries your basis to the donee, so the built-in gain survives.[16] Section 1015(a) sets the donee's basis at the donor's basis. Gift the hotel at $18,000,000 with a $5,102,564.10 basis and your children own an $18,000,000 asset with a $5,102,564.10 basis, and the whole built-in gain is still waiting. The annual exclusion does not change that: Rev. Proc. 2025-32 puts the 2026 figure at $19,000 per recipient, a rounding error against a hotel.[4][16] Gifting can still win where 40 percent estate tax on future appreciation is the binding problem rather than capital gains, because a gift freezes the value at today's number. That is a trade between two different taxes and it needs a lawyer, not a broker. One case where geography does the work for free. In the nine community property states, Publication 551 says that when either spouse dies the total value of the community property, including the surviving spouse's half, generally becomes the basis of the whole property.[2] A hotel held as community property in California, Texas, Washington, Arizona, Nevada, Idaho, Louisiana, New Mexico or Wisconsin can get a full step-up on the first death rather than a half step-up, which is a material difference on an asset this size and nothing the owner has to do. #### What does my estate need in hand before any of this works? A defensible value as of the date of death, a return inside nine months, and a basis figure that matches what the return reported.[1][10] Every number above runs off one input: what the hotel was worth on the day the owner died. Section 1014(f) caps the heir's basis at the value finally determined for estate tax purposes, and Publication 551 explains the Schedule A to Form 8971 the executor sends the beneficiaries to report it.[1][2] An estate that lowballs the hotel to cut estate tax has also lowballed the basis its heirs will sell against. Under the $15,000,000 exclusion, where no estate tax is due either way, a full documented value is worth money to the family. The return is due nine months after death under section 6075(a), which is also the deadline for the section 6166 election and the portability election.[3][9][10] That is less time than it sounds like for an estate deciding whether to keep running a hotel. What the file needs is a hotel appraisal from a qualified appraiser. Matthews Hotel Markets sells hotels and arranges hotel debt, and does not appraise hotels, give tax advice or write estate plans: the free broker opinion of value we do provide is a market read for the hold-or-sell decision, not a Form 706 valuation. Get the appraisal from an appraiser and the plan from counsel, and use the value opinion for the one question that is ours, which is what the hotel would bring if the family sold it. Table: What happens to the tax under each route, 2026 federal rules Route | Basis to the next owner | Income tax on the built-in gain | Estate tax exposure | Deferral available Sell now | Buyer's basis is the price paid | Paid in the year of sale: up to 25% on depreciation, up to 20% on the rest[6] | Only on the after-tax cash left in the estate | Installment sale spreads gain, not recapture Hold until death | Fair market value at the date of death, section 1014(a)(1)[1] | None. The gain and the depreciation are both erased[1] | Full date-of-death value, less the mortgage under section 2053 | Section 6166: up to 14 years if the hotel is over 35% of the adjusted gross estate[9] Gift during life | Carryover: the donor's adjusted basis, section 1015(a)[16] | Survives in the donee's hands, payable when the donee sells[16] | Value frozen at the gift date; $19,000 annual exclusion per recipient in 2026[4] | None for the donee's income tax Hold, with a section 2032A election | The special-use value, not fair market value, section 1014(a)(3)[1] | Larger than under a full step-up, because the basis is lower[1][14] | Reduced by at most $1,460,000 in 2026[4][14] | Additional estate tax if the heir disposes within 10 years[14] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts Prime at 7.00% as of September 30, 2026, which is the number to hold the section 6166 deferral against: 2 percent on the first $776,000 of deferred estate tax and 3.15 percent above it both sit below the Prime rate on the same sheet.[17] Source: https://matthewshotelmarkets.com/rates Worked example (Worked example (hypothetical): 112-key select-service hotel, $18,000,000, owner dies in 2026): Hypothetical, not a transaction, and every input is an assumption rather than a market figure. A single owner, unmarried, no charitable bequest. A 112-key select-service hotel is worth $18,000,000 on the date of death, or $160,714 a key. Bought in January 2001 for $11,000,000, allocated $1,800,000 to land and $9,200,000 to the building, depreciated straight-line over the 39-year period Publication 946 sets for nonresidential real property.[8] A $6,000,000 mortgage is outstanding, other assets are $2,000,000, administration is $400,000, and FF&E is left out. Basis. $9,200,000 over 39 years is $235,897.44 a year, so 25 full years from 2001 through 2025 is $5,897,435.90 of depreciation. Adjusted basis is $5,102,564.10. Route A, sell in 2026. Gain is $12,897,435.90. The $5,897,435.90 of depreciation is unrecaptured section 1250 gain at 25 percent, or $1,474,358.98; the remaining $7,000,000 is capital gain at 20 percent, or $1,400,000. Federal income tax is $2,874,358.98, assuming the owner materially participates so no net investment income tax applies.[6][7] After the loan and the tax, $9,125,641.02 of cash is left; add the $2,000,000 and deduct the $400,000 and the taxable estate is $10,725,641.02, under the exclusion, so no estate tax.[3] Route B, hold. The gross estate is $20,000,000, less the $6,000,000 mortgage and $400,000 of administration, for a $13,600,000 taxable estate, also under the exclusion.[3][5] The heirs take the hotel at $18,000,000 under section 1014(a)(1) and sell at that price, so the gain is zero.[1] The family nets $13,600,000 against $10,725,641.02, a difference of $2,874,358.98, the income tax, to the dollar. If they keep it instead, a hypothetical allocation of $13,500,000 to the building gives $346,153.85 a year of depreciation against the $235,897.44 the owner was deducting.[8] Now make the estate big enough for estate tax. Three hotels worth $30,000,000 and $12,000,000 of other assets give a $42,000,000 gross estate; $8,000,000 of mortgages and administration is deductible under section 2053, leaving a $34,000,000 adjusted gross estate and the same taxable estate.[9] Estate tax is $345,800 plus 40 percent of $33,000,000, less the $5,945,800 credit, or $7,600,000, the same as a flat 40 percent of the $19,000,000 above the exclusion.[3][5] Section 6166. The hotels are 88.24 percent of the adjusted gross estate, past the 35 percent test, so $7,600,000 times 30 over 34, or $6,705,882.35, can go on installments, leaving $894,117.65 due with the return and ten installments of $670,588.24 from year five to year fourteen.[9] First-year interest, before any principal: 2 percent on the $776,000 two-percent portion is $15,520, and 3.15 percent on the remaining $5,929,882.35 is $186,791.29, for $202,311.29.[11][12] The same balance at the 7.00 percent Prime rate on our October 2026 rate sheet would cost $469,411.76, so the deferral saves $267,100.47 in year one, and commits the family to holding.[17][9] Every figure above was recomputed by scripts/check-estate-tax-math.mjs. FAQ: - Q: What is the estate tax exemption in 2026? A: $15,000,000 per person. Section 2010(c)(3)(A) sets the basic exclusion amount at that figure for deaths after December 31, 2025, and it is not indexed for inflation until 2027.[3][4] - Q: Do my heirs get a step-up in basis on a hotel? A: Yes. Section 1014(a)(1) gives them the fair market value at the date of death, so both the appreciation and the depreciation you took are erased rather than deferred.[1][2] - Q: Will my hotel trigger estate tax? A: Only if the whole taxable estate exceeds $15,000,000 for a 2026 death. The mortgage is deductible under section 2053, so a hotel carrying debt contributes its net value, not its price.[3] - Q: Can my estate pay the estate tax in installments? A: Section 6166 allows up to 10 installments, with the first deferred up to 5 years, if a closely held business interest exceeds 35 percent of the adjusted gross estate. The election is due with the return.[9][10] - Q: What interest does the IRS charge on deferred estate tax? A: Two percent on the 2-percent portion, which is $776,000 for 2026, and 45 percent of the underpayment rate above that. At the 7 percent rate for the quarter beginning October 1, 2026, that second leg is 3.15 percent.[4][11][12] - Q: Does selling the hotel end the installment deferral? A: Yes. Once sales, distributions and withdrawals reach 50 percent of the value of the business interest, section 6166(g) makes the unpaid balance due on notice and demand. Transfers to heirs under the will are carved out.[9] - Q: Is it better to gift my hotel or leave it in my will? A: On income tax, the will. Section 1015 carries your basis to the donee, so a gift keeps the built-in gain alive, while a bequest erases it under section 1014.[1][16] - Q: Can a hotel use special-use valuation under section 2032A? A: Potentially, since qualified use includes a non-farming trade or business, but the 2026 reduction is capped at $1,460,000, the heir's basis drops with it, and a disposition within 10 years triggers additional tax.[4][14] Sources: - [1] 26 U.S. Code section 1014, Basis of property acquired from a decedent (subsections (a), (e) and (f)) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/1014 - [2] Publication 551 (Basis of Assets): Inherited Property, Community Property and the Schedule A to Form 8971 (page last reviewed April 30, 2026) (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/publications/p551 - [3] 26 U.S. Code section 2010, Unified credit against estate tax (basic exclusion amount; portability; as amended by Pub. L. 119-21 section 70106, July 4, 2025) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/2010 - [4] Rev. Proc. 2025-32, sections 3.14, 3.41, 3.42 and 3.51 (2026 inflation-adjusted amounts), I.R.B. 2025-45, November 3, 2025 (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - [5] 26 U.S. Code section 2001, Imposition and rate of tax (subsection (c), rate schedule) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/2001 - [6] Topic no. 409, Capital gains and losses (20% top rate; 25% maximum on unrecaptured section 1250 gain; page last reviewed September 24, 2026) (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/taxtopics/tc409 - [7] Topic no. 559, Net investment income tax (3.8% rate; $250,000 and $200,000 thresholds; page last reviewed September 24, 2026) (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/taxtopics/tc559 - [8] Publication 946 (How To Depreciate Property): 39-year recovery period for nonresidential real property under the general depreciation system (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/publications/p946 - [9] 26 U.S. Code section 6166, Extension of time for payment of estate tax where estate consists largely of interest in closely held business (subsections (a), (b)(6), (b)(9), (d) and (g)) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/6166 - [10] 26 U.S. Code section 6075, Time for filing estate and gift tax returns (subsection (a), nine months) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/6075 - [11] 26 U.S. Code section 6601, Interest on underpayment, nonpayment, or extensions of time for payment of tax (subsection (j), the 2-percent portion) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/6601 - [12] Interest rates remain the same for the fourth quarter of 2026 (IR-2026-98, August 21, 2026; 7% underpayment rate for the quarter beginning October 1, 2026; Rev. Rul. 2026-15) (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/newsroom/interest-rates-remain-the-same-for-the-fourth-quarter-of-2026 - [13] Rev. Rul. 2006-34, real property interests and closely held businesses under section 6166 (six-factor test; Situations 2 and 3 on management companies), I.R.B. 2006-26 (Internal Revenue Service, accessed 2026-10-27): https://www.irs.gov/irb/2006-26_IRB - [14] 26 U.S. Code section 2032A, Valuation of certain farm, etc., real property (subsections (a)(2), (b)(2), (c)(1) and (e)(8)) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/2032A - [15] 26 U.S. Code section 2032, Alternate valuation (six-month date; subsection (c), the election must decrease both the gross estate and the tax) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/2032 - [16] 26 U.S. Code section 1015, Basis of property acquired by gifts and transfers in trust (subsection (a), carryover basis) (Legal Information Institute, Cornell Law School, accessed 2026-10-27): https://www.law.cornell.edu/uscode/text/26/1015 - [17] Hotel loan rates, October 2026 edition (Prime 7.00% as of September 30, 2026) (Matthews Hotel Markets (first-party), accessed 2026-10-27): https://matthewshotelmarkets.com/rates ### Selling a hotel: questions owners ask URL: https://matthewshotelmarkets.com/sell-a-hotel/faq Last updated: 2026-09-18 This page answers the short questions hotel owners ask before a sale and links each one to the page that goes deeper. The anchors, as of September 2026: about 24 weeks from engagement to close in our published playbook,[1] 60 days for Hilton to rule on a Hampton change of ownership,[2] and a 25 percent maximum federal rate on gain from building depreciation.[3] Key takeaways: - Plan on about 24 weeks from engagement to close, with the brand's 60-day review running inside due diligence.[1][2] - Start with a broker opinion of value. It does not commit you to sell, and it tells you whether selling beats holding. - Tax is layered: up to 20 percent on capital gain, up to 25 percent on building depreciation, ordinary rates on FF&E.[3] - Staff, brand and lender all find out eventually. A confidential process controls when. - Every answer on this page links to a longer page with its sources. #### How do I find out what my hotel is worth before I decide? Ask for a broker opinion of value, a written estimate built from your trailing twelve-month financials, comparable sales and current cap rates. A BOV is not an appraisal and does not commit you to sell. It is the document that lets you compare selling against holding or refinancing. The Matthews Hotel Index for Q1 2026 publishes the cap-rate bands a BOV is built against.[4] How a BOV differs from a lender's appraisal is at `/hotel-valuation/broker-opinion-of-value`, and the valuation math is at `/hotel-valuation/how-to-value-a-hotel`. An offering memorandum, by contrast, is the marketing document written for buyers after you decide to sell. See `/glossary/bov` and `/glossary/iom`. #### How long will it take, and what are the steps? About 24 weeks in our published playbook: 2 weeks of packaging, 6 of marketing, 4 of offers and contract, and 12 of due diligence and closing.[1] The steps in order are value opinion, package, marketing, call for offers, contract, due diligence, franchise approval and close. They are laid out at `/sell-a-hotel/how-to-sell-a-hotel`. What stretches or shortens each stage is at `/sell-a-hotel/how-long-it-takes`. #### What will it cost me to sell? A success fee paid at closing, plus title, legal, transfer tax and, on some loans, a prepayment or defeasance cost. The fee structure, who pays it and what is negotiable are at `/sell-a-hotel/broker-fees`. Federal and state tax on the gain is usually the bigger number. It is layered: long-term capital gain at up to 20 percent, gain from building depreciation at up to 25 percent, and ordinary income on FF&E recapture.[3] The full walk-through is at `/sell-a-hotel/taxes-when-selling-a-hotel`. #### Do I need a 1031 exchange lined up before I sell? If you want to defer the gain, yes. The exchange has to be structured before closing, because the 45-day and 180-day clocks start when you transfer the hotel.[5] You have 45 days after the sale to identify replacement property and 180 days to close on it, or until your tax return is due, with extensions, if that is earlier.[5] Only the real property qualifies, so the price allocated to FF&E is taxed anyway. The hotel-specific mechanics are at `/hotel-financing/1031-exchange-hotels`. #### Should I sell quietly or put the hotel on the market? Most owners do best in between: a confidential process marketed to a targeted buyer list under NDA. Off-market saves the marketing weeks and gives up competing bids. A public listing reaches the most buyers and exposes the sale to staff and competitors. The three methods are compared at `/sell-a-hotel/off-market-vs-marketed`. Whether to use a broker at all, and how to pick one, is at `/sell-a-hotel/how-to-choose-a-hotel-broker`. #### What happens to my franchise agreement and my staff? The buyer applies to the brand as a new franchisee, and staff are typically rehired by the buyer's operator at closing. Under Hilton's 2025 Hampton agreement, the seller gives 60 days' written notice, the buyer signs a new franchise agreement and accepts a PIP, and the brand has 60 days from a completed application to consent.[2] If your agreement is within a few years of expiring, read `/sell-a-hotel/franchise-agreement-expiration` first. On staff, federal WARN notice rules can apply to employers with 100 or more employees.[6] Use employment counsel to plan notices. #### What should I get ready now? A trailing twelve-month P&L that ties to the bank statements, a current STAR report, the franchise agreement with any PIP letter, and three years of capital spending. Those four items decide more of the outcome than anything else an owner controls. The full list, tier by tier from teaser to closing, is at `/sell-a-hotel/documents-needed`. #### What if my hotel is losing money or my loan is in trouble? You can still sell, and an early sale you control is usually better than a later one the lender controls. If the price will not clear the loan, the lender has to approve the payoff in writing, and forgiven debt can be taxable. The sale paths, from a lender-approved sale to a receivership sale and a deed in lieu, are at `/sell-a-hotel/selling-a-distressed-hotel`. The workout side is at `/hotel-financing/loan-workouts`, and the hold-or-sell math is at `/hotel-financing/refinance-or-sell`. Table: Quick reference: selling a hotel, September 2026 Question | Short answer | Full page How long does it take? | About 24 weeks, engagement to close[1] | `/sell-a-hotel/how-long-it-takes` How long does the brand take? | Hampton: 60 days from a completed application[2] | `/sell-a-hotel/franchise-agreement-expiration` What is the broker paid? | A success fee at closing that scales down as price rises | `/sell-a-hotel/broker-fees` What is the federal tax? | Up to 20% capital gain, up to 25% on building depreciation, ordinary on FF&E[3] | `/sell-a-hotel/taxes-when-selling-a-hotel` 1031 deadlines? | 45 days to identify, 180 days to close[5] | `/hotel-financing/1031-exchange-hotels` Quiet or public? | Usually confidential marketing under NDA | `/sell-a-hotel/off-market-vs-marketed` What do I prepare? | T-12, STAR report, franchise agreement and PIP letter, capex history | `/sell-a-hotel/documents-needed` Loan in default? | Sell early; lender must approve any short payoff | `/sell-a-hotel/selling-a-distressed-hotel` First-party data point: The Matthews Hotel Index for Q1 2026 publishes cap-rate bands by market and segment, which is where a broker opinion of value starts.[4] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: counting back from a target closing date): Hypothetical. An owner wants to close by December 15, 2027 so the gain lands in that tax year. Our playbook runs about 24 weeks from engagement to close,[1] so the engagement date is about July 1, 2027. The owner needs four to six weeks before that to reconcile the trailing twelve months and get a PIP scope from the brand, so preparation starts in mid-May. The purchase contract should be signed around week 12, late September, and the buyer should file its franchise application that same week, because a brand with 60 days to rule[2] would then answer by late November, inside due diligence. If the owner plans a 1031 exchange, the 45-day identification window opens at closing and ends January 29, 2028, and the 180-day window ends June 12, 2028, or on the due date of the owner's 2027 tax return including extensions if that comes first, so the owner files an extension.[5] Working backward from the date you care about shows quickly if the start date has already passed. FAQ: - Q: I am thinking about selling my hotel. Where do I start? A: With a broker opinion of value, which prices the hotel from your trailing twelve-month financials and current cap rates without committing you to sell. Then compare selling against holding or refinancing. See /hotel-valuation/broker-opinion-of-value. - Q: How long does it take to sell a hotel? A: About 24 weeks from engagement to close in our published playbook, as of September 2026: roughly 12 weeks to a signed contract and 12 weeks of due diligence, franchise approval and closing.[1] Details at /sell-a-hotel/how-long-it-takes. - Q: How much tax will I pay when I sell my hotel? A: Federal tax is layered: up to 20 percent on long-term capital gain, up to 25 percent on gain from building depreciation, and ordinary rates on FF&E recapture.[3] State tax is extra. See /sell-a-hotel/taxes-when-selling-a-hotel. - Q: Should I sell my hotel now or wait until next year? A: Compare in dollars: net sale proceeds today against a year of cash flow plus next year's likely price, less any PIP or loan maturity in between. The framework is at /hotel-financing/refinance-or-sell. - Q: Will my employees and the brand find out I am selling? A: The brand must, because it approves the buyer. Hampton's 2025 agreement requires 60 days' notice.[2] Staff usually learn near closing in a confidential process. See /sell-a-hotel/off-market-vs-marketed. - Q: My franchise agreement expires soon. Should I sell first? A: Decide two to three years out. Hampton's 2025 disclosure document gives no right to renew, and both a sale and a re-license trigger a PIP.[2] See /sell-a-hotel/franchise-agreement-expiration. - Q: Can I sell a hotel that is losing money or behind on its loan? A: Yes. If the price covers the loan, it is a normal sale. If not, the lender must approve the payoff in writing, and forgiven debt can be taxable. See /sell-a-hotel/selling-a-distressed-hotel. - Q: Can I sell my hotel without a broker? A: Yes. It is legal, and it limits the buyer pool to people who already know the hotel is available, which usually means fewer offers. The trade-offs are at /sell-a-hotel/how-to-choose-a-hotel-broker. Sources: - [1] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Item 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] Topic no. 409, Capital gains and losses; and Publication 544 (2025), Sales and Other Dispositions of Assets (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/taxtopics/tc409 - [4] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [5] 26 U.S. Code section 1031, Exchange of real property held for productive use or investment (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 - [6] 20 CFR 639.3, WARN Act definitions (employer) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.3 ### Should I sell my hotel before the franchise agreement expires? URL: https://matthewshotelmarkets.com/sell-a-hotel/franchise-agreement-expiration Last updated: 2026-09-18 Usually decide two to three years out, not in the final months. Hilton's Hampton disclosure document, issued March 30, 2025, gives the owner no right to renew. Re-licensing is at the brand's sole discretion and carries a $100,000 application fee and a PIP.[1] A buyer signs a new agreement and gets a PIP too, so the real comparison is who funds the renovation and keeps the upside. Key takeaways: - A Hampton franchise agreement has no renewal right. At expiration the hotel is re-licensed on the brand's terms or it loses the flag.[1] - Selling and re-licensing both trigger a PIP. You cannot avoid the renovation by choosing one over the other; you choose who pays for it. - In a sale the buyer, not the seller, applies to the brand. Hampton's change of ownership application fee is $200,000, against $100,000 for re-licensing.[1] - A short remaining term cuts both ways. It worries a buyer's lender, and it shrinks the liquidated damages a buyer would owe to change flags.[1] - Allow about 24 weeks to sell in our playbook, including the brand's 60-day review, and count back from the expiration date.[2] #### What actually happens when a hotel franchise agreement expires? The license ends. There is no automatic renewal, and the hotel must stop operating under the brand unless the franchisor agrees to a new license. Owners often assume a franchise agreement renews the way a lease option does. The Hampton disclosure document says otherwise in plain words: "You do not have the right to renew or extend the Franchise Agreement." If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must comply with any PIP conditions Hilton specifies.[1] If there is no new license, the obligations at expiration are the same as at termination. The owner must stop operating as a system hotel, stop using the marks, remove the signs and brand decor, return the manual, and hand over brand-related domain names and listings.[1] The hotel leaves the reservation system on that date. Term lengths in the same document show how long the runway normally is: generally 22 years for new construction, and 10 to 20 years from opening for a conversion.[1] Other brands write different terms, and you can look them up. The FTC Franchise Rule requires every franchisor to disclose renewal, termination and transfer terms in Item 17 of its disclosure document, and fees in Items 5 and 6.[4] Then read the term and transfer sections of your own agreement, because that contract controls, not this example. #### What does re-licensing cost if I keep the hotel? An application fee, a PIP fee, a new contract on current terms, and the renovation the PIP requires. Hampton's 2025 disclosure document lists a $100,000 franchise application fee for re-licensing and a $10,000 fee to prepare the PIP. It reports that franchisees actually paid between $50,000 and $100,000 in re-licensing application fees in 2024.[1] The new agreement is the then-current form, so fees can differ from the agreement signed years ago. The current Hampton form charges a monthly royalty of 6 percent of gross rooms revenue and a monthly program fee of 4 percent.[1] The fee is the small number. The PIP is the large one, and the disclosure document does not price it because it is set hotel by hotel. How lenders fund that work is covered at `/hotel-financing/pip-and-renovation-loans`. #### What does the buyer face if I sell instead? The buyer does not inherit your agreement. It applies as a new franchisee, signs the current form of agreement, and accepts its own PIP. Under the Hampton agreement, a sale is a change of ownership transfer. The seller gives 60 days' written notice and must not be in default. The buyer submits a change of ownership application, pays the application fee, meets Hilton's requirements for new franchisees, signs the then-current franchise agreement, and agrees to the upgrades Hilton requests. Hilton has 60 days from the completed application to consent, and consent may not be unreasonably withheld. At closing, the seller's agreement ends and the buyer's begins.[1] The listed application fee for a change of ownership is $200,000, and the document reports that franchisees paid between $0 and $200,000 in 2024.[1] The term of the buyer's agreement is, in the document's words, generally the remaining term under the existing agreement or another term Hilton approves.[1] That last clause is why the expiration date matters in a sale. A buyer and its lender want to know before they bid whether the brand will grant a fresh, longer term. In our experience, getting the brand's PIP scope and an indication on term before going to market removes the biggest unknown a buyer would otherwise price in. #### Does a short remaining term lower my price? It can, if the buyer cannot get comfort on a new term. It can also widen the buyer pool to groups that want a different flag. A buyer's lender sizes a loan on branded cash flow and wants the flag in place for the life of the loan. Hilton's lender comfort letter form states that nothing in it extends the franchise agreement beyond its stated expiration date.[1] So a hotel with four years of term and no indication from the brand on a new license is harder to finance than the same hotel with a new term in hand. The other side: a hotel near expiration is cheaper to reflag. Under the Hampton agreement, liquidated damages for an early termination equal the hotel's average monthly royalty fees multiplied by 60, or by the number of months remaining when fewer than 60 remain.[1] A buyer who plans to convert to another brand, or to run the hotel as an independent, pays less to exit the closer the agreement is to its end. The worked example below shows the arithmetic. #### Do I owe liquidated damages if I sell? The Hampton document ties liquidated damages to termination, by Hilton for cause or by an owner who walks away, not to an approved sale. Item 6 of the disclosure document describes liquidated damages as payable when Hilton terminates the franchise agreement, and Item 17 adds that an owner who terminates unilaterally without cause is in material breach and must pay them.[1] In an approved change of ownership, the seller's agreement ends at closing as a condition of Hilton's consent, and the buyer's new agreement starts the same day.[1] The seller does have to pay all amounts due to Hilton through closing, which the parties may escrow.[1] That is one brand's form. Older agreements and other brands differ, and some sales close without brand consent, which changes everything. Have franchise counsel read your agreement before you sign a purchase contract. #### So when should I decide? Early enough that a sale can close, and the buyer's PIP can be scoped, before the expiration date does the deciding for you. Work backward. Our published playbook runs about 24 weeks from engagement to close, and the brand's 60-day review sits inside that.[2] Add the months it takes to get a PIP scoped and to reconcile the financials, and an owner who might sell should start the conversation with the brand and a broker two to three years before expiration. That leaves time to sell with term still on the agreement, or to re-license and sell later on a fresh term with the renovation done. The choice itself is a return calculation. If you re-license, you fund the PIP and keep the lift in revenue it produces. If you sell first, the buyer funds it and deducts its cost, plus a margin for risk, from the price. The PIP arithmetic is worked through at [What is involved in selling a hotel?](/sell-a-hotel), and the hold-or-sell comparison at `/hotel-financing/refinance-or-sell`. Table: Hampton by Hilton, 2025 disclosure document: keep and re-license versus sell[1] Item | Keep the hotel and re-license | Sell (change of ownership) Right to it | None. Brand's sole discretion | Brand consent required, not unreasonably withheld Who applies | Current owner | Buyer, as a new franchisee Listed application fee | $100,000 | $200,000 Fees actually paid in 2024 | $50,000 to $100,000 | $0 to $200,000 PIP | Yes, plus a $10,000 PIP fee | Yes, plus a $10,000 PIP fee Agreement signed | Then-current form, terms may differ materially | Then-current form Term | As the brand offers | Generally the remaining term, or another term the brand approves Brand timing | Not stated | 60 days' notice; 60 days to consent from a completed application First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate band a buyer will apply to your branded cash flow, which is the number a missing or short franchise term puts at risk.[3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what it costs a buyer to change flags, by months remaining): Hypothetical. A Hampton-branded hotel produces $3.0 million of gross rooms revenue a year. At the 6 percent royalty in the 2025 form, royalty fees are $180,000 a year, or $15,000 a month.[1] Case one: 84 months remain on the agreement. More than 60 months remain, so liquidated damages for an early termination are $15,000 times 60, or $900,000. Case two: 30 months remain. Fewer than 60 months remain, so the figure is $15,000 times 30, or $450,000. Case three: 12 months remain, so $15,000 times 12, or $180,000. A buyer who wants a different brand subtracts that exit cost from its bid. At 84 months it is a $900,000 deduction. At 12 months it is $180,000, and some buyers will simply wait out the term. The same clock that worries a lender makes the hotel more attractive to a conversion buyer. This uses the hotel's own average royalty, which the agreement measures over the prior 24 months.[1] FAQ: - Q: Should I sell my hotel before the franchise agreement expires? A: Decide two to three years out. Hampton's 2025 disclosure document gives no renewal right, and both re-licensing and a sale trigger a PIP.[1] Selling with term left, or re-licensing first and selling later, both beat reaching expiration with no plan. - Q: My franchise agreement has three years left. Will buyers care? A: Yes. The buyer signs a new agreement whose term is generally the remaining term or another term the brand approves.[1] Buyers and lenders want the brand's position on term and PIP scope before they bid. - Q: Can I renew my Hampton Inn franchise agreement? A: Not as of right. The 2025 disclosure document says the franchisee has no right to renew or extend. Hilton may re-license at its sole discretion, on a new contract, with a $100,000 listed application fee and a PIP.[1] - Q: Does the buyer take over my franchise agreement when I sell? A: Not under the Hampton form. The buyer applies as a new franchisee, pays the change of ownership application fee, and signs the then-current agreement. The seller's agreement ends at closing.[1] - Q: How long does the brand take to approve a hotel sale? A: Hilton's 2025 Hampton agreement requires 60 days' written notice and gives the brand 60 days from a completed application to consent.[1] File at contract signing so the review runs alongside due diligence. - Q: What are liquidated damages on a hotel franchise? A: A preset payment for ending the agreement early. Under the 2025 Hampton form it is generally the hotel's average monthly royalty times 60, or times the months remaining when fewer than 60 remain.[1] - Q: What happens if I let the franchise agreement expire? A: The hotel must stop operating under the brand: signs and marks come down, the manual goes back, and the hotel leaves the reservation system.[1] It then runs as an independent or under a new flag. - Q: Is it better to do the PIP myself and then sell? A: Sometimes. If you fund it, you keep the revenue lift and sell on a fresh term. If the buyer funds it, the cost plus a risk margin comes off the price. Compare both in dollars before choosing. Sources: - [1] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025): Items 5, 6 and 17; Franchise Agreement sections 12.2.2, 13.4 and 13.6; Exhibit K lender comfort letter form (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [2] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [3] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [4] 16 CFR 436.5, Disclosure items (what a Franchise Disclosure Document must contain, including Items 5, 6 and 17) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/16/436.5 ### What happens to my franchise agreement when I sell my hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/franchise-transfer Last updated: 2026-10-12 Your franchise agreement does not move to the buyer. In the Hilton, Choice and Hyatt systems the buyer applies for a new agreement and yours terminates at closing.[1][2][3] Hilton and Hyatt each give the brand 60 days from a completed application to answer.[1][3] Hilton's 2026 change-of-ownership application fee is $200,000, and 2025 franchisees paid $25,000 to $200,000.[1] Key takeaways: - Your agreement does not transfer. The buyer signs the franchisor's then-current form, which can differ materially from yours, and yours ends on the closing date.[1][2][3] - The brand-side cost is published. Hilton lists a $200,000 change-of-ownership fee plus a $10,000 PIP fee; Choice charges its affiliation fee or $45,000 on Quality, whichever is greater.[1][2] - The clock starts at the application. Hilton and Hyatt each take up to 60 days from a completed one; Choice sets no outside date at all.[1][2][3] - Hyatt wants 10 days' notice before you list the hotel, and holds a right of first offer where you signed its Exhibit C.[3] - The buyer's lender will want a comfort letter. Hilton charges $3,500 to issue one and $1,500 to assign one.[1] #### Does my franchise agreement transfer to the buyer? No. In the Hilton, Choice and Hyatt systems the buyer applies for a new franchise agreement on the franchisor's then-current form, and your agreement terminates at closing.[1][2][3] Owners often call this "assigning the flag". It is not. The Hampton agreement says that once the conditions to consent are met, the closing date is the termination date of your agreement and the effective date of the buyer's new one.[1] Choice's Quality agreement requires the transferee to sign Choice's then-current form and pay a re-licensing fee equal to the then-current affiliation fee for new franchisees.[2] Hyatt reserves the choice: at its option the buyer signs Hyatt's then-current agreement, which Item 17 says may be materially different, or signs documents assuming your rights and obligations.[3] So part of what your buyer is underwriting does not exist yet. Royalty, program fee, term and brand standards come from the form the brand issues on the closing date, not the form you signed years ago. You can read those terms in advance: the Federal Trade Commission's Franchise Rule makes every franchisor publish a table in Item 17 covering approval of transfer, the conditions for approval, any right of first refusal and any option to purchase.[6] #### What does a hotel franchise transfer cost? Hilton lists $200,000 for a Hampton or Hilton Garden Inn change of ownership, Choice charges its then-current affiliation fee or $45,000 on Quality, whichever is greater, and Hyatt charges $150,000 against a $200,000 cap.[1][2][3][4] List price and paid price are not the same number, and Hilton publishes the gap. The 2026 Hampton document discloses that in 2025 franchisees paid change-of-ownership application fees ranging from $25,000 to $200,000, and says Hilton may reduce the fee after considering criteria that include the hotel's market position, the property size and the number of hotels in the system the franchisee operates.[1] That is the only disclosed basis for a discount. Smaller line items sit around it. Hilton charges a $10,000 PIP fee to write the improvement plan for a change of ownership.[1] Hyatt's PIP preparation fee runs $5,000 to $10,000, due when the application is filed.[3] Choice's WoodSpring Suites transfer fee is its then-current affiliation fee or $60,000, whichever is greater, so the floor moves by brand inside one franchisor.[5] Who writes the check is a purchase agreement term. The Hampton agreement says "you or Transferee" must pay the PIP fee and all amounts due to Hilton at or before closing, and lets the two of you escrow the estimate.[1] Settle it in the letter of intent, before it becomes a closing-week argument. #### How long does franchise approval take? Hilton and Hyatt each have 60 days from receipt of a completed and signed change-of-ownership application; Choice's Quality agreement sets no outside date and asks for 15 days' written notice from you.[1][2][3] The trap is the word completed. The Hampton agreement gives Hilton 60 days from receipt of the completed and signed application to consent or withhold consent, and says consent will not be unreasonably withheld.[1] Hyatt's section 12.4 uses the same structure.[3] Neither clock starts when the buyer downloads the form. It starts when the last missing item arrives. There is notice you owe on top of that. Hilton's Item 17 requires 60 days' written notice of a change-of-ownership transfer, and Hilton Garden Inn carries the same notice and the same consent window.[1][4] Hyatt goes further and requires 10 days' written notice before you list the hotel or a controlling ownership interest for sale, which is worth finding before you sign a listing agreement.[3] Choice's Quality agreement requires at least 15 days' prior written notice and says consent will not be unreasonably withheld or delayed, but sets no date by which Choice must answer.[2] Our published playbook budgets 60 to 90 days for due diligence and closing together.[9] A 60-day brand clock fits inside that only if the application is filed at purchase agreement signing. Filed later, it is additive. #### What does the franchisor require before it consents? A qualified buyer, a hotel that meets current standards, every dollar paid through closing, and no unresolved default.[1][2][3] The Hampton agreement sets out seven conditions, all to be satisfied at or before closing: the buyer submits a completed change-of-ownership application, pays the then-current application fee and signs the then-current form of agreement; you are not in default under that or any other Hilton agreement; you or the buyer pay the PIP fee and all amounts due; you conclude or secure any pending or threatened suit relating to the hotel; you and the buyer supply the information Hilton asks for; the buyer meets Hilton's then-current business requirements for new franchisees; and the buyer indemnifies Hilton over fees charged to guests.[1] Item 17 says those business requirements cover credit, background investigation, operations experience and prior business dealings, and that the buyer may not be a sanctioned person or a competitor.[1] Choice asks the buyer to meet its then-current qualifications, requires the hotel to comply with its brand image and standards, and requires all of the buyer's owners to sign Choice's then-current personal guaranty.[2] Hyatt adds a look-back: you must not have violated the agreement in the 60 days before you requested consent or between the request and closing, and the buyer's general manager has to complete brand training.[3] None of that is fixable in the last week. A default you have been carrying, an open brand-standards issue or a live lawsuit about the hotel is a consent problem rather than a diligence problem, and it surfaces on the brand's schedule. #### Will the buyer get a PIP, and who pays for it? Assume yes. Hilton charges $10,000 to prepare a change-of-ownership PIP and Hyatt $5,000 to $10,000, and the construction cost behind it is published nowhere.[1][3] The Hampton document says that in conversion, re-licensing or change-of-ownership situations you may be required to upgrade the property to meet Hilton's standards, with completion deadlines set in the PIP on a project-by-project basis.[1] Choice's Quality agreement conditions consent on the transferee signing a property improvement plan documenting the renovations it must complete.[2] Hyatt's Item 17 lists the buyer's agreement to renovate, remodel or expand the hotel and its furniture, fixtures and equipment as a condition of approval.[3] The fee to write the PIP is small and published. The scope is large and is not, because it depends on the age and condition of your asset. No disclosure document can tell you what your PIP will cost. This is also the number that moves price: a seller who orders a written PIP scope letter before listing turns the largest unknown in the deal into a disclosed figure buyers underwrite once, rather than a surprise they re-trade on. #### Can the brand buy my hotel instead of approving my buyer? Not in the Hilton or Choice systems. Hyatt has a right of first offer, but only on hotels where you signed its Exhibit C.[1][2][3] Item 17(n) of every disclosure document answers this, and the Franchise Rule requires it to be there.[6] Hilton answers "None" for Hampton and Hilton Garden Inn, with one caveat: you must notify Hilton if you want to market equity interests outside a permitted or change-of-ownership transfer.[1][4] Choice answers "Not Applicable" for both Quality and WoodSpring Suites.[2][5] Hyatt is the exception, and narrower than owners assume. Exhibit C to its franchise agreement is a right of first offer for strategic markets, and it applies only if Hyatt and the franchisee both signed it. If they did, you must give Hyatt written notice of the material terms before selling the hotel or a controlling interest, and Hyatt has 30 days to elect whether to acquire.[3] A right of first offer is not a right of first refusal: it runs before you go to market rather than after you hold a signed contract, so it costs time rather than a buyer. Check Exhibit C of your own agreement before you engage a broker. #### Am I released when the sale closes? Your franchise agreement ends on the closing date, but releasing your personal guaranty is a separate document and not every system promises one.[1][3] Under the Hampton agreement the closing date is the termination date of your agreement, which ends the forward obligations running with the license.[1] It does not erase what you already owe, and Hilton conditions consent on you concluding or securing any suit relating to the hotel.[1] Hyatt's Item 17 is blunter: you and your guarantors sign a termination and release if state law allows, and you remain liable.[3] So the answer turns on a guaranty you signed, sometimes years ago, and on which state's law governs it. That is a question for your lawyer. We read the transfer and guaranty sections to price and sequence a deal. We do not give legal advice. #### What does the buyer's lender need from the brand? A comfort letter. Hilton charges $3,500 to issue one and $1,500 to assign an existing one.[1] A comfort letter is the agreement between the franchisor and the lender about what happens to the flag if the lender ends up with the hotel. The Hampton agreement lets you mortgage the hotel or an equity interest without Hilton's consent when you are the sole borrower and the loan is not secured by other collateral. Anything else, including a collateral assignment of the franchise agreement, needs Hilton's consent, which it may issue as a lender comfort letter agreement that can include an estoppel and a general release of claims.[1] The brand documents anticipate SBA debt. The Hampton agreement requires you and the buyer to escrow Hilton's estimated fees for disbursement at closing if the buyer has SBA financing, and points at SBA's Standard Operating Procedure 50 10 for the lender paperwork.[1] The current origination SOP is version 8.1, effective October 1, 2026; version 8 ran from June 1, 2025 until then, so a deal that started over the summer may have been underwritten under one and funded under the other.[7] Budget the comfort letter into the closing timeline as well as the closing statement. #### What happens to my staff? For most single-asset hotel sales the federal WARN Act does not reach the transaction at all, because it applies only to employers with 100 or more employees, excluding part-time.[10] The threshold is in the regulation: a WARN employer employs 100 or more people excluding part-time, or 100 or more including part-time who together work at least 4,000 hours a week before overtime.[10] A single select-service hotel is usually well under that. A portfolio seller, or an owner whose entity employs staff across several properties, may not be. Where WARN does apply, a sale splits the duty by date. The seller gives notice of any plant closing or mass layoff up to and including the effective date of the sale, and the buyer gives notice of any that takes place after it.[11] If the seller knows of definite buyer plans for a closing or mass layoff within 60 days of purchase, it may give notice as the buyer's agent when empowered to do so, though the responsibility still sits with the buyer.[11] Several states run their own versions with lower headcounts, which are not covered here, and employment law is not something we advise on. The franchise agreement says nothing about your staff: it licenses a brand, it is not an employment contract. In practice the buyer brings its own management company. Table: Hotel franchise change-of-ownership terms, from each brand's own 2026 disclosure document Brand (issuance date) | Change-of-ownership fee | Notice you owe | Brand's deadline to answer | Right of first refusal or offer Hampton, Hilton (March 30, 2026) | $200,000 list; 2025 payments ran $25,000 to $200,000[1] | 60 days' written notice[1] | 60 days from a completed application[1] | None[1] Hilton Garden Inn, Hilton (March 30, 2026) | $200,000 list[4] | 60 days' written notice[4] | 60 days from a completed application[4] | None[4] Quality, Choice (April 1, 2026, amended May 20, 2026) | Then-current affiliation fee or $45,000, whichever is greater[2] | 15 days' prior written notice[2] | Not stated; consent not to be unreasonably withheld or delayed[2] | Not applicable[2] WoodSpring Suites, Choice (April 1, 2026, amended May 20, 2026) | Then-current affiliation fee or $60,000, whichever is greater[5] | 15 days' prior written notice[5] | Not stated; consent not to be unreasonably withheld or delayed[5] | Not applicable[5] Hyatt House, Hyatt (March 27, 2026, amended August 5, 2026) | $150,000, against a cap of $200,000[3] | 10 days before you list the hotel for sale[3] | 60 days from a completed application[3] | Right of first offer, only where Exhibit C was signed; 30 days to elect[3] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the SBA 7(a) maximum variable rate at 10.00% as of September 17, 2026. That is the rate the worked example below uses to price the brand fees a buyer finances.[8] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: 110-key Hampton Inn selling for $14.5 million): Hypothetical. The brand figures are Hilton's published 2026 list prices for the Hampton brand.[1] At list, the change of ownership costs a $200,000 franchise application fee, a $10,000 PIP fee and a $3,500 lender comfort letter, which is $213,500, or 1.47% of a $14,500,000 price. Now take the bottom of the range Hilton discloses for 2025: a $25,000 application fee, so $25,000 plus $10,000 plus $3,500 is $38,500, or 0.27% of the same price. The spread is $175,000, which is 1.21% of the price. Funded inside an SBA 7(a) acquisition loan at the September 17, 2026 maximum variable rate of 10.00% over a 25-year amortization, that $175,000 costs about $1,590 a month, or roughly $19,100 a year.[8] None of it includes the construction cost of the PIP, which is specific to the property and is published in no disclosure document. FAQ: - Q: Does my hotel franchise agreement transfer to the buyer? A: No. In the Hilton, Choice and Hyatt systems the buyer applies for a new franchise agreement on the franchisor's then-current form, and your agreement terminates on the closing date.[1][2][3] Hyatt may instead let the buyer assume yours, at Hyatt's option.[3] - Q: How much is a hotel franchise transfer fee? A: Hilton lists $200,000 for a Hampton or Hilton Garden Inn change of ownership, though 2025 franchisees paid $25,000 to $200,000.[1][4] Choice charges its then-current affiliation fee or $45,000 on Quality, whichever is greater.[2] - Q: How long does franchise approval take on a hotel sale? A: Hilton and Hyatt each have 60 days from receipt of a completed and signed change-of-ownership application.[1][3] Choice's Quality agreement sets no outside date and says consent will not be unreasonably withheld or delayed.[2] - Q: Can the franchisor block my hotel sale? A: It can withhold consent, though Hilton, Choice and Hyatt all say consent will not be unreasonably withheld.[1][2][3] The usual grounds are a buyer who fails the brand's qualification test, or a hotel out of compliance. - Q: Does the brand have a right of first refusal on my hotel? A: Hilton and Choice both answer no in Item 17 of their 2026 documents.[1][2] Hyatt has a right of first offer, but only where you signed its Exhibit C, and it then has 30 days to elect.[3] - Q: Will the buyer have to do a PIP? A: Assume so. Hilton charges $10,000 to prepare a change-of-ownership PIP and Hyatt's preparation fee runs $5,000 to $10,000.[1][3] The construction cost is property-specific and no disclosure document publishes it. - Q: Who pays the franchise transfer fee, buyer or seller? A: The purchase agreement decides. Hilton's Hampton agreement says you or the transferee must pay the PIP fee and all amounts due at or before closing, so the brand does not mind who writes the check.[1] - Q: Does the WARN Act apply when I sell my hotel? A: Only if you employ 100 or more people, excluding part-time.[10] In a sale the seller gives notice for any closing or mass layoff up to the sale date and the buyer gives it after.[11] State rules can be stricter. Sources: - [1] 2026 Hampton Franchise Disclosure Document (issuance date March 30, 2026), Items 5, 6 and 17 and Franchise Agreement sections 12.2 and 12.4 (Hilton Franchise Holding LLC, accessed 2026-09-21): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [2] 2026 Quality Franchise Disclosure Document (April 1, 2026, as amended May 20, 2026), Items 6 and 17 and Franchise Agreement section 9 (Choice Hotels International, via Minnesota Department of Commerce CARDS, accessed 2026-09-21): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [3] 2026 Hyatt House Franchise Disclosure Document (March 27, 2026, as amended August 5, 2026), Items 5, 6 and 17 and Franchise Agreement section 12.4 and Exhibit C (Hyatt Franchising, L.L.C., via Minnesota Department of Commerce CARDS, accessed 2026-09-21): https://cards.web.commerce.state.mn.us/documents/%7B1023FB9F-0000-C81F-BD9C-6AD05228A886%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [4] 2026 Hilton Garden Inn Franchise Disclosure Document (issuance date March 30, 2026), Items 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-21): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-HGI.pdf - [5] 2026 WoodSpring Suites Franchise Disclosure Document (April 1, 2026, as amended May 20, 2026), Items 6 and 17 and Franchise Agreement section 9 (Choice Hotels International, via Minnesota Department of Commerce CARDS, accessed 2026-09-21): https://cards.web.commerce.state.mn.us/documents/%7B503B8D9E-0000-C31C-804D-870B9402993E%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [6] 16 CFR 436.5(q), Item 17: Renewal, Termination, Transfer, and Dispute Resolution (Legal Information Institute, Cornell Law School, accessed 2026-09-21): https://www.law.cornell.edu/cfr/text/16/436.5 - [7] SOP 50 10, Lender and Development Company Loan Programs (version 8 effective June 1, 2025; version 8.1 effective October 1, 2026) (U.S. Small Business Administration, accessed 2026-09-21): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [8] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-21): https://matthewshotelmarkets.com/rates - [9] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-21): https://matthewshotelmarkets.com/process - [10] 20 CFR 639.3(a), definition of employer under the WARN Act (Legal Information Institute, Cornell Law School, accessed 2026-09-21): https://www.law.cornell.edu/cfr/text/20/639.3 - [11] 20 CFR 639.4(c), who must give notice in the sale of a business (Legal Information Institute, Cornell Law School, accessed 2026-09-21): https://www.law.cornell.edu/cfr/text/20/639.4 ### How long does it take to sell a hotel through a broker? URL: https://matthewshotelmarkets.com/sell-a-hotel/how-long-it-takes Last updated: 2026-09-18 About 24 weeks from engagement to close in our published playbook, as of September 2026: roughly 12 weeks to a selected buyer, then about 12 weeks of contract, due diligence and franchise approval.[1] The brand clock is set by contract. Hilton's 2025 Hampton agreement gives the franchisor 60 days from a completed application to consent.[2] Preparation moves the front half most. Key takeaways: - Twenty-four weeks is the plan in our published playbook.[1] - Due diligence length is a negotiated contract term. A Hampton franchise transfer can take up to 60 days for the brand to decide, so run it alongside diligence, not after.[2] - Preparation compresses the front half. Nothing compresses the brand. - A fast sale to a known buyer trades weeks for dollars, and usually more dollars than owners expect. - The clock that matters most is the franchise application date. #### How long does the whole process take? About 24 weeks for a prepared seller in our published playbook,[1] shorter with a known buyer and longer for an unprepared seller. In our experience, the spread between a fast sale and a slow one is mostly preparation, not market conditions. A seller who arrives with a reconciled trailing twelve-month P&L, a current STAR report and a written PIP scope letter compresses the front half of the process by weeks. A seller who is still assembling financials when marketing starts loses that time and more, because a buyer who senses disorganization in the package underwrites more conservatively and negotiates harder. #### How long does each stage take? In our playbook, the package runs weeks 1 to 2, marketing weeks 3 to 8, offers and contract weeks 8 to 12, and due diligence through close weeks 12 to 24.[1] The table above breaks out our planning estimates for prepared, typical and unprepared sellers, stage by stage. They are estimates from our own deal planning, not market statistics. The biggest single swing is marketing to a selected buyer: 6 weeks for a prepared, well-packaged asset versus 10 weeks when the broker is still filling gaps in the data room while trying to run a process. The back half is more fixed, because due diligence and franchise approval both have external actors, the buyer's team and the brand, setting the pace rather than the seller. #### How long is due diligence on a hotel? As long as the purchase agreement allows. Our playbook budgets 60 to 90 days for due diligence and closing together.[1] A buyer's diligence team works from a standard list: financial audit against bank statements, a property condition assessment under the ASTM E2018 standard,[3] a current ALTA/NSPS survey,[4] title review, and confirmation of franchise standing. Any one of those turning up a surprise, most often the financial audit, extends the period. A seller who has already run a PCA and reconciled the T-12 before listing removes the two most common sources of delay before the buyer ever asks. #### How long does franchise approval take? Hilton's 2025 Hampton agreement gives the brand 60 days from a completed application to consent, so the application should start at PSA signing and finish alongside due diligence.[2] The window varies by brand and by agreement, so check the transfer section of your own franchise agreement. The Hampton agreement, for example, requires the buyer to meet the brand's requirements for new franchisees, sign the current form of franchise agreement and agree to requested upgrades before the brand consents.[2] In our experience, a buyer who already operates that brand clears faster than a first-time franchisee. The variable owners control is not the brand's timeline but when the clock starts: filing at PSA signing rather than waiting for due diligence to clear is the most valuable timing decision in the whole process, worked through in the example below. #### What makes a sale take longer? An unreconciled T-12, an undisclosed PIP, a franchise application filed late, or a buyer whose financing was not vetted before the PSA. Each of these adds weeks in a predictable place: financial discrepancies surface in the first two weeks of diligence, an undisclosed PIP surfaces when the buyer requests brand correspondence, franchise delay compounds whenever the application starts late, and financing problems typically surface right after the appraisal comes back, inside the diligence window. #### How fast can I sell if I have to? Faster than a marketed process, with a known buyer who has cash or pre-arranged financing, but speed usually costs price. Compressing the timeline usually means going direct to a small number of buyers who already know the asset and skipping a broad marketing process, which removes the competitive tension that a call for offers creates. It can also mean accepting a buyer's financing contingency timeline rather than negotiating it down. Sellers under real time pressure, an estate, a maturing loan, a partnership dispute, should expect to give something on price for the speed. #### What can I do now to shorten it? Reconcile the T-12 to bank statements, get a written PIP scope letter, and order your own property condition assessment before you list. These three actions remove the three most common causes of delay before a buyer ever sees the asset. None of them require a broker engagement to start; an owner can do all three months before deciding to sell, which is also good portfolio hygiene independent of a transaction. Table: Hotel sale timeline: prepared versus unprepared seller (our planning estimates) Stage | Prepared seller | Typical | Unprepared seller Value opinion | 1 week | 2 weeks | 4 weeks, waiting on financials Package and data room | 2 weeks | 3 weeks | 6 weeks Marketing to selected buyer | 6 weeks | 8 weeks | 10 weeks PSA negotiation | 2 weeks | 3 weeks | 4 weeks Due diligence | 30 days | 45 days | 60 days plus re-trade Franchise approval | parallel | parallel | sequential, adds 4 to 6 weeks Total | about 16 weeks | about 24 weeks[1] | about 32 weeks First-party data point: The Matthews Hotel Index for Q1 2026 reports observed transaction counts by market, which is the demand side of how fast a given asset moves.[5] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what sequencing franchise approval is worth): Hypothetical. Purchase price $17.0 million, closing targeted for week 24. Parallel path: the buyer files the franchise application at PSA signing, week 17. The brand responds in 45 days, week 23.5. Due diligence ends week 23. Close at week 24. Sequential path: the buyer waits until due diligence clears at week 23 to apply. The brand responds 45 days later, week 29.5. Close at week 30. That is six weeks. On a $17.0 million deal with an $11.0 million loan at 7.25 percent, the seller's carrying cost for those six weeks is roughly $11.0 million times 7.25 percent times 6 over 52 weeks, or about $92,000, before operating risk and before the chance that something changes in the meantime. It is one email, filed six weeks earlier. FAQ: - Q: How long does it take to sell a hotel? A: About 24 weeks from engagement to close in our published playbook, as of September 2026, for a prepared seller with a clean trailing twelve-month P&L and a written PIP scope letter.[1] - Q: How long is due diligence on a hotel sale? A: As long as the purchase agreement allows. Our playbook budgets 60 to 90 days for due diligence and closing together.[1] A re-trade, a title issue or a Phase I environmental follow-up can stretch it. - Q: How long does hotel franchise approval take? A: Hilton's 2025 Hampton agreement gives the brand 60 days from a completed application to consent.[2] Other brands and agreements vary. Start it at PSA signing so it runs alongside due diligence. - Q: What is the fastest a hotel can sell? A: Faster than a marketed process when a known buyer has financing already arranged, though speed typically trades against price and buyer-pool depth. - Q: Why do hotel sales take longer than other commercial deals? A: Franchise approval adds a step apartment and office deals do not have, and a hotel's operating-business character means diligence covers labor, brand standards and PIP status, not just real estate. - Q: Can I speed up a hotel sale? A: Yes. Reconcile the T-12 before listing, get a written PIP scope letter in hand, and start the franchise application at PSA signing instead of waiting for due diligence to clear. - Q: How long should my hotel be on the market? A: Our playbook runs active marketing from week 3 to week 8, with the call for offers in weeks 8 to 9.[1] A long stretch without meaningful offers usually signals a pricing or packaging problem. Sources: - [1] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] E2018-24 Standard Guide for Property Condition Assessments (ASTM International, accessed 2026-09-18): https://store.astm.org/e2018-24.html - [4] ALTA/NSPS Land Title Survey Standards (2026 standards, effective February 23, 2026) (American Land Title Association, accessed 2026-09-18): https://www.alta.org/topics/topic-land-survey-standards - [5] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### How do I choose a hotel broker? URL: https://matthewshotelmarkets.com/sell-a-hotel/how-to-choose-a-hotel-broker Last updated: 2026-09-18 Ask these nine questions before you sign an engagement in 2026: recent closings in your chain scale and price band, who does the underwriting, how the buyer list is built, the fee and what it covers, the marketing plan, reporting cadence, the value opinion methodology, references from sellers who did not close, and whether they will tell you to hold. The answers to the last two tell you the most. Key takeaways: - Track record in your chain scale and price band beats total transaction volume. - Ask who does the underwriting. If it is an analyst you will never meet, you have a template, not a value opinion. - A broker who cannot describe the buyer list specifically does not have one. - Ask for a reference from a seller whose deal did not close. How a broker handles that is the real signal. - A broker who has never advised a client to hold is selling, not advising. #### What should I ask before signing? The nine questions in the table below, asked in the first conversation, before any engagement letter is on the table. Each question is designed to separate a broker who has done the specific work from one giving a polished general answer. The table shows what a weak answer sounds like next to what a strong one sounds like, so the difference is easy to hear in a real conversation. **Our answer.** Matthews Hotel Markets underwrites off the Matthews Hotel Index, published each quarter with cap-rate bands across 14 markets,[1] and names the analyst who runs the numbers on a client's specific asset before the first call ends. #### How do I judge a broker's track record? By named, recent closings in your specific chain scale and price band, not by a total transaction-volume figure that could include any asset class or any decade. A broker who closed forty apartment buildings and two hotels is not a hotel specialist, whatever the combined dollar figure says. Ask for named deals: address or market, key count, price band, and year. When a public REIT was on the other side, the trade may also appear in SEC filings you can search yourself.[2] As a rule of thumb, a broker who cannot produce three examples in your segment within the last 18 months either does not specialize in your asset type or has not been active recently, both worth knowing before you sign. **Our answer.** Ask Matthews Hotel Markets for closings in your specific chain scale and metro. We will name them, or tell you plainly if we have not done one recently in that exact segment. #### National brokerage or local specialist? Neither wins by default. A national platform brings a wider buyer database; a local specialist brings deeper knowledge of one market. Ask which one actually applies to your asset. A single-market boutique hotel in a leisure destination may be better served by a specialist who knows every buyer active in that specific niche. A branded select-service asset that could attract a family office in one region and a REIT in another benefits more from a national buyer reach. There is a real trade-off here, and a broker who tells you their model is right for every asset is not being straight with you. **Our answer, honestly stated.** Matthews Hotel Markets is a national platform, which is the right fit for a branded, sellable-anywhere asset with a broad buyer pool. It is not automatically the right fit for a hyper-local, relationship-driven niche asset where a specialist with decades in one submarket may know the three real buyers better than anyone. Ask us directly whether your asset is a national-platform fit; if it is not, we will tell you. #### What is the difference between a hotel broker and a business broker? A hotel broker underwrites the real estate and the operating business together; a general business broker, used to selling restaurants or retail concepts, typically does not. Hotels are transacted as going concerns, which means value depends on operating performance, brand agreement terms, and capital obligations, not just the real estate underneath. A broker trained on business sales generally, without hospitality-specific underwriting, can undervalue or mis-scope a PIP, misread a STAR competitive set, or miss a franchise transfer condition that changes the timeline. #### How do I know the broker is working for me and not the deal? Watch whether they push you toward a fast, easy transaction that suits their calendar or an honest one that suits your outcome, and ask directly whether they have ever told a client not to sell. Brokers who are REALTOR members pledge under the NAR Code of Ethics to protect and promote their client's interests.[3] Still, a broker paid only on a closed transaction has a structural incentive to get a deal done. That is not automatically a conflict, most of the time a closed deal is also the right outcome for the seller, but it means the questions in this list matter. Asking for a reference from a seller whose deal did not close is the single best test: a broker with nothing to hide can produce one and explain why it did not close. #### Will a good broker ever tell me not to sell? Yes, when the numbers say hold. A broker who has never once advised a client against selling has an incentive problem, not a perfect track record. **Our answer.** Matthews Hotel Markets will tell a client to hold when a cap-rate cycle or a near-term PIP makes selling the wrong move for that owner's goals. We will say so on the first call if that is what the numbers show for your asset, even though it means no fee that quarter. #### What should the engagement agreement say? The fee in writing, the marketing plan with dates, a reporting cadence, and a defined term, so both sides know what happens if the asset does not sell in that window. A vague engagement letter, no dates, no defined deliverables, is itself a signal. The fee structure and what it covers is worth reading in detail; see [Hotel broker fees](/sell-a-hotel/broker-fees) for the full breakdown of what a fee typically does and does not include. Table: Nine questions, and what a good answer sounds like Ask | A weak answer | A strong answer Recent closings in my chain scale and price band | A total volume number | Named deals, with keys, price band and year Who underwrites my asset | Our team does | The person, by name, who you will speak with How is the buyer list built | We have a huge database | The specific buyer types and why they want this asset What is the fee and what does it cover | Standard rate | The percentage in writing, and the deliverables it includes What is the marketing plan | We will list it widely | A named sequence with dates and a call-for-offers date How often will I hear from you | We will keep you posted | A set cadence with a written activity report How did you get to that value | Comps | The method, the comps, the cap rate and the adjustments Can I speak to a seller whose deal did not close | Deflection | A name and a number Would you ever tell me to hold | We can sell it in any market | Yes, and here is when I have First-party data point: The Matthews Hotel Index for Q1 2026 is the dataset we underwrite from, and any broker should be able to show you theirs.[1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: why the value opinion methodology question matters): Hypothetical. Two brokers value the same 96-key hotel with $1.42 million of NOI. Broker A says $18.5 million. Asked how, the answer is that is where the market is. Broker B says $17.2 million, at an 8.25 percent cap, and shows four comps in the same chain scale within 200 miles, adjusted for a $2.3 million PIP that two of the comps did not carry. Broker A's number is 7.6 percent higher and unfalsifiable. Broker B's number can be argued with, which is what makes it useful. The higher number wins listings. The explainable number survives due diligence. Ask for the method, then decide. FAQ: - Q: How do I choose a hotel broker? A: Ask the nine questions above before signing: track record in your chain scale, who underwrites, the buyer list, the fee, the marketing plan, reporting, methodology, references, and whether they will ever tell you to hold. - Q: What should I ask a hotel broker before hiring them? A: Recent closings in your specific chain scale and price band, who personally underwrites your asset, how the buyer list is built, and for a reference from a seller whose deal did not close. - Q: Is a national or local hotel broker better? A: Neither by default. A national platform brings a wider buyer database; a local specialist brings deeper market knowledge. Ask which advantage actually applies to your specific asset and market. - Q: What is the difference between a hotel broker and a business broker? A: A hotel broker underwrites the real estate and the operating business together, including franchise standing and PIP status. A general business broker typically does not have that specialization. - Q: Should I pick the broker with the highest valuation? A: No. Ask for the method behind the number. REALTOR members may not deliberately mislead an owner about market value to win a listing.[3] An explainable number with comps and a cap rate is more likely to survive due diligence. - Q: How do I know my broker is working for me? A: Ask whether they have ever advised a client to hold rather than sell, and ask for a reference from a seller whose deal did not close. Both answers are hard to fake. - Q: Will a hotel broker ever tell me to hold? A: A good one will, when the numbers say hold. A broker who has never once advised against selling has an incentive problem, since they are paid only when a sale closes. - Q: What should a hotel listing agreement include? A: The fee in writing, a marketing plan with dates, a reporting cadence, and a defined term specifying what happens if the asset does not sell within it. Sources: - [1] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [2] EDGAR full-text search (U.S. Securities and Exchange Commission, accessed 2026-09-18): https://www.sec.gov/edgar/search/ - [3] 2026 Code of Ethics and Standards of Practice (Article 1; Standards of Practice 1-3 and 1-12) (National Association of REALTORS, accessed 2026-09-18): https://www.nar.realtor/sites/default/files/2025-12/2026-COE-Standards-of-Practice-2026-01-01.pdf ### What is the step-by-step process for selling a hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/how-to-sell-a-hotel Last updated: 2026-09-18 Eight stages over roughly 24 weeks in our published playbook, as of September 2026: value opinion, package, targeted marketing, call for offers, best and final, purchase agreement, due diligence, close.[1] Franchise approval runs in parallel with due diligence. Hilton's 2025 Hampton agreement gives the brand 60 days from a completed application to decide.[2] In our experience, failed deals usually fail over financial discrepancies, not price. Key takeaways: - Twenty-four weeks is the plan in our playbook.[1] Franchise approval is the variable that stretches it. - A call for offers on a fixed date creates competition. Rolling offers do not. - In our experience, deals die in due diligence over an unreconciled T-12 more often than over price. - Seasonality matters less than readiness. A packaged asset beats a well-timed unpackaged one. - Selling without a broker is possible and it narrows the buyer pool to people who found you. #### What happens in each stage? Value opinion, package, marketing, call for offers, PSA, due diligence and franchise approval in parallel, then close. The value opinion, typically a broker opinion of value, sets the number everything else tests against. The package stage builds the confidential information memorandum: financials, photos, market context and brand position. In our playbook, marketing runs from week 3 to week 8 against a targeted buyer list under NDA. The call for offers collects bids on a common date in weeks 8 to 9, and a best-and-final round with the top two or three bidders follows in week 10.[1] Once a buyer is selected, the purchase and sale agreement gets negotiated and signed, the deposit goes hard, and due diligence and franchise approval begin on parallel tracks. Closing, the final stage, is mostly mechanical: funding, title transfer, and FF&E and inventory settlement. #### How does a call for offers actually work? The broker sets a common due date, collects offers on the same terms, then runs a best-and-final round with the top two or three bidders. A fixed date matters because it forces every serious buyer to commit at the same time, rather than negotiating one at a time against a moving target. The Matthews Hotel Index for Q1 2026 shows the transaction counts and cap-rate bands the buyer list is built from,[3] which is what tells a broker how many qualified buyers to expect for a given asset in a given market. After offers come in, the broker typically shortlists two or three and asks for a best-and-final, sometimes with a request to firm up financing contingencies or shorten the diligence period. Rolling offers, where the seller negotiates whoever calls first, in our experience usually leave money on the table because no buyer is bidding against a deadline. #### What happens after I accept an offer? A purchase and sale agreement, a hard deposit, and the start of due diligence and franchise approval on parallel tracks. The PSA sets the price, the deposit, the diligence period, and the conditions to closing. Once the deposit goes hard, typically after an initial inspection period, the buyer's diligence team and the franchise application both start moving. This is the stage where sequencing choices matter most: a buyer who files the franchise application the day the PSA is signed finishes weeks ahead of one who waits until diligence clears. #### Where do hotel deals usually die? In due diligence, most often because the trailing twelve-month P&L does not reconcile to bank statements. A buyer's accountant will trace reported NOI back to bank deposits and vendor payments. When owner-paid personal expenses, one-time items, or unrecorded concessions show up below the line, the buyer either re-trades the price or walks. An undisclosed PIP that surfaces mid-diligence does similar damage, not because of the dollar amount but because it makes the buyer question every other number in the package. Franchise approval stalling, a buyer's financing resizing after the appraisal, and a property condition assessment under ASTM E2018 finding more deferred maintenance than expected[4] round out the common failure points, shown with timing and prevention in the table above. #### How does franchise approval fit in? It should start at PSA signing and run alongside due diligence. Hilton's 2025 Hampton agreement gives the brand 60 days from a completed application to consent.[2] The Hampton agreement, for example, requires the buyer to meet the brand's requirements for new franchisees, submit a change of ownership application, sign the current franchise agreement and agree to requested upgrades before the transfer can close.[2] In our experience, turnaround varies by brand and by how experienced the buyer's operating platform is; a first-time hotel owner takes longer to clear than an existing multi-unit franchisee of the same brand. The practical lesson is sequencing, not speed: starting the application at PSA signing rather than waiting for diligence to clear is worth about a month on the hypothetical calendar below. #### Is there a best time of year to list? Readiness matters more than season. A packaged, clean asset listed in a slow month outsells an unready one listed at the ideal time. Buyers underwrite trailing performance and forward bookings regardless of calendar month, and a targeted marketing process reaches the same buyer list in January as in June. What does move the needle is having the document package, the PIP status letter and a reconciled T-12 ready before the first buyer conversation, covered in full at [Documents needed to sell a hotel](/sell-a-hotel/documents-needed). #### Can I do this without a broker? Yes, and the buyer pool narrows to people who already know the asset exists, which usually means fewer bidders and less price tension. An owner-direct sale is legal and happens most often when the buyer is already known. What a broker adds is underwriting discipline, a wider and more current buyer list, and a negotiated call-for-offers structure that creates competition. Whether that trade is worth the fee, and what questions to ask before hiring one, is covered honestly at [How do I choose a hotel broker?](/sell-a-hotel/how-to-choose-a-hotel-broker) Table: Where hotel deals fail, and the fix (weeks on our playbook calendar) Failure point | What it looks like | When it shows up | How to prevent it T-12 does not reconcile | Buyer's audit finds NOI overstated | Due diligence, week 16 | Reconcile to bank statements before you list Undisclosed PIP | Scope letter arrives mid-diligence | Week 14 to 18 | Request the scope letter before marketing Franchise approval stalls | Buyer's application sits with the brand | Week 16 to 24 | Start the application at PSA signing Buyer financing falls out | Lender resizes after appraisal | Week 18 to 22 | Vet the buyer's lender, not just the buyer Deferred maintenance | PCA finds more than expected | Week 15 | Get your own PCA first First-party data point: The Matthews Hotel Index for Q1 2026 shows the transaction counts and cap-rate bands the buyer list is built from.[3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 24-week calendar): Hypothetical. Engagement signed January 6. Weeks 1 to 2, value opinion delivered: January 20. Weeks 3 to 5, package complete: February 10. Weeks 6 to 11, marketing and tours: March 24. Week 12, call for offers: March 31. Weeks 13 to 14, best and final, buyer selected: April 14. Weeks 15 to 17, PSA signed, deposit hard-dated: May 5. Weeks 18 to 23, due diligence and franchise approval in parallel: June 16. Week 24, close: June 23. Add four weeks if the franchise application starts at the end of due diligence instead of at PSA signing. That one sequencing choice is worth a month. FAQ: - Q: How long does it take to sell a hotel? A: About 24 weeks from engagement to close in our published playbook, as of September 2026, for a prepared seller.[1] Franchise approval and due diligence run in parallel across the back half. - Q: What is a call for offers? A: A fixed date by which all interested buyers submit offers on the same terms, followed by a best-and-final round with the top bidders. It creates competitive tension that rolling offers do not. - Q: Can I sell a hotel without a broker? A: Yes. It narrows the buyer pool to people who already know the asset is available and puts the underwriting and negotiation work on the owner. - Q: What is the best time of year to sell a hotel? A: Readiness matters more than season. A hotel with a clean T-12 and a written PIP scope letter sells faster in a slow month than an unready one at the ideal time. - Q: What happens during hotel due diligence? A: The buyer audits the T-12, orders a property condition assessment and an ALTA/NSPS survey,[5] reviews the franchise agreement and PIP status, and verifies title. Our playbook budgets 60 to 90 days for diligence and closing together.[1] - Q: Why do hotel deals fall apart? A: In our experience, most often the trailing twelve-month P&L does not reconcile to bank statements, an undisclosed PIP surfaces, or the buyer's financing resizes after the appraisal comes in. - Q: When does franchise approval start? A: At purchase and sale agreement signing, ideally, so it runs alongside due diligence instead of after it. In our experience, starting it late is a common cause of a delayed close. Sources: - [1] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [4] E2018-24 Standard Guide for Property Condition Assessments (ASTM International, accessed 2026-09-18): https://store.astm.org/e2018-24.html - [5] ALTA/NSPS Land Title Survey Standards (2026 standards, effective February 23, 2026) (American Land Title Association, accessed 2026-09-18): https://www.alta.org/topics/topic-land-survey-standards ### What happens to the liquor license when I sell my hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/liquor-license-transfer Last updated: 2026-10-06 No. The liquor license does not pass with the deed. It is a state privilege tied to a named licensee and a specific address, and it moves only when the regulator approves the buyer. Under California law as it stands in October 2026, a $100 temporary permit lets the buyer keep pouring for four calendar months while the transfer application is pending.[1] Key takeaways: - The buyer is a new applicant, not an assignee. Florida approves a transfer only after the purchaser clears the same sections that govern a brand-new license.[4][6] - California makes the seller's creditors first in line for the money allocated to the license, through a recorded notice and a statutory escrow with eight payment tiers.[1] - Selling the entity rarely preserves the license. A 50 percent ownership change is itself a licensing event in California, and voids a Florida quota license inside three years of issuance.[1][4] - A hotel license may not permit what the buyer plans. California's Type 70 serves overnight guests and their invitees only.[3] - No public source publishes how long approval takes. The only published outer bound is four months plus one four-month extension.[1] #### Does the liquor license transfer with the hotel? No. It is a separate privilege, and in California, Florida and New York it moves only when the state approves the buyer.[1][4][7] California's act says each license "is separate and distinct and is transferable upon approval by the department from the licensee to another person and from one premises to another premises" (Bus. & Prof. Code 24070).[1] New York is blunter. A license "shall not be transferable to any other person or to any other premises" except in the discretion of the State Liquor Authority, and "shall be available only to the person therein specified, and only for the premises licensed" (ABC Law 111).[7] Florida permits a transfer when the licensee "has made a bona fide sale of the business which he or she is so licensed to conduct", but only if the purchaser's application is approved under the same sections that govern a new applicant (Fla. Stat. 561.32(1)(a), applying 561.17, 561.18, 561.19 and 561.65).[4] The buyer is a new applicant standing at the seller's address, not an assignee of the seller's paper. Qualification, fingerprinting where the division requires it, and disclosure of every person holding a direct or indirect interest in the business all run the way they would on a first application, and the division must deny the application if any of those people is not qualified (561.17(1)).[6] So the license application belongs on the franchise-approval clock, not the title clock. It starts at contract signing. #### Can the hotel keep serving between closing and approval? In California, yes, on a temporary permit: $100, up to four calendar months, extendable once for another four months and another $100 (Bus. & Prof. Code 24045.5).[1] The permit has conditions. The premises must have been operated under a license within 30 days of the application, the existing license must be surrendered under the department's rules, and the buyer must already have filed the transfer application for those premises.[1] The permit authorizes the same sales the pending license would. One operating detail catches first-time buyers. A temporary permit holder has to buy beer, wine and distilled spirits on cash terms, paying before or at delivery in currency or by check, unless it already holds one or more retail licenses and is not delinquent on them.[1] A buyer with no other California license therefore loses its distributor credit lines for the length of the permit. The department also will not approve the underlying transfer until the permit holder files a statement under penalty of perjury that all current obligations are discharged and that every outstanding check written for alcoholic beverages will be honored on presentation.[1] No public source publishes how long a person-to-person transfer takes to approve. Four months plus one four-month extension is the only published outer bound, and a deal needing more than eight months of it has a problem the permit will not fix. #### What does the state charge to transfer it? California charges $1,250 to move an on-sale general license from one person to another, plus an annual fee for each license in the application (Bus. & Prof. Code 24072).[1] California's schedule is published in the act: $1,250 for an on-sale or off-sale general license moved from a licensee to another person, or to another person and premises; $335 for all other licenses person to person; $780 premises to premises; and $6,000 to move a general license from one county to another.[1] Where one application covers several licenses at the same premises, the fee is charged once at the highest applicable rate and the rest transfer free, though the annual fee is still payable for each.[1] Florida charges 10 percent of the annual license tax. The exception is the quota license under 561.20(1), where the fee is assessed on the average annual value of gross sales of alcoholic beverages for the three years immediately preceding the transfer, levied at 4 mills and capped at $5,000; in place of the 4-mill assessment the transferor may elect to pay $5,000.[4] The cap binds on any hotel with meaningful bar revenue, which the worked example below shows. Records establishing the value of those sales have to accompany the transfer application.[4] Those are the state's fees. What a license sells for on the open market is a private price, and no public source publishes it by county, so a seller allocating part of the price to the license is negotiating rather than consulting a table. #### Why does California put the license money in escrow? Because Bus. & Prof. Code 24073 and 24074 put the seller's creditors in front of the seller for that money.[1] Before the transfer application is filed, the licensee or the intended buyer has to record a notice of intended transfer with the county recorder of each county where the premises sit. The notice names both parties, the kinds of license, the premises, and the escrow holder, describes the entire consideration broken out into cash, checks, promissory notes and tangible and intangible property, and carries an agreement between the parties that the consideration is paid only after the department approves the transfer (24073). A copy certified by the recorder goes to the department with the application.[1] The parties then open an escrow with a person or entity that is not a party to the transfer, and the buyer deposits the full amount of the purchase price with the escrow holder (24074).[1] Creditors of the seller who file claims before the department notifies the escrow holder of its approval are paid out of that money in a fixed order: first the United States, for income and withholding taxes; second wages, salaries and fringe benefits of the seller's employees earned or accruing before the sale; third secured creditors, to the extent of the proceeds arising from the sale of the security; fourth mechanics' liens; fifth escrow fees, prevailing brokerage fees and reasonable attorney's fees; sixth goods sold and delivered to the seller for resale at the licensed premises, services supplied to the licensed business, and a landlord's claim for past due rent; seventh claims reduced to court-ordered judgments; eighth all other claims, pro rata if the money runs out.[1] A claim the seller disputes is held by the escrow holder for 25 days and, if not attached, paid to the seller.[1] Two things follow for a seller. Money allocated to the license is not sale proceeds until the claims ahead of it are satisfied, and a broker's fee sits in the fifth tier, ahead of the beverage distributor and the landlord. Clearing trade payables and the wage accrual before escrow opens is the only reliable way to keep that money. #### Can I sell the entity and keep the license in place? Federal registration survives a stock sale, but California, Florida and Texas each treat a change of control as a licensing event, so usually no.[11][1][4][9] The federal rule is the permissive one. A TTB dealer registration is personal to whoever registered and is not transferable, and where the proprietorship of the business changes the successor must register as a new business (27 CFR 31.121).[10] But the sale or transfer of all or a controlling interest in a corporation's capital stock does not require registration as a new business. It requires an amended registration, and only if the sale alters the list of stockholders owning 10 percent or more of the stock, filed on or before the next July 1 (27 CFR 31.135).[11] State law does not follow. In California, when 50 percent or more of a corporation's shares are acquired by people who did not hold 50 percent on the date the license was issued, the license "shall be transferred to the corporation as newly constituted". The new owners must hold every qualification required of a licensee, the department investigates first, and the recorded notice applies just as on a person-to-person sale. The fee is $800 for an on-sale general license. The same rule reaches a new general partner or 50 percent of a limited partnership's capital or profits, and limited liability companies have their own section (Bus. & Prof. Code 24071.1 and 24071.2).[1] The department lists a 50 percent stock transfer as its own application type.[2] Florida is harsher on a quota license. A license issued under 561.20(1) is not transferable "in any manner, either directly or indirectly, including by any change in stock, partnership shares, or other form of ownership" for three years from original issuance, except through probate or guardianship. An attempted transfer in that window is void, and the license is deemed abandoned and reverts to the state to be reissued as a new license.[4] A transfer that is permitted inside the window costs 15 times the annual license fee.[4] Texas requires notice within 30 days of adding or removing any principal party, including officers and stockholders, under Alcoholic Beverage Code sections 28.04 and 11.42. A change of corporate control has to be reported before the change, and a Mixed Beverage Permit held by a corporation may not be renewed if the agency finds that ownership of more than 50 percent of the stock has changed since the original permit was issued.[9] An entity sale structured to dodge a transfer can therefore cost the buyer the permit at renewal instead. #### Does the license allow what the buyer plans to do? Not always. A hotel license is often restricted to hotel guests, or conditioned on a working restaurant and a minimum room count. California's Type 70, On-Sale General Restrictive Service, authorizes the sale or furnishing of beer, wine and distilled spirits for consumption on the premises "to the establishment's overnight transient occupancy guests or their invitees". The department says it is normally issued to suite-type hotels and motels that exercise the privilege for the guests' complimentary happy hour.[3] A buyer who intends to open that bar to the public is applying for a different license, not transferring this one. New York grants an on-premises liquor license only for premises "being conducted as a bona fide hotel provided that a restaurant is operated in such premises", along with the other premises types the section lists (ABC Law 64(5)).[8] Close the restaurant and the basis for the license closes with it.[8] Florida's route around the county quota is a room count. The special license under 561.20(2)(a)1 requires not fewer than 80 guest rooms in a county of fewer than 50,000 residents, and not fewer than 100 guest rooms in a county of 50,000 residents or more, with narrower paths for hotels in historic structures. The quota itself is one license per 7,500 county residents.[5] A special license is restricted as well: it allows sale and consumption only on the licensed premises of the hotel.[5] A buyer converting guest rooms, or a seller who has already taken rooms out of service, should check the count before signing. #### What about a restaurant or bar run by someone else? A concessionaire holds its own federal registration, and usually its own state license, and neither comes with the hotel.[12] Federal law is generous to the hotel on its own account. A hotel proprietor who conducts the sale of liquor throughout the hotel premises registers for one place only, and the different areas the proprietor operates, "such as banquet rooms, meeting rooms, and guest rooms, collectively constitute a single place of business" (27 CFR 31.82).[12] Where a concessionaire conducts sales in two or more areas of the hotel, those areas are also a single place of business, and the concessionaire registers once, for itself.[12] Registration is on TTB Form 5630.5d, due before engaging in business and on or before July 1 of each year after that, with no further filing needed while nothing on the form has changed (27 CFR 31.111).[13] A dealer going out of business has to register that event within 30 days (27 CFR 31.138).[14] On a sale, that pairs with the successor's duty to register as a new business.[10] So a hotel with a leased restaurant has two sets of paper, and only one set is the seller's to deal with. Confirm which entity holds which privilege before the purchase agreement allocates anything to a license. Table: Who approves a hotel liquor license transfer, and what the state charges, as published October 2026 Jurisdiction | Is the license transferable? | Interim permit while the application is pending | What the state charges to transfer | Is an entity sale a licensing event? California | Yes, on the department's approval. Each license is separate and distinct (B&P 24070).[1] | Temporary permit, $100, up to four calendar months, one four-month extension for $100 (B&P 24045.5).[1] | $1,250 person to person for an on-sale general license, $6,000 county to county, plus the annual fee per license (B&P 24072).[1] | Yes. 50 percent or more of the shares transfers the license to the entity as newly constituted, $800 for an on-sale general license (B&P 24071.1).[1] Florida | Only on a bona fide sale of the business, and the buyer is approved as a new applicant (561.32(1)(a)).[4] | Not published in the transfer statute.[4] | 10 percent of the annual license tax. On a quota license, 4 mills on the 3-year average alcohol sales, capped at $5,000 (561.32(3)(a)).[4] | Yes. A quota license transferred indirectly within 3 years of issuance is void and reverts to the state (561.32(4)).[4] New York | Not transferable to another person or premises except in the authority's discretion (ABC 111).[7] | Not published in section 111.[7] | Not published in section 111.[7] | Not addressed in section 111.[7] Texas | Notice to the commission is required on a change of ownership (Alco. Bev. Code 28.04 and 11.42).[9] | Not published on the commission's change page.[9] | Not published on the commission's change page.[9] | Yes. Report a change of corporate control before the change; a Mixed Beverage Permit may not renew if over 50 percent of the stock changed.[9] Federal (TTB) | No. Registration is personal and not transferable, and the successor registers as a new business (27 CFR 31.121).[10] | None. Register before engaging in business (27 CFR 31.111).[13] | No fee stated in 27 CFR part 31.[13] | No. A controlling-interest stock sale needs only an amended registration, and only if the 10 percent holders change (27 CFR 31.135).[11] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows Prime at 7.00 percent and the 10-year Treasury at 5.29 percent as of September 30, 2026.[15] That is the rate a license delay is priced at. Money allocated to the license and parked in a statutory escrow earns the seller nothing while the loan, the franchise fee and the payroll keep running. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 112-key California hotel at $19,800,000, and where the license money goes): Hypothetical, not a transaction. Price $19,800,000, of which the parties allocate $250,000 to the on-sale general license. The buyer deposits the full $250,000 with the escrow holder, as Bus. & Prof. Code 24074 requires.[1] The claims. Creditors file $291,000 of claims before the department notifies the escrow holder of approval: $38,000 of federal income and withholding taxes, $96,000 of wages and fringe benefits accrued before the sale, no secured claim paid out of this escrow, a $41,000 mechanics' lien from the lobby work, $52,000 of escrow, brokerage and attorney's fees, $34,000 owed to the beverage distributor and the landlord, no court-ordered judgments, and $30,000 of other claims. The sum is $38,000 plus $96,000 plus $41,000 plus $52,000 plus $34,000 plus $30,000, or $291,000. The waterfall. The statute pays in order. Tier one takes $38,000, leaving $212,000. Tier two takes $96,000, leaving $116,000. Tier four takes $41,000, leaving $75,000. Tier five takes $52,000, leaving $23,000. Tier six claims $34,000 and reaches only the $23,000 left, a shortfall of $11,000. Tiers seven and eight receive nothing, so $30,000 of other claims goes unpaid. Unpaid claims total $291,000 less $250,000, or $41,000. What the seller receives from this escrow. Nothing. The $250,000 went to the seller's own creditors in the order the statute sets, and the brokerage fee was paid ahead of the distributor and the landlord.[1] The fees and the wait. The transfer application on an on-sale general license is $1,250.[1] A temporary permit is $100 for four calendar months, and $100 more for the one extension, so $200 buys at most eight calendar months of trading.[1] Costing the $250,000 held through a single four-month permit at the 7.00 percent Prime rate on the October 2026 rate sheet: $250,000 times 0.07 times 122 divided by 365 is $5,849.[15] The same hotel in Florida. On a quota license with three-year average alcoholic beverage sales of $1,400,000, the transfer fee is 4 mills on that average, so $1,400,000 times 0.004 is $5,600, which exceeds the statutory ceiling and is therefore capped at $5,000.[4] Every figure above was recomputed by scripts/check-liquor-license-math.mjs. FAQ: - Q: Does my liquor license convey with the hotel at closing? A: No. It is a state privilege tied to a named licensee and a specific address. California calls each license separate and distinct and transferable only on the department's approval.[1] The buyer applies for it. The deed does not carry it. - Q: Can the bar stay open while the buyer's application is pending? A: In California, yes. A $100 temporary permit runs up to four calendar months and can be extended once for four more months and another $100, provided the license was surrendered and the transfer application is already filed.[1] - Q: Who gets the money allocated to the license? A: The seller's creditors first. California requires an escrow holding the full price, paid out in eight statutory tiers: federal taxes, employee wages, secured creditors, mechanics' liens, escrow and brokerage and attorney fees, trade and landlord claims, judgments, then everyone else pro rata.[1] - Q: Can I sell the LLC instead and keep the license in place? A: Usually not. California treats a 50 percent ownership change as a transfer of the license to the entity as newly constituted.[1] Florida voids an indirect transfer of a quota license within three years of issuance.[4] Federal registration is the lenient exception.[11] - Q: Does a hotel license let the buyer open the bar to the public? A: Not a California Type 70. It authorizes service only to the hotel's overnight transient occupancy guests or their invitees, and is normally issued to suite-type hotels for the complimentary reception.[3] A public bar is a different license. - Q: How long does approval take? A: No public source publishes it. The only published outer bound is California's temporary permit: four calendar months plus one four-month extension.[1] File the transfer application at contract signing rather than after due diligence clears. - Q: Does the restaurant tenant's license come with the hotel? A: No. A concessionaire registers with TTB separately for itself, even though the hotel's own banquet rooms, meeting rooms and guest rooms count as a single place of business.[12] The tenant's state license stays the tenant's. Sources: - [1] California Alcoholic Beverage Control Act, 2026 edition (Bus. & Prof. Code 24070, 24071.1, 24071.2, 24072, 24073, 24074 and 24045.5) (California Department of Alcoholic Beverage Control, accessed 2026-10-06): https://www.abc.ca.gov/wp-content/uploads/2026/03/2026-ca-abc-act.pdf - [2] Transfer or Change a License: person to person, stock transfer, premises to premises (California Department of Alcoholic Beverage Control, accessed 2026-10-06): https://www.abc.ca.gov/licensing/transfer-or-change-a-license/ - [3] License Types, type 70 On-Sale General Restrictive Service (California Department of Alcoholic Beverage Control, accessed 2026-10-06): https://www.abc.ca.gov/licensing/license-types/ - [4] Fla. Stat. 561.32, transfer of licenses, change of officers or directors, transfer of interest (The Florida Senate, accessed 2026-10-06): https://www.flsenate.gov/Laws/Statutes/2025/561.32 - [5] Fla. Stat. 561.20, limitation upon number of licenses issued, and the hotel special license (The Florida Senate, accessed 2026-10-06): https://www.flsenate.gov/Laws/Statutes/2025/561.20 - [6] Fla. Stat. 561.17, license and registration applications, approved person (The Florida Senate, accessed 2026-10-06): https://www.flsenate.gov/Laws/Statutes/2025/561.17 - [7] N.Y. Alcoholic Beverage Control Law 111, license to be confined to premises licensed (New York State Senate, accessed 2026-10-06): https://www.nysenate.gov/legislation/laws/ABC/111 - [8] N.Y. Alcoholic Beverage Control Law 64, license to sell liquor at retail for consumption on the premises (New York State Senate, accessed 2026-10-06): https://www.nysenate.gov/legislation/laws/ABC/64 - [9] Manage and Report Changes to an Existing License: change of ownership, change of corporate control (Texas Alcoholic Beverage Commission, accessed 2026-10-06): https://www.tabc.texas.gov/services/tabc-licenses-permits/manage-report-changes-to-an-existing-license - [10] 27 CFR 31.121, sale of business (Electronic Code of Federal Regulations, accessed 2026-10-06): https://www.ecfr.gov/current/title-27/section-31.121 - [11] 27 CFR 31.135, change in ownership of capital stock (Electronic Code of Federal Regulations, accessed 2026-10-06): https://www.ecfr.gov/current/title-27/section-31.135 - [12] 27 CFR 31.82, hotels (Electronic Code of Federal Regulations, accessed 2026-10-06): https://www.ecfr.gov/current/title-27/section-31.82 - [13] 27 CFR 31.111, date registration form is due (Electronic Code of Federal Regulations, accessed 2026-10-06): https://www.ecfr.gov/current/title-27/section-31.111 - [14] 27 CFR 31.138, discontinuance of business (Electronic Code of Federal Regulations, accessed 2026-10-06): https://www.ecfr.gov/current/title-27/section-31.138 - [15] Hotel debt rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-06): https://matthewshotelmarkets.com/rates ### Should I sell my hotel off-market or list it publicly? URL: https://matthewshotelmarkets.com/sell-a-hotel/off-market-vs-marketed Last updated: 2026-09-18 Most owners should run a confidential marketed process: a targeted buyer list under NDA, not a public listing and not a single-buyer deal. As of September 2026, our published playbook markets that way from week 3 to week 8 of a 24-week sale.[1] Off-market skips those weeks but removes competing bids. No method hides a sale from the brand, which gets 60 days' notice under Hilton's 2025 Hampton agreement.[2] Key takeaways: - There are three methods, not two: off-market to one to three buyers, confidential marketing to an NDA-bound list, and a public listing. - Off-market saves the marketing weeks, 3 through 8 in our playbook.[1] It does not shorten due diligence or the brand's 60-day review.[2] - Price tension comes from competing bids on a common date. One buyer means no tension. - Confidentiality has a floor. The franchisor must be told, and federal WARN rules can require employee notice at larger employers.[3] - If your broker brings an off-market buyer it also represents, that is dual agency. It requires full disclosure and your informed consent.[4] #### What is the difference between off-market, confidential and public? Off-market means a few hand-picked buyers and no process. Confidential means a full process run quietly under NDA. Public means the hotel is advertised by name. Owners often use "off-market" and "confidential" as if they were the same thing. They are not. An off-market sale goes to one to three buyers, often someone who called you directly, with no offering memorandum and no bid deadline. A confidential marketed sale is a full process: a package, a buyer list, NDAs before any property-level detail, tours, and a call for offers. The only thing missing is public advertising. A public listing adds the hotel's name and photos to listing sites and email blasts. Our own playbook is the middle path. In week 3 we call and email the top prospects directly "while stressing confidentiality", and the employee roster in the financial package goes out with names removed.[1] The steps are laid out at [How do I sell a hotel, step by step?](/sell-a-hotel/how-to-sell-a-hotel). #### Which method gets the best price? The method that produces competing offers on the same date, which is a marketed process, confidential or public. A buyer who knows it is the only bidder prices the hotel to its own return target and no higher. A buyer who knows five other groups are underwriting the same package prices it to win. That is the whole case for marketing. In our playbook, initial offers come in during weeks 4 to 8, a call for offers goes out in weeks 8 to 9, and best-and-final offers land in week 10.[1] Each step exists to make buyers compete on price, deposit and diligence terms at the same moment. We do not publish a percentage for how much more a marketed process brings, because no public dataset measures it and any number would be invented. What an owner can check is thinner: the Matthews Hotel Index for Q1 2026 shows how few hotel trades are observed in any one market in a quarter.[5] In a thin market, one off-market offer is one data point, not a price. #### When does an off-market sale make sense? When speed or secrecy is worth more to you than the last increment of price, and the buyer is already known and credible. Off-market fits a narrow set of facts. A neighboring owner or an existing partner wants the hotel and already knows the numbers. An estate or a partnership dispute needs certainty more than price. A loan matures in months and there is no time for eight weeks of marketing. In those cases, skip the marketing weeks, but keep the discipline: get a broker opinion of value first so you know what you are giving up, ask for proof of funds, and put a short exclusivity period in writing so the buyer cannot stall. If the off-market buyer comes through a broker who also represents that buyer, read the engagement letter closely. Under the REALTOR Code of Ethics, a broker may represent both sides only after full disclosure and with the informed consent of both parties, and a listing broker must keep submitting all offers to the seller until closing unless the seller waives that in writing.[4] See [How do I choose a hotel broker?](/sell-a-hotel/how-to-choose-a-hotel-broker). #### Who finds out that my hotel is for sale? In a confidential process: the buyers who sign an NDA, the brand, your lender at payoff, and your staff near the end. Not the public. Three groups learn about the sale under any method. First, the franchisor. Hilton's 2025 Hampton agreement requires 60 days' written notice of a change of ownership, gives the brand 60 days from a completed application to consent, and lets the brand talk to any third party it considers necessary to evaluate the transfer.[2] Second, employees. In our playbook, buyers are introduced to employees in weeks 22 to 24, at the end of the closing period.[1] Federal WARN rules cover employers with 100 or more employees and make the seller responsible for any required notice of a plant closing or mass layoff up to the date of sale.[3] An employer below that count is outside the federal rule, but state laws differ, so check with employment counsel. Third, vendors and the lender, who learn at payoff and contract assignment. Guests and competitors do not need to know, and in a confidential process they generally do not. #### Does going off-market make the sale faster? It removes the marketing weeks. It does not move the back half, which is set by due diligence and the brand. Our playbook spends weeks 1 to 2 on the package, weeks 3 to 8 on marketing, weeks 8 to 12 on offers and contract, and weeks 12 to 24 on due diligence and closing.[1] An off-market sale can skip most of weeks 3 to 10. The buyer still needs to audit the financials, order a property condition report and a survey, arrange a loan, and get franchise approval, and the brand still has its 60 days.[2] The full stage-by-stage timing is at [How long does it take to sell a hotel?](/sell-a-hotel/how-long-it-takes). #### Is there a best time of year to list a hotel? Less than owners expect. Buyers underwrite a trailing twelve months, so the calendar month matters less than what the last twelve months show. A hotel is priced on its trailing twelve-month net operating income, which already contains every season. The better timing question is when your trailing twelve months will look strongest and cleanest: after a renovation has had a full year to show up in the numbers, after a one-time expense rolls off, or before a known PIP deadline rather than after it. Then count backward. With about 24 weeks from engagement to close in our playbook,[1] an owner who wants to close by year end should engage a broker by early summer. Table: Three ways to sell a hotel, compared | Off-market | Confidential marketed | Public listing Buyer pool | One to three known buyers | Targeted list under NDA | Anyone who sees the listing Price tension | None unless a second buyer appears | Call for offers, then best and final[1] | Call for offers, then best and final[1] Staff and guest exposure | Lowest | Low: names withheld, staff told near closing[1] | Highest: the hotel is advertised by name Marketing time | Skipped | Weeks 3 to 8 in our playbook[1] | Weeks 3 to 8 in our playbook[1] Due diligence and brand approval | Unchanged: brand has 60 days[2] | Unchanged: brand has 60 days[2] | Unchanged: brand has 60 days[2] Best fit | Known buyer, deadline, estate or dispute | Most branded select-service hotels | Assets where reach matters more than discretion First-party data point: The Matthews Hotel Index for Q1 2026 reports observed transaction counts and cap-rate bands by market, which is the context for judging whether a single off-market offer is a fair price.[5] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what skipping the market has to be worth): Hypothetical. A buyer calls the owner of an 88-key select-service hotel and offers $10.0 million, all cash, 45-day close, no broker. The owner's broker opinion of value says a marketed process should land between $10.4 million and $11.0 million. The marketed path costs time: about 24 weeks in our playbook instead of roughly 8, so 16 more weeks of ownership.[1] It also costs a fee. Assume, for this example only, a 2.5 percent fee. At the low end, $10.4 million less a $260,000 fee is $10.14 million, which is $140,000 better than the direct offer. At the high end, $11.0 million less $275,000 is $10.725 million, which is $725,000 better. So the question is whether 16 weeks of certainty is worth $140,000 to $725,000 to this owner. For an owner with a loan maturing in 90 days, it might be. For an owner with no deadline, it usually is not. The useful move is often a third one: tell the direct buyer a process is starting and invite them to bid in it. FAQ: - Q: Should I sell my hotel confidentially or list it publicly? A: Most owners do best with a confidential marketed process: a targeted buyer list under NDA and a call for offers. It keeps competitive bidding while keeping the hotel's name off public listing sites. Our playbook markets this way in weeks 3 to 8.[1] - Q: Someone called and wants to buy my hotel directly. Should I just sell to them? A: Get a broker opinion of value first so you know what the offer leaves on the table. Then either negotiate with proof of funds and a short exclusivity period, or invite that buyer to bid inside a marketed process. - Q: Can I sell my hotel without my employees finding out? A: Until late in the process, usually yes. In our playbook buyers meet employees in weeks 22 to 24.[1] Federal WARN notice rules can apply to employers with 100 or more employees, so confirm notice duties with employment counsel.[3] - Q: Will Hilton, Marriott or IHG find out I am selling? A: Yes. A branded hotel cannot change hands without the franchisor. Hilton's 2025 Hampton agreement requires 60 days' written notice and gives the brand 60 days from a completed application to consent.[2] Your own agreement controls. - Q: Do off-market hotel deals sell for less? A: No public dataset measures it, so we will not print a percentage. The mechanism is simple: one buyer has no one to outbid. A marketed process puts several offers side by side on one date. - Q: Is an off-market hotel sale faster? A: It skips the marketing weeks, 3 through 8 in our playbook.[1] Due diligence, the buyer's loan and franchise approval take the same time either way. - Q: What is the best month to list a hotel for sale? A: There is no reliable best month. Buyers price a trailing twelve months, which includes every season. List when your trailing numbers are strongest, and count back about 24 weeks from when you want to close.[1] - Q: My broker says they already have a buyer. Is that a problem? A: Not by itself, but ask who the broker represents. Under the REALTOR Code of Ethics, representing both seller and buyer requires full disclosure and informed consent from both.[4] Sources: - [1] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Item 17 and Franchise Agreement section 12.2.2 (change of ownership transfers) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] 20 CFR 639.3 (WARN Act employer definition) and 20 CFR 639.4(c) (sale of a business) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.4 - [4] 2026 Code of Ethics and Standards of Practice (Standards of Practice 1-5 and 1-7) (National Association of REALTORS, accessed 2026-09-18): https://www.nar.realtor/sites/default/files/2025-12/2026-COE-Standards-of-Practice-2026-01-01.pdf - [5] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### How do I sell a hotel that is losing money or in default? URL: https://matthewshotelmarkets.com/sell-a-hotel/selling-a-distressed-hotel Last updated: 2026-10-01 Yes, you can sell, and selling early keeps you in control. Once a loan defaults, the exits are a lender-approved sale, a receivership sale, a note sale, a deed in lieu or a bankruptcy sale, and the lender or a court controls most of them. Trepp put the lodging CMBS special servicing rate at 8.63 percent in July 2026.[1] Forgiven debt can be taxable, so model the tax before choosing.[2] Key takeaways: - The owner controls only one path: a marketed sale started before or early in default. Every later path is run by the lender, a receiver or a court. - If the price will not clear the loan, the sale needs the lender's written consent to a short payoff. Ask for it before going to market, not after. - A federal court receiver can sell privately only after three appraisals, and not below two-thirds of appraised value.[3] State receiverships follow state law. - A receiver's appointment is a non-curable default under Hilton's 2025 Hampton franchise agreement, so the flag is part of the negotiation.[4] - Handing back the keys is a sale for tax purposes. On a non-recourse loan the full debt counts as the amount realized.[2] #### Can I sell a hotel that is losing money? Yes. Hotels with negative cash flow sell regularly, but buyers price them on what the hotel can earn after a fix, less the cost and risk of the fix. A hotel that loses money has no positive net operating income to put a cap rate on. Buyers instead underwrite a stabilized year, after a renovation, a new manager, a new flag or simply a lower debt load, and then deduct the capital and the time it takes to get there. The valuation math itself is walked through at `/hotel-valuation/how-to-value-a-hotel`. What matters for the seller is evidence. A buyer will pay for a turnaround it can see: a current STAR report showing the comp set is healthy while your hotel is not, a written PIP scope, and a trailing twelve-month P&L that reconciles to the bank statements even though the numbers are bad. Bad numbers presented cleanly sell. Unclear numbers do not. The document list is at `/sell-a-hotel/documents-needed`. #### Can I sell while the loan is in default or with the special servicer? Yes, with the lender's cooperation. You still hold title until a foreclosure or deed in lieu, but the lender's lien has to be released at closing. If the sale price covers the loan balance, default interest, fees and closing costs, the lender is paid off at closing like any other sale. If it does not, the sale works only if the lender agrees in writing to release its lien for less than it is owed, often called a short sale or discounted payoff. A lender or special servicer weighs that offer against what it expects to net from its other remedies, so a marketed process with real bids is the owner's best evidence of value. Start that conversation early. Trepp reported that 8.63 percent of lodging CMBS loans were with the special servicer in July 2026, and that one large new transfer that month was a $280 million maturity default on two hotels.[1] Servicers are busy, and approvals take time. What a servicer can and cannot agree to, and what to do in the first 30 days, is covered at `/hotel-financing/loan-workouts`. This page picks up where a workout stops making sense. #### What is a receivership sale? A court appoints a neutral receiver to run the hotel, and the receiver, not the owner, markets and sells it with court approval. Lenders ask for a receiver to take control of cash and operations while the default is resolved. In federal court, the sale rules are in the statute. Property in the hands of a receiver is sold at public sale unless the court orders otherwise. A private sale requires a hearing with notice, three disinterested appraisers, a price of at least two-thirds of the appraised value, newspaper publication at least ten days before confirmation, and it fails if a bona fide offer comes in at least 10 percent higher.[3] State court receiverships, which are more common for single hotels, follow each state's own rules. Two hotel-specific points. Under Hilton's 2025 Hampton franchise agreement, an order appointing a receiver for the hotel lets the brand terminate immediately with no right to cure, and Hilton's lender comfort letter form says a receiver may be required to sign Hilton's receiver agreement.[4] So keeping the flag on is a three-way negotiation among the lender, the receiver and the brand. And the owner's equity is last in line: sale proceeds pay the receiver's costs and the lender first. #### What is a note sale, and what does it mean for me? The lender sells your loan, not your hotel. You now owe the same debt to a new holder, often one that wants the property. A lender that does not want to foreclose can sell the promissory note and mortgage to an investor, usually at a discount to the balance. The owner is not a party to that sale and has no vote. The loan documents do not change, but the counterparty does. A bank may have preferred an extension. A note buyer that paid less than par may prefer a fast discounted payoff, or may intend to foreclose and own the hotel. For an owner, a note sale is sometimes an opening. A new holder with a lower basis in the loan can accept a payoff the original lender could not. That is the moment a sale or recapitalization with fresh money can work. We do not publish note pricing, because no public source reports it for hotel loans. #### What is a deed in lieu of foreclosure? You voluntarily deed the hotel to the lender in exchange for a release, skipping the foreclosure lawsuit. The lender has to agree to it. A deed in lieu is faster and quieter than foreclosure, and the main thing the owner negotiates is the release: of the loan, and of any guaranty. Lenders usually want clean title, so junior liens and unpaid taxes can block it. The brand matters here too. Hilton's comfort letter form gives a lender a cure period plus an additional 180 days to complete its acquisition of the hotel through foreclosure or other proceedings, and states that such an acquisition is not a prohibited transfer under the franchise agreement.[4] Staff are the other practical issue. Federal WARN rules apply to employers with 100 or more employees, and in a sale the seller is responsible for any required notice up to the closing date.[6] Get employment counsel involved before a transfer date is set. #### What is the tax on a short sale, deed in lieu or foreclosure? The IRS treats each one as a sale of the hotel. Whether you also have canceled debt income depends on whether the loan is recourse. IRS Publication 4681 says a foreclosure is treated as a sale from which you may realize gain or loss, even if you voluntarily return the property to the lender, and that a voluntary conveyance in lieu of foreclosure is treated as an exchange of property to satisfy a debt.[2] On a non-recourse loan, the entire unpaid debt is treated as the amount realized, and there is no canceled debt income. If the debt is more than your adjusted basis, you have a taxable gain even though you receive no cash. On a recourse loan, gain or loss is measured against the hotel's fair market value, and any forgiven debt above that value is ordinary income unless an exclusion applies.[2] The exclusions include bankruptcy, insolvency, and an election for qualified real property business indebtedness.[2] This is where owners get surprised. A hotel that was depreciated for years and refinanced along the way can have debt well above basis. The layers of tax on the gain itself are explained at `/sell-a-hotel/taxes-when-selling-a-hotel`. Run the numbers with a CPA before choosing a path. #### When does a bankruptcy sale make sense? When liens, judgments or disputes make a normal closing impossible, because a bankruptcy court can order a sale free and clear of them. Section 363 of the Bankruptcy Code lets the trustee sell property of the estate outside the ordinary course of business after notice and a hearing, and sell it free and clear of other parties' interests when the statute's conditions are met.[7] Buyers like the clean title. The cost is legal fees, time and loss of privacy. It also touches the franchise: under the 2025 Hampton agreement a bankruptcy filing that results in an order for relief is a ground for immediate termination.[4] A bankruptcy sale is a decision to make with restructuring counsel, not a marketing tactic. Table: How a distressed hotel changes hands: six paths compared Path | Who controls it | What the owner can get | Key constraint Marketed sale, loan paid in full | Owner | Remaining equity | Price must clear the loan and closing costs Lender-approved short sale | Owner runs it, lender approves it | A release, if negotiated | Written lender consent; forgiven recourse debt can be income[2] Receivership sale | Receiver and court | Usually nothing until the lender is paid | Federal private sales: three appraisals, two-thirds of value floor[3] Note sale | Lender | Nothing directly; a new party to negotiate with | Owner has no vote Deed in lieu | Lender must agree | Release of the loan and, if negotiated, the guaranty | Treated as a sale for tax; clean title needed[2] Bankruptcy section 363 sale | Bankruptcy court | Whatever remains after creditors | Notice and hearing; cost and publicity[7] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows what a buyer's new loan is priced from: the 10-year Treasury was 5.29% on September 30, 2026 and SOFR was 3.90%.[5] A distressed hotel sells to a buyer who has to finance it at today's index, which is why the price is set by today's debt cost and not by the old loan balance. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a sale that does not clear the loan, and the tax that follows): Hypothetical. A 110-key hotel owes $12.0 million on a loan that matured. Marketed bids come in at $10.0 million. Closing costs are $300,000, so net proceeds are $9.7 million and the shortfall to the lender is $2.3 million. The owner's adjusted basis, after years of depreciation, is $9.0 million. If the loan is recourse and the lender approves the sale and forgives the $2.3 million: the owner has a sale at $10.0 million against a $9.0 million basis, so $1.0 million of gain before closing costs, plus $2.3 million of canceled debt that is ordinary income unless the insolvency, bankruptcy or qualified real property business debt exclusion applies.[2] If the loan is non-recourse and the owner instead deeds the hotel to the lender: the amount realized is the full $12.0 million of debt. Gain is $12.0 million minus $9.0 million, or $3.0 million, with no cash received and no canceled debt income.[2] Same hotel, same debt, two different tax bills, and in both cases the tax arrives in a year when the owner received little or no cash. That is why the tax model comes before the choice of path. FAQ: - Q: Can I sell my hotel if it is losing money? A: Yes. Buyers price a money-losing hotel on what it can earn after a renovation, new management or new flag, minus the cost and risk of getting there. Clean financials and a written PIP scope matter more than the current loss. - Q: Can I sell my hotel if I am behind on the loan? A: Yes, but the lender's lien must be released at closing. If the price covers the debt, it is a normal payoff. If not, you need the lender's written agreement to accept less before you can close. - Q: Should I give the hotel back to the bank or try to sell it first? A: Usually test the market first. Real bids tell you and the lender what the hotel is worth, and a sale you run keeps options open. A deed in lieu needs lender consent and is taxed as a sale anyway.[2] - Q: What is a receivership sale of a hotel? A: A court-appointed receiver runs the hotel and sells it with court approval. In federal court, a private sale needs three appraisals and cannot be confirmed below two-thirds of appraised value.[3] State rules vary. - Q: My lender sold my hotel loan. What does that mean? A: You owe the same debt on the same terms to a new holder. A note buyer that paid a discount may accept a lower payoff than your old lender could, or may plan to foreclose. Open a conversation quickly. - Q: Do I owe taxes if I lose my hotel to foreclosure? A: Possibly. The IRS treats foreclosure and deed in lieu as a sale. On non-recourse debt, the full loan balance is the amount realized. On recourse debt, forgiven amounts can be ordinary income unless an exclusion applies.[2] - Q: Will my hotel lose its flag if a receiver is appointed? A: It can. Under Hilton's 2025 Hampton agreement, a receiver's appointment allows immediate termination, and Hilton may require the receiver to sign a receiver agreement.[4] Keeping the flag becomes a negotiation among lender, receiver and brand. - Q: How fast can a distressed hotel be sold? A: A full marketed sale runs about 24 weeks in our published playbook.[8] A sale to a known buyer can be shorter, but lender approval of a short payoff and the brand's review of the buyer still take weeks. Sources: - [1] CMBS Special Servicing Rate Falls as Office, Lodging Recover (July 2026 Trepp data) (CRE Daily, citing Trepp, accessed 2026-09-18): https://www.credaily.com/briefs/cmbs-special-servicing-rate-falls-as-office-lodging-recover/ - [2] Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p4681 - [3] 28 U.S. Code section 2001, Sale of realty generally (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/28/2001 - [4] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025): Item 17, Franchise Agreement section 13.2, and Exhibit K lender comfort letter form (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [6] 20 CFR 639.3 (WARN Act employer definition) and 20 CFR 639.4(c) (sale of a business) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.4 - [7] 11 U.S. Code section 363, Use, sale, or lease of property (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/11/363 - [8] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process ### Can I sell a hotel that sits on a ground lease? URL: https://matthewshotelmarkets.com/sell-a-hotel/selling-a-hotel-on-a-ground-lease Last updated: 2026-10-01 Yes. You sell your leasehold: the building, the business and the right to use the land for the lease term. Lenders and brands test that term. As of September 18, 2026, an SBA 504 loan requires the lease, with tenant-controlled options, to run at least as long as the debenture, 25 years on our rate sheet.[1][2] A leasehold with 30 years or more to run is like-kind to real estate.[3] Key takeaways: - What you own is a leasehold. At the end of the lease the improvements go back to the landowner unless the lease says otherwise, so remaining term is the first number every buyer asks for. - Ground rent is paid before debt service, so it lowers NOI dollar for dollar and lowers value by the rent divided by the cap rate. - SBA publishes its leasehold rules. 504: remaining term including tenant-controlled options at least equal to the debenture term.[1] 7(a): the ground lease must contain specific lender protections.[4] - Hilton's 2026 Hampton franchise agreement accepts a long-term ground leasehold with a term equal to the franchise term.[5] - Read the assignment clause before you list. If the landowner must consent to a sale, that consent is on your critical path. #### What exactly am I selling? A hotel on a ground lease is sold as a leasehold interest: the buyer takes an assignment of your ground lease and buys the building, the furniture and the business. Under a ground lease the landowner keeps the land and you, the tenant, own and operate the improvements for the lease term. The term, the rent and what happens at expiration are all in the lease. The basics are defined at [Ground Lease](/glossary/ground-lease). A sale therefore has a third party that a fee simple sale does not: the landowner. The buyer steps into your lease, pays the ground rent, and takes on the expiration date. Everything that follows on this page comes from those three facts. The sale process is otherwise the same as any hotel sale, and it is laid out at `/sell-a-hotel/how-to-sell-a-hotel`. #### Does a ground lease lower my hotel's value? Yes, in two ways: the rent reduces NOI, and buyers apply a higher cap rate to income that ends when the lease does. The first effect is arithmetic. Ground rent is an operating cost paid ahead of the mortgage. Each dollar of rent is a dollar less NOI, and at a given cap rate the value lost is the rent divided by that cap rate. Rent that escalates with inflation or with hotel revenue keeps taking a larger share. The second effect is judgment. A fee simple owner has the income forever. A leasehold owner has it until expiration, and then the building reverts. The shorter the remaining term, the more a buyer discounts. No public source publishes a leasehold cap rate premium for hotels, so we do not print one. The Matthews Hotel Index for Q1 2026 puts fee simple select-service cap rates at 7.50 to 8.75 percent across 14 markets, and a leasehold prices outside that band by an amount that depends on the term and the rent.[6] How cap rates work is covered at `/hotel-valuation/hotel-cap-rates`. You can test the rent effect with `/tools/hotel-value-estimator`: run it once with NOI before ground rent and once after. #### Can my buyer get a loan on a leasehold hotel? Yes, if the remaining term is long enough and the lease protects the lender. The SBA programs publish their tests, and other lenders set their own. SBA 504. A borrower may use 504 proceeds on land leased from an unrelated lessor if the remaining term of the lease, including options to renew exercisable only by the lessee, equals or exceeds the term of the debenture, the borrower assigns its interest in the lease to the CDC, and the loan is secured by a recorded lien against the leasehold estate.[1] The debenture on the current Matthews Hotel Markets rate sheet is 25 years.[2] SBA 7(a). SOP 50 10 8 says that where loan proceeds finance improvements on a leasehold interest in land, the ground lease must include, at a minimum, clauses covering the tenant's right to encumber the leasehold, no modification or cancellation of the lease without the lender's approval, the lender's right to acquire the leasehold at foreclosure and reassign it without the landowner unreasonably withholding consent, the right to sublease, a share of hazard insurance and condemnation proceeds, and the lender's rights on the tenant's default or termination (p. 54).[4] A 7(a) real estate loan can run up to 25 years (p. 120).[4] Banks, CMBS lenders and life companies do not publish a minimum remaining term. A practical reading of the SBA list is that any leasehold lender wants the same protections. If your lease lacks them, the fix is an amendment or an estoppel from the landowner, and it takes time. The buyer's side of loan sizing is at `/tools/hotel-loan-sizing-calculator`. #### Will the brand approve a buyer on leased land? Hilton's 2026 Hampton franchise agreement requires fee simple title or a long-term ground leasehold for a term equal to the franchise term.[5] Section 5.1.15 of the Hampton franchise agreement in Hilton's 2026 disclosure document says the franchisee must own fee simple title, or a long-term ground leasehold interest for a term equal to the term of the franchise agreement, or at Hilton's request have the fee owner or another acceptable party guarantee the franchisee's obligations.[5] Hilton's franchise application asks for the recorded ground lease and its expiration date.[5] On a sale, the buyer applies for a change of ownership, and the new term is generally the remaining term of the existing agreement or another term Hilton approves (p. 69).[5] So line up three dates before you go to market: ground lease expiration, franchise expiration and the buyer's likely loan maturity. If the franchise is also near its end, read `/sell-a-hotel/franchise-agreement-expiration`. Other brands have their own rules, stated in their own disclosure documents. #### Can a 1031 exchange buyer buy my leasehold? Yes if the leasehold has 30 years or more to run, under the Treasury regulation's own example. Section 1031 applies to real property held for business or investment that is exchanged for real property of like kind.[3] The regulations list a leasehold among the interests that are real property for section 1031, and give as an example of a like-kind exchange a leasehold of a fee with 30 years or more to run exchanged for real estate.[3] The text of that example does not say how renewal options count. A buyer's tax counsel will have a view, and a seller with 27 years plus options should expect the question. A leasehold under 30 years is a smaller buyer pool, because exchange buyers may pass. The hotel's furniture and equipment are personal property and sit outside section 1031 either way. The buyer's side is covered at `/hotel-financing/1031-exchange-hotels`. #### Should I extend the ground lease or buy the land before I sell? If the remaining term is short enough to fail a lender's or a brand's test, fixing the lease first is often worth the negotiation. Ask the landowner early. There are three moves. Extend the term or add tenant-controlled options, so the lease clears the 25-year SBA test and the 30-year exchange example.[1][3] Amend the lease to add the lender protections in the SBA list.[4] Or buy the land and sell fee simple. Each one is a negotiation with a landowner who knows you need it. Start before the hotel is on the market, because a buyer who finds the problem in diligence will price it against you or walk. A public landowner such as an airport authority, a university or a city may need board approval, which can add time. The documents a buyer will ask for, including the recorded lease, every amendment and a current landlord estoppel, are listed at `/sell-a-hotel/documents-needed`. Also read the lease for an assignment clause, a landowner's right of first refusal or first offer, and any transfer fee. Those terms decide how confidential the process can be, which is discussed at `/sell-a-hotel/off-market-vs-marketed`. Table: Who tests the ground lease when a leasehold hotel is sold, as of September 18, 2026 Who is testing | Published term test | What else they look for SBA 504 lender and CDC | Remaining term, including options only the tenant can exercise, at least equal to the debenture term[1] | Assignment of the lease to the CDC; recorded lien on the leasehold[1] SBA 7(a) lender | Real estate loan term up to 25 years (p. 120)[4] | Right to encumber, no changes without lender approval, foreclosure and reassignment rights, insurance and condemnation proceeds (p. 54)[4] Bank, CMBS or life company lender | Not published | Not published; ask the lender before going to market Brand (Hampton, 2026 agreement) | Long-term ground leasehold for a term equal to the franchise term[5] | Recorded ground lease with the application[5] 1031 exchange buyer | Leasehold with 30 years or more to run is like-kind to real estate[3] | Furniture and equipment are outside section 1031[3] First-party data point: Matthews Hotel Markets' October 2026 rate sheet lists the SBA 504 debenture at 25 years, priced at 6.54 percent on September 10, 2026.[2] That 25-year term is the number a leasehold's remaining term is measured against for a 504 buyer. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: pricing the rent and testing the term): Hypothetical. A 110-key hotel earns $1,200,000 before ground rent. Ground rent is $150,000 a year, so NOI is $1,200,000 - $150,000 = $1,050,000. The rent takes 12.5 percent of the income before rent. Value. At an assumed 8.50 percent leasehold cap rate, value is $1,050,000 / 0.085 = $12,352,941. The rent alone accounts for $150,000 / 0.085 = $1,764,706 of value at that rate. The cap rate is an assumption for illustration, not a quoted market figure. Term tests, with 27 years remaining and one 10-year option that only the tenant can exercise: SBA 504: 27 + 10 = 37 years, which is at least the 25-year debenture. Pass.[1] Brand: a buyer taking the remaining 12 years of the franchise term needs a leasehold of at least 12 years. Pass.[5] 1031 buyer: 27 years to run is under the 30 in the regulation's example, and the example does not address options. Uncertain, so some exchange buyers will pass.[3] If the landowner agrees to extend the base term by 5 years, to 32, all three tests pass without relying on the option. That is the case for negotiating the extension before listing. FAQ: - Q: Can I sell my hotel if I do not own the land? A: Yes. You sell the leasehold: the building, the furniture, the business and an assignment of the ground lease. Check the lease for a landowner consent requirement or a right of first refusal before you list. - Q: How many years need to be left on a ground lease to sell a hotel? A: There is no single rule. SBA 504 needs the term, with tenant-controlled options, to at least equal the debenture term, 25 years on the current rate sheet.[1][2] The 1031 regulation's example uses 30 years.[3] Other lenders do not publish a minimum. - Q: Does a ground lease lower the value of my hotel? A: Yes. Ground rent reduces NOI, and the value lost is the rent divided by the cap rate. At an assumed 8.50 percent, $150,000 of rent is about $1.76 million. Buyers also discount income that ends at expiration. - Q: Will a bank lend on a hotel with a ground lease? A: It can. SBA lists what a 7(a) ground lease must contain: the right to mortgage the leasehold, no changes without lender approval, foreclosure and reassignment rights, and insurance and condemnation proceeds.[4] Expect any leasehold lender to look for the same. - Q: Can a 1031 exchange buyer purchase a hotel on a ground lease? A: Under the Treasury regulation's example, a leasehold with 30 years or more to run is like-kind to real estate.[3] Under 30 years, expect exchange buyers to ask their tax counsel, and some to pass. - Q: Will Hilton approve a buyer for a hotel on leased land? A: Hilton's 2026 Hampton franchise agreement accepts a long-term ground leasehold with a term equal to the franchise term, and the application asks for the recorded lease and its expiration date.[5] - Q: Should I extend my ground lease before selling my hotel? A: If the remaining term fails a lender, brand or 1031 test, it is worth trying. Ask the landowner before you go to market. A buyer who finds a short lease in diligence will reprice or walk. - Q: What ground lease documents will a hotel buyer ask for? A: The recorded lease and every amendment, the rent schedule and escalations, proof rent is current, the option terms, the leasehold mortgage provisions, and a current estoppel from the landowner. See /sell-a-hotel/documents-needed. Sources: - [1] 13 CFR 120.870, Leasing Project Property (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.870 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] 26 U.S. Code section 1031; 26 CFR 1.1031(a)-1(c) (leasehold with 30 years or more to run) and 26 CFR 1.1031(a)-3 (definition of real property) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/1.1031(a)-1 - [4] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): ground lease clauses (Section A, Ch. 3, p. 54) and 7(a) maturities (Section B, Ch. 1, p. 120) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [5] 2026 Hampton Franchise Disclosure Document: Item 17 (p. 69), Franchise Agreement section 5.1.15, and the franchise application (Exhibit F) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [6] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Can I sell my hotel to a foreign buyer? URL: https://matthewshotelmarkets.com/sell-a-hotel/selling-to-a-foreign-buyer Last updated: 2026-10-26 No federal statute bars a foreign buyer from owning a U.S. hotel. CFIUS reviews, it does not license. Of the 347 covered transactions CFIUS assessed or reviewed in 2025, 14 were real estate filings under 31 CFR part 802.[1] A hotel is reached only if it sits in a covered port or within one mile of a listed military installation.[2][3] Key takeaways: - CFIUS reviews a sale and can order divestment. It does not issue permits, and there is no approval to apply for. - Most hotels are outside part 802. Covered real estate in an urbanized area is an excepted real estate transaction unless it is in a covered port or within one mile of a part 1 or part 2 installation.[4] - Filing is voluntary either way. Part 802 has no mandatory declaration, and the price of not filing is that an agency notice can arrive up to three years after the closing.[5][6] - A notice on a $24,000,000 sale costs $7,500, which is 0.03 percent of the price.[7] - State law can be stricter. Florida bars a foreign principal from seven named countries from buying real property within 10 miles of a military installation or a fenced airport, seaport or power plant.[8][9] #### Is it legal to sell a U.S. hotel to a foreign buyer? Yes. No federal statute prohibits foreign ownership of a U.S. hotel, and section 721 of the Defense Production Act gives the government a review power rather than a licensing power.[10] Section 721 lets the President act on a covered transaction that threatens to impair national security, and it sets up the Committee on Foreign Investment in the United States to run the review.[10] Nothing in it asks a seller for permission first. The scale confirms it. CFIUS assessed or reviewed 347 covered transactions in 2025, of which 14 were real estate filings under 31 CFR part 802: seven declarations out of 140, and seven notices out of 207.[1] Fourteen filings in a year, nationwide, across every asset class part 802 reaches. #### Which rule reaches a hotel sale, part 800 or part 802? Part 800 reaches the purchase of a hotel business. Part 802 reaches the purchase of hotel real estate. A sale is one or the other, never both.[4] A covered transaction under part 800 that includes the purchase of covered real estate is an excepted real estate transaction, so part 802 drops away.[4] The line is whether a business changes hands, and part 802's own examples make it concrete: buying an empty warehouse near a listed installation is a covered real estate transaction, while buying the same warehouse plus its personnel, customer list, equipment and inventory software is a part 800 covered transaction, because that package is a business.[4] A hotel sale sits closer to the second example than owners expect. A going hotel sold with its staff, bookings, brand licence and operating accounts is a U.S. business. A hotel sold as a shell, or ground leased, or sold after the operating company has been stripped out, is a part 802 question. #### Is my hotel covered real estate? Only if it is in, within or functioning as part of a covered port, or within one mile of a listed military installation, or inside the 99-mile extended range of a few of them.[2][3][12] Covered real estate is defined by location, not by use. It is real estate that is, is located within, or will function as part of, a covered port; or sits within close proximity of a military installation or other U.S. Government property named in part 1 or part 2 of appendix A; or within the extended range of certain part 2 installations, a county named in part 3, or an offshore range named in part 4.[2] Two distances do the work. Close proximity extends one mile outward from the installation's boundary.[3] Extended range runs 99 miles outward from the outer edge of close proximity, putting the far boundary 100 miles out, and it reaches only combat training centers, test ranges and joint forces training centers.[12] Covered port is the test that catches hotels. It takes in any large hub airport on the Federal Aviation Administration's annual final enplanement data, any airport with annual all-cargo landed weight above 1.24 billion pounds, any FAA joint use airport, any commercial strategic seaport in the National Port Readiness Network, and any top 25 tonnage, container or dry bulk port.[11] A large hub is a commercial service airport with at least 1.0 percent of national passenger boardings, so a hotel on airport land at one is covered real estate on the face of the rule.[13] Appendix A runs in four parts and names the sites individually, down to the city, so look up your own address against it.[14] The list moves: Pub. L. 119-60, enacted December 18, 2025, requires each Committee member to review its own entries and report recommended revisions, including what distance should apply, no later than one year after that date.[10] #### Does the urbanized-area exception cover my hotel? Usually yes, and that is the most useful fact on this page, but the exception has a hole exactly where hotels cluster.[4] An excepted real estate transaction includes the purchase of covered real estate within an urbanized area or urban cluster, as the Census Bureau defines those terms.[4] Most U.S. hotels are in one, which is why part 802 produces fourteen filings a year rather than thousands.[1] The hole is in the same sentence. That exception does not reach real estate subject to paragraph (a) of the covered real estate definition, the covered port leg, or paragraph (b)(1), the one-mile close proximity leg.[4] A downtown hotel 40 miles from a test range is excepted. The same hotel 0.25 miles from a part 1 installation is not, and part 802's own examples say so in those words.[4] One more test applies on top. The foreign person must be afforded at least three of four property rights: to access the real estate, to exclude others from it, to improve or develop it, and to attach fixed structures to it.[15] A fee purchase gives all four, so this screens out nothing on an ordinary sale; it decides the answer on a long ground lease or a minority joint venture with no development right. Note 1 to section 802.212 adds that a transaction arising from a bankruptcy or other default on debt is a covered real estate transaction, so foreclosing on a foreign borrower is inside the rule.[16] #### Do we have to file, and what does it cost? No. Part 802 has no mandatory declaration: subpart D provides for a voluntary declaration and subpart E for a voluntary notice.[5][6] The statute's mandatory declaration applies only to a covered transaction in a U.S. business that owns critical infrastructure, produces critical technology or holds sensitive personal data, where a foreign government has a substantial interest in the buyer.[10] A hotel is none of those three, and part 802 carries no equivalent provision: section 802.401(a) says a party may submit a voluntary declaration.[5] So the choice is between the three routes in the table above. A declaration is free. A notice carries a fee set by transaction value, from nothing below $500,000 to $300,000 above $750,000,000, with $7,500 the band running from $5,000,000 to under $50,000,000.[7] On a lease the value is the sum of the payments over the term rather than the appraised value of the land, so a long ground lease can land in a higher band than its rent suggests.[18] What a notice buys is finality: written notification that the Committee has concluded all action is what lets a buyer and its lender stop pricing the risk. A declaration can produce that same notification, or a request to file a notice, or a statement that the Committee cannot conclude action on the declaration.[19] Matthews Hotel Markets does not file CFIUS declarations or advise on them; that is work for the buyer's own national security counsel. The seller's job is to put the question in the purchase agreement: who files, who pays, and what happens if the Committee asks for a notice. #### How many days does a CFIUS filing add to the closing? Thirty-seven days on the 2025 average for a declaration, 45 days for a notice that closes in review, and 83 days for one that goes to investigation.[1] The rules set the ceilings. A declaration gets a 30-day assessment period that starts when the Committee receives it from the Staff Chairperson.[20] A notice gets a 45-day review period that starts the business day after the notice is accepted and the fee confirmed received.[21] An investigation must finish within 45 days of commencing, the Chairperson may extend it once by 15 days in extraordinary circumstances, and a matter that reaches the President is decided within 15 days of the investigation completing.[10] That is 105 days of statutory clock, or 120 with the President's window. The published averages are kinder. In 2025, 6.87 calendar days elapsed on average between a declaration being submitted and accepted, and assessment then averaged 30.1 days. Notices closing in review averaged 45.4 days and notices closing in investigation averaged 82.8 days, and CFIUS opened an investigation on 114 of the 207 notices accepted that year, or 55.07 percent.[1] All of that is economy-wide; CFIUS publishes no hotel breakdown. A declaration is about the length of a due diligence period, so it costs nothing if it starts at signing. A notice that goes to investigation is longer than the whole back half of a sale. The variable a seller controls is when the clock starts, not how fast it runs, the same lesson as [how long does it take to sell a hotel through a broker?](/sell-a-hotel/how-long-it-takes) #### What happens if nobody files? The sale closes and the risk stays open. An agency notice can be filed up to three years after the completion date, and the Chairperson can go past that.[6] Any Committee member at or above Under Secretary level may file an agency notice on a transaction it believes is a covered real estate transaction raising national security considerations, and the Staff Chairperson may request information on a transaction nobody notified and then ask the parties to file.[6] No agency notice under section 802.501(c)(1) may be made more than three years after the completion date, unless the Chairperson files it in consultation with the other members.[6] An unfiled hotel sale therefore carries an open question for three years, and longer in the Chairperson's hands. The penalties are not for failing to file, because nothing required a filing. They are for what gets said in one: a material misstatement or omission in a declaration or notice, or a false certification, can draw a civil penalty up to $5,000,000 per violation.[22] That bears on representations. A seller asked to certify that the hotel is not covered real estate is being asked to certify a fact about appendix A, and that one belongs with whoever looked it up. #### Which states restrict foreign ownership of a hotel? Florida and Texas both do, and both go further than the federal rule, because they ban rather than review.[8][23] Florida reaches hotels through distance. A foreign principal may not own, have a controlling interest in, or acquire real property on or within 10 miles of any military installation or critical infrastructure facility in the state.[8] Critical infrastructure facility covers an airport, a listed seaport, a power plant, a water or wastewater treatment plant, a refinery, a chemical or gas processing plant, a liquid natural gas terminal and a telecommunications central switching office, in each case where the facility is fenced or guarded against unauthorized persons. The seven countries are China, Russia, Iran, North Korea, Cuba, the Venezuelan regime of Nicolas Maduro and Syria, and foreign principal reaches their governments and political parties, entities organized or headquartered there, and people domiciled there who are not U.S. citizens or lawful permanent residents.[9] Interests held before July 1, 2023 may be kept but not added to, late registration costs $1,000 a day, and a violation is a second-degree misdemeanor with forfeiture available to the state.[8] Ten miles from a fenced airport is most of urban Florida, and a separate section bars a Chinese foreign principal from Florida real property generally.[24] Texas reaches hotels directly, with no distance test and no military nexus. Subchapter H of chapter 5 of the Property Code, added by Senate Bill 17 of the 89th Legislature and effective September 1, 2025, says the listed persons and entities may not acquire an interest in real property in the state, and real property is defined to include commercial property. Designated country means one the Director of National Intelligence named a national security risk in any of the three most recent Annual Threat Assessments, plus any the governor designates. A violating purchase is not void, but the attorney general may ask a court to order divestment through a receiver, and the civil penalty is the greater of $250,000 or 50 percent of the interest's market value.[23] Other states have passed similar laws and this run read only these two. Check the statute in the hotel's own state before a cross-border bid is accepted. #### What else does a foreign buyer have to clear? Three gates that have nothing to do with CFIUS and stop more hotel deals than it does: the brand, the liquor license and the withholding rules. The franchisor's consent is the usual binding constraint, and a first-time franchisee based abroad is a harder application than a buyer that already runs the flag: [what happens to my franchise agreement when I sell my hotel?](/sell-a-hotel/franchise-transfer) The liquor license is next, because it does not convey with the deed and several states treat an equity change of 50 percent as a transfer in its own right: [how does a liquor license transfer when a hotel sells?](/sell-a-hotel/liquor-license-transfer) The third runs the other way: withholding under section 1445 is about a foreign seller, not a foreign buyer, and it makes the buyer the withholding agent on 15 percent of the amount realized, at [what gets held back from my sale price for taxes?](/sell-a-hotel/tax-clearance-and-withholding) Table: CFIUS filing routes on a hotel sale to a foreign buyer, October 2026 Route | Fee at a $24,000,000 price | Clock in the rules | CY 2025 average | What it gets you Voluntary declaration, 31 CFR 802.401 | No fee | 30-day assessment | 6.87 days to acceptance, then 30.1 days | Clearance, a request to file a notice, or no conclusion Voluntary notice closing in review, 31 CFR 802.501 | $7,500 | 45-day review | 45.4 days, median 45.0 | Written notice that all action is concluded Notice that goes to investigation | $7,500 | 45 more days, plus one 15-day extension | 82.8 days, median 91.0 | The same finality, or mitigation terms File nothing | No fee | No clock, and nothing required one | 14 of 347 filings in 2025 were real estate | An agency notice can come up to 3 years after closing First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts Prime at 7.00% and the 10-year Treasury at 5.29% as of September 30, 2026, and carries no row for a national security review, because the cost of one is the cost of the days it takes rather than a rate anybody quotes.[25] Source: https://matthewshotelmarkets.com/rates Worked example (Worked example (hypothetical): 118-key airport hotel, $24,000,000, buyer outside the four excepted states): Hypothetical, not a transaction, and every input is labeled as an assumption rather than a market rate. A 118-key select-service hotel sits on ground inside the boundary of a large hub airport. Price $24,000,000, or $203,390 a key. The buyer is a foreign person whose home state is not one of the four excepted ones.[17] The hotel is sold as real estate, with the operating company retained by the seller, so this is a part 802 question.[4] Coverage. The hotel is located within a covered port, paragraph (a) of the covered real estate definition.[2][11] The urbanized-area exception does not reach it, because that exception carves out paragraph (a).[4] A fee purchase affords all four property rights where the test is three.[15] So this is a covered real estate transaction under section 802.212(a), in a major metro.[16] The fee. $24,000,000 is at or above $5,000,000 and below $50,000,000, so a notice costs $7,500.[7] As a share of price, 7,500 divided by 24,000,000 is 0.0003125, or 0.03 percent. A declaration is free.[5] The days. On the 2025 averages, the declaration route runs 6.87 days to acceptance plus 30.1 days of assessment, or 36.97 days. A notice closing in review averaged 45.4 days, and one going to investigation averaged 82.8 days.[1] The gap between the slowest average path and the declaration path is 82.8 minus 36.97, or 45.83 days. What those days cost. Carried on the whole $24,000,000 at the 7.00 percent Prime rate on the October 2026 rate sheet: 24,000,000 times 0.07 is $1,680,000 a year, divided by 365 is $4,602.74 a day, times 45.83 days is $210,944.[25] That is 28 times the $7,500 notice fee. The filing fee is not the cost of CFIUS. The calendar is. Every figure above was recomputed by scripts/check-foreign-buyer-math.mjs. FAQ: - Q: Does a foreign buyer need government approval to buy my hotel? A: No. There is no approval to apply for. CFIUS reviews a covered transaction and can recommend action to the President, but part 802 provides only for a voluntary declaration or notice.[5][6] - Q: Can a Chinese company buy a hotel in the United States? A: Federally, yes, subject to CFIUS review. State law is the harder test: Florida bars a foreign principal of the People's Republic of China from Florida real property, and Texas bars designated-country entities from commercial real property.[23][24] - Q: My hotel is next to an Air Force base. Is that a problem? A: Possibly. Covered real estate includes land within one mile of an installation named in part 1 or part 2 of appendix A, and the urbanized-area exception does not reach that leg.[2][3][4] Check the address against the list. - Q: Does an airport hotel count as a covered port? A: If the hotel is in, within, or functions as part of a large hub airport, a high-volume cargo airport, an FAA joint use airport, a strategic seaport or a top 25 tonnage, container or dry bulk port, then yes.[2][11] - Q: How much does a CFIUS notice cost? A: The fee runs on transaction value: nothing below $500,000, $750 to under $5,000,000, $7,500 to under $50,000,000, $75,000 to under $250,000,000, $150,000 to under $750,000,000, and $300,000 above that.[7] A declaration is free. - Q: Is a Canadian buyer treated differently? A: Yes, if it qualifies as an excepted real estate investor. Treasury names Australia, Canada, New Zealand and the United Kingdom as excepted real estate foreign states, the UK entry excluding its overseas territories and Crown dependencies.[17] - Q: What if we just close and file nothing? A: Permitted, since nothing required a filing. But an agency notice can be filed up to three years after the completion date, and longer if the Committee's Chairperson files it, so the question stays open.[6] - Q: Does CFIUS apply when a foreign lender forecloses on a hotel? A: It can. Note 1 to section 802.212 says a transaction arising from a bankruptcy or other default on debt is a covered real estate transaction.[16] Lending transactions get their own treatment in section 802.303. Sources: - [1] Annual Report to Congress, CY 2025: 347 covered transactions assessed or reviewed; 140 declarations submitted, 7 of them covered real estate transactions under 31 CFR part 802; 207 notices accepted, 7 of them real estate notices; investigations on 114 of the 207; 8 notices extended; 6.87 average days to accept a declaration; Table I-4 (30.1 average, 30.0 median days to complete a declaration assessment); Table I-6 (45.4 average and 45.0 median days closing in review, 82.8 average and 91.0 median closing in investigation), all net of days tolled during the appropriations lapses (Committee on Foreign Investment in the United States, U.S. Department of the Treasury, accessed 2026-10-26): https://www.cfius.gov/files/2025-cfius-annual-report.pdf - [2] 31 CFR 802.211, covered real estate (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.211 - [3] 31 CFR 802.203, close proximity, the area extending one mile outward from the boundary (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.203 - [4] 31 CFR 802.216, excepted real estate transaction, including the urbanized area and urban cluster exception at (c), the single housing unit at (d), the foreign air carrier and retail concession at (e), the 10 percent commercial space test at (f), and examples 1, 3, 4, 6 and 8 (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.216 - [5] 31 CFR 802.401, procedures for declarations: a party "may submit a voluntary declaration" (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.401 - [6] 31 CFR 802.501, procedures for notices: voluntary notice at (a), the Staff Chairperson's information request at (b), agency notice at (c), and the three-year limit on an agency notice at (d) (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.501 - [7] 31 CFR 802.1101, amount of fee, the six transaction-value bands effective May 1, 2020 (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.1101 - [8] Section 692.203, Florida Statutes (2025): purchase of real property on or within 10 miles of any military installation or critical infrastructure facility by foreign principals, the July 1, 2023 grandfathering, the registration duty and the $1,000 per day late penalty (Florida Legislature, accessed 2026-10-26): http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0692/Sections/0692.203.html - [9] Section 692.201, Florida Statutes (2025): definitions of foreign country of concern, foreign principal and critical infrastructure facility (Florida Legislature, accessed 2026-10-26): http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0692/Sections/0692.201.html - [10] 50 U.S.C. 4565 (section 721 of the Defense Production Act of 1950): covered transaction and real estate coverage at (a)(4)(B)(ii), the periodic review of the site list at (a)(4)(C)(iii) added by Pub. L. 119-60 section 8102, December 18, 2025, mandatory declarations at (b)(1)(C)(v)(IV), the 45-day investigation and one 15-day extension at (b)(2)(C), and the President's 15-day announcement at (d)(2) (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/uscode/text/50/4565 - [11] 31 CFR 802.210, covered port, the five Department of Transportation lists (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.210 - [12] 31 CFR 802.217, extended range, the area extending 99 miles outward from the outer boundary of close proximity (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.217 - [13] 49 U.S.C. 40102: large hub airport means a commercial service airport that has at least 1.0 percent of the passenger boardings (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/uscode/text/49/40102 - [14] Appendix A to 31 CFR part 802, list of military installations and other U.S. Government sites, in four parts (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/appendix-A_to_part_802 - [15] 31 CFR 802.233, property right, the four rights and the whether-or-not-exercised rule (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.233 - [16] 31 CFR 802.212, covered real estate transaction, the three-property-right test at (a), the subsequent change at (b), and note 1 on bankruptcy and default (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.212 - [17] Excepted foreign states and excepted real estate foreign states: Australia, Canada and the United Kingdom of Great Britain and Northern Ireland from February 13, 2020, New Zealand from January 5, 2022, the UK entry excluding the British Overseas Territories and Crown Dependencies (Committee on Foreign Investment in the United States, U.S. Department of the Treasury, accessed 2026-10-26): https://www.cfius.gov/resources/excepted-foreign-states/ - [18] 31 CFR 802.1103, valuation, including the sum-of-payments rule for a lease at (b) and the $40,000,000 purchase example at (i)(1) (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.1103 - [19] 31 CFR 802.405, the four actions the Committee may take on a declaration (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.405 - [20] 31 CFR 802.403, beginning of the 30-day assessment period (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.403 - [21] 31 CFR 802.503, beginning of the 45-day review period and the three acceptance conditions (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.503 - [22] 31 CFR 802.901, penalties and damages: up to $5,000,000 per violation for a material misstatement, omission or false certification, and the greatest-of measure for breach of a mitigation agreement entered into on or after December 26, 2024 (Legal Information Institute, Cornell Law School, accessed 2026-10-26): https://www.law.cornell.edu/cfr/text/31/802.901 - [23] Senate Bill 17, 89th Texas Legislature, Regular Session, enrolled: Subchapter H, chapter 5, Property Code, sections 5.251 to 5.259, effective September 1, 2025 (Texas Legislature Online, accessed 2026-10-26): https://capitol.texas.gov/tlodocs/89R/billtext/html/SB00017F.htm - [24] Section 692.204, Florida Statutes (2025): purchase of real property by foreign principals of the People's Republic of China (Florida Legislature, accessed 2026-10-26): http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0692/Sections/0692.204.html - [25] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-26): https://matthewshotelmarkets.com/rates ### Do I need a tax clearance certificate to sell my hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/tax-clearance-and-withholding Last updated: 2026-10-05 Usually yes. In California, Texas, Florida and New York the buyer holds back part of your price until the state clears you, because a hotel collects state sales or occupancy tax on rooms and unremitted tax follows the business to the buyer.[1][2][3][4] New York answers a purchaser's notice in five business days, under a bulletin updated June 17, 2025.[4] Key takeaways: - This is not your income tax. It is the sales or occupancy tax your hotel collected from guests for the state, and the buyer can be made to pay it.[1][3] - The statutory cap is the price, not the tax. Florida caps a transferee at the greater of fair market value or the purchase price, and Texas at the purchase price including assumed debt.[2][3] - Two of these clocks start when your records are available for audit, not when someone asks, so a messy set of books is the delay.[3][7] - A foreign seller faces 15 percent withholding on the amount realized on the real property, whatever the gain was.[11] Form 8288-B can reduce it, and the IRS generally takes 90 days.[13] - Clearing the buyer does not clear you. Texas and New York both say the seller stays liable for what accrued before the sale.[2][4] #### Why does the buyer care about my sales tax? Because your hotel collects tax from guests on the state's behalf, and the unremitted balance follows the business to the buyer. A hotel is unusual among commercial properties: its main revenue line carries a tax it collects and holds for someone else. Florida levies 6 percent of the total rental charged for living quarters in a hotel.[5] Texas sets its state hotel occupancy tax at 6 percent of the cost of a room.[6] That money was never the owner's, and an owner who spent a slow quarter's collections on payroll still has the balance sitting there at closing. So the buyer's lawyer asks. California requires a successor who buys the business of a person liable under the Sales and Use Tax Law to withhold enough of the purchase price to cover the amount, until the former owner produces a receipt showing it was paid or a certificate stating that nothing is due.[1] Texas does the same under Tax Code section 111.020, and the Comptroller states the result: close escrow without a Certificate of No Tax Due and the purchaser is liable for the unpaid taxes up to the purchase price, including any assumption of indebtedness.[2] Florida makes a transferee of more than 50 percent of a business jointly and severally liable with the seller.[3] New York calls it a bulk sale and runs it through its own notice procedure.[4] The tax on your gain is a different question, answered at [what taxes do I pay when I sell a hotel?](/sell-a-hotel/taxes-when-selling-a-hotel). #### What is a tax clearance certificate, and how long does it take? It is the state's written statement that your account is clean, and the wait runs from five business days in New York to 90 days wherever an audit opens. One document, four names. California issues a tax clearance certificate through the CDTFA.[7][8] Texas issues a Certificate of No Tax Due.[2] Florida calls it a receipt or a certificate of compliance.[3] New York issues Form AU-197.1, a purchaser's release.[4] New York is the fastest. The purchaser files Form AU-196.10 at least 10 days before paying for or taking possession of any business assets, whichever comes first. Within five business days the department sends either the release or Form AU-196.2, a notice of claim, and after a claim it tells both sides the amount due within 90 days of the original filing.[4] Texas requires a joint request from seller and purchaser on Form 86-114, signed by both. With no audit it usually issues in 10 business days; with one it can take 90.[2] California runs a release clock instead. The purchaser is freed from the duty to withhold if the CDTFA neither issues the certificate nor mails notice of the amount due within 60 days after the latest of three dates: the written request, the sale, and the date the former owner's records are made available for audit.[7][8] Florida's audit route has to finish within 90 days after the records are made available.[3] The pattern in those two is worth reading twice. The clock starts when your records are ready, not when a buyer asks, which makes a messy set of books the delay. Those records are the first item on the list at [what documents do I need to sell my hotel?](/sell-a-hotel/documents-needed). #### How much of my price can the buyer hold back? More than the tax. Every statute here caps the buyer's exposure at the price, so a careful buyer holds a multiple of its estimate rather than the estimate. California makes a purchaser who fails to withhold personally liable for the amount, to the extent of the purchase price valued in money, enforceable for three years after the state is notified of the purchase.[7] The regulation adds that the liability reaches taxes, interest and penalties incurred by the predecessor or any former owner, including penalties for negligence or fraud, even if not yet determined against the seller.[8] Florida caps a transferee at the fair market value of what was transferred or the total purchase price, whichever is greater.[3] New York lets the purchaser pay the state out of escrow up to the purchase price or the fair market value of the assets, whichever is greater.[4] Texas sets the ceiling at the purchase price including assumed debt.[2] Notice what none of those sentences does. None caps the buyer at the tax. A buyer's counsel sizing an escrow works against the statutory ceiling rather than against your estimate of the arrears, and no public source publishes what hotel buyers actually hold back. It is negotiated, and the only reliable way to make it small is to arrive with a clean account. Two mechanics matter before you sign. In Florida a transferee that withholds has to pay the state within 30 days after the transfer, and if it withheld less than the liability you remain liable for the difference.[3] In New York a purchaser that receives a notice of claim is told to place the full purchase price in escrow until the review ends.[4] That is the sentence that surprises sellers, and it is the reason to file the notice early. #### Is the furniture and equipment in my hotel sale taxable? Part of it can be. The answer is state by state, and in California it turns on which pieces of the hotel were used in an activity that needed a seller's permit. California's regulation on the sale of a business names hotels directly. Operators of service enterprises such as hospitals, hotels, theaters and schools may make sales incidental to their primary service business, and the regulation's own example is that a hotel may operate a restaurant and a bar. Then the operative line: if any of these businesses were sold, tax would apply only to the gross receipts from the tangible personal property held or used in the selling activity.[10] On that reading the restaurant and bar equipment sits inside the taxable measure and the guest room furniture used in the lodging service does not, unless the seller made enough other sales to require a permit for them. The regulation's general rule is three sales for substantial amounts in 12 months.[10] New York draws the line by asset class instead. A purchaser in a bulk sale owes the sales tax due on tangible personal property it acquires, and the bulletin says plainly that the tax is not imposed on inventory acquired for resale, on real property, or on intangible assets such as goodwill.[4] No public source publishes a national rule, because there is not one. What both states share is that the number comes from the allocation in your purchase agreement, drafted long before anyone computes a tax on it. How that allocation is made is at [how do I make an offer on a hotel?](/buy-a-hotel/how-to-make-an-offer). #### What else comes out of my proceeds at closing? Withholding on the sale itself: 15 percent of the amount realized if you are a foreign person, and 3 1/3 percent of the price on a California property. Section 1445 requires the transferee to deduct and withhold a tax equal to 15 percent of the amount realized on a disposition of a United States real property interest by a foreign person.[11] Note which side of the deal that reaches: it is the foreign seller, not the foreign buyer, and the buyer-side rules are at [can I sell my hotel to a foreign buyer?](/sell-a-hotel/selling-to-a-foreign-buyer). The IRS states the same rate and notes it was 10 percent before February 17, 2016.[12] Read it twice: the computation runs on the amount realized, not on the gain, so on a long-held hotel the withholding can exceed the tax by a wide margin. There are two ways out. A domestic seller gives the buyer an affidavit stating under penalty of perjury that the transferor is not a foreign person, with a United States taxpayer identification number.[11] A foreign seller applies for a withholding certificate on Form 8288-B, which the IRS issues where the amount otherwise withheld exceeds the transferor's maximum tax liability, generally acting within 90 days of a complete application; a seller who applies must tell the buyer in writing on the day of or the day before the transfer.[13] Without a certificate the transferee files Form 8288 with the tax by the 20th day after the disposition.[14] California withholds from sellers it can reach, not only foreign ones. The transferee of a California real property interest withholds 3 1/3 percent of the sales price unless the seller elects in writing to certify a gain-based amount. Nothing is withheld below a $100,000 sales price, and a seller can certify out for a principal residence or for a like-kind exchange to the extent gain is not recognized under section 1031.[15] That route is at [can I do a 1031 exchange without buying another hotel?](/sell-a-hotel/1031-without-buying-another-hotel). One mercy in the same statute: an escrow company may not charge more than $45 for handling it.[15] #### Does selling the LLC instead of the hotel avoid this? Sometimes for the sales tax, often not for the transfer tax, and in Washington the entity route is exactly what the statute was written to catch. New York's answer is the cleanest. Its bulletin's own example says a purchase of all the issued and outstanding stock of a company required to collect sales tax, where both companies continue to exist as separate legal entities, is not a bulk sale, because the business assets were never transferred.[4] Florida reaches further: a business is considered transferred when more than 50 percent of the business, its assets or its stock of goods changes hands, so an equity deal can still be a transfer.[3] Washington is the warning. There, a sale includes the transfer or acquisition within any 36-month period of a controlling interest in an entity with an interest in real property in the state, and acquisitions by persons acting in concert are aggregated.[16] A controlling interest is 50 percent or more of a corporation's voting power, or 50 percent or more of the capital, profits or beneficial interest in any other entity.[17] The Department of Revenue requires a controlling interest transfer return within five days of the completed transfer, with penalties and interest if the return and tax are not in within one month.[18] The state rate reaches 3.0 percent on the portion of the selling price above $3,025,000, and those brackets step up to $551,000, $1,551,000 and $3,051,000 for sales beginning January 1, 2027.[18] So an entity sale changes which statute applies, not whether one does, and the test is run where the hotel sits. #### What should I do before I list? Close the gap on your own account first. File what is missing, and know your balance before a buyer's counsel finds it. The CDTFA tells a seller to close out its permits and accounts when it sells the business, file final returns, report sales of fixtures, equipment and retained inventory, and keep records for four years after closure. It also warns that a predecessor who does not notify the agency can be held liable for amounts a successor incurs.[9] Florida requires a final return and full payment within 15 days after the date of transfer.[3] New York gives a seller that stops operating 20 days after operations end.[4] Then the part sellers get wrong. Clearing the buyer does not clear you. Texas says only the purchaser is protected by a Certificate of No Tax Due, and the seller remains responsible for all tax, penalty and interest from before the date of sale.[2] New York says the seller stays liable whether or not the purchaser was relieved.[4] One thing you cannot do alone: Texas requires a joint request, so the certificate cannot be ordered before there is a buyer.[2] That splits the work. The account cleanup belongs in the months before you list, with the rest of the preparation at [how do I sell a hotel?](/sell-a-hotel/how-to-sell-a-hotel). The certificate belongs inside the contract period, where it competes with everything else on the clock at [how long does it take to sell a hotel?](/sell-a-hotel/how-long-it-takes). Table: What a hotel buyer must do before closing, by jurisdiction (statute or agency guidance read October 5, 2026) Jurisdiction | What the buyer must do | What clears it, and how fast | Buyer's exposure if nobody clears it California | Withhold enough of the purchase price to cover the seller's sales and use tax until the seller produces a receipt or a certificate that nothing is due[1] | A CDTFA tax clearance certificate. The agency has 60 days after the latest of the request, the sale, or the date the seller's records are available for audit[7][8] | Personal liability to the extent of the purchase price, enforceable for three years after the state is notified of the purchase[7] Texas | Withhold enough of the purchase price unless the seller produces a receipt or the buyer obtains a Certificate of No Tax Due[2] | A joint request from both sides on Form 86-114. Usually 10 business days, up to 90 days if the state audits the seller's records[2] | Liability for the unpaid tax up to the purchase price, including any assumption of indebtedness[2] Florida | Withholding is optional, but what the buyer withholds must be paid to the state within 30 days after the transfer[3] | A receipt or certificate of compliance with no insiders in common, or a state audit completed within 90 days after the records are available[3] | Joint and several liability with the seller, capped at the greater of fair market value or the total purchase price[3] New York | File Form AU-196.10 at least 10 days before paying for or taking possession of the assets[4] | The state answers in five business days with a release or a notice of claim, then states the amount due within 90 days[4] | Liability up to the purchase price or the fair market value of the assets, whichever is greater[4] Federal, foreign seller | Withhold 15 percent of the amount realized on the United States real property interest[11] | A non-foreign affidavit with a taxpayer identification number, or a withholding certificate on Form 8288-B, generally acted on within 90 days[11][13] | The buyer is liable for the tax it failed to withhold, and files Form 8288 by the 20th day after the disposition[12][14] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows Prime at 7.00 percent and the 10-year Treasury at 5.29 percent as of September 30, 2026.[19] Those are the rates a delay is priced at. Proceeds parked in escrow for a 90-day clearance earn the seller nothing while every other cost keeps running. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 118-key Florida hotel at $15,400,000, and what the state can reach): Hypothetical, not a transaction. Price $15,400,000, allocated $14,700,000 to the real property and $700,000 to furniture, fixtures and equipment, of which $120,000 is restaurant and bar equipment. The seller fell five months behind on the state transient rentals tax, on $1,540,000 of room revenue in those months. The arrears. Florida's rate is 6 percent of the total rental charged, so $1,540,000 times 0.06 is $92,400 of state tax, before penalty and interest.[5] The exposure. Florida caps the transferee's maximum liability at the greater of fair market value or the total purchase price.[3] Assume those are the same here, $15,400,000. That ceiling is about 167 times the $92,400 actually owed, which is why a buyer's counsel sizes escrow off the statute rather than off the seller's estimate. A holdback negotiated at 125 percent of the estimate is $115,500, and the buyer has to pay what it withholds to the state within 30 days of the transfer.[3] The withholding, if the seller is a foreign person. Section 1445 takes 15 percent of the amount realized on the real property interest: $14,700,000 times 0.15 is $2,205,000.[11] On an adjusted basis of $11,900,000 the gain is $2,800,000, so the withholding is 78.75 percent of the whole gain. A Form 8288-B certificate can cut it to the maximum tax liability, and the IRS generally acts within 90 days.[13] Ninety days of waiting on $2,205,000, costed at the 7.00 percent Prime rate on the October 2026 rate sheet, is $2,205,000 times 0.07 times 90 divided by 365, or $38,059.[19] The same hotel in California. Withholding would be 3 1/3 percent of $14,700,000, or $490,000, unless the seller certifies a gain-based amount.[15] Sales tax on the personal property would reach the $120,000 of restaurant and bar equipment, not the $580,000 of guest room furniture used in the lodging service.[10] Every figure above was recomputed by scripts/check-tax-clearance-math.mjs. FAQ: - Q: Do I need a tax clearance certificate to sell my hotel? A: In California, Texas, Florida and New York the buyer needs one, or a state release, to avoid inheriting your unpaid sales and occupancy tax.[1][2][3][4] You are the one who produces it, and the buyer holds part of the price until you do. - Q: How long does a tax clearance take? A: New York answers a purchaser's notice in five business days.[4] Texas usually issues in 10 business days, or up to 90 if it audits you.[2] California has 60 days from the latest of the request, the sale, or your records being available.[7] - Q: Can the buyer hold back more than the tax I owe? A: Yes. Florida caps a transferee at the greater of fair market value or the purchase price, and Texas at the purchase price including assumed debt.[2][3] The cap is the price, so the holdback is negotiated rather than formulaic. - Q: Does the buyer owe sales tax on my hotel's furniture? A: It depends on the state and on the allocation. California taxes only property held or used in the selling activity, which on a hotel means the restaurant and bar side.[10] New York taxes tangible personal property but not real property or goodwill.[4] - Q: Is 15 percent of my hotel's price really withheld if I am a foreign seller? A: Fifteen percent of the amount realized on the real property interest, regardless of gain.[11] A withholding certificate on Form 8288-B can reduce it to your maximum tax liability, and the IRS generally acts within 90 days.[13] - Q: Does selling the LLC instead of the hotel avoid the clearance? A: Sometimes. A New York stock purchase where both companies survive is not a bulk sale.[4] Washington treats the transfer of a 50 percent interest within 36 months as a taxable sale of the real property.[16][17] - Q: Am I off the hook once the buyer has its certificate? A: No. Texas says only the purchaser is protected, and the seller remains responsible for all tax, penalty and interest from before the sale.[2] New York says the seller stays liable whether or not the purchaser was relieved.[4] - Q: Does a foreclosure or receivership sale need a clearance? A: California's regulation says the duty to withhold does not arise in assignments for the benefit of creditors, mortgage foreclosures or sales by a trustee in bankruptcy.[8] Other states differ, so check the statute where the hotel sits. Sources: - [1] Cal. Rev. & Tax. Code 6811, successor's duty to withhold the purchase price (California Legislative Information, accessed 2026-10-05): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=6811 - [2] Buying an Existing Business, including Tax Code section 111.020 and the Certificate of No Tax Due (Texas Comptroller of Public Accounts, accessed 2026-10-05): https://comptroller.texas.gov/taxes/publications/98-117.php - [3] Fla. Stat. 213.758, liability for tax when a business is transferred (The Florida Senate, 2026 Florida Statutes, accessed 2026-10-05): https://www.flsenate.gov/Laws/Statutes/2026/213.758 - [4] Tax Bulletin ST-70, Bulk Sales (updated June 17, 2025) (New York State Department of Taxation and Finance, accessed 2026-10-05): https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/bulk_sales.htm - [5] Fla. Stat. 212.03, transient rentals tax at 6 percent of the total rental charged (The Florida Senate, 2026 Florida Statutes, accessed 2026-10-05): https://www.flsenate.gov/Laws/Statutes/2026/212.03 - [6] Hotel Occupancy Tax, state rate of 6 percent of the cost of a room (Texas Comptroller of Public Accounts, accessed 2026-10-05): https://comptroller.texas.gov/taxes/hotel/ - [7] Cal. Rev. & Tax. Code 6812, purchaser's liability and the 60-day certificate clock (California Legislative Information, accessed 2026-10-05): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=6812 - [8] Regulation 1702, Successor's Liability (18 CCR 1702) (California Department of Tax and Fee Administration, accessed 2026-10-05): https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1702.html - [9] Publication 74, Closing Out Your Account (revision April 2026) (California Department of Tax and Fee Administration, accessed 2026-10-05): https://cdtfa.ca.gov/formspubs/pub74/ - [10] Regulation 1595, Occasional Sales, Sale of a Business, Business Reorganization (18 CCR 1595) (California Department of Tax and Fee Administration, accessed 2026-10-05): https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1595.html - [11] 26 U.S.C. 1445, withholding of tax on dispositions of United States real property interests (Legal Information Institute, Cornell Law School, accessed 2026-10-05): https://www.law.cornell.edu/uscode/text/26/1445 - [12] FIRPTA withholding (page last reviewed July 21, 2026) (Internal Revenue Service, accessed 2026-10-05): https://www.irs.gov/individuals/international-taxpayers/firpta-withholding - [13] Withholding certificates for United States real property interests (Internal Revenue Service, accessed 2026-10-05): https://www.irs.gov/individuals/international-taxpayers/withholding-certificates - [14] Reporting and paying tax on U.S. real property interests (page last reviewed July 23, 2026) (Internal Revenue Service, accessed 2026-10-05): https://www.irs.gov/individuals/international-taxpayers/reporting-and-paying-tax-on-us-real-property-interests - [15] Cal. Rev. & Tax. Code 18662, real estate withholding at 3 1/3 percent of the sales price (California Legislative Information, accessed 2026-10-05): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18662 - [16] RCW 82.45.010, a controlling-interest transfer within 36 months is a sale (Washington State Legislature, accessed 2026-10-05): https://app.leg.wa.gov/RCW/default.aspx?cite=82.45.010 - [17] RCW 82.45.033, controlling interest defined as 50 percent or more (Washington State Legislature, accessed 2026-10-05): https://app.leg.wa.gov/RCW/default.aspx?cite=82.45.033 - [18] Real estate excise tax, rates, thresholds and the controlling interest transfer return (Washington State Department of Revenue, accessed 2026-10-05): https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax - [19] Hotel debt rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-05): https://matthewshotelmarkets.com/rates ### What taxes do I pay when I sell a hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/taxes-when-selling-a-hotel Last updated: 2026-09-23 A hotel sale is taxed in layers. Per the IRS as of September 18, 2026: gain from building depreciation is unrecaptured section 1250 gain, taxed at a maximum 25 percent. Gain on furniture and equipment, up to the depreciation taken, is ordinary income. The rest is long-term capital gain at up to 20 percent.[1][2] A 3.8 percent net investment income tax and state taxes can apply on top.[3] Key takeaways: - Building depreciation is not taxed as ordinary income when the building was depreciated straight-line. It is unrecaptured section 1250 gain, capped at 25 percent for individuals.[1][2] - FF&E is different. It is section 1245 property, and gain up to the depreciation taken is ordinary income.[2] - The purchase price allocation among land, building, FF&E and goodwill decides how much gain lands in each layer. Buyer and seller both report it on Form 8594.[4] - A 1031 exchange defers gain on real property only. Since the Tax Cuts and Jobs Act, the FF&E does not qualify.[5] - State transfer taxes range widely. Florida charges 70 cents per $100, and Washington's top tier is 3 percent.[6][7] #### How is the gain on a hotel sale calculated? Asset by asset. A hotel sale is a sale of land, a building, personal property and often goodwill, and each has its own basis and its own tax treatment. Gain is the amount realized for an asset minus its adjusted basis, which is what you paid plus improvements minus the depreciation allowed or allowable. Because a hotel is an operating business, the IRS treats its sale as the sale of a group of assets. When goodwill or going concern value could attach, both the seller and the buyer must file Form 8594 and allocate the price across asset classes. Furniture, fixtures, buildings, land and equipment are generally Class V, other section 197 intangibles are Class VI, and goodwill and going concern value are Class VII.[4] The allocation is negotiated in the purchase agreement, and the two sides want different things. A buyer generally prefers more price on FF&E, which it can depreciate quickly. A seller generally prefers less, because FF&E gain is ordinary income. Settle the allocation with your CPA before you sign, not at closing. #### How is the building taxed? The gain equal to the depreciation you took is unrecaptured section 1250 gain, taxed at a maximum of 25 percent. It is not ordinary income if the building was depreciated straight-line. This is the point owners, and a lot of web pages, get wrong. A hotel building is section 1250 property. IRS Publication 544 says gain on section 1250 property is ordinary income only to the extent of "additional depreciation", which for property held more than a year means depreciation taken in excess of straight-line.[2] Nonresidential real property is depreciated over 39 years under the general depreciation system, and a hotel is on that side of the line: Publication 946 excludes units in a hotel or motel from the definition of a dwelling unit, so a hotel is not residential rental property.[9] A building depreciated straight-line has no additional depreciation, so none of its gain is ordinary under section 1250. Instead, the part of the long-term gain that is due to depreciation is "unrecaptured section 1250 gain". The IRS taxes it at a maximum 25 percent rate. It cannot be more than your net section 1231 gain for the year.[1][2] Two exceptions. A C corporation must treat an extra 20 percent of that depreciation-related gain as ordinary income.[2] And for a building held one year or less, all of the depreciation counts as additional depreciation, so it is recaptured as ordinary income.[2] #### How are the land and the rest of the gain taxed? As section 1231 gain, which is treated as long-term capital gain in a net gain year: 0, 15 or 20 percent for individuals, depending on taxable income. Real property used in a business and held longer than a year is section 1231 property. After the recapture amounts are carved out, the remaining gain on the building and all of the gain on the land is section 1231 gain. If your section 1231 transactions net to a gain for the year, it is treated as long-term capital gain.[2] The IRS lists the long-term rates as 0, 15 and 20 percent. For tax years beginning in 2025, the 20 percent rate starts above $600,050 of taxable income for married couples filing jointly and above $533,400 for single filers.[1] A hotel sale usually pushes the owner's income past those lines in the year of sale, so plan on 20 percent for this layer. One trap: if you deducted net section 1231 losses in the previous five years, an equal amount of this year's section 1231 gain is taxed as ordinary income first.[2] Most hotels are owned through LLCs and partnerships, so all of these layers pass through to the members' own returns. #### How is the FF&E taxed? As ordinary income, up to the depreciation you took. Furniture, fixtures and equipment are section 1245 property. Publication 544 is direct: gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable, and only gain above that is section 1231 gain.[2] Section 1245 property includes depreciable personal property, which covers guest room furniture, televisions, kitchen and laundry equipment and vehicles. Hotel FF&E is usually depreciated fast and is often fully depreciated, so nearly every dollar of price allocated to it is ordinary income. The same rule reaches anything else you depreciated as personal property. If a cost segregation study moved parts of the building into shorter-lived personal property classes, you took faster deductions then, and that depreciation comes back as ordinary income now. The other side of that trade, including how a purchase price splits among land, building and personal property, is at [hotel depreciation and cost segregation](/buy-a-hotel/depreciation-and-cost-segregation). #### What other taxes apply on top? Possibly the 3.8 percent net investment income tax, plus state income tax and a state or local transfer tax. The net investment income tax is 3.8 percent on the lesser of net investment income or the amount by which modified adjusted gross income exceeds $250,000 for joint filers or $200,000 for single filers. It reaches gain on property held in a trade or business that is a passive activity for the taxpayer. It does not apply to income from an active business.[3] For a hotel owner, the answer depends on whether that owner materially participates. That is a question of fact for your CPA. Transfer taxes are set by states and localities. Florida's documentary stamp tax on deeds is 70 cents per $100 of consideration, or 60 cents plus a 45 cent surtax in Miami-Dade County.[6] Georgia charges $1 for the first $1,000 and 10 cents for each additional $100.[10] Washington's real estate excise tax is graduated, from 1.1 percent on the first $525,000 to 3 percent on the portion of price above $3,025,000, before local tax.[7] Some states charge nothing. Who pays is set by local custom and the contract. The rest of the closing cost stack is at [How much does a hotel broker charge?](/sell-a-hotel/broker-fees). #### Can a 1031 exchange or an installment sale defer the tax? A 1031 exchange can defer the gain on the real property. It cannot defer the FF&E, and an installment sale cannot defer recapture. Section 1031 lets you defer gain when you exchange real property held for business or investment for like-kind real property. You have 45 days after the sale to identify replacement property and 180 days to close on it, or until the due date of your tax return, including extensions, if that comes first.[11] Since the Tax Cuts and Jobs Act, section 1031 applies only to real property, not personal or intangible property, and any money or other property you receive is taxable to that extent.[5] For a hotel, that means the price allocated to FF&E and goodwill is taxed even in a well-run exchange. The mechanics, including the hotel-specific problems, are at `/hotel-financing/1031-exchange-hotels`, and the options for an owner who does not want to buy another hotel are at [Can I do a 1031 exchange without buying another hotel?](/sell-a-hotel/1031-without-buying-another-hotel). Seller financing spreads capital gain over the years you collect payments. It does not spread recapture. Publication 537 requires depreciation recapture income to be reported in the year of sale, whether or not a payment was received that year.[12] One route defers nothing and erases everything: dying while you still own the hotel. The step-up at death, the 2026 estate tax exclusion and the 14-year installment option for a closely held business are at [Should I sell my hotel or hold it for the step-up in basis?](/sell-a-hotel/estate-tax-and-basis-step-up). Table: How each part of a hotel sale is taxed federally (individual and pass-through owners, assets held over one year) Part of the gain | Tax treatment | Maximum federal rate | 1031 eligible? Land appreciation | Section 1231 gain, long-term capital gain[2] | 20%[1] | Yes[5] Building: gain equal to straight-line depreciation | Unrecaptured section 1250 gain[2] | 25%[1] | Yes[5] Building: gain above original cost | Section 1231 gain, long-term capital gain[2] | 20%[1] | Yes[5] FF&E: gain up to depreciation taken | Section 1245 recapture, ordinary income[2] | Owner's ordinary rate | No[5] Goodwill and going concern value | Class VII asset on Form 8594[4] | Ask your CPA | No[5] Net investment income tax | Applies if the hotel is a passive activity for the owner[3] | 3.8% on top | Not applicable First-party data point: The Matthews Hotel Index for Q1 2026 gives the cap-rate band that sets the sale price, and the sale price is the starting number for every tax layer on this page.[8] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: the federal layers on a $12.0 million hotel sale): Hypothetical, for an individual owner at the top rates, held more than one year. Sale price $12.0 million, allocated $2.0 million to land, $9.0 million to the building and $1.0 million to FF&E. Original cost: land $1.5 million, building $7.0 million, FF&E $1.2 million. Depreciation taken: $1.8 million on the building, straight-line, and the full $1.2 million on the FF&E. Land: $2.0 million minus $1.5 million is $500,000 of gain, at 20 percent, or $100,000. Building: adjusted basis is $7.0 million minus $1.8 million, or $5.2 million, so gain is $9.0 million minus $5.2 million, or $3.8 million. The first $1.8 million is unrecaptured section 1250 gain at a maximum 25 percent, or $450,000. The other $2.0 million is capital gain at 20 percent, or $400,000. FF&E: basis is zero, so all $1.0 million is gain, and all of it is within the $1.2 million of depreciation taken. It is ordinary income at the owner's own rate. Total before the FF&E layer: $950,000 of federal tax on $4.3 million of real property gain. If the earlier, wrong reading were true and the $1.8 million of building depreciation were ordinary income, that slice alone would be taxed at the owner's top ordinary rate instead of 25 percent. Add the ordinary tax on $1.0 million of FF&E, possibly 3.8 percent NIIT, and state tax. If this hotel were in Florida outside Miami-Dade, documentary stamp tax at 70 cents per $100 on $11.0 million of real property consideration would be $77,000.[6] FAQ: - Q: What taxes do I pay when I sell a hotel? A: Federal tax in layers: up to 20 percent on capital gain, up to 25 percent on gain from building depreciation, and ordinary rates on FF&E recapture.[1][2] Then possibly 3.8 percent NIIT, state income tax and a state transfer tax.[3] - Q: Is depreciation recapture on a hotel building taxed as ordinary income? A: Generally no. If the building was depreciated straight-line, there is no ordinary recapture under section 1250. The depreciation-related gain is unrecaptured section 1250 gain, taxed at a maximum 25 percent.[1][2] FF&E recapture is the part taxed as ordinary income. - Q: I have depreciated my hotel for 15 years. How much tax will I owe? A: Add up the depreciation taken on the building and expect up to 25 percent on that amount, then up to 20 percent on gain above original cost.[1] FF&E gain is ordinary. Your CPA needs your depreciation schedules to compute it. - Q: Can I avoid taxes on a hotel sale with a 1031 exchange? A: You can defer the gain on the real property if you identify replacement property within 45 days and close within 180.[11] The FF&E and goodwill do not qualify, so part of the price is taxed anyway.[5] - Q: Do I need the 1031 exchange set up before I close? A: Yes. The 45-day and 180-day clocks start when you transfer the hotel, so the exchange structure has to be in place before closing.[11] See /hotel-financing/1031-exchange-hotels for the steps. - Q: Does seller financing spread out the tax? A: Only part of it. An installment sale spreads capital gain over the payment years, but IRS Publication 537 requires depreciation recapture income to be reported in the year of sale.[12] - Q: Is there a transfer tax when I sell a hotel? A: It depends on the state. Florida charges 70 cents per $100 of consideration.[6] Georgia charges $1 on the first $1,000 and 10 cents per additional $100.[10] Washington's top tier is 3 percent.[7] Some states have none. - Q: Does the purchase price allocation really matter? A: Yes. Every dollar allocated to FF&E is likely ordinary income to the seller, while a dollar on land or building is taxed at 20 or 25 percent at most.[1][2] Both sides report the same allocation on Form 8594.[4] Sources: - [1] Topic no. 409, Capital gains and losses (2025 rate thresholds; 25% maximum on unrecaptured section 1250 gain; page last reviewed February 25, 2026) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/taxtopics/tc409 - [2] Publication 544 (2025), Sales and Other Dispositions of Assets, chapter 3 (section 1231, section 1245 and section 1250 property) and chapter 4 (unrecaptured section 1250 gain) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p544 - [3] Topic no. 559, Net investment income tax (page last reviewed April 2, 2026) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/taxtopics/tc559 - [4] Instructions for Form 8594, Asset Acquisition Statement Under Section 1060 (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/instructions/i8594 - [5] Like-kind exchanges: real estate tax tips (page last reviewed May 1, 2026) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips - [6] Documentary Stamp Tax (deed rates, section 201.02, Florida Statutes) (Florida Department of Revenue, accessed 2026-09-18): https://floridarevenue.com/taxes/taxesfees/Pages/doc_stamp.aspx - [7] Real estate excise tax (graduated state rates effective January 1, 2023) (Washington State Department of Revenue, accessed 2026-09-18): https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax - [8] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [9] Publication 946 (2025), How To Depreciate Property (nonresidential real property, 39-year recovery period; hotel and motel units are not dwelling units) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p946 - [10] Real Estate Transfer Tax (Georgia Department of Revenue, accessed 2026-09-18): https://dor.georgia.gov/real-estate-transfer-tax - [11] 26 U.S. Code section 1031, Exchange of real property held for productive use or investment (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 - [12] Publication 537 (2025), Installment Sales (depreciation recapture income) (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p537 ### What do buyers look for when buying a hotel? URL: https://matthewshotelmarkets.com/sell-a-hotel/what-buyers-look-for Last updated: 2026-10-07 Buyers look for income they can prove and finance. That means a trailing twelve-month NOI that ties to bank statements, a RevPAR index at or above the brand's norm (Hilton's 2026 Hampton FDD reports an average of 120.8 for 2025), a known PIP cost, enough franchise term, and debt coverage that works at September 2026 rates.[1][2] Each gap becomes a price deduction. Key takeaways: - A buyer's offer is NOI divided by a cap rate, minus what it will cost to keep the flag and fix the building. Sellers control the NOI evidence and can get the PIP number early. - The buyer's lender is a second buyer. SBA requires operating cash flow of at least 1.15 times debt service and at least 10 percent equity on a purchase, with coverage rising to 1.25 on October 1, 2026, and other lenders set their own tests.[3][4] - A change of ownership at a Hampton carries a listed $200,000 application fee, a $10,000 PIP fee, a new franchise agreement and the upgrades Hilton requests.[1] Buyers price all of it. - RevPAR index tells a buyer whether the hotel wins its fair share. Below 100 reads as upside or as a problem, depending on whether the seller can explain it. - Retrades come from surprises in diligence. A seller who finds the problems first gets to price them first. #### What is the first thing a hotel buyer looks at? The trailing twelve-month profit and loss statement, because the buyer's price is built on the NOI it can verify. A hotel buyer values income. The usual method is NOI divided by a cap rate, which is explained at `/hotel-valuation/how-to-value-a-hotel`. So the first request is the last three years of monthly profit and loss statements plus the trailing twelve months, in the industry's standard format. The 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry took effect on January 1, 2026, and its sponsors describe it as the authoritative standard for lodging financial reporting.[5] The buyer then rebuilds your NOI its own way. It adds a management fee even if you manage the hotel yourself, a reserve for replacing furniture and equipment, and property taxes at the value it expects after the sale, not your current bill. It removes owner expenses that will not continue. What is left is the number it capitalizes. Sellers who present NOI without those deductions see the gap show up as a lower offer. Proof matters as much as the number. NOI that ties to tax returns and bank statements is financeable. NOI that depends on unreported cash or on add-backs nobody can document is discounted or ignored. The full document list is at `/sell-a-hotel/documents-needed`. #### How do buyers judge my hotel against its competitors? With the STR report's RevPAR index, which compares your revenue per available room with a set of competing hotels. A RevPAR index of 100 means the hotel earns its fair share of the competitive set's revenue. Hilton's 2026 Hampton disclosure document defines it as hotel RevPAR divided by comp set RevPAR, times 100, and reports that comparable Hampton hotels averaged a 120.8 index in 2025, with a median of 122.5 and a range from 58.9 to 361.6 (p. 80).[1] Average RevPAR for those hotels was $105.90 on 71.0 percent occupancy and a $149.08 average rate (pp. 78-79).[1] A buyer reads your index two ways. An index well above the brand's norm says the income is real but may be hard to grow. An index below 100 says the hotel is losing share, and the buyer will want to know why: a tired product, weak revenue management, a new competitor, or a comp set that was chosen badly. If the cause is fixable, a buyer may pay for part of the upside. If the seller cannot explain it, the buyer assumes the worst case. The terms are defined at [MPI, ARI and RGI](/glossary/mpi-ari-rgi) and [Competitive Set](/glossary/comp-set). Hilton's figures are for its system and are not a forecast for any hotel. #### How much do the PIP and the franchise matter to a buyer? They set the largest deduction from price, because a buyer of a branded hotel has to be approved by the brand and do the work the brand requires. A sale is a change of ownership under the franchise agreement. Under Hilton's 2026 Hampton terms, the seller gives 60 days' written notice, and the buyer must meet Hilton's then-current requirements for new franchisees, submit a change of ownership application, pay the franchise application fee, sign the then-current franchise agreement and agree to Hilton's request for upgrades (p. 74).[1] The listed application fee for a change of ownership is $200,000, and Hilton reports that in 2025 franchisees paid between $25,000 and $200,000 (pp. 16-17).[1] The fee to prepare the PIP is $10,000 (p. 16).[1] The upgrades must be completed within the timeframes in the PIP (p. 59).[1] The new agreement generally runs for the remaining term of the old one, or another term Hilton approves (p. 69).[1] A short remaining term worries the buyer's lender as much as the buyer. That case is covered at `/sell-a-hotel/franchise-agreement-expiration`. For a seller, the practical step is to order the PIP before going to market. A buyer who does not know the PIP cost will assume a high one. How the PIP flows into price is worked through at `/hotel-valuation/pip-and-hotel-value`. Other brands publish their own transfer terms and fees in their own disclosure documents, compared at `/hotel-franchise-costs`. #### Why does the buyer's financing affect my price? Because a buyer who borrows has its loan sized on your hotel's income. If the income cannot carry the debt, the buyer needs more cash or a lower price. No bank, CMBS lender or debt fund publishes its coverage or leverage limits. SBA does, and its programs are one route for buying a smaller hotel. SOP 50 10 8 requires operating cash flow of at least 1.15 times debt service on all business debt, and an equity injection of at least 10 percent of total project costs on a change of ownership (pp. 129-131).[3] SBA has posted SOP 50 10 8.1 with an October 1, 2026 effective date, and it raises the required coverage on an initial acquisition to 1.25, tested on historical or adjusted results.[4] Rates set the other half of the test. On September 30, 2026 the 10-year Treasury was 5.29 percent and the SBA 7(a) maximum variable rate was 10.00 percent, with the 25-year SBA 504 debenture at 6.54 percent.[2] At higher rates the same NOI supports a smaller loan. You can see what your income supports at `/tools/hotel-loan-sizing-calculator`, and SBA's actual hotel lending is tracked at `/data/sba-hotel-lending`. Sellers can help. A hotel with clean financials, a current STR report, a recent survey and environmental report, and a known PIP is faster to finance, and a faster closing is worth money to both sides. A seller note can also bridge a gap, within the limits explained at `/buy-a-hotel/seller-financing`. #### What physical and legal issues do buyers check? The building's condition, environmental status, title and survey, licenses, contracts and staffing, each through a third-party report or a document review. The buyer's workstreams are listed in order at `/buy-a-hotel/due-diligence-checklist`: property condition assessment, Phase I environmental report, ALTA survey and title, the franchise application, the liquor license and the staffing plan. The seller's version of that list is simple. Anything those reports will find, you want to know first. Roofs, elevators, HVAC, the parking lot and life-safety systems are the items that turn into credits at the closing table. Open permits, unrecorded easements and a liquor license that cannot transfer on the buyer's timeline are the items that delay closings. If the hotel is on leased land, the ground lease is its own review, covered at `/sell-a-hotel/selling-a-hotel-on-a-ground-lease`. Contracts matter too. Buyers ask which agreements they must assume: the management agreement, equipment leases, service contracts and union agreements. A management agreement that cannot be terminated on sale narrows the buyer pool. One buyer attribute sits outside all of those reports: where the buyer's capital is from. It changes the schedule rather than the price, and only for a hotel in a covered port or near a listed military installation. That test is at [can I sell my hotel to a foreign buyer?](/sell-a-hotel/selling-to-a-foreign-buyer). #### What can I do in the year before I sell? Make the income provable, learn the PIP number, fix what is cheap to fix, and do not start capital projects a buyer will not pay for. Twelve months out: move the books to the standard format if they are not there, stop running personal expenses through the hotel, and keep monthly STR reports. A full year of clean numbers is what the buyer's lender will underwrite. Six months out: ask the brand for a PIP, get a contractor's price for it, and have your own roof, mechanical and environmental checks done. Decide with your broker which items to fix and which to disclose and price. At listing: have the documents in a data room before the first call. Our published listing process runs about 24 weeks from engagement to closing, and the diligence period is where unprepared sellers lose time and price.[6] For a starting estimate of what the income supports, use `/tools/hotel-value-estimator`. For a written opinion from a broker, see `/hotel-valuation/broker-opinion-of-value`. If the hotel sits in a city with a hotel-only minimum wage, have the published schedule and what it does to income ready as well: [What is the hotel worker minimum wage, and what does it do to my hotel's value?](/hotel-industry/hotel-worker-minimum-wage). Table: What a hotel buyer checks, the evidence it wants, and how a gap shows up in the offer What the buyer checks | Evidence it asks for | How a gap is priced Provable NOI | Three years and trailing twelve months of P&Ls in the uniform format, tax returns, bank statements[5] | Unproven income is left out of the NOI that gets capitalized Market position | STR report with RevPAR index; Hampton's 2025 system average was 120.8 (p. 80)[1] | Low index with no explanation is treated as risk, not upside PIP and transfer costs | Brand PIP and a contractor's price; Hampton lists a $200,000 change of ownership application fee and a $10,000 PIP fee (p. 16)[1] | Deducted from price dollar for dollar, often with a contingency Franchise term | Franchise agreement; a Hampton buyer generally gets the remaining term (p. 69)[1] | Short term narrows lenders and buyers Financeability | SBA: cash flow at least 1.15 times debt service and at least 10% equity (pp. 129-131)[3], 1.25 for an initial acquisition from October 1, 2026[4]; other lenders do not publish their tests | Buyer needs more cash or a lower price Building, title, licenses | Property condition, Phase I, survey, title, liquor license, contracts | Credits at closing, or delay First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent across 14 markets.[7] At those rates every $100,000 of NOI a buyer cannot verify takes roughly $1.14 million to $1.33 million off the value. Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: how a buyer gets from your NOI to its offer): Hypothetical. A seller of a 100-key Hampton reports $900,000 of NOI after a management fee and a furniture reserve. Step 1, value before deductions. At an assumed 8.25 percent cap rate, inside the Matthews Hotel Index select-service band, $900,000 / 0.0825 = $10,909,091.[7] Step 2, brand and building. The buyer's contractor prices the PIP at $1,200,000, an assumed figure. Hilton's listed change of ownership application fee is $200,000 and the PIP fee is $10,000.[1] Deductions: $1,200,000 + $200,000 + $10,000 = $1,410,000. Offer: $10,909,091 - $1,410,000 = $9,499,091. Step 3, the lender's test. At SBA's 1.15 coverage ratio, $900,000 of cash flow supports debt service of $900,000 / 1.15 = $782,609 a year.[3] At the 1.25 ratio that applies to initial acquisitions from October 1, 2026, it supports $900,000 / 1.25 = $720,000.[4] Whether that carries the loan the buyer needs depends on the rate and the amortization, which is why the buyer runs this test before it bids. Step 4, the proof problem. If $100,000 of the NOI cannot be tied to the books, the buyer capitalizes $800,000 instead: $800,000 / 0.0825 = $9,696,970. That is $1,212,121 less value from $100,000 of unproven income. The cap rate and PIP cost are assumptions for illustration. The order of the steps is the point. FAQ: - Q: What is the most important thing to a hotel buyer? A: NOI it can prove. The price is NOI divided by a cap rate, so income that ties to tax returns and bank statements is worth more than a higher number that does not. - Q: How will a buyer value my Hampton Inn? A: On verified NOI and a cap rate, less the PIP and transfer costs. Hilton's 2026 FDD lists a $200,000 change of ownership application fee and a $10,000 PIP fee, and the buyer signs a new franchise agreement.[1] - Q: What RevPAR index do hotel buyers want to see? A: At or above 100, which is fair share of the comp set. For reference, Hilton reports comparable Hamptons averaged 120.8 in 2025, ranging from 58.9 to 361.6.[1] Below 100 is not fatal if you can show why and how it is fixed. - Q: Should I do the PIP before I sell my hotel? A: Not automatically. Order the PIP and price it so buyers are not guessing. Whether to do the work depends on cost, timing and whether the next owner's brand plan would undo it. See /hotel-valuation/pip-and-hotel-value. - Q: Why do hotel buyers retrade the price after due diligence? A: Because a report found something the offer did not assume: a roof, an environmental issue, a larger PIP, or NOI that did not tie out. Sellers who commission their own checks first reduce that risk. - Q: Does the buyer's loan really affect what I get for my hotel? A: Yes. The loan is sized on your income. SBA, for example, requires cash flow of at least 1.15 times debt service and at least 10 percent equity on a purchase.[3] If the income will not carry the debt, the price or the buyer changes. - Q: What should I fix before I put my hotel on the market? A: Fix the books first, then safety and licensing items, then cheap visible repairs. Get prices for big items such as roofs and the PIP and disclose them. Large capital projects may not return their cost right before a sale. - Q: How long does a buyer's due diligence take on a hotel? A: It sits inside a sale that runs about 24 weeks from engagement to closing in our published process.[6] Brand approval adds its own clock: Hilton's Hampton agreement calls for 60 days' written notice of a change of ownership.[1] Sources: - [1] 2026 Hampton Franchise Disclosure Document: Item 5 (pp. 16-17), Item 11 (p. 59), Item 17 (pp. 69-74) and Item 19 (pp. 78-80) (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section B, Ch. 1: debt service coverage of 1.15 (p. 129) and 10 percent equity injection on a change of ownership (p. 131) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [4] SOP 50 10 8.1 (effective October 1, 2026), Appendix 15: 7(a) Changes of Ownership, debt service coverage by transaction type (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/sites/default/files/2026-08/SOP%2050%2010%208.1%20effective%2010.1.2026_0.docx - [5] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (adoption date January 1, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [6] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [7] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ## What is my hotel worth, and who decides? ### What is my hotel worth, and who decides? URL: https://matthewshotelmarkets.com/hotel-valuation Last updated: 2026-09-18 Hotel value is stabilized NOI divided by a cap rate, cross-checked against comparable sales and per-key pricing. Two variables move it: the NOI itself, and the cap rate buyers apply to it. HVS reported in April 2026 that U.S. hotel trades averaged an 8.2 percent cap rate in 2025, with stabilized hotels typically selling at 8 to 9 percent.[1] Key takeaways: - Value equals stabilized NOI divided by a cap rate. Everything else is a cross-check on those two inputs. - A hotel is a going concern, so you are valuing an operating business attached to real estate. - Cap rates respond to interest rates, but not in lockstep.[2] NOI moves with operations. - A PIP is a direct deduction plus a risk premium. It costs more than its face amount. - A broker opinion of value and an appraisal answer different questions for different audiences. #### How is a hotel valued? Stabilized NOI divided by a cap rate, cross-checked against comparable sales, discounted cash flow, and per-key pricing. The table above ranks the five approaches by how often each one actually decides the number, not by textbook order. In our practice, income capitalization governs for stabilized transactions because it directly ties value to the cash flow a buyer is actually purchasing. Discounted cash flow takes over when the asset is not yet stabilized, mid-PIP, ramping up after a brand conversion, or otherwise not producing a representative trailing number. Sales comparison and per-key pricing serve as sanity checks rather than primary methods, because true hotel comps, same brand, same market, same PIP status, are rare. The full arithmetic, from occupancy and ADR down to a final value, is worked through at [How to value a hotel](/hotel-valuation/how-to-value-a-hotel) #### What is a cap rate and where does mine come from? A cap rate is the unlevered yield a buyer accepts for the asset's risk, and it comes from recent comparable trades in the same segment and market, published quarterly in the Matthews Hotel Index. The Matthews Hotel Index for Q1 2026 publishes cap-rate bands by segment across the 14 markets we cover.[3] Segment, market, brand strength, and PIP status all move the number for a specific asset within its band. Current bands, and what moves them, are broken out at [Hotel cap rates in 2026](/hotel-valuation/hotel-cap-rates) #### Why did my value drop when my NOI did not? Because cap rates expanded. The same NOI divided by a wider cap rate produces a lower value, with nothing about the hotel's operations changing. It is a common valuation surprise owners bring to us. Interest rates and buyer risk appetite move cap rates, but not one for one. In CBRE's H1 2026 survey, the all-property average cap rate was essentially flat even as the 10-year Treasury peaked at 4.67 percent in mid-May, while hotel cap rates compressed.[2] When cap rates do widen across a holding period, the value math moves independent of anything an operator did or did not do, shown with real numbers in the worked example below. #### What is going-concern value? The value of the real estate and the operating business together, since a hotel without staff, systems and a brand is worth less than one running as a business. Appraisers and brokers both value hotels as going concerns rather than as vacant real estate, because the franchise agreement, the trained staff, the reservation systems and the guest relationships are part of what a buyer is purchasing and what produces the NOI in the first place. This is a meaningful distinction from valuing an apartment building or an office property, where the real estate and the operating business are largely separable. #### How does a PIP change the number? A PIP is deducted from unencumbered value, plus a risk premium for scope uncertainty and displacement during the renovation. An open property improvement plan does not automatically kill a deal, but it does change the math. Buyers subtract the estimated PIP cost from the unencumbered value, then add a premium to compensate for the risk that scope grows once work starts, and account for displacement revenue lost while rooms are out of service. The full arithmetic is at [What is involved in selling a hotel?](/sell-a-hotel) #### Who produces a hotel valuation? A broker opinion of value for a seller deciding whether and how to sell, and a USPAP-compliant appraisal for a lender deciding whether to fund a loan.[4] The two documents answer different questions for different audiences, and neither substitutes for the other. A BOV is typically fast and often free; an appraisal is a paid engagement that, for a federally related loan, must conform to USPAP.[5] The full comparison, including why the two numbers can diverge widely on the same asset, is at [Hotel BOV vs appraisal](/hotel-valuation/broker-opinion-of-value) #### What is my hotel worth per key? Price divided by keys, useful as a sanity check and for quick comparison, but it ignores NOI entirely and should never be the primary method. Two hotels with the same key count and wildly different NOI are not worth the same amount, which is exactly what a pure per-key comparison misses. Per-key numbers are most useful for a fast gut check against known comparable sales in the same chain scale and market, not as a substitute for an income-based valuation. Table: Three approaches to hotel value, and when each one governs Approach | How it works | When it governs | Weakness Income capitalization | Stabilized NOI divided by a cap rate | Almost always, for stabilized assets | Garbage in: a wrong NOI produces a confident wrong answer Discounted cash flow | Project several years of cash flow, discount to present | Transitional assets, PIPs, ramp-ups | Every assumption is arguable Sales comparison | Recent comparable sales, adjusted | Cross-check, and thin markets | Hotel comps are rarely truly comparable Cost | Replacement cost less depreciation | New construction and insurance | Says little about what a buyer will pay Per-key | Price divided by keys | Sanity check and shorthand | Ignores NOI entirely First-party data point: The Matthews Hotel Index for Q1 2026 publishes cap-rate bands by segment across the 14 markets we cover.[3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: why value fell while NOI held): Hypothetical. A 96-key hotel, NOI flat at $1.42 million across two years. Year one, cap rate 7.25 percent: value equals $1.42 million divided by 0.0725, or $19.59 million, $204,000 per key. Year two, cap rate 8.25 percent: value equals $1.42 million divided by 0.0825, or $17.21 million, $179,000 per key. The hotel lost $2.38 million, 12 percent, with identical operations. One hundred basis points of cap rate expansion did it. It is a common question owners bring to a valuation conversation, and the answer is often not about the hotel. FAQ: - Q: How do you value a hotel? A: Stabilized NOI divided by a cap rate, cross-checked against comparable sales and per-key pricing. Discounted cash flow governs for transitional or PIP-affected assets. - Q: What is a good hotel cap rate in 2026? A: There is no single good number; it depends on segment, market and PIP status. HVS put the 2025 U.S. transaction average at 8.2 percent.[1] See the current bands by segment at /hotel-valuation/hotel-cap-rates. - Q: Why did my hotel's value drop when NOI was flat? A: Cap rates expanded. The same NOI divided by a wider cap rate produces a lower value even though nothing about the hotel's operations changed. - Q: What is going-concern value? A: The combined value of the real estate and the operating business, staff, systems, brand agreement and guest relationships, that make a hotel function as a business, not just a building. - Q: How much does a PIP reduce hotel value? A: More than its face cost. Buyers deduct the PIP amount, then add a risk premium for scope uncertainty and a deduction for displacement during the renovation. - Q: Is RevPAR or NOI more important for valuation? A: NOI. RevPAR measures revenue per room, but value is set on the profit that flows through after expenses, which is what a cap rate is applied to. - Q: What is a hotel worth per key? A: Price divided by key count. It is a useful sanity check and shorthand for comparison, but it ignores NOI entirely and should not be used as a primary valuation method. - Q: Do I need an appraisal or a broker opinion of value? A: An appraisal if a lender requires one for financing. A broker opinion of value if you are deciding whether and how to sell. See the comparison at /hotel-valuation/broker-opinion-of-value. Sources: - [1] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 - [2] U.S. Cap Rate Survey H1 2026 (CBRE Research, accessed 2026-09-18): https://www.cbre.com/insights/reports/us-cap-rate-survey-h1-2026 - [3] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [4] Uniform Standards of Professional Appraisal Practice (USPAP) (The Appraisal Foundation, accessed 2026-09-18): https://appraisalfoundation.org/products/uspap - [5] 12 CFR 34.44, minimum appraisal standards (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.44 ### Why did my hotel appraise for less than I expected? URL: https://matthewshotelmarkets.com/hotel-valuation/appraisal-lower-than-expected Last updated: 2026-09-18 Usually for four reasons. The appraiser valued the hotel as is, not as you plan it. The appraiser added a management fee and a reserve to your expenses. The cap rate was wider than yours. And renovation cost was deducted. Federal rules define the value an appraiser must estimate,[1] and HVS put a normal stabilized hotel cap rate near 8.0 to 8.5 percent in April 2026.[2] Key takeaways: - A bank appraisal estimates market value as federal rules define it: the most probable price in an open market, with a typically motivated buyer and seller.[1] It is not the best price a targeted sale process might reach. - For a loan funding a renovation, regulators expect an as-is value and, where it applies, prospective values on completion and on stabilization.[3] Owners often quote the last one. Lenders often size to the first. - Appraisals for federally related loans must analyze and report deductions for proposed renovation.[4] A PIP comes off the number. - In the hypothetical below, $294,000 of expense adjustments removes $3.68 million of value, more than the cap rate and the PIP combined. - You cannot order the appraisal yourself. A bank's use of a borrower-ordered appraisal violates the agencies' appraisal regulations.[3] #### What is the appraiser actually estimating? Market value under a federal definition: the most probable price in a competitive and open market, as of a specific date. For national banks the definition sits at 12 CFR 34.42. Market value is the most probable price a property should bring under all conditions requisite to a fair sale, with buyer and seller each acting prudently and knowledgeably, typically motivated, and with a reasonable time allowed for exposure in the open market.[1] The interagency guidelines that all the federal bank regulators issued together apply the same concept.[3] Notice what the definition leaves out. It does not ask what the most motivated buyer might pay. It does not give credit for a business plan that has not happened. Appraisals for federally related transactions must also conform to USPAP,[4] which The Appraisal Foundation describes as the national standards for real estate appraisal.[5] The appraiser's job is a supportable number for a lender's file, and the rules push it toward the probable case. #### Why is the appraiser's NOI lower than mine? Because the appraiser restates your income statement the way a buyer would, with a management fee and an FF&E reserve you may not be paying. An owner-operator's books often show no management fee, because the owner is the manager. They often show no reserve for replacing furniture, fixtures and equipment, because the owner pays for replacements when they come due. An appraiser values the hotel in the hands of a typical buyer, who will pay for both. One-time revenue, such as a construction crew that filled the hotel for a season, may be removed. Property tax may be restated. None of this is a judgment about how you run the hotel. It is the difference between your tax return and a buyer's underwriting. The full line-by-line build is at [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel) #### Why did the appraiser use a higher cap rate than I did? Because the appraiser has to support the rate with evidence, and the published evidence sits higher than most owners assume. HVS wrote in April 2026 that U.S. hotel transactions averaged an 8.2 percent cap rate in 2025, that a normal rate for a stabilized or near-stabilized hotel remains near 8.0 to 8.5 percent, and that prevalent discount rates are 10 to 11 percent.[2] HVS also warned readers to be wary of valuations that use aggressively low exit cap rates and discount rates, and said an exit cap rate of 6 to 7 percent in a low-barriers market for a typical limited-service, select-service or full-service hotel should flash yellow lights.[2] The Matthews Hotel Index for Q1 2026 puts select-service at 7.50 to 8.75 percent across 14 markets.[6] An owner who capitalized at the rate from a 2021 purchase will see a lower number from any appraiser working from current evidence. #### What is the difference between as-is and as-stabilized value? As-is is the hotel today in its current condition. As-stabilized is a prospective value after a renovation or ramp-up is finished. The interagency guidelines define as-is market value as the value of the property in its current physical condition, use and zoning as of the appraisal's effective date.[3] For a loan that finances renovation, the guidelines say an institution would generally request the as-is value and, as applicable, the prospective market value upon completion and upon stabilization, and that it should consider the prospective value that corresponds to the credit decision and the phase of the project being funded.[3] Federal minimum standards also require an appraisal to analyze and report appropriate deductions and discounts for proposed construction or renovation.[4] So one report can hold three numbers. If you are comparing your expectation with the lowest of the three, read the other two before you conclude the appraiser missed something. How the renovation deduction is built is at [How does a PIP affect my hotel's value?](/hotel-valuation/pip-and-hotel-value) #### Why was my broker's BOV higher than the appraisal? They answer different questions. A BOV estimates what a marketed sale could achieve. An appraisal supports a lender's collateral decision. A broker opinion of value prices to the live buyer pool, including the buyer who will pay more because the hotel fits its portfolio. An appraisal prices to the typically motivated buyer in the definition.[1] Neither corrects the other, and the numbers can sit far apart on the same hotel. Bank regulators do not accept a broker price opinion in place of an appraisal or even as an evaluation.[7] The full comparison is at [What is a hotel broker opinion of value, and how is it different from an appraisal?](/hotel-valuation/broker-opinion-of-value) #### What can I do about a low appraisal? Read the report, correct facts, supply evidence through the lender, and if the number stands, change the loan or the plan. Start with the lender, because the lender is the appraiser's client. The guidelines bar a bank from using an appraisal the borrower ordered or provided, and they require the people who select appraisers to be independent of loan production.[3] That means you cannot shop for a second opinion and hand it in. You can ask the lender for the report, check the room count, revenue, expenses and PIP scope for errors, and send documented corrections and comparable sales through the lender. If the value holds, the choices are practical: more equity, a smaller loan, a different lender type, finishing the renovation before refinancing, or selling. For national banks the appraisal requirement applies to commercial real estate transactions above $500,000,[8] so a bank loan on a hotel will almost always need one. The financing side of that decision is at [Should I refinance my hotel or sell it instead?](/hotel-financing/refinance-or-sell) Table: Why an owner's number and a lender's appraisal differ Item | Owner's expectation | Lender's appraisal | Why Value definition | Best price a good sale process might reach | Most probable price, typically motivated parties[1] | 12 CFR 34.42 sets the definition Condition valued | After the renovation and ramp-up | As is, plus prospective values where the loan funds work[3] | The lender sizes to the phase it is funding NOI | As reported, often with no management fee or reserve | Restated to a typical buyer's expense load | The next owner will pay both Cap rate | Remembered from the purchase or a headline trade | Supported by current sales and surveys[2] | The report must conform to USPAP[4] Renovation or PIP | Ignored, or assumed to pay for itself | Deducted and reported[4] | 12 CFR 34.44(d) Who orders it | The owner | The lender, independent of loan production[3] | Borrower-ordered appraisals cannot be used First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent and full-service at 6.50 to 8.25 percent across 14 markets. An expectation built on a rate below those bands needs its own evidence.[6] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a $16.25M expectation and an $11.29M as-is appraisal): Hypothetical. An owner-operated hotel with $4,200,000 of revenue reports NOI of $1,300,000. The books carry no management fee and no FF&E reserve. The owner capitalizes at 8.00 percent and expects $1,300,000 divided by 0.08, or $16.25 million. The appraiser adds a 3 percent management fee, $126,000, and a 4 percent reserve, $168,000. Restated NOI is $1,006,000. The appraiser supports an 8.25 percent cap rate. Stabilized value equals $1,006,000 divided by 0.0825, or $12.19 million. A $900,000 PIP is outstanding, so the as-is value is $11.29 million. The gap is $4.96 million, 30 percent. Of that, $3.68 million comes from the two expense lines, $0.38 million from 25 basis points of cap rate, and $0.90 million from the PIP. The percentages used for the fee and the reserve are assumptions for this hypothetical. The point is the order of size. Most of the gap was in the owner's income statement, not in the appraiser's cap rate. FAQ: - Q: Can I order my own appraisal for the bank to use? A: No. The interagency guidelines say an institution's use of a borrower-ordered or borrower-provided appraisal violates the agencies' appraisal regulations.[3] The lender engages the appraiser. See `/hotel-financing/appraisal-requirements` for the one lawful workaround. - Q: Is an appraisal the same as market price? A: It estimates the most probable price under a federal definition, with typically motivated parties and reasonable market exposure.[1] A marketed sale can beat it or miss it. - Q: Why did the appraiser deduct my PIP? A: Minimum federal appraisal standards require an appraisal to analyze and report appropriate deductions and discounts for proposed construction or renovation.[4] A buyer would deduct it too. - Q: What cap rate do hotel appraisers use in 2026? A: They support one from sales and surveys. HVS put a normal stabilized hotel near 8.0 to 8.5 percent in April 2026, with discount rates of 10 to 11 percent.[2] - Q: Can I challenge a low hotel appraisal? A: You can send factual corrections and comparable sales through the lender, who is the appraiser's client. You cannot substitute your own report.[3] Whether the lender asks for a revision is its decision. - Q: Does a low appraisal mean my hotel lost value? A: Not always. It may mean your expectation left out a management fee, a reserve or a PIP. Compare the appraiser's restated NOI with yours line by line before drawing a conclusion. - Q: Will a broker opinion of value help with the lender? A: Not as a valuation. Regulators say a broker price opinion is not acceptable even as an evaluation.[7] Its comparable sales can still be useful evidence to pass along. Sources: - [1] 12 CFR 34.42, definitions (market value) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.42 - [2] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 - [3] Interagency Appraisal and Evaluation Guidelines, December 2010 (full text) (OCC, Federal Reserve, FDIC, OTS and NCUA, via FDIC, accessed 2026-09-18): https://www.fdic.gov/news/news/financial/2010/fil10082a.pdf - [4] 12 CFR 34.44, minimum appraisal standards (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.44 - [5] Uniform Standards of Professional Appraisal Practice (USPAP) (The Appraisal Foundation, accessed 2026-09-18): https://appraisalfoundation.org/products/uspap - [6] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [7] Interagency Appraisal and Evaluation Guidelines (FIL-82-2010), summary letter (Federal Deposit Insurance Corporation, accessed 2026-09-18): https://www.fdic.gov/news/financial-institution-letters/2010/fil10082.html - [8] 12 CFR 34.43, appraisals required; transactions requiring a state certified or licensed appraiser (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.43 ### How much is my branded select-service hotel worth? URL: https://matthewshotelmarkets.com/hotel-valuation/branded-select-service-hotel-value Last updated: 2026-09-18 Nobody can price a specific Hampton Inn or Holiday Inn Express from its flag and key count. The method is the same for every branded select-service hotel: buyer-ready NOI divided by a cap rate, less any change-of-ownership PIP. The Matthews Hotel Index for Q1 2026 puts select-service cap rates at 7.50 to 8.75 percent across 14 markets.[1] Key takeaways: - The flag does not set the value. NOI, the cap rate and the capital a buyer must spend after closing do. - Brand fees are public. Hilton's 2025 Hampton FDD lists a 6 percent royalty and a 4 percent program fee, both on gross rooms revenue.[2] - A sale is a change of ownership. Under the Hampton FDD the buyer applies for a new franchise, pays a $200,000 application fee and agrees to the brand's upgrade requests.[2] - In the hypothetical below, a 110-key hotel is worth $11.29 million to $13.17 million across the index band, before any PIP deduction. - We do not publish comparable sales by brand. Real comps need NOI and PIP status, which public records do not show. #### Why can't anyone tell me what a Hampton Inn is worth? Because two hotels under the same flag with the same room count can differ by millions in NOI and in required capital. A brand tells a buyer which reservation system fills the hotel and which standards it must meet. It does not tell the buyer the occupancy, the rate, the labor cost, the tax bill or the age of the rooms. Those set value. Any page or tool that quotes a price for your brand without your trailing twelve months is quoting an average of other people's hotels. The honest answer is a method and a range, then a number once the financials are on the table. The same point in per-key terms is at [What is my hotel worth per key?](/hotel-valuation/revpar-multiples-and-per-key) #### What NOI will a buyer use for my hotel? Your trailing twelve months, restated to include a management fee and an FF&E reserve whether or not you pay them today. A buyer rebuilds the income statement the way its lender will. That means a management fee even if you run the hotel yourself, and a reserve for furniture, fixtures and equipment even if you have not been funding one. It also means property tax at the buyer's likely assessed value where the state reassesses on sale. The line-by-line build is at [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel). The worked example below uses expense ratios that are assumptions for illustration, not benchmarks. Replace every one with your own figures. #### How much do brand fees take out of my NOI? Read your own franchise agreement. For new Hilton select-service agreements in 2025, the royalty and program fee together run 9.5 to 10 percent of gross rooms revenue. Franchise Disclosure Documents are public, and Item 6 lists the fees. Hilton's 2025 Hampton FDD, issued March 30, 2025, lists a monthly royalty of 6 percent of gross rooms revenue and a monthly program fee of 4 percent.[2] The 2025 Hilton Garden Inn FDD lists 5.5 percent and 4 percent.[3] The 2025 Home2 Suites FDD lists 6 percent and 3.5 percent.[4] Hilton reserves the right to change the program fee, and says the Hampton rate will not rise by more than 1 percent of gross rooms revenue over the term.[2] Those two lines are not the full cost of the flag. Item 6 also lists loyalty program, distribution, technology and training charges that vary with how guests book. An older agreement may carry different rates than the current FDD, so a buyer will underwrite the agreement it will sign, not the one you have. #### What cap rate applies to a branded select-service hotel? Start with the select-service band for your market in the Matthews Hotel Index, then move within it for franchise term, PIP status and supply. Across the 14 markets in the index, select-service spans 7.50 to 8.75 percent for stabilized, PIP-current product.[1] HVS wrote in April 2026 that a normal cap rate for a stabilized or near-stabilized hotel remains near 8.0 to 8.5 percent, and that older limited-service, select-service and full-service hotels facing a big renovation will likely trend above that mark.[5] A long remaining franchise term, a recent renovation and limited new supply push toward the tight end. A short term, an open PIP or a new competitor under construction push toward the wide end. What moves the band itself is covered at [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates) #### What happens to my franchise when I sell? The buyer does not inherit your agreement. It applies for its own, and the brand can attach a property improvement plan to the approval. Under the 2025 Hampton FDD, a sale is a Change of Ownership Transfer. The proposed buyer must submit a change of ownership application, pay the franchise application fee, sign the then-current form of franchise agreement and agree to Hilton's request for upgrades to the hotel.[2] The application fee for a change of ownership is $200,000, and the fee to prepare a PIP is $10,000, which Hilton may waive or credit.[2] A buyer treats the application fee and the PIP as part of its total cost, so both come out of what it can pay you. Other brands write their own terms. Read the FDD for your flag. How the PIP itself is priced is at [How does a PIP affect my hotel's value?](/hotel-valuation/pip-and-hotel-value) #### Why don't you publish comps for my brand? Because a real comp needs the NOI, the PIP status and the franchise term behind the price, and public records carry none of them. A deed or a press release shows a price and a key count. It does not show whether the buyer also took on a $2 million renovation, or whether the hotel was earning half of what yours earns. Subscriber databases fill some of that gap, and their licenses do not allow republication. So this page gives the method, the public fee facts and our own index band. A [broker opinion of value](/hotel-valuation/broker-opinion-of-value) applies real comparable trades to your hotel under a confidentiality agreement, which is the only setting where they are useful. Table: Franchise fees on gross rooms revenue, Hilton select-service brands, 2025 Franchise Disclosure Documents Brand | Monthly royalty fee | Monthly program fee | Change of ownership application fee Hampton by Hilton | 6%[2] | 4%[2] | $200,000[2] Hilton Garden Inn | 5.5%[3] | 4%[3] | $200,000[3] Home2 Suites by Hilton | 6%[4] | 3.5%[4] | $200,000[4] First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent across the 14 markets we cover, for stabilized, PIP-current hotels.[1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 110-key branded select-service hotel): Hypothetical. Every operating ratio here is an assumption for illustration. The two brand fee rates come from the 2025 Hampton FDD.[2] 110 keys, 72 percent occupancy, $135 ADR. RevPAR equals 0.72 times $135, or $97.20. Rooms revenue equals $97.20 times 110 times 365, or $3,902,580. Other revenue at 3 percent of rooms is $117,077. Total revenue is $4,019,657. Departmental expenses at 27 percent of revenue are $1,085,307. Undistributed expenses at 24 percent are $964,718. Royalty at 6 percent of rooms revenue is $234,155 and program fee at 4 percent is $156,103, together $390,258. Management fee at 3 percent of revenue is $120,590. Property tax and insurance are $310,000. FF&E reserve at 4 percent of revenue is $160,786. Total expenses are $3,031,659. NOI is $987,998, a 24.6 percent margin. At 7.50 percent, value is $13.17 million, about $119,800 per key. At 8.25 percent, $11.98 million, about $108,900 per key. At 8.75 percent, $11.29 million, about $102,600 per key. Now add a change-of-ownership PIP at a hypothetical $15,000 per key, or $1,650,000. At 8.25 percent the buyer's number falls to $10.33 million, about $93,900 per key. One point of program fee on this hotel is $39,026 a year, which is about $473,000 of value at 8.25 percent. Small lines matter at a cap rate. FAQ: - Q: How much is my Hampton Inn worth? A: Its buyer-ready NOI divided by a cap rate, less any PIP the brand attaches to the sale. The Matthews Hotel Index shows select-service at 7.50 to 8.75 percent for Q1 2026.[1] Without your financials, any single figure is a guess. - Q: Do Hampton Inns sell for more than other select-service brands? A: We do not publish brand rankings or brand-level comps. A stronger reservation system shows up in your RevPAR and NOI, and that is where a buyer pays for it. - Q: What franchise fees does a Hampton pay? A: Hilton's 2025 Hampton FDD lists a 6 percent royalty and a 4 percent program fee on gross rooms revenue, plus other program and technology charges in Item 6.[2] Your own agreement controls. - Q: Will the buyer take over my franchise agreement? A: Under the 2025 Hampton FDD, no. The buyer applies as a new franchisee, pays a $200,000 application fee, signs the then-current agreement and agrees to requested upgrades.[2] Other brands set their own terms. - Q: What cap rate should I use for a select-service hotel? A: The band for your market in the Matthews Hotel Index, 7.50 to 8.75 percent across 14 markets in Q1 2026,[1] adjusted for franchise term, PIP status and supply. HVS puts a normal stabilized hotel near 8.0 to 8.5 percent.[5] - Q: Does a management fee count if I manage the hotel myself? A: Yes. Buyers and appraisers add a market management fee and an FF&E reserve, because the next owner's lender will. Leaving them out overstates value. - Q: How do I get a real number for my hotel? A: Send trailing twelve month financials, the STR report if you have one, and the franchise agreement date. A broker opinion of value turns those into a range with stated comps and a stated cap rate. See /hotel-valuation/broker-opinion-of-value. Sources: - [1] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] 2025 Hilton Garden Inn Franchise Disclosure Document (issued March 30, 2025), Items 5 and 6 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hilton-Garden-Inn.pdf - [4] 2025 Home2 Suites Franchise Disclosure Document (issued March 30, 2025), Items 5 and 6 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Home2.pdf - [5] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 ### What is a hotel broker opinion of value, and how is it different from an appraisal? URL: https://matthewshotelmarkets.com/hotel-valuation/broker-opinion-of-value Last updated: 2026-09-18 A broker opinion of value is a broker's estimate of what a hotel would sell for today, produced for the owner. An appraisal is a USPAP-compliant valuation by a licensed or certified appraiser, usually ordered by a lender.[1] As of September 2026, federal banking rules generally require an appraisal on commercial real estate loans above $500,000,[2] and bank regulators do not accept a broker price opinion in its place.[3] Key takeaways: - A BOV answers what would this sell for. An appraisal answers what is this worth under a defined standard. - Lenders will not lend on a BOV. They order their own appraisal.[3] - In our practice, a BOV takes two to four weeks and carries no fee, because the broker is competing for the listing. - A CIM is a marketing document. A BOV is a pricing document. They are not the same thing. - Ask for the method. A BOV without comps, a cap rate and adjustments is a number, not an opinion. #### What is a broker opinion of value? A broker's written estimate of what a hotel would sell for in the current market, built from comps, a cap rate and a buyer-pool view, produced for the owner, often at no charge. A BOV exists to help an owner decide whether and how to sell, refinance, or bring in a partner. It is not a regulated appraisal product; it is a market-pricing opinion, and its value depends entirely on the broker's actual visibility into active buyers for that specific asset type and market, not just a desktop comp pull. #### How is it different from an appraisal? Governed by different rules entirely: a BOV follows state brokerage law, while an appraisal follows USPAP, the national standard that federal lending rules require.[4] This governance difference is the substantive one, more than the cost or turnaround differences in the table above. A BOV's content and the language a broker may use around it are constrained by state real estate license law, and those rules vary by state. Texas, for example, lets a licensed broker give a written price opinion only if it is not referred to as an appraisal.[5] An appraisal, by contrast, is governed by a single national standard, USPAP, regardless of which state the property sits in,[1] which is exactly why lenders can rely on it uniformly. #### What does an appraiser do that a broker does not? An appraiser develops the value under a defined professional standard, considering the income, sales comparison and cost approaches, and issues a report a lender can rely on for a federally related transaction.[4] A USPAP appraisal typically walks through income capitalization, sales comparison and cost approaches, states a highest-and-best-use conclusion, and documents every assumption in a way that can withstand a regulatory or legal challenge. A broker producing a BOV is not bound to that same documentation standard and is instead optimizing for a defensible, market-tested number delivered quickly. #### What is in a good BOV? Comparable sales with adjustments, a cap rate applied to stabilized NOI, a per-key cross-check, and a buyer-pool assessment specific to the asset. Every Matthews Hotel Markets BOV is built off the Matthews Hotel Index cap-rate band for the asset's segment and market, currently Q1 2026.[6] A BOV that hands an owner a single number with no comps and no stated cap rate is not an opinion an owner can evaluate; it is a guess dressed up as one. #### What does a BOV cost and how long does it take? In our practice, a BOV carries no fee and takes two to four weeks. An appraisal is a paid engagement whose fee and timing depend on the property and the appraiser. Brokers typically absorb the underwriting time on a BOV because it is part of pursuing the eventual listing engagement, which is why BOVs often carry no fee. An appraisal, ordered independently of any listing relationship, costs more, reflecting the additional documentation and liability standard behind it. Ask the appraiser for a written quote and timeline. #### Can I use a BOV for financing? No. Lenders order their own USPAP-compliant appraisal and will not accept a broker's opinion in its place. Federal banking rules generally require an appraisal by a state certified appraiser on commercial real estate loans above $500,000,[2] and the interagency guidelines say a broker price opinion is not acceptable even as the lighter evaluation used below that threshold.[3] A lender's collateral decision rests on that document, not on a document produced for the seller's own decision-making. An owner should never present a BOV to a lender expecting it to substitute for the required appraisal. What the lender does need, and who must order it, is set out at `/hotel-financing/appraisal-requirements`. #### BOV, appraisal or CIM: which do I need? A BOV to decide whether and how to sell, an appraisal when a lender requires one, and a CIM once you are ready to market the asset to buyers. These three documents answer three different questions for three different audiences, laid out side by side in the table above. Confusing them, treating a CIM's pricing guidance as an appraisal, for example, is a common and avoidable mistake. Table: BOV versus appraisal versus CIM | Broker opinion of value | Appraisal | CIM Who produces it | Licensed broker | Licensed or certified appraiser[2] | Broker Governed by | State brokerage law and license rules | USPAP[4] | Nothing; it is marketing Ordered by | Owner | Lender, usually | Owner, through the broker Purpose | What would this sell for today | Defined value under a defined standard | Present the asset to buyers Typical cost | Often no charge | Paid; quote varies by property | Included in the brokerage engagement Typical turnaround | 2 to 4 weeks in our practice | Varies; ask the appraiser | Weeks 1 to 2 in our playbook[7] Accepted for a loan | No[3] | Yes | No Contains | Comps, cap rate, adjustments, price conclusion | Three approaches, highest and best use, full narrative | Financials, market, photos, brand position First-party data point: Every Matthews Hotel Markets BOV is built off the Matthews Hotel Index cap-rate band for the asset's segment and market, currently Q1 2026.[6] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: why a BOV and an appraisal can differ by 19 percent): Hypothetical. A 96-key hotel, NOI $1.42 million, a $2.3 million PIP due in 18 months. The BOV prices to the live buyer pool: applies an 8.25 percent cap to reach $17.21 million, then deducts the PIP and a risk premium as buyers do, arriving at $14.30 million. The appraisal values the going concern under USPAP: it may reach a stabilized value that assumes the PIP is completed, then deducts the cost to complete. Stabilized NOI of $1.55 million at an 8.00 percent cap is $19.38 million, less the $2.3 million PIP, or $17.08 million. That is nineteen percent apart, and both are defensible, because they answer different questions. The BOV tells you what a check will be written for this quarter. The appraisal tells a lender what the collateral is worth. Do not treat one as a correction of the other. FAQ: - Q: What is a broker opinion of value? A: A broker's written estimate of what a hotel would sell for in the current market, built from comps, a cap rate and a buyer-pool view, produced for the owner, usually at no charge. - Q: How is a BOV different from an appraisal? A: A BOV follows state brokerage rules and reflects the live buyer pool; an appraisal follows USPAP, the national standard federal lending rules require, and is what lenders use for financing.[4] - Q: Does a BOV cost anything? A: Often no. Brokers typically produce a BOV at no charge as part of pursuing the listing engagement. - Q: How long does a hotel BOV take? A: In our practice, two to four weeks from the date the owner shares trailing financials, current STAR data and PIP status. Complex or portfolio BOVs can take longer. - Q: Can I get a loan using a BOV? A: No. Lenders order their own USPAP-compliant appraisal, and bank regulators do not accept a broker price opinion in its place.[3] - Q: Is a BOV the same as a CIM? A: No. A BOV is a pricing document produced before you decide to sell. A CIM is a marketing document produced to present the asset to buyers once you are on the market. - Q: Who can produce a BOV? A: A licensed real estate broker, subject to the pricing-opinion rules of the state where the property sits. Texas, for example, bars calling it an appraisal.[5] - Q: What should a hotel BOV include? A: Named comparable sales with adjustments, a cap rate applied to stabilized NOI, a per-key cross-check, and a specific buyer-pool assessment, not just a headline number. Sources: - [1] Uniform Standards of Professional Appraisal Practice (USPAP) (The Appraisal Foundation, accessed 2026-09-18): https://appraisalfoundation.org/products/uspap - [2] 12 CFR 34.43, appraisals required; transactions requiring a state certified or licensed appraiser (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.43 - [3] Interagency Appraisal and Evaluation Guidelines (FIL-82-2010) (FDIC, OCC, Federal Reserve, OTS and NCUA, accessed 2026-09-18): https://www.fdic.gov/news/financial-institution-letters/2010/fil10082.html - [4] 12 CFR 34.44, minimum appraisal standards (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.44 - [5] Texas Occupations Code section 1101.002, definitions (broker price analysis not referred to as an appraisal) (State of Texas, via Texas Public Law, accessed 2026-09-18): https://texas.public.law/statutes/tex._occ._code_section_1101.002 - [6] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [7] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process ### What is a good cap rate for a hotel in 2026? URL: https://matthewshotelmarkets.com/hotel-valuation/hotel-cap-rates Last updated: 2026-09-21 There is no single good hotel cap rate. It depends on segment, market, PIP status and buyer pool. The Matthews Hotel Index for Q1 2026 puts select-service across its 14 covered markets at 7.50 to 8.75 percent, full-service at 6.50 to 8.25 percent, and resort and lifestyle at 6.00 to 7.75 percent.[1] Use the band that matches your asset, then adjust. Key takeaways: - A cap rate is an output of a buyer's risk view, not an input you choose. - Select-service prices in a narrower, more consistent band because the cash flow is more legible; top-tier full-service and resort assets can still price tighter in gateway and leisure markets. - Cap rates respond to the 10-year Treasury, but not one for one.[2] - Compression raises prices and expansion lowers them. Sellers care about the direction more than the level. - Sun Belt secondary markets and gateway markets price differently in our index, and the spread has not been stable.[1] #### What cap rate applies to my hotel? The band for your segment and market in the current Matthews Hotel Index, adjusted up or down for brand strength, PIP status and submarket supply. Start with the segment band in the table above, then move within it based on what makes your specific asset different from the median property in that band: a stronger brand and a clean franchise term push toward the tight end, an open PIP or a single-demand-driver local economy push toward the wide end. A broker opinion of value applies this adjustment explicitly, comp by comp, rather than picking a number from the middle of the range. For a public cross-check, HVS reported in its U.S. Market Pulse of August 27, 2026 that the industry's average cap rate fell to 7.7 percent in the second quarter of 2026, that the trailing-twelve-month average was 8.2 percent, and that stabilized and near-stabilized hotels generally support 8.0 to 8.5 percent.[5] Its April 2026 edition put 2025 trades at an 8.2 percent average for the year.[3] #### How do cap rates differ by segment? Select-service trades in a narrower band across the 14 markets we track; resort and lifestyle assets in supply-constrained leisure markets price the tightest of all three segments. The Matthews Hotel Index data is specific here rather than following the common shorthand that select-service always prices tighter than full-service. Across our 14 markets, select-service spans 7.50 to 8.75 percent, a 125-basis-point range,[1] reflecting the deep, standardized buyer pool for that product. Full-service spans 6.50 to 8.25 percent, a wider 175-basis-point range,[1] because it blends tight trophy urban assets in gateway markets like Miami and Charleston with wider secondary-metro full-service in markets like Atlanta and Denver. Resort and lifestyle assets, concentrated in supply-constrained leisure destinations, price the tightest of the three in aggregate, 6.00 to 7.75 percent.[1] The honest takeaway: select-service is the more predictable band, not always the lowest number. #### How do interest rates move cap rates? Cap rates respond to the 10-year Treasury, but the pass-through is partial, not one for one. CBRE's H1 2026 survey is a clean example. The 10-year Treasury peaked at 4.67 percent in mid-May, yet the all-property average cap rate was essentially flat, and hotel cap rates compressed.[2] HVS, writing in April 2026, credited declining interest rates with helping to narrow the gap between buyers and sellers.[3] Risk premiums specific to hospitality, PIP exposure, labor cost trends, brand standard changes, move independently of rates and can offset or amplify the rate effect in either direction. #### What is cap rate compression? A decline in the cap rate buyers accept, which raises price for the same NOI; expansion is the reverse and lowers price. Compression and expansion describe direction, not a specific number, and sellers should track the direction of the trend as closely as the current level. The worked example below shows exactly how much fifty basis points of movement, in either direction, is worth in dollars on a representative asset. #### What is the Sun Belt versus gateway spread? It is real but not stable: Sun Belt secondary markets can price wider on select-service while gateway and resort submarkets price tighter on trophy full-service and leisure assets. The Matthews Hotel Index shows Miami and Charleston full-service and resort product pricing at the tight end of the range, while select-service in Atlanta and Denver prices at the wide end.[1] That pattern has shifted over recent cycles and should not be assumed to hold indefinitely; check the current quarter's data before pricing off a remembered spread. #### How does a PIP change my cap rate? It does not change the cap rate itself so much as it adds a separate deduction and risk premium on top of the capitalized value, covered in full at the valuation hub. A cap rate reflects the market's view of stabilized, PIP-current cash flow. An open PIP is handled as a distinct line item, subtracted from the unencumbered value along with a risk premium and a displacement cost, rather than folded into a higher cap rate. The full mechanics are at [What is my hotel worth, and who decides?](/hotel-valuation) and [What is involved in selling a hotel?](/sell-a-hotel) #### Where do these numbers come from? The Matthews Hotel Index, reconciled quarterly against CBRE and HVS public research and STR press releases, never against subscriber-only STAR or CoStar tables. The methodology reconciles the CBRE H2 2025 U.S. Cap Rate Survey[4] with HVS U.S. Market Pulse commentary for April 2026[3] and Matthews' own underwriting on active mandates, with ADR, RevPAR and occupancy bands drawn from STR headline press releases rather than licensed subscriber tables.[1] The full methodology note is published at [/research/mhi/q1-2026](/research/mhi/q1-2026) Table: Hotel cap rate bands by segment, Matthews Hotel Index, Q1 2026 Segment | Cap rate band across 14 markets | What tightens it | What widens it Select-service, PIP current | 7.50% - 8.75%[1] | Brand strength, new supply constraints, clean franchise term | Open PIP, short franchise term, single-demand-driver market Full-service | 6.50% - 8.25%[1] | Group and convention base, barriers to entry, gateway location | F&B labor exposure, capex intensity, secondary-market location Resort and lifestyle | 6.00% - 7.75%[1] | Supply constraint, leisure demand durability | Seasonality, concentration risk First-party data point: The Matthews Hotel Index for Q1 2026 puts select-service cap rates in a 7.50 to 8.75 percent band across the 14 markets we cover.[1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what 50 basis points is worth): Hypothetical. NOI $1.42 million. At 7.75 percent: value equals $1.42 million divided by 0.0775, or $18.32 million. At 8.25 percent: value equals $1.42 million divided by 0.0825, or $17.21 million. At 8.75 percent: value equals $1.42 million divided by 0.0875, or $16.23 million. Fifty basis points is worth about $1.1 million, roughly 6 percent of value, on this asset. Nothing about the hotel changes across those three lines. That is why sellers watch the 10-year Treasury, and why the timing question is a real question rather than a rationalization. FAQ: - Q: What is a good hotel cap rate in 2026? A: There is no single good number. The Matthews Hotel Index for Q1 2026 shows select-service at 7.50 to 8.75 percent, full-service at 6.50 to 8.25 percent, and resort/lifestyle at 6.00 to 7.75 percent, across our 14 covered markets.[1] - Q: What cap rate do select-service hotels trade at? A: 7.50 to 8.75 percent across the Matthews Hotel Index's 14 covered markets in Q1 2026,[1] narrower than the full-service range, reflecting more consistent, legible cash flow. - Q: Do full-service hotels have higher cap rates? A: Not always. Full-service spans a wider band, 6.50 to 8.25 percent,[1] because it includes both tight trophy urban assets and wider secondary-market properties with heavier F&B exposure. - Q: How do interest rates affect hotel cap rates? A: They respond, but not one for one. In CBRE's H1 2026 survey, hotel cap rates compressed even as the 10-year Treasury peaked at 4.67 percent in mid-May.[2] - Q: What is cap rate compression? A: A decline in the cap rate buyers require, which raises price for the same NOI. Expansion is the reverse: a wider cap rate at the same NOI lowers price. - Q: Is there a Sun Belt cap rate premium? A: The spread exists but is not stable. Sun Belt secondary select-service can price wider than gateway or resort full-service and lifestyle assets, which is the opposite of a blanket premium. - Q: How does a PIP affect my cap rate? A: It does not change the cap rate itself. It adds a separate deduction from capitalized value plus a risk premium, covered at /hotel-valuation and /sell-a-hotel. - Q: Where can I see Matthews Hotel Markets' cap rate data? A: At /research/mhi/q1-2026, refreshed quarterly across our 14 covered markets, reconciled against CBRE, HVS and STR public releases.[1] Sources: - [1] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [2] U.S. Cap Rate Survey H1 2026 (CBRE Research, accessed 2026-09-18): https://www.cbre.com/insights/reports/us-cap-rate-survey-h1-2026 - [3] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 - [4] U.S. Cap Rate Survey H2 2025 (CBRE Research, accessed 2026-09-18): https://www.cbre.com/insights/reports/us-cap-rate-survey-h2-2025 - [5] HVS U.S. Market Pulse: August 2026 (HVS, accessed 2026-09-21): https://www.hvs.com/article/10541-hvs-us-market-pulse-august-2026 ### Walk me through the math on valuing a select-service hotel URL: https://matthewshotelmarkets.com/hotel-valuation/how-to-value-a-hotel Last updated: 2026-09-18 Start with occupancy times ADR to get RevPAR, multiply by keys and 365 to get rooms revenue, add other revenue, subtract departmental and undistributed expenses, franchise fees, management fee, taxes, insurance and an FF&E reserve. That is NOI. Divide by a cap rate, using the Q1 2026 band for your segment.[1] Every normalization you make to that NOI has to survive a buyer's audit. Key takeaways: - RevPAR is the revenue driver. NOI is the value driver. They are not interchangeable. - The FF&E reserve belongs in NOI, at the percentage of revenue your franchise, management agreement or lender requires. - A management fee belongs in NOI even if you self-manage. Buyers underwrite one. - Normalizations are fine and they must be documented. Undocumented add-backs are re-trades waiting to happen. - Hotels are valued as operating businesses, which is why the expense line is longer than an apartment building's. #### How do I get from occupancy and ADR to revenue? Occupancy times ADR equals RevPAR; RevPAR times keys times 365 equals rooms revenue, and other revenue is added on top. This is the starting point of every hotel valuation. Occupancy and ADR are the two inputs that compress into a single revenue-per-available-room figure, which is then scaled by the number of keys and days in the year to reach total rooms revenue. Other revenue, food and beverage, meeting space, parking, and ancillary income, adds to that base, though for most select-service assets it is a small fraction of the total, shown as 6 percent of rooms revenue in the worked example below. #### How do I calculate hotel NOI? Total revenue minus departmental expenses, undistributed expenses, franchise and brand fees, management fee, property taxes, insurance, and an FF&E reserve. The line-by-line build follows the Uniform System of Accounts for the Lodging Industry, now in its 12th revised edition.[2] The table above walks through every line with the common owner error attached to it. The single biggest pattern in that error column: owners understate or omit costs that a buyer will reinsert during underwriting, which inflates the seller's reported NOI relative to what a buyer will actually pay against. #### What expenses do buyers insist on including? The management fee and the FF&E reserve, even when the current owner self-manages or skips the reserve, because a buyer underwrites the asset as it will actually operate. An owner who runs the hotel personally without a management contract often reports a P&L with no management fee line, which overstates NOI relative to how a buyer, who may hire a third-party operator, will actually run the asset. The same logic applies to an FF&E reserve an owner has been deferring. Both get added back into a buyer's underwriting whether or not the seller's own books reflect them. #### What can I legitimately normalize? One-time, non-recurring items with clear documentation. Anything a buyer's accountant cannot trace to a receipt is not a normalization; it is a re-trade waiting to happen. Legitimate normalizations include a one-time legal settlement, an insurance casualty recovery, or a genuinely non-recurring repair. Owner-paid personal expenses booked as business costs, undocumented related-party transactions, and one-off revenue spikes without a documented cause are the items that surface in diligence and cause the exact NOI disputes covered at [Documents needed to sell a hotel](/sell-a-hotel/documents-needed) #### What cap rate do I divide by? The band for your segment and market in the current Matthews Hotel Index, adjusted for what makes your specific asset different from the band's midpoint. The Matthews Hotel Index for Q1 2026 supplies the cap-rate band used in the final step of this calculation.[1] Brand strength, franchise term remaining, PIP status, and submarket supply all move a specific asset within its published band. The bands themselves, and what moves them, are broken out at [Hotel cap rates in 2026](/hotel-valuation/hotel-cap-rates) #### How do I cross-check with comparable sales? Recent trades in the same chain scale, market and PIP status, adjusted for the differences, used as a sanity check rather than the primary method. True hotel comps are rare because no two assets share identical brand, age, PIP status and submarket position. The sales comparison approach is most useful as a check against an income approach conclusion, flagging when a value looks out of line with what similar assets have actually traded for, rather than as the primary driver of the number. #### Why is this different from valuing an apartment building? A hotel's revenue reprices nightly and its expense structure includes an operating business, franchise fees, labor, and a reserve, none of which a leased apartment building carries. An apartment building's revenue is set by lease terms that run months or years, and its expense structure has no franchise royalty, no daily rate management, and no brand-mandated capital reserve. A hotel is valued as an operating business layered on real estate, which is why the expense stack above runs eight lines deep before reaching NOI, versus a handful for a residential asset. Table: Hotel NOI build, line by line Line | How it is calculated | Common owner error Rooms revenue | Occupancy x ADR x keys x 365 | Using a peak year instead of a trailing twelve Other revenue | F&B, meeting space, parking, ancillary | Including one-time items Departmental expenses | Rooms, F&B, other operated | Understating labor at current wage rates Undistributed expenses | A&G, sales and marketing, utilities, maintenance | Omitting owner-absorbed costs Franchise and brand fees | Royalty plus program, marketing and reservation fees, per the FDD. Hampton's 2025 FDD lists a 6% royalty and a 4% program fee on rooms revenue[3] | Using the royalty only Management fee | Percentage of revenue plus incentive | Excluding it because you self-manage Property taxes and insurance | Reassessed at the sale price in many places, as California requires, not the current bill[4] | Using the current assessment FF&E reserve | A percentage of revenue set by the franchise, management agreement or lender | Leaving it out entirely = NOI | | Each omission above inflates value by the omission divided by the cap rate First-party data point: The Matthews Hotel Index for Q1 2026 supplies the cap-rate band used in the final step of this calculation.[1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 96-key select-service hotel, start to finish): Hypothetical. 96 keys, 71 percent occupancy, $148 ADR. RevPAR equals 0.71 times $148, or $105.08. Rooms revenue equals $105.08 times 96 times 365, or $3,682,000. Other revenue at 6 percent of rooms is $221,000. Total revenue is $3,903,000. Departmental expenses at 28 percent of revenue are $1,093,000. Undistributed expenses at 23 percent of revenue are $898,000. Franchise and brand fees at 11 percent of rooms revenue are $405,000. Management fee at 3 percent of revenue is $117,000. Property taxes and insurance are $285,000. FF&E reserve at 4 percent of revenue is $156,000. NOI equals $3,903,000 minus $2,954,000, or $949,000. At an 8.25 percent cap, value equals $949,000 divided by 0.0825, or $11.50 million, roughly $120,000 per key. Now remove the FF&E reserve and the management fee, as owners often do: NOI becomes $1,222,000 and value becomes $14.81 million. That $3.3 million difference is not a valuation disagreement. It is two different definitions of NOI. Agree on the definition first. Every percentage in this example is an assumption for the hypothetical, not a published benchmark. FAQ: - Q: How do I calculate hotel NOI? A: Total revenue minus departmental expenses, undistributed expenses, franchise fees, management fee, property taxes, insurance and an FF&E reserve. See the full line-by-line build above. - Q: What is the income approach to hotel valuation? A: Dividing stabilized NOI by a cap rate to reach a value conclusion. In our practice, it is the approach that governs stabilized hotel transactions. - Q: Should I include a management fee if I self-manage? A: Yes. Buyers underwrite a market management fee regardless of how the current owner operates, because the buyer may not self-manage after closing. - Q: Does the FF&E reserve come out of NOI? A: Yes. It is a percentage of revenue set by the franchise, management agreement or lender, and buyers add it back if a seller's statements omit it. - Q: What is the sales comparison approach for hotels? A: Using recent comparable sales in the same chain scale, market and PIP status, adjusted for differences, as a cross-check against the income approach rather than a primary method. - Q: Is RevPAR or NOI more important? A: NOI. RevPAR measures revenue per available room, but a cap rate is applied to profit, not revenue, which makes NOI the number that actually drives value. - Q: How do buyers verify my reported NOI? A: By reconciling the trailing twelve-month P&L to bank statements and vendor payments during due diligence, and by questioning any add-back that lacks documentation. - Q: Why is valuing a hotel different from an apartment building? A: A hotel's revenue reprices nightly and its NOI build includes franchise fees, a management fee and an FF&E reserve, none of which apply to a leased residential property. Sources: - [1] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [2] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (adopted January 1, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [4] Change in ownership, frequently asked questions (Proposition 13 reassessment) (California State Board of Equalization, accessed 2026-09-18): https://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm ### How do rising interest rates change what my hotel is worth? URL: https://matthewshotelmarkets.com/hotel-valuation/interest-rates-and-hotel-value Last updated: 2026-10-01 Higher rates lower what a leveraged buyer can pay, because the same NOI supports a smaller loan. They also put upward pressure on cap rates, but not one for one and not on a fixed schedule. The 10-year Treasury rose from 4.75 percent on August 31, 2026 to 5.29 percent on September 30.[1] In CBRE's H1 2026 survey, hotel cap rates compressed while Treasury yields rose.[2] Key takeaways: - Rates reach your value through two channels: the size of the loan a buyer can get, and the return buyers require, which is the cap rate. - The loan channel is arithmetic. In the hypothetical below, one point of loan rate cuts supportable loan proceeds by 8.4 percent on the same NOI. - The cap-rate channel is looser. CBRE reported the 10-year peaking at 4.67 percent in mid-May 2026 while the all-property average cap rate was essentially flat and hotel cap rates compressed.[2] - We do not publish a lag or a ratio between Treasury yields and hotel cap rates. The 2026 public evidence does not support one. - The 10-year Treasury rose 54 basis points between August 31 and September 30, 2026.[1][3] That move is too recent to show up in any published cap-rate survey. #### How do interest rates reach my hotel's value? Through the buyer's loan and through the buyer's required return. The first is mechanical. The second is a market judgment. Most hotel buyers borrow. A lender sizes the loan so that NOI covers the debt payments by some margin. When the loan rate rises, the payment on each dollar borrowed rises, so the same NOI supports fewer dollars of loan. If the buyer's equity is fixed, the price it can pay falls by about the amount of loan it lost. That is the first channel, and it starts working the week rates move. The second channel is the cap rate. Buyers compare a hotel's yield with what they can earn on Treasuries and on other property. When the risk-free rate rises, they want more from the hotel too. But hotel cap rates also carry premiums for operating risk, capital needs and the depth of the buyer pool, and those move on their own. #### Do hotel cap rates move one for one with the 10-year Treasury? No. The 2026 evidence shows cap rates holding or compressing through a period of higher and volatile Treasury yields. CBRE's U.S. Cap Rate Survey for H1 2026 reports that Treasury yields were volatile and increased substantially during the first half of the year. The 10-year fell below 4 percent in late February, then peaked at 4.67 percent in mid-May.[2] Over the same period the all-property average cap rate was essentially flat, and on average neighborhood retail compressed the most, followed by hotel and industrial.[2] The survey reflects more than 200 CBRE professionals responding in late June, informed by deals that closed in the first six months.[2] HVS, writing in April 2026, said transactions averaged an 8.2 percent cap rate in 2025 and that it expects average cap rates to trend downward in 2026.[4] With the 10-year at 5.29 percent on September 30,[1] that 2025 average sits nearly three points above the Treasury. A spread that wide leaves room for buyers to absorb part of a rate move, which may be one reason the pass-through has been partial. The two figures are from different dates, so read the gap as rough. #### Is there a lag between rates and cap rates? Hotel pricing takes time to show up in data, but we have found no public primary source that measures a dependable lag, so we do not state one. Some delay is built into how the evidence is made. A hotel sale takes months from pricing to closing, and surveys are published after that. CBRE's H1 2026 survey was completed in late June from deals closed through June.[2] It cannot reflect a Treasury move in September. That is a delay in the data. It is not proof that cap rates will follow by a set amount after a set number of months. The first half of 2026 is a caution: yields rose and hotel cap rates compressed anyway.[2] Anyone who tells you that a 50 basis point rise in the 10-year means a specific cap-rate change by a specific quarter is guessing. What you can observe directly is the debt market, which reprices daily. Current benchmarks are on our [rate sheet](/rates) #### What happened to rates in September 2026? The 10-year Treasury rose 54 basis points over September, from 4.75 percent on August 31 to 5.29 percent on September 30. Treasury's daily par yield curve shows the 10-year at 4.75 percent on August 31, 2026 and 5.29 percent on September 30, with the 5-year moving from 4.49 to 5.09 percent.[1] The Matthews Hotel Markets October 2026 rate sheet records the same move, along with SOFR at 3.90 percent and Prime at 7.00 percent.[3] The September 30 reading is 62 basis points above the mid-May peak CBRE cited.[2] For an owner, the near-term effect is on loan quotes, since fixed-rate hotel loans are priced as a spread over the matching Treasury. Lenders do not publish those spreads, so the way to learn the all-in rate is to get quotes. See [What are current hotel loan interest rates?](/hotel-financing/hotel-loan-rates) #### Why did my value fall when my NOI held up? Because value is NOI divided by a cap rate, and a wider cap rate lowers value with no change at the hotel. On $1.42 million of NOI, moving the cap rate from 8.25 to 8.50 percent lowers value from $17.21 million to $16.71 million. That is about $510,000, or 2.9 percent, for 25 basis points. The Matthews Hotel Index shows a 125 basis point spread inside the select-service band alone, 7.50 to 8.75 percent in Q1 2026,[5] so where a hotel sits in the band matters more than most single rate moves. The full treatment of compression and expansion, with a 50 basis point example, is at [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates) #### Should I wait for rates to fall before I sell or refinance? Only if your loan lets you. Timing a rate move is a bet, and a maturity date is not. HVS wrote in April 2026 that sales activity was picking up and that declining interest rates were helping bridge the gap between buyers and sellers.[4] Since then the 10-year has moved up.[1] Nobody knows the next move. What an owner can control is NOI, the condition of the hotel and the time left on the loan. If your loan matures within 18 months, the rate on the day you must refinance matters more than the rate you hope for. If you have years of term left, waiting costs you little beyond the risk that operations soften. The decision framework is at [Should I refinance my hotel or sell it instead?](/hotel-financing/refinance-or-sell) and for a lender's view of value see [Why did my hotel appraise for less than I expected?](/hotel-valuation/appraisal-lower-than-expected) Table: Two channels from interest rates to hotel value Channel | How it works | How fast | 2026 public evidence Buyer's loan | A higher loan rate means the same NOI supports a smaller loan, so a leveraged buyer can pay less | Immediate. Loan quotes reprice with the index | 10-year Treasury 4.75% on August 31, 5.29% on September 30[1] Cap rate | Buyers want a higher yield when the risk-free rate rises, offset or amplified by hotel-specific risk | Uneven. No dependable lag is published | H1 2026: 10-year peaked at 4.67% in mid-May, all-property cap rate essentially flat, hotels compressed[2] Transaction volume | Lower rates narrow the gap between what buyers bid and sellers accept. Higher rates widen it | Over quarters | HVS, April 2026: declining rates were helping bridge the buy-sell gap[4] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows the 10-year Treasury at 5.29 percent on September 30, 2026, up 54 basis points from 4.75 percent on August 31, with SOFR at 3.90 percent and Prime at 7.00 percent.[3] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one point of loan rate on $1.42M of NOI): Hypothetical. A hotel produces $1,420,000 of NOI. A lender sizes to a 1.40x coverage test on a 25-year amortization. The 1.40x figure and both loan rates are assumptions for illustration. Lenders do not publish their tests or their spreads. Allowed annual debt service equals $1,420,000 divided by 1.40, or $1,014,286. At a 7.00 percent loan rate the annual payment constant is 8.48 percent, so the loan is $1,014,286 divided by 0.0848, or $11.96 million. At 8.00 percent the constant is 9.26 percent, and the loan is $10.95 million. One point of rate removed $1.01 million of proceeds, 8.4 percent, with no change in NOI. A buyer with $6.0 million of equity could pay $17.96 million at the lower rate, a 7.91 percent cap rate. At the higher rate it can pay $16.95 million, an 8.38 percent cap rate. The cap rate moved 47 basis points because the loan rate moved 100. That is one buyer's arithmetic, not a market law. A cash buyer, or one who accepts a lower return, would not move as far. FAQ: - Q: Do higher interest rates lower hotel values? A: They lower what leveraged buyers can pay, and they pressure cap rates upward. The size of the effect is not fixed. In H1 2026, hotel cap rates compressed while Treasury yields rose.[2] - Q: How much does a 1 percent rate increase reduce my hotel's value? A: There is no fixed ratio. In this page's hypothetical, one point of loan rate cuts loan proceeds 8.4 percent and moves one buyer's price about 5.6 percent. Your result depends on the buyer pool and the leverage used. - Q: Do hotel cap rates follow the 10-year Treasury? A: Loosely. CBRE's H1 2026 survey found the all-property cap rate essentially flat as the 10-year peaked at 4.67 percent in mid-May.[2] Hotel-specific risk premiums move independently. - Q: How long do cap rates take to react to rates? A: We have found no public primary source that measures a dependable lag, so we do not state one. Surveys trail the market because deals take months to close and reports follow. - Q: Where is the 10-year Treasury now? A: 5.29 percent on September 30, 2026, up 54 basis points from 4.75 percent on August 31, per Treasury's daily par yield curve.[1] The current reading is on /rates. - Q: Should I sell before rates rise more? A: Nobody can time rates. Decide from your loan maturity, your NOI trend and your capital needs. If a maturity is within 18 months, start now either way. See /hotel-financing/refinance-or-sell. - Q: What cap rates does the Matthews Hotel Index show? A: For Q1 2026: select-service 7.50 to 8.75 percent, full-service 6.50 to 8.25 percent, resort and lifestyle 6.00 to 7.75 percent, across 14 markets.[5] Sources: - [1] Daily Treasury Par Yield Curve Rates (readings for August 31 and September 30, 2026) (U.S. Department of the Treasury, accessed 2026-09-18): https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve - [2] U.S. Cap Rate Survey H1 2026 (CBRE Research, accessed 2026-09-18): https://www.cbre.com/insights/reports/us-cap-rate-survey-h1-2026 - [3] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [4] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 - [5] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### How is a hotel valued when I buy out my partner? URL: https://matthewshotelmarkets.com/hotel-valuation/partner-buyout-valuation Last updated: 2026-09-18 Start with your operating agreement. Its definition of value controls. Then value the whole hotel as a going concern, subtract the debt, and apply the agreement's rule to the departing partner's share. If an SBA 7(a) loan funds it, SOP 50 10 8, effective June 1, 2025, requires an independent valuation and tests a 9 to 1 debt-to-worth limit when the loan covers more than 90 percent of the price.[1][2] Key takeaways: - Two numbers get confused: the value of the hotel, and the value of a partner's interest in the entity that owns it. The second is the first minus debt, times the ownership share, and then whatever your agreement says about discounts. - Fair market value is the willing buyer, willing seller price, with neither forced to act and both informed.[3] Applied to a minority interest it can support discounts. Fair value, as used in buyout statutes, is often read differently. Your agreement should say which one applies. - Delaware's LLC Act, absent other agreement, gives a resigning member the fair value of the interest based on the right to share in distributions.[4] - For an SBA-financed buyout of a hotel, the lender, not the partners, must order the valuation, from a Certified General appraiser with recent going-concern experience, and it must allocate value among land, building, equipment and intangibles.[1] - The selling partner's gain is usually capital gain, but the share tied to depreciation recapture is ordinary income.[5] #### Where do I start when a hotel partner wants out? Start with the partnership or operating agreement, because a buyout clause that defines the price or the method overrides everything else on this page. A buyout dispute often starts as a dispute over a definition. Read the agreement for four things: what triggers a buyout (a voluntary exit, death, default, deadlock), the standard of value (fair market value, fair value, book value, a formula), who picks the appraiser or appraisers and what happens if they disagree, and how the price is paid. If the agreement is silent, state law fills the gap, and the default may not be what either partner expects. Under Delaware's LLC Act, for example, a resigning member is entitled to what the LLC agreement provides and, if it does not otherwise provide, to the fair value of the member's interest as of the date of resignation, based on the member's right to share in distributions.[4] Other states have their own rules. This is a question for a business attorney in the state where the entity was formed. This page covers partner and member buyouts. Valuing a hotel interest in a divorce is governed by state family law, which differs by state and which we have not sourced, so take that question to a family law attorney and a valuation expert. #### How is the hotel itself valued for a buyout? The same way it is valued for a sale or a loan: as a going concern, mainly by capitalizing its net operating income, checked against comparable sales. A buyout does not change how a hotel is appraised. The appraiser values the operating hotel using the income approach, tests it against sales of similar hotels, and considers cost. The method is walked through at `/hotel-valuation/how-to-value-a-hotel`, and the cap rates behind it at `/hotel-valuation/hotel-cap-rates`. Federal bank regulators define market value as the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller each acting prudently and knowledgeably and the price not affected by undue stimulus.[6] That is the definition a bank appraisal uses. Three hotel-specific inputs move a buyout number the most: the NOI after a management fee and a furniture reserve, the cost of any open PIP, and the cap rate. Partners who agree on those three are most of the way to a price. A broker opinion of value is a fast way to frame them before paying for an appraisal. The difference between the two is explained at `/hotel-valuation/broker-opinion-of-value`. For a first pass, use `/tools/hotel-value-estimator`. #### What is the difference between fair market value and fair value? Fair market value asks what a hypothetical outsider would pay for the interest. Fair value, in buyout statutes, asks what the departing owner's share is worth, and the two can differ by the size of the discounts. The tax definition of fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.[3] IRS Revenue Ruling 59-60 applies that standard to closely held businesses and lists factors to weigh, including the nature and history of the business, the economic and industry outlook, book value and financial condition, earning capacity, goodwill, and the size of the block being valued.[7] The size of the block is where discounts come from. A hypothetical buyer of a 40 percent interest in a hotel LLC cannot force a sale, set distributions or replace the manager, and cannot easily resell. Appraisers reflect that with discounts for lack of control and lack of marketability. An IRS job aid for its valuation analysts says minority and marketability discounts may or may not be appropriate, based on the specific facts and circumstances, and notes that the job aid is not an official IRS position.[7] We do not publish a typical discount, because it depends on the agreement and the facts. Fair value is a legal term set by state statute and case law, and the agreement can define it too. Delaware's default for a resigning LLC member ties it to the member's right to share in distributions.[4] Whether discounts apply under your state's law is a legal question. The practical point is that the two partners should agree on the standard before anyone orders an appraisal, because the same hotel produces two different checks. #### Can I use an SBA loan to buy out my hotel partner? Yes. SBA 7(a) loans can finance a change of ownership between existing owners, with extra tests when the loan covers more than 90 percent of the price. SOP 50 10 8 calls it a complete partner buyout. If the 7(a) loan will finance more than 90 percent of the purchase price, the remaining owner must certify active participation in the business and the same or increasing ownership for at least the past 24 months, and the business's balance sheets for the last fiscal year and current quarter must show debt-to-worth of no more than 9 to 1 before the change. If the lender cannot document both, the remaining owner must put in cash, either enough to reach 9 to 1 or 10 percent of the purchase price, whichever is less (pp. 131-132).[2] The valuation rule is strict for hotels. Where there is a close relationship between buyer and seller, and SBA gives transactions between existing owners as its example, and the business operates from a special purpose property, the lender must obtain an independent business valuation from a Certified General Real Property Appraiser who has completed at least four going-concern appraisals of equivalent property in the last 36 months. The valuation must allocate separate values to land, building, equipment and intangible assets, must be ordered by the lender, and may not be one prepared for the applicant or the seller (pp. 139-140).[1] SBA's 504 chapter names hotels, motels and other lodging facilities as limited or special purpose property (p. 355).[1] Rules change on October 1, 2026. SOP 50 10 8.1 renames this an owner buyout, requires at least one original owner to remain and guarantee the loan, and sets required debt service coverage for an owner buyout at 1.25.[8] Under the version in force on September 18, 2026 the ratio is 1.15 (p. 129).[2] Conventional bank loans can fund a buyout too, and banks do not publish their terms. To see what the hotel's income supports, use `/tools/hotel-loan-sizing-calculator`. The SBA programs are compared at `/hotel-financing/sba-7a-vs-504`. #### How is the partner who sells taxed? Generally as a capital gain on the sale of the partnership interest, except for the share tied to depreciation recapture, which is ordinary income. IRS Publication 541 says the sale or exchange of a partner's interest usually results in capital gain or loss, measured as the amount realized minus the partner's adjusted basis in the interest. If the selling partner is relieved of partnership liabilities, that relief is part of the amount realized.[5] For a hotel with a mortgage, that matters: the departing partner's share of the debt counts as proceeds even though no cash changes hands for it. The exception is what the tax code calls unrealized receivables, which include property subject to depreciation recapture under sections 1245 and 1250. The gain attributable to those items is ordinary income, figured as if the partnership had sold all its property at fair market value just before the transfer.[5] Hotels hold a lot of depreciated furniture and equipment, so part of the gain in a hotel buyout can be ordinary income to the seller. Paying the price over time is an installment sale, with its own rules, covered at `/buy-a-hotel/seller-financing`. How a sale of the whole hotel is taxed is at `/sell-a-hotel/taxes-when-selling-a-hotel`. Use a CPA who works with partnerships. #### Should we just sell the hotel instead? If the partners cannot agree on value, a marketed sale settles it, because the market sets the price and both partners are paid on the same terms. A buyout asks one partner to pay a price nobody has tested. A sale tests it. The tradeoffs are time, transaction costs, taxes on the whole gain instead of one partner's, and the remaining partner losing the hotel. Our published sale process runs about 24 weeks from engagement to closing.[9] A middle path is to get the market's view without selling: a broker opinion of value gives both partners the same evidence at the same time. If the numbers are close, the buyout proceeds. If they are not, the partners know what a sale would bring. The sale-or-hold decision with debt in the picture is modeled at `/tools/refinance-vs-sell`. Table: Standards of value a hotel partner buyout can use Standard | Where it comes from | What it measures | Discounts for a minority interest? Fair market value | Treasury regulation and Rev. Rul. 59-60[3][7] | Price between a willing buyer and willing seller, neither compelled, both informed | Can apply, because the size of the block is a listed factor[7] Fair value | State statute, case law or the agreement; Delaware's LLC default is one example[4] | The owner's interest, in Delaware based on the right to share in distributions | A state law question; ask counsel Market value of the hotel | 12 CFR 34.42, used in bank appraisals[6] | Most probable price of the property in an open market | Not applicable; this values the asset, not an interest Formula or book value | Your agreement | Whatever the formula says | Whatever the agreement says SBA business valuation | SOP 50 10 8, for an SBA-financed buyout (pp. 139-140)[1] | Going-concern value allocated to land, building, equipment and intangibles | Not addressed; it supports the loan, not the split First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent across 14 markets.[10] On $800,000 of NOI that band is a range of about $9.1 million to $10.7 million, which is why partners should settle the cap rate before they argue about discounts. Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 40 percent partner exits, under two standards of value): Hypothetical. Two partners own a hotel through an LLC, 60 percent and 40 percent. An appraisal puts the hotel's going-concern value at $8,000,000. The mortgage balance is $4,400,000, and the LLC has no other assets or debts. Equity: $8,000,000 - $4,400,000 = $3,600,000. Pro rata share: $3,600,000 x 40 percent = $1,440,000. If the agreement says the departing member receives a pro rata share of equity with no discounts, this is the price. Fair market value of the interest: if the agreement says fair market value of the interest, and the appraiser applies a combined 20 percent discount for lack of control and marketability, an assumed figure for illustration, the price is $1,440,000 x 0.80 = $1,152,000. The difference is $288,000 on the same hotel. Financing. If the 60 percent partner borrows the full $1,440,000 with an SBA 7(a) loan, the loan covers more than 90 percent of the price, so the 24-month certification and the 9 to 1 debt-to-worth test apply. If they cannot both be documented, the remaining partner contributes the lesser of the cash needed to reach 9 to 1 or 10 percent of the price, which is $144,000.[2] Tax. The seller's amount realized includes relief from 40 percent of the mortgage: $4,400,000 x 40 percent = $1,760,000, on top of the cash.[5] FAQ: - Q: How do I value my partner's share of our hotel? A: Value the whole hotel as a going concern, subtract the debt, multiply by the ownership percentage, then apply whatever your agreement says about discounts or formulas. The agreement's definition of value controls. - Q: Is a minority interest in a hotel worth less than its percentage of the hotel? A: Under a fair market value standard it can be, because a hypothetical buyer of a minority interest lacks control and an easy exit. Under a fair value standard or a pro rata clause it may not be. Read the agreement and ask counsel. - Q: Can I get an SBA loan to buy out my hotel partner? A: Yes. If the 7(a) loan funds more than 90 percent of the price, SBA requires a 24-month active-owner certification and debt-to-worth of 9 to 1 or better, or a cash contribution.[2] - Q: Who orders the appraisal in an SBA partner buyout? A: The lender. SBA says the valuation must be requested by and prepared for the lender, and for a special purpose property between existing owners it must come from a Certified General appraiser with recent going-concern experience.[1] - Q: What is the difference between fair market value and fair value? A: Fair market value is the willing buyer, willing seller price with neither compelled and both informed.[3] Fair value is set by state statute, case law or your agreement. Delaware's LLC default ties it to the right to share in distributions.[4] - Q: How is the partner who is bought out taxed? A: Usually capital gain on the interest, including the partner's share of debt relief. The part of the gain tied to depreciation recapture is ordinary income.[5] - Q: Our agreement says nothing about a buyout. What happens? A: State law supplies the default. In Delaware, a resigning LLC member gets the fair value of the interest within a reasonable time if the agreement does not say otherwise.[4] See a business attorney in your entity's state. - Q: How is a hotel valued in a divorce? A: The hotel itself is appraised the same way, as a going concern. How the owner's interest is valued and divided is state family law, which varies and which this page does not cover. Use a family law attorney and a valuation expert. Sources: - [1] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025): business valuation requirements for a change of ownership (Section B, Ch. 1, pp. 139-140) and limited or special purpose property list (Section C, Ch. 1, p. 355) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [2] SOP 50 10 8, Section B, Ch. 1: debt service coverage (p. 129) and equity requirements for a complete partner buyout (pp. 131-132) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 26 CFR 20.2031-1(b), Valuation of property in general (fair market value) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/26/20.2031-1 - [4] Delaware Code Title 6, section 18-604, Distribution upon resignation (State of Delaware, accessed 2026-09-18): https://delcode.delaware.gov/title6/c018/sc06/index.html - [5] Publication 541 (12/2025), Partnerships: Sale, Exchange, or Other Transfer; Payments for Unrealized Receivables and Inventory Items (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p541 - [6] 12 CFR 34.42, Definitions (market value) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.42 - [7] Valuation of Non-Controlling Interests in Business Entities Electing To Be Treated as S Corporations for Federal Tax Purposes: A Job Aid for IRS Valuation Analysts (October 29, 2014), quoting Rev. Rul. 59-60 sections 2 and 4 and reprinting the ruling as Appendix A (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/pub/irs-lbi/S%20Corporation%20Valuation%20Job%20Aid%20for%20IRS%20Valuation%20Professionals.pdf - [8] SOP 50 10 8.1 (effective October 1, 2026), Appendix 15: 7(a) Changes of Ownership, owner buyout definition and debt service coverage by transaction type (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/sites/default/files/2026-08/SOP%2050%2010%208.1%20effective%2010.1.2026_0.docx - [9] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [10] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### How does a PIP affect my hotel's value? URL: https://matthewshotelmarkets.com/hotel-valuation/pip-and-hotel-value Last updated: 2026-09-18 A property improvement plan lowers value three ways: the cost of the work, the income lost while rooms are out of service, and a premium for the risk that scope grows. Buyers deduct all three from stabilized value. HVS wrote in April 2026 that older hotels facing a big renovation will likely trade above the normal 8.0 to 8.5 percent cap rate.[1] Key takeaways: - As-is value equals stabilized value, less PIP cost, less displaced income, less a risk premium. The deduction is larger than the contractor's bid. - A sale usually triggers a PIP. Under Hilton's 2025 Hampton FDD the buyer must agree to the brand's request for upgrades as a condition of the transfer.[2] - Appraisers make the same deduction. Federal minimum standards require appraisals to analyze and report deductions for proposed renovation.[3] - A PIP only adds value if the NOI it produces, divided by the cap rate, exceeds what it cost. In the hypothetical below the break-even is a 12.4 percent NOI lift. - How to pay for the work is a separate question, answered at /hotel-financing/pip-and-renovation-loans. #### How do buyers price an open PIP? They value the hotel as if the work were done, then subtract everything it takes to get there. The starting point is stabilized NOI divided by a cap rate. From that, a buyer subtracts the estimated cost of the PIP. Then it subtracts the income it expects to lose while floors are closed and the lobby is under construction. Then it adds a cushion, because renovation budgets tend to grow once walls are open and because the brand, not the owner, decides when the work passes. The size of that cushion is a negotiation, and no public source publishes it. The worked example below assumes 10 percent of PIP cost to show the arithmetic. A seller who treats the PIP as a dollar-for-dollar credit will be surprised by the offer. #### Why does selling my hotel trigger a PIP? Because the buyer signs a new franchise agreement, and the brand can condition its approval on bringing the hotel to current standards. Hilton's 2025 Hampton Franchise Disclosure Document is a clear example. A sale is a Change of Ownership Transfer. The proposed buyer must apply, pay the franchise application fee, sign the then-current franchise agreement and agree to Hilton's request for upgrades to the hotel, which may include paying a PIP fee.[2] The fee to prepare the PIP is $10,000, which Hilton may waive or credit toward the application fee.[2] So a hotel with no open PIP today can still have one at the closing table. Ordering the brand's change-of-ownership PIP before going to market replaces a buyer's guess with a scope. What the process looks like from the seller's side is at [What is involved in selling a hotel?](/sell-a-hotel) #### Do I face PIPs even if I never sell? Yes. Brands can require renovations during the franchise term, on their own schedule. The 2025 Hampton FDD says Hilton may periodically require a franchisee to replace, modernize or upgrade furniture, fixtures, finishes and equipment to meet current standards, may use renovation schedules under its Fixed Renovation Cycle Management program, and that the franchisee bears the cost.[2] A buyer reads your renovation history against that cycle. A hotel that is early in its cycle carries less near-term capital than one that is due, and the second one is worth less at the same NOI. Deadlines and scope vary by brand and by agreement, so read your own. The definition and typical scope categories are at [/glossary/pip](/glossary/pip) #### Does a PIP change my cap rate or my NOI? Mostly neither. It is a capital deduction. But a large, uncertain renovation can also push a buyer toward a wider cap rate. The Matthews Hotel Index cap-rate bands describe stabilized, PIP-current hotels, 7.50 to 8.75 percent for select-service in Q1 2026.[4] The clean way to value a hotel with an open PIP is to use a band rate on post-renovation NOI and then deduct the capital. Some buyers instead apply a higher rate to current NOI. HVS describes the pattern in its April 2026 Market Pulse: older limited-service, select-service and full-service hotels facing a big renovation will likely trend above the 8.0 to 8.5 percent mark.[1] Be careful not to do both in full. Deducting the whole PIP and also widening the cap rate for the same PIP counts the cost twice, and a seller should push back when an offer does. #### How does an appraiser treat a PIP? As a required deduction, often shown as separate as-is and prospective values. Federal minimum appraisal standards say an appraisal for a federally related transaction must analyze and report appropriate deductions and discounts for proposed construction or renovation.[3] The interagency appraisal guidelines add that for a loan financing renovation, a lender would generally request the as-is value and, as applicable, prospective values upon completion and upon stabilization.[5] For a hotel with a PIP, the as-is figure carries the deduction and the as-stabilized figure assumes the work is done and the hotel has recovered. Which one a lender sizes to depends on what it is funding. More on reading those numbers is at [Why did my hotel appraise for less than I expected?](/hotel-valuation/appraisal-lower-than-expected) #### When does a PIP add value instead of subtracting it? When the NOI it produces, capitalized, is worth more than the work cost. Many PIPs protect value more than they add to it. The test is arithmetic. Multiply the PIP cost by the cap rate. The result is the permanent NOI increase needed just to break even. A $2.4 million PIP at 8.25 percent needs $198,000 of new NOI every year. Some renovations clear that bar, usually when the hotel has been losing rate to newer competitors. Many do not, because much of a PIP replaces worn items the guest already expected. The honest case for those PIPs is defensive: the work keeps the flag, and losing the flag would cost more. Whether to do the work yourself or sell and let the buyer do it turns on your cost of capital, which is covered at [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans) Table: How a PIP moves hotel value, line by line Component | Direction | How it is estimated | Who has the evidence PIP cost | Deduction | Contractor bids against the brand's written scope | Seller, if the PIP was ordered before marketing Displaced income | Deduction | Rooms out of service times expected occupancy and rate, less saved variable cost | Buyer's model, from the construction schedule Risk premium | Deduction | Negotiated. No public source publishes it | Neither side. A firm bid shrinks it Post-renovation NOI lift | Addition, if real | New NOI divided by the cap rate | STR index history before and after similar renovations Franchise application and PIP fees | Deduction | From the brand's FDD, $200,000 and $10,000 for Hampton in 2025[2] | Public First-party data point: The cap-rate bands in the Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, describe stabilized, PIP-current hotels: 7.50 to 8.75 percent for select-service across 14 markets. A hotel with an open PIP prices below what that band implies by the amount of the deduction.[4] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a $2.4M PIP on a 120-key hotel): Hypothetical. 120 keys, stabilized NOI of $1,600,000, an 8.25 percent cap rate. Stabilized value equals $1,600,000 divided by 0.0825, or $19.39 million, about $161,600 per key. The brand's PIP is bid at $2,400,000, which is $20,000 per key in this hypothetical and not a market figure. The buyer models $180,000 of NOI lost during the work and adds a risk premium of 10 percent of PIP cost, $240,000. Both are assumptions. Total deduction is $2,820,000, which is 1.18 times the bid. As-is value equals $19.39 million minus $2.82 million, or $16.57 million, about $138,100 per key. Now the upside test. If the renovation lifts NOI 8 percent, to $1,728,000, value after the work is $20.95 million. That is a gain of $1.55 million for $2.4 million spent. Break-even needs $198,000 of new NOI, a 12.4 percent lift. Below that, the PIP is the price of keeping the flag, not an investment that pays for itself. FAQ: - Q: How much does a PIP reduce my hotel's value? A: By more than its cost. Buyers deduct the bid, the income lost during the work and a risk premium. In the hypothetical on this page the total deduction is 1.18 times the bid. - Q: Does an open PIP kill a hotel sale? A: No. It changes the price. Buyers of branded hotels expect a change-of-ownership PIP, and a written scope with bids makes the deduction smaller and the process faster. - Q: Who pays for the PIP when a hotel sells? A: It is negotiated. Either the price falls and the buyer does the work, or the seller completes or escrows it before closing. See /hotel-financing/pip-and-renovation-loans for both structures. - Q: Should I complete the PIP before I sell? A: Compare your cost to fund the work with the larger deduction a buyer will take. Owners with liquidity often come out ahead doing it. Owners without it usually should not borrow expensively to renovate for someone else. - Q: Does a renovation always raise NOI enough to pay for itself? A: No. Multiply the PIP cost by the cap rate to get the NOI lift needed to break even. At 8.25 percent, a $2.4 million PIP needs $198,000 a year. - Q: How does an appraiser handle a PIP? A: Federal minimum standards require the appraisal to analyze and report deductions for proposed renovation.[3] Expect an as-is value with the deduction and, where the loan funds the work, prospective values after it.[5] - Q: Will the brand require a PIP when I sell my Hampton Inn? A: Under the 2025 Hampton FDD, the buyer must agree to Hilton's request for upgrades as a condition of a change of ownership, and Hilton charges $10,000 to prepare the PIP.[2] Sources: - [1] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 - [2] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 8 and 17 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [3] 12 CFR 34.44, minimum appraisal standards (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/12/34.44 - [4] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [5] Interagency Appraisal and Evaluation Guidelines, December 2010 (full text) (OCC, Federal Reserve, FDIC, OTS and NCUA, via FDIC, accessed 2026-09-18): https://www.fdic.gov/news/news/financial/2010/fil10082a.pdf ### How do I appeal my hotel's property tax assessment? URL: https://matthewshotelmarkets.com/hotel-valuation/property-tax-appeal Last updated: 2026-10-19 File with the local review board before the deadline, then prove a lower value for the real estate alone. Texas protests are due by May 15 or 30 days after the notice is mailed, whichever is later.[1] Florida petitions are due within 25 days of the TRIM notice mailing.[2] California's 2026 filing window runs July 2 to September 15 or November 30, depending on the county.[3] Key takeaways: - The deadline is short and it is set by statute. Miss it and you may lose the right to protest that year's value.[1] Calendar the notice date, not the tax bill date. - A hotel sells as a going concern: real estate, furniture and equipment, and a business. Property tax reaches the real estate and, where the state taxes it, the tangible personal property. How the business is removed differs by state. - California law says intangible assets and rights relating to going-concern value shall not enhance the value of taxable property.[4] In August 2025 the California Supreme Court held that deducting the management fee does not by itself prove those intangibles were removed.[5] - Florida requires the appraiser to exclude the part of a sale price paid for personal property when a sale is used to value the realty.[6] - Your best evidence is the hotel's own trailing income and expenses. A lower assessment is recurring, so the saving is worth a multiple of one year's tax. #### When is the deadline to protest my hotel's assessment? The deadline runs from the date the assessor mails the value notice, and it is weeks, not months. Texas. The appraisal district sends a notice of appraised value, by May 1 or as soon as practical after. The usual protest deadline is May 15 or 30 days after the appraisal district mails the notice, whichever is later. The Comptroller's guidance stresses that the 30 days run from mailing, not from delivery. You file Form 50-132 with the appraisal review board (ARB).[1] Florida. A petition on value goes to the county value adjustment board (VAB) within 25 days after the property appraiser mails the Notice of Proposed Property Taxes, called the TRIM notice, usually in mid-August.[2] The statute says the same: on or before the 25th day following the mailing of the notice.[7] The VAB may charge up to $50 to file.[2] California. For a regular appeal of the January 1 value, the 2026 filing period began July 2 and ends September 15 in counties where the assessor mailed value notices to all secured-roll owners by August 1, and November 30 in the others. The Board of Equalization publishes the list by county.[3] If the value came from a supplemental or escape assessment, such as the reassessment after you bought the hotel, you have 60 days from the mailing of that notice.[8] Other states have their own calendars. The first step anywhere is to read the notice and find the date. #### What is the process once I file? An informal meeting with the assessor's staff comes first, then a hearing before a local board, then a further appeal to a court or an arbitrator if you still disagree. Texas. You can ask for an informal conference with the appraisal district before the ARB hearing. The ARB must give at least 15 days' notice of the hearing. After the ARB's written order you have 60 days to file in state district court, and the Tax Code requires a partial payment, usually the taxes not in dispute, before the delinquency date. If the ARB value is over $1 million, you may instead appeal to the State Office of Administrative Hearings by filing notice within 30 days and a $1,500 deposit within 90 days. Regular binding arbitration is available only for property valued at $5 million or less. Commercial property appraised at $62,883,169 or more in 2026 can ask for a special ARB panel.[1] Florida. You may request an informal conference with the property appraiser and file a VAB petition at the same time. The VAB notifies you of the hearing 25 days ahead, and you give your evidence to the appraiser 15 days before the hearing. You must still pay all non-ad valorem assessments and at least 75 percent of the ad valorem taxes before they become delinquent, or the VAB must deny the petition. After the VAB decision you can sue in circuit court.[2] California. The Board of Equalization tells owners to talk to the assessor's staff first, then file an Assessment Appeal Application with the county clerk of the board. The law allows up to two years for the appeal to be resolved, notice of the hearing is mailed at least 45 days ahead, and you must keep paying the tax bills on time while you wait. A reduction comes back as a refund with interest. For a commercial property the applicant generally carries the burden of proof and presents first, except in listed situations such as when the assessor did not enroll a purchase price.[8] #### Is the whole value of my hotel taxable? No. Property tax is a tax on property, and a hotel's price also includes a business. How much of the business comes out of the assessment depends on the state. Appraisers call the total value of an operating hotel its going-concern value. It bundles real property, tangible personal property such as furniture and equipment, and intangibles such as the franchise, the workforce and goodwill. The term is defined at [Going-Concern Value](/glossary/going-concern-value). California is the most explicit. The Revenue and Taxation Code says the value of intangible assets and rights relating to the going-concern value of a business using taxable property shall not enhance or be reflected in the value of the taxable property, although property may be valued by assuming the presence of intangibles necessary to put it to productive use.[4] The California Supreme Court applied that to a hotel on August 28, 2025, in Olympic and Georgia Partners v. County of Los Angeles. The opinion notes that hotels are typically assessed by capitalizing income. It held that the assessor could include two income items, a city occupancy tax rebate and the key money the management company paid the owner, because both were income from the use of the property itself. But the county did not dispute that the brand's customer goodwill, the food and beverage operation and the assembled workforce were nontaxable, and the court affirmed that the county had not shown that deducting the management fee captured their full value. That issue went back to the assessment appeals board.[5] For an owner, the lesson is that a management or franchise fee deduction is an argument the assessor must support with evidence, and so is your claim for a larger deduction. Florida's statute lists eight factors the appraiser must consider, including the income from the property. When a sale price is used to value realty, the appraiser must exclude any portion of the net proceeds attributable to personal property.[6] Texas requires appraisal at market value as of January 1, and the Comptroller describes the income approach as suited to property bought and held to produce income.[9] Separating hotel business value in Texas is argued case by case, so use a Texas property tax consultant or attorney. #### What evidence wins a hotel property tax appeal? The hotel's own income and expense history, presented as a real estate income approach, with the business and the personal property taken out where state law allows. Boards see residential comparables all day. A hotel case is different because the assessor usually values a hotel on income. Bring the last three years of profit and loss statements in the industry's uniform format, the trailing twelve months, the STR report showing how the hotel performs against its competitive set, and the capital plan or PIP that shows what the building needs. Then show the math. Start with stabilized net operating income after a management fee, franchise fees and a reserve for replacing furniture and equipment. Capitalize it. Deduct the personal property if it is assessed separately. In a state that excludes business intangibles, make and support that deduction too. The income approach is walked through at `/hotel-valuation/how-to-value-a-hotel`, and you can test cap rate assumptions with `/tools/hotel-value-estimator`. A recent appraisal helps, but check its premise of value. A lender's hotel appraisal may report going-concern value and allocate it among real property, personal property and intangibles. The allocation is the part a tax board cares about. In California, comparable sales can be from any time before the valuation date, but an appeals board may not consider sales more than 90 days after it.[8] #### I just bought the hotel. Will the purchase price become my assessment? In California, generally yes for the real property. In other states the price is strong evidence. In both cases the purchase price allocation matters. California presumes that the purchase price in an arm's-length deal is the fair market value of the real property. The same statute says that when a transaction includes property other than real property, the change in ownership statement must disclose the portion of the price allocable to each element, and that the presumption does not apply if the buyer fails to provide the required information.[4] A hotel purchase always includes property other than real estate, so a documented allocation among real estate, furniture and equipment, and intangibles should be done at closing, not at the appeal. The same allocation drives the buyer's depreciation and the seller's tax, so the parties already have a reason to agree on it. See `/sell-a-hotel/taxes-when-selling-a-hotel`. In Texas, smaller properties get some protection from jumps. The Comptroller describes a circuit breaker that limits annual appraised value increases to 20 percent for real property that is not a homestead and is valued at $5,320,000 or less.[9] Buyers should also underwrite the reassessment before they bid. A hotel priced on the seller's old tax bill will miss its first-year budget. That check belongs in the list at `/buy-a-hotel/due-diligence-checklist`. #### Is a property tax appeal worth the cost? Usually yes when the evidence supports a lower value, because the saving repeats every year and raises the hotel's value. Property tax is an operating expense above net operating income. Every dollar saved falls to NOI, and NOI is what buyers and lenders capitalize. The Matthews Hotel Index for Q1 2026 puts select-service cap rates at 7.50 to 8.75 percent across 14 markets.[10] At those rates a recurring $10,000 tax saving is worth roughly $114,000 to $133,000 of value. The costs are the filing fee, your time, and a consultant or attorney if you use one. Some property tax consultants work for a share of the saving. Ask how the fee is calculated and whether it applies to later years. Two cautions. An appeal opens the file. In California an appeals board can leave the value the same, decrease it or increase it, and it is not bound by either side's number.[8] And a lower assessment today does not bind a future buyer's assessment in a state that reassesses on sale. Table: Hotel property tax appeals in three states, as of September 18, 2026 | Texas | Florida | California Where you file | Appraisal review board (ARB), Form 50-132[1] | County value adjustment board (VAB)[2] | County assessment appeals board, via the clerk of the board[8] Deadline on value | May 15 or 30 days after the notice is mailed, whichever is later[1] | 25 days after the TRIM notice is mailed, usually mid-August[2] | July 2 to September 15 or November 30, 2026, by county; 60 days for supplemental or escape assessments[3][8] Pay while you appeal? | For a court appeal, a partial payment, usually the undisputed tax, before the delinquency date[1] | All non-ad valorem assessments plus at least 75% of ad valorem taxes[2] | Yes, on time; a reduction is refunded with interest[8] Next step after the board | District court within 60 days; SOAH over $1 million; binding arbitration at $5 million or less[1] | Circuit court[2] | County superior court[8] Business value rule | Market value as of January 1; income approach recognized[9] | Eight statutory factors; personal property excluded from a sale price used to value realty[6] | Intangible assets and rights shall not enhance taxable value[4] First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent across 14 markets.[10] That band is how a recurring tax saving converts into hotel value. Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what a 12 percent assessment cut is worth): Hypothetical. A 90-key hotel is assessed at $9,000,000. The combined local tax rate is assumed to be 2.30 percent, so the bill is $9,000,000 x 0.023 = $207,000. The owner shows the board three years of financials and an income approach that supports $7,900,000 for the real estate. The board agrees. The cut is $1,100,000, or 12.2 percent. New bill: $7,900,000 x 0.023 = $181,700. Annual saving: $207,000 - $181,700 = $25,300. Value of the saving. The $25,300 drops to NOI every year the lower value holds. Capitalized at an assumed 8.25 percent, inside the Matthews Hotel Index select-service band, it adds $25,300 / 0.0825 = $306,667 to what the hotel is worth.[10] The tax rate, the values and the cap rate are assumptions for illustration. Your rate is on your tax bill, and the result depends on the evidence. FAQ: - Q: What is the deadline to protest my hotel's property taxes in Texas? A: Usually May 15, or 30 days after the appraisal district mails your notice of appraised value, whichever is later. The 30 days run from mailing, not delivery. File Form 50-132 with the appraisal review board.[1] - Q: How long do I have to appeal my hotel's TRIM notice value in Florida? A: 25 days after the property appraiser mails the TRIM notice, which usually goes out in mid-August. File the petition with the county value adjustment board clerk. The board may charge up to $50.[2][7] - Q: When can I file an assessment appeal on a hotel in California? A: For 2026, from July 2 through September 15 or November 30, depending on your county.[3] If you are appealing a supplemental or escape assessment, such as the one after a purchase, you have 60 days from the notice.[8] - Q: Is my hotel's franchise or brand value subject to property tax? A: In California, no: intangible assets and rights relating to going-concern value shall not enhance taxable value.[4] The 2025 Olympic and Georgia Partners decision shows the fight is over how to measure them.[5] Other states differ, so ask local counsel. - Q: My hotel's assessment jumped after I bought it. Can I fight it? A: Yes, within the deadline on the notice. Your strongest tool is a documented allocation of the purchase price among real estate, furniture and equipment, and intangibles. California's statute asks for that allocation on the change in ownership statement.[4] - Q: Do I still have to pay my property taxes during the appeal? A: Plan to. California says pay on time and a reduction is refunded with interest.[8] Florida requires all non-ad valorem assessments and at least 75 percent of ad valorem taxes before delinquency.[2] A Texas court appeal requires a partial payment.[1] - Q: Does a lower property tax assessment raise my hotel's value? A: Yes. Property tax is an operating expense, so a recurring saving raises NOI. At the 7.50 to 8.75 percent select-service cap rates in the Matthews Hotel Index, $10,000 a year is worth roughly $114,000 to $133,000.[10] - Q: Can I use my bank appraisal to appeal my hotel's assessment? A: It helps, but check what it values. A lender's hotel appraisal may report going-concern value, which includes furniture and the business. The board is valuing taxable property, so the allocation inside the appraisal matters more than the headline number. Sources: - [1] Property Tax Protests and Appeals: ARB protests, deadlines, special panels, district court, SOAH and binding arbitration (Texas Comptroller of Public Accounts, accessed 2026-09-18): https://comptroller.texas.gov/taxes/property-tax/protests/ - [2] Petitions to the Value Adjustment Board (PT-101, revised August 2025) (Florida Department of Revenue, accessed 2026-09-18): https://floridarevenue.com/property/Documents/pt101.pdf - [3] Letter to Assessors 2026/023, County Assessment Appeals Filing Period for 2026 (June 2, 2026) (California State Board of Equalization, accessed 2026-09-18): https://www.boe.ca.gov/proptaxes/pdf/lta26023.pdf - [4] California Revenue and Taxation Code section 110: fair market value, purchase price presumption and intangible assets (California Legislative Information, accessed 2026-09-18): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=110. - [5] Olympic and Georgia Partners, LLC v. County of Los Angeles, S280000 (Cal. Aug. 28, 2025) (Supreme Court of California, accessed 2026-10-19): https://www4.courts.ca.gov/opinions/archive/S280000.PDF - [6] Florida Statutes section 193.011, Factors to consider in deriving just valuation (The Florida Legislature, Online Sunshine, accessed 2026-09-28): https://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0100-0199/0193/Sections/0193.011.html - [7] Florida Statutes section 194.011, Assessment notice; objections to assessments (The Florida Legislature, Online Sunshine, accessed 2026-09-28): https://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0100-0199/0194/Sections/0194.011.html - [8] Assessment Appeals Frequently Asked Questions (California State Board of Equalization, accessed 2026-09-18): https://www.boe.ca.gov/proptaxes/faqs/assessappeals.htm - [9] Valuing Property: market value, appraisal approaches and the circuit breaker limitation (Texas Comptroller of Public Accounts, accessed 2026-09-18): https://comptroller.texas.gov/taxes/property-tax/valuing-property.php - [10] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### What is my hotel worth per key? URL: https://matthewshotelmarkets.com/hotel-valuation/revpar-multiples-and-per-key Last updated: 2026-09-18 Price per key is sale price divided by room count. It is a check on a valuation, not a way to produce one, because it ignores NOI. LW Hospitality Advisors counted 107 U.S. hotel sales over $10 million in Q2 2026 at an average of about $218,000 per room.[1] That average says little about a 90-key select-service hotel. Your NOI and cap rate do. Key takeaways: - Per key equals price divided by keys. It describes a sale after the fact. It does not explain the price. - Two hotels with the same key count and different NOI are not worth the same per key. The worked example below shows a $59,000 per key gap on identical room counts. - Public per-key averages skew high. The LW Hospitality Advisors survey only counts sales above $10 million.[1] - The best known shortcut is Stephen Rushmore's: value per room is roughly ADR times 1,000, for stabilized occupancy of 60 to 75 percent. He calls it no substitute for a real valuation.[2] - The Matthews Hotel Index publishes cap-rate and RevPAR bands, not per-key prices, because per key is an output of NOI and cap rate.[3] #### How do I calculate price per key? Divide the price by the number of guest rooms. A $12.0 million hotel with 100 keys is $120,000 per key. That is the whole formula, which is why brokers, lenders and buyers all use it as shorthand. It lets you compare a 78-key hotel and a 140-key hotel on one line. It is also why it misleads. The number carries no information about occupancy, rate, margin, franchise term, deferred capital or the land under the building. Per key is a description of a price somebody already reached another way. For the way they reached it, see [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel) #### Where does a per-key number actually come from? From NOI per key divided by a cap rate. Per key is the income approach, restated per room. If value equals NOI divided by a cap rate, then value per key equals NOI per key divided by the same cap rate. The table below runs that arithmetic across the select-service band in the Matthews Hotel Index for Q1 2026, 7.50 to 8.75 percent across 14 markets.[3] A hotel that clears $10,000 of NOI per key is worth about $133,000 per key at the tight end of that band and about $114,000 at the wide end. A hotel that clears $15,000 per key is worth $171,000 to $200,000. The spread between those rows comes from operations, not from the building. That is the reason a per-key comp from down the street can be right for that hotel and wrong for yours. #### What do public per-key averages tell me? The direction of the market, and not much about a single asset. LW Hospitality Advisors publishes a quarterly survey of major U.S. hotel sales. For Q2 2026 it counted 107 trades, about $3.8 billion and roughly 17,300 rooms, an average of about $218,000 per room, down about 17 percent from Q1 2026.[1] Two things limit how far an owner can take that figure. First, the survey only includes single-asset sales above $10 million, so smaller select-service and economy trades are left out by design.[1] Second, one quarter's average moves with the mix of what sold. A few resort or gateway trades move it more than any change in what a given hotel is worth. Use public averages to see whether pricing is rising or falling. Do not use them to price a specific hotel. #### What is a RevPAR multiple, and is ADR times 1,000 real? A RevPAR multiple is value per key divided by RevPAR. The ADR rule is a published rule of thumb with stated limits. Stephen Rushmore, the founder of HVS, wrote in May 2024 that a hotel's total economic value per room can be estimated by multiplying its average daily rate by 1,000, and that the rule is fairly accurate for stabilized occupancy of 60 to 75 percent with a normal set of amenities.[2] In the same piece he says rules of thumb are no substitute for a market analysis, financial projections and a valuation by a skilled consultant.[2] A RevPAR multiple works the same way with occupancy folded in. We do not publish a RevPAR multiple, and we could not find a public primary source that does. Both shortcuts assume a normal margin. A hotel with heavy labor cost, a high property tax bill or a ground lease breaks the assumption, and the shortcut overstates value without showing why. #### When is per key the right tool? As a cross-check on an income value, as a screen against replacement cost, and as shorthand between people who already know the NOI. A cross-check works like this. Run the income approach first. Convert the answer to per key. Then compare it with recent sales of the same chain scale in the same market. If your number sits far above every comparable sale, the NOI or the cap rate probably needs a second look. If it sits far below, the hotel may be under-managed, which is a finding in itself. Buyers also compare per-key price with what it would cost to build the same hotel new. HVS notes that a normal cap rate for a stabilized or near-stabilized hotel remains near 8.0 to 8.5 percent,[4] so a per-key figure that implies something far outside that range deserves a question. #### What does per key miss? Everything that makes one room worth more than another: margin, brand, capital needs, land and lease terms. An open property improvement plan is a deduction from value that a per-key comp does not show. See [How does a PIP affect my hotel's value?](/hotel-valuation/pip-and-hotel-value) Food and beverage, meeting space and parking add revenue that a room count ignores. A ground lease or a property tax reassessment lowers NOI without touching the key count. A short remaining franchise term narrows the buyer pool. Each of these moves real value by more than the typical spread between two per-key comps. That is why a [broker opinion of value](/hotel-valuation/broker-opinion-of-value) states NOI, cap rate and per key together, and treats the third as the check on the first two. Table: Value per key implied by NOI per key, at the Matthews Hotel Index select-service cap-rate band, Q1 2026 NOI per key | Value per key at 7.50%[3] | Value per key at 8.75%[3] | What the row does not tell you $8,000 | $106,667 | $91,429 | Whether the low NOI is the market or the management $10,000 | $133,333 | $114,286 | Whether NOI is after a management fee and an FF&E reserve $12,000 | $160,000 | $137,143 | Whether an open PIP still has to be deducted $15,000 | $200,000 | $171,429 | Whether the trailing year is repeatable First-party data point: The Matthews Hotel Index for Q1 2026, published by Matthews Hotel Markets, puts select-service cap rates at 7.50 to 8.75 percent across 14 markets. At that band, each $1,000 of NOI per key is worth about $11,400 to $13,300 of value per key.[3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: two 96-key hotels, one per-key comp): Hypothetical. Two 96-key select-service hotels in the same market. A broker quotes a recent comparable sale at $150,000 per key, which would put both at $14.40 million. Hotel A produces $1,420,000 of NOI, or $14,792 per key. At an 8.25 percent cap rate, value equals $1,420,000 divided by 0.0825, or $17.21 million, about $179,000 per key. Hotel B produces $949,000 of NOI, or $9,885 per key. At the same cap rate, value equals $11.50 million, about $120,000 per key. Pricing both at the $150,000 comp would mean selling Hotel A at a 9.86 percent cap rate and Hotel B at a 6.59 percent cap rate. No informed buyer pays the second and no informed seller accepts the first. The per-key comp was not wrong. It belonged to a third hotel. The ADR shortcut has the same problem. Hotel B runs a $148 ADR, so ADR times 1,000 gives $148,000 per key, or $14.21 million, about $2.7 million above what its NOI supports. FAQ: - Q: What is a hotel worth per key? A: Whatever its NOI per key divided by a market cap rate says. At the Q1 2026 Matthews Hotel Index select-service band of 7.50 to 8.75 percent, $10,000 of NOI per key implies about $114,000 to $133,000 per key.[3] - Q: What is the average hotel price per key in 2026? A: LW Hospitality Advisors reported about $218,000 per room across 107 U.S. sales above $10 million in Q2 2026.[1] The survey excludes smaller trades, so it overstates what a typical select-service hotel sells for. - Q: Is ADR times 1,000 a good way to value a hotel? A: It is a rule of thumb. Stephen Rushmore says it is fairly accurate at 60 to 75 percent stabilized occupancy and no substitute for a full valuation.[2] It assumes a normal margin, which many hotels do not have. - Q: What is a RevPAR multiple? A: Value per key divided by RevPAR. It is a shortcut like ADR times 1,000 with occupancy included. We do not publish one, because it hides the expense side, where hotels differ most. - Q: Why did a similar hotel sell for more per key than mine is worth? A: Usually because it earns more NOI per key, has a longer franchise term, or has no open PIP. Per key reports the result of those differences without naming them. - Q: Do lenders use price per key? A: As a reasonableness check. Loan sizing runs on NOI, through tests like DSCR and debt yield. Lenders do not publish their thresholds, so ask for them in writing. See /glossary/dscr and /glossary/debt-yield. - Q: Does the Matthews Hotel Index publish price per key? A: No. It publishes cap-rate, ADR, RevPAR and occupancy bands for 14 markets.[3] Per key follows from NOI and cap rate, so we publish the inputs. Sources: - [1] LW Hospitality Advisors Q2/Midyear 2026 Major U.S. Hotel Sales Survey and Lodging Sector Overview (published August 5, 2026) (LW Hospitality Advisors, via Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/report/4133813/lw-hospitality-advisors-lwha-q2midyear-2026-major-us-hotel-sales-survey-lodging-sector-overview - [2] How to Determine a Hotel's Feasibility and Land Value in 60 Seconds, by Stephen Rushmore (May 30, 2024) (Stephen Rushmore, via Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/opinion/4122159.html - [3] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [4] HVS U.S. Market Pulse: April 2026 (HVS, accessed 2026-09-18): https://www.hvs.com/article/10450-hvs-us-market-pulse-april-2026 ### What is the difference between select-service and full-service hotel investment? URL: https://matthewshotelmarkets.com/hotel-valuation/select-service-vs-full-service Last updated: 2026-09-18 Select-service hotels carry higher margins and simpler operations, so they price in a narrower cap-rate band than full-service. In our Q1 2026 index that is 7.50 to 8.75 percent versus 6.50 to 8.25 percent.[1] Full-service adds F&B, meeting space and labor, which adds revenue and volatility together. Select-service is easier to underwrite, finance and sell; full-service has more levers to pull. Key takeaways: - Select-service margins run higher because there is less non-rooms revenue and far less labor. - Full-service revenue is more diversified and more cyclical at the same time. - Financing is easier on select-service, because the trailing twelve is easier for a lender to believe. - The select-service buyer pool is deeper and more standardized, which is most of why the band is narrower, not always lower. - Capex intensity is the quiet difference: full-service renovations are larger and more disruptive. #### What actually separates the two segments? Revenue mix. Select-service is rooms-dominant with minimal F&B; full-service adds food and beverage, meeting space and more labor to the same room count. The table above lines up the two segments on the metrics that actually decide a deal: revenue mix, labor intensity, margin, cap rate band, buyer pool, financing, capex cycle, and underwriting time. Every other difference between the two segments traces back to that first line. #### Which has better margins? Select-service, because a shorter expense stack and lower labor intensity let more of each revenue dollar reach NOI. A select-service hotel with minimal or no F&B carries far fewer departmental cost centers than a full-service property running a restaurant, bar, banquet operation and room service. Fewer cost centers means fewer places for margin to leak, and it means fewer people on the payroll relative to rooms revenue. Food and beverage is labor-heavy: in CBRE's sample of full-service, resort and convention hotels, labor was 59.4 percent of F&B department expenses in the first half of 2025.[2] #### Why do select-service hotels trade tighter? Not always in absolute terms, but consistently in range: the buyer pool is deeper and the cash flow is more standardized, which narrows the band even when top-tier full-service prices lower. The Matthews Hotel Index for Q1 2026 publishes the select-service and full-service cap-rate bands side by side across the 14 markets we cover.[1] Select-service spans 7.50 to 8.75 percent, a 125-basis-point range. Full-service spans a wider 6.50 to 8.25 percent,[1] because it blends tight trophy urban assets in gateway markets with wider secondary-metro properties. The honest takeaway, detailed further at [Hotel cap rates in 2026](/hotel-valuation/hotel-cap-rates), is that select-service is the more predictable band, not the uniformly lower one. #### Which is easier to finance? Select-service, because more lender types compete for a trailing twelve months that is easier to underwrite and verify. In our experience, banks, life companies, CMBS conduits, SBA lenders and debt funds all actively lend against select-service collateral because the revenue and expense pattern is standardized and comparable across a large universe of similar assets. Full-service financing pulls from a smaller lender pool willing to underwrite F&B volatility and larger PIP exposure, which typically means more scrutiny and a longer process. #### Which is easier to sell, and how fast? Select-service, on average, because the buyer pool is broader and the underwriting period is shorter. In our experience, family offices, high-net-worth individuals, private equity roll-ups and REITs all actively bid on select-service assets, which is the deep buyer pool referenced throughout this cluster. Full service draws a narrower set of institutional and specialist operators comfortable underwriting group pace and F&B, which typically extends the marketing period, covered in general terms at [How long does it take to sell a hotel?](/sell-a-hotel/how-long-it-takes) #### How do the capex cycles differ? Full-service PIPs are larger, longer and more disruptive to operations than the contained scope typical of a select-service renovation. Brands can require upgrades on a set renovation schedule; Hilton's 2025 Hampton FDD, for example, describes a Fixed Renovation Cycle Management program.[3] A select-service PIP usually touches guest rooms, corridors and the lobby. A full-service PIP can also require restaurant, banquet and meeting-space renovations, materially larger in dollar terms and disruptive to F&B revenue during the work, which is one reason full-service financing carries more scrutiny. #### Which one should I own? It depends on what an owner is optimizing for: predictable margin and liquidity favor select-service, and upside from operating improvements favors full-service. Neither segment is categorically better. An owner prioritizing a shorter underwriting cycle, a deeper buyer pool at exit, and simpler day-to-day management should lean select-service. An owner comfortable managing F&B and group business, and positioned to capture upside from operational improvements a passive owner could not extract, may find full-service the better fit for their specific capital and operating capability. Table: Select-service versus full-service, on the lines that decide a deal | Select-service | Full-service Revenue mix | Rooms dominant | Rooms plus F&B, meeting space, ancillary Labor intensity | Lower | Materially higher Margin | Higher | Lower, with more variability Cap rate band, Q1 2026 | 7.50% - 8.75%, narrower[1] | 6.50% - 8.25%, wider, spans trophy urban to secondary[1] Buyer pool | Broad: family offices, HNW, PE, REITs | Narrower: institutional and specialist operators Financing | Easier; more lender types compete | Harder; fewer lenders, more scrutiny Capex cycle | PIPs on the brand's renovation schedule, contained scope[3] | Larger, longer, more disruptive Underwriting time | Weeks | Months, with F&B and group pace analysis First-party data point: The Matthews Hotel Index for Q1 2026 publishes the select-service and full-service cap-rate bands side by side across the 14 markets we cover.[1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: same revenue, two segments): Hypothetical. Two 140-key hotels, both producing $6.0 million of total revenue. Select-service: rooms is 94 percent of revenue. Total operating expenses run 62 percent of revenue. NOI equals $6.0 million times 38 percent, or $2.28 million. At a 7.90 percent cap, value equals $28.86 million, $206,000 per key. Full-service: rooms is 63 percent of revenue, F&B is 30 percent. Total operating expenses run 73 percent of revenue. NOI equals $6.0 million times 27 percent, or $1.62 million. At an 8.60 percent cap, value equals $18.84 million, $135,000 per key. Same top line, a $10.0 million difference in value. The margin gap does most of the work and the cap-rate gap does the rest. The expense ratios above are assumptions for this hypothetical, not published benchmarks. Use your own. FAQ: - Q: What is the difference between select-service and full-service hotels? A: Select-service is rooms-dominant with minimal food and beverage and lower labor intensity. Full-service adds F&B, meeting space and materially more staff to the same room count. - Q: Why do select-service hotels have tighter cap rates? A: Not always in absolute terms. The select-service band is narrower and more consistent because the buyer pool is deeper and the cash flow is more standardized, even though top-tier full-service can still price lower. - Q: Which segment has higher margins? A: Select-service. Less non-rooms revenue and lower labor intensity mean more of each revenue dollar reaches NOI. - Q: Is select-service the same as limited-service? A: Roughly the same tier, though limited-service usually implies even fewer amenities. Select-service typically includes a small food offering or a fitness center; the terms overlap and vary by user. - Q: Which segment is easier to finance? A: Select-service. A shorter, more standardized expense structure is easier for a lender to underwrite, which brings more lender types into competition for the loan. - Q: Which segment sells faster? A: Select-service, on average, because the buyer pool is broader and, in our experience, underwriting takes weeks rather than the months a full-service asset requires for F&B and group-pace analysis. - Q: Are full-service hotels riskier? A: More variable, not simply riskier. Full-service revenue is more diversified across rooms, F&B and events, which can help in strong demand periods and hurt more in downturns. - Q: Which segment should a first-time buyer choose? A: Select-service, generally, because the shorter underwriting cycle, deeper financing market and simpler operations reduce the number of things a first-time owner has to get right at once. Sources: - [1] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-17): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [2] Hotel Food and Beverage: A Bright Spot in 2025 (CBRE, accessed 2026-09-18): https://www.cbre.com/insights/articles/hotel-food-and-beverage-a-bright-spot-in-2025 - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ## How do I buy a hotel? ### How do I buy a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel Last updated: 2026-10-01 Buying a hotel takes three approvals and one contract: a lender, a brand if the hotel is flagged, an operator the brand accepts, and a purchase agreement that gives you time to test the numbers. As of September 2026, SBA 504 requires at least 15 percent down on a hotel,[1][2] and Hilton's 2025 Hampton agreement requires 60 days' written notice of a change of ownership.[3] Key takeaways: - A hotel is an operating business inside a building. You are underwriting both, and so is your lender. - The one equity minimum in federal regulation is SBA 504: 15 percent of project cost on a hotel, 20 percent if the business has operated two years or less.[1][2] - You do not inherit the seller's franchise. You apply for your own, pay the fee and accept the brand's upgrade list.[3] - Our published sale playbook puts offers in weeks 8 to 12 and due diligence through closing in weeks 12 to 24, typically 60 to 90 days.[4] - A 1031 exchange can buy a hotel, but only the real property qualifies, and the 45-day and 180-day clocks do not move.[5][6] #### What are the steps to buy a hotel? Seven, in order: set your criteria and capital, line up the operator and lender, find the hotel, make an offer, sign the purchase agreement, run due diligence with the franchise application alongside it, and close. The common mistake is to start at step three. A seller choosing between offers picks the buyer who can show equity, a lender conversation already under way and an operator the brand will accept. Get those ready before you tour anything. Hotels reach the market two ways: a marketed process run by a broker, which ends in a call for offers on a fixed date, and quiet conversations with owners who would sell at a price. Our published sale playbook shows the seller's side of the first path. Offers and buyer selection run from week 8 to week 12, and due diligence through closing runs from week 12 to week 24, typically 60 to 90 days.[4] Current listings are on the [hotels for sale](/listings) page, and buyer representation is described at [acquisition advisory](/services/acquisition-advisory). #### How much money do I need? The down payment plus the brand's fees, the PIP, closing costs and reserves. Only one of those has a minimum written into federal regulation. SBA 504 requires a hotel buyer to contribute at least 15 percent of project cost, or 20 percent if the business has operated two years or less.[1][2] Banks, CMBS lenders, life companies and debt funds set their own equity requirements and do not publish them, which our October 2026 rate sheet records as not yet published.[7] On top of equity, a branded purchase carries an application fee, $200,000 for a change of ownership on Hilton's 2025 Hampton schedule, and a property improvement plan.[3] The full stack, with a worked example, is at [How much money do I need to buy a hotel?](/buy-a-hotel/how-much-money-do-you-need). #### How do I finance it? With an SBA loan on a smaller hotel, or a bank, CMBS, life company or debt fund loan on a larger or more stable one. Each type reads the same hotel differently. As of September 30, 2026, the 10-year Treasury is 5.29 percent, SOFR is 3.90 percent and Prime is 7.00 percent. The SBA 7(a) maximum allowable rate is 10.00 percent, and the 25-year SBA 504 debenture priced at 6.54 percent on September 10.[7] Spreads over those indexes are not published by any lender type, so the only real quote is a written one. Start at [How does hotel financing work?](/hotel-financing), compare the SBA programs at [SBA 7(a) versus 504](/hotel-financing/sba-7a-vs-504), and test a purchase price against a loan with the [DSCR calculator](/tools/dscr-calculator). #### What due diligence do I need? Financials restated to the USALI format, the STR report, a property condition assessment, a survey, a Phase I, the franchise application, the liquor license and the staffing plan. Each item has a public standard behind it, and several have outside parties who set their own pace. The checklist, with the standard and the owner of each item, is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). The one to start on the day the purchase agreement is signed is the franchise application. Hilton's 2025 Hampton agreement requires 60 days' written notice of a change of ownership, and the buyer must meet the brand's requirements for new franchisees, sign the current form of agreement and agree to the requested upgrades.[3] #### Can I buy a hotel with no hotel experience? Yes, if someone qualified runs it. The brand approves the operator as well as the owner. Hilton's 2025 Hampton disclosure requires the hotel to be operated by the owner or by a management company Hilton has approved, and it lists operations experience among the requirements a buyer must meet.[3] Lenders do not publish an experience requirement. What the public documents say, and how a management company fills the gap, is at [How do I buy my first hotel with no hotel experience?](/buy-a-hotel/first-hotel-no-experience). #### Should I buy a branded or an independent hotel? A brand charges a share of rooms revenue for demand you would otherwise have to create. Whether that is a good trade depends on the market. Hilton's 2025 Hampton disclosure lists a 6 percent royalty and a 4 percent program fee on gross rooms revenue.[3] An independent keeps that money and carries its own marketing, distribution and reinvestment decisions. The fee schedules, the performance Hilton reports, and the cost of leaving a flag are at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### Can I use a 1031 exchange to buy a hotel? Yes. A hotel's real property is like-kind to other real property held for business or investment, and the exchange runs on two fixed deadlines.[5][6] You have 45 days from the sale of the property you gave up to identify the replacement, and the exchange must be completed within 180 days.[5] Since January 1, 2018, Section 1031 applies only to real property, so the furniture, fixtures and equipment in a hotel purchase do not qualify.[6] Those two facts shape a hotel exchange more than any other: the calendar is short for an asset that needs franchise approval, and part of the price falls outside the exchange. We keep the full answer on one page, with the statute, the regulations and a worked example: [Can I use a 1031 exchange to buy or sell a hotel?](/hotel-financing/1031-exchange-hotels). Talk to a tax adviser and a qualified intermediary before you sell. #### What is the hotel worth? What its income supports at the cap rate buyers are paying for that segment and market, less the capital the building needs. The Matthews Hotel Index for Q1 2026 publishes cap-rate bands by segment across the 14 markets we cover.[8] Run the seller's income through your own adjustments before you apply any of them, because an owner-operated statement often leaves out a management fee and a reserve. The method is at [What is my hotel worth, and who decides?](/hotel-valuation), and the terms are defined at [cap rate](/glossary/cap-rate) and [NOI](/glossary/noi). Table: Buying a hotel, step by step, and what is public about each step (September 2026) Step | What happens | What is public 1. Criteria and capital | Set size, segment, market and how much equity you have | SBA 504 minimum: 15% of project cost on a hotel, 20% for a business two years old or less[1][2] 2. Operator and lender | Pick a management company if needed. Open lender conversations | Brand must approve the operator.[3] Lender terms are not published[7] 3. Find the hotel | Marketed listings and direct owner conversations | Cap-rate bands by segment and market[8] 4. Offer | Letter of intent: price, deposit, diligence period, closing date | Marketed sales take offers in weeks 8 to 12 of our playbook[4] 5. Purchase agreement | Binding contract. File the franchise application at signing | Hampton: 60 days' written notice, $200,000 application fee, $10,000 PIP fee[3] 6. Due diligence | Financials, STR report, PCA, survey, Phase I, PIP scope, liquor license, staffing | Standards listed on the due diligence page 7. Close | Loan funds, title transfers, new franchise agreement takes effect | Diligence through close: weeks 12 to 24, typically 60 to 90 days[4] First-party data point: Matthews Hotel Markets' October 2026 rate sheet gives a buyer the indexes every quote is struck against: the 10-year Treasury at 5.29% on September 30, 2026, SOFR at 3.90% for the same day, and Prime at 7.00%. It marks the spreads over them as not yet published.[7] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: when the franchise application is filed decides when you close): Hypothetical. A buyer signs a purchase agreement on a Hampton Inn with a 45-day due diligence period and a closing 30 days after that, so closing is planned for day 75. Both periods are assumptions. Every contract sets its own. Path one. The seller gives Hilton notice and the buyer files the change of ownership application on day 0. The Hampton agreement requires 60 days' written notice,[3] so the notice period ends on day 60. Closing on day 75 holds, with 15 days to spare. Path two. The buyer waits until due diligence clears on day 45 to file. The notice period ends on day 105. Closing slips from day 75 to day 105 at the earliest, which is 30 days. Those 30 days are not free. The rate lock, the seller's patience and the deposit are all exposed for an extra month. The application fee is refundable, less a $7,500 processing charge, if the change of ownership does not occur,[3] so filing early puts $7,500 at risk to protect the whole calendar. FAQ: - Q: How much money do I need to buy a hotel? A: Under SBA 504, at least 15 percent of project cost, or 20 percent for a business two years old or less.[1][2] Conventional equity is set by the lender and not published. Add franchise fees, the PIP, closing costs and reserves. - Q: Can I buy a hotel with an SBA loan? A: Yes. SBA's procedures classify hotels as limited or special purpose property under 504, which sets the 15 percent minimum contribution.[1][2] As of September 2026 the 7(a) maximum allowable rate is 10.00 percent.[7] - Q: How long does it take to buy a hotel? A: From a signed purchase agreement, our published sale playbook budgets 60 to 90 days for due diligence and closing.[4] Franchise approval and a liquor license can take longer, so start both at signing. - Q: Do I take over the seller's franchise agreement? A: No. Under Hilton's 2025 Hampton agreement the buyer files a change of ownership application, pays the fee, signs the current form of franchise agreement and agrees to the brand's requested upgrades.[3] - Q: Can I use a 1031 exchange to buy a hotel? A: Yes, for the real property. You have 45 days to identify the hotel and 180 days to close.[5] Furniture, fixtures and equipment have not qualified since January 1, 2018.[6] - Q: Do I need a broker to buy a hotel? A: No. In a marketed sale the listing broker represents the seller. A buyer can hire its own adviser to source hotels, underwrite them and run the offer. Ask who pays that adviser before you sign anything. - Q: How do I find off-market hotels? A: Through people who talk to owners every week: brokers, lenders and management companies. Owners respond to buyers who can show equity, a lender and an operator, so have all three ready. Sources: - [1] 13 CFR 120.910, How much must the Borrower contribute? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [2] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Borrower's Contribution and the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15 and 17 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [4] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [5] 26 U.S.C. Section 1031 (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 - [6] Like-kind exchanges, real estate tax tips (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips - [7] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [8] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Should I buy a branded or independent hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/branded-vs-independent Last updated: 2026-10-01 A brand sells you demand and charges a share of rooms revenue for it. Hilton's 2025 Hampton disclosure lists a 6 percent royalty plus a 4 percent program fee, and reports an average RevPAR index of 121.0 for comparable Hamptons in 2024.[1] An independent keeps those fees and carries its own marketing. As of September 2026, no lender publishes different terms for either.[2] Key takeaways: - The fees are public. Hampton: 6 percent royalty plus 4 percent program fee on gross rooms revenue. Tapestry: 5 plus 4. Spark: 5.5 plus 3.0 to 3.5.[1][3][4] - There is more than the headline. Hampton also charges 4.9 percent of the eligible folio on Hilton Honors stays, and Hilton may raise the program fee by up to 1 point over the term.[1] - Hilton reports that comparable Hamptons averaged a RevPAR index of 121.0 in 2024, with a range from 39.5 to 334.4. A flag is not a guarantee.[1] - Leaving early costs money. If Hilton terminates a Hampton agreement after year two, damages are the hotel's average monthly royalty times 60.[1] - Lenders do not publish separate terms for branded and independent hotels.[2] #### What does a hotel brand actually cost? On Hilton's 2025 Hampton schedule, 10 percent of gross rooms revenue before any other charge: a 6 percent monthly royalty and a 4 percent monthly program fee.[1] Item 6 of a Franchise Disclosure Document lists every recurring fee, and it is the first thing a buyer of a branded hotel should read. For Hampton, the royalty is 6 percent of gross rooms revenue and the program fee, which pays for the reservation system, marketing and related programs, is 4 percent.[1] Hilton may change the program fee, but not by more than 1 percent of gross rooms revenue above the current rate over the term of the agreement.[1] The list goes on past those two lines. Hampton charges 4.9 percent of the total eligible guest folio on Hilton Honors stays, monthly technology fees, and other program charges.[1] The disclosure also says Hilton occasionally reduces the royalty for multi-unit or more experienced franchisees and for conversions, and that it agreed to modify the royalty in 66 instances in 2024. For some buyers the schedule is a starting point.[1] Other Hilton brands price differently. Tapestry Collection lists a 5 percent royalty and a 4 percent program fee.[3] Spark, which Hilton describes as competing in the economy segment, lists a 5.5 percent royalty and a program fee of 3.0 to 3.5 percent.[4] We cite Hilton's documents because Hilton posts them publicly. Other franchisors prepare a disclosure document in the same item-by-item format, so ask the brand's development team for the current one and compare Item 6 line by line. #### What do I get for the fees? A reservation system, a loyalty program and a name travelers already know. Hilton's own disclosure puts a number on it for Hampton, with a wide range around it.[1] Item 19 of the Hampton disclosure reports results for comparable hotels. In 2024 the average occupancy index was 109.8 and the average RevPAR index was 121.0, where 100 means a hotel takes its fair share against its competitive set.[1] Average occupancy for comparable hotels was 71.7 percent.[1] Read the range as closely as the average. RevPAR index across comparable Hamptons ran from 39.5 to 334.4 in 2024, and occupancy ran from 30.5 percent to 96.6 percent.[1] Hilton states that individual results may differ and that there is no assurance a franchisee will reach those levels.[1] A flag raises the odds of a full house. It does not fix a bad location or a tired building. The disclosure does not publish the share of room nights that comes from Hilton Honors members or from Hilton's reservation channels. If that number matters to your underwriting, ask the seller for the hotel's own channel mix report. The index terms are defined at [RevPAR](/glossary/revpar). #### What does a brand require from a buyer? A new application, a new franchise agreement, the upgrades the brand asks for, and management the brand approves.[1] A buyer does not inherit the seller's franchise. Under Hilton's 2025 Hampton agreement, the buyer submits a change of ownership application, pays the application fee, signs the current form of franchise agreement and agrees to the brand's request for upgrades, which arrive as a property improvement plan.[1] The schedule lists a $200,000 application fee for a change of ownership. Tapestry lists $150,000 and Spark lists $75,000.[1][3][4] In a change of ownership, the term is generally the remaining term of the existing agreement, or another term Hilton approves.[1] The PIP is usually the biggest number on this list, and it is specific to the building. It is explained at [PIP](/glossary/pip), and paying for it is covered at [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). An independent hotel has no PIP. It also has no one requiring the owner to reinvest, which is how independents fall behind. #### What does it cost to leave a brand? Under Hilton's 2025 Hampton disclosure, liquidated damages after the second year equal the hotel's average monthly royalty fees multiplied by 60.[1] The formula matters to a buyer who plans to reflag. If Hilton terminates the agreement after the second anniversary of opening and before the last 60 months of the term, damages are the hotel's average monthly royalty multiplied by 60. Inside the last 60 months, the multiplier is the number of months remaining.[1] The worked example below puts dollars on it. If your plan is to buy a branded hotel and convert it, price the exit from the old flag, the application fee for the new one and the conversion PIP before you bid. #### What does an independent hotel have to do for itself? Everything the program fee pays for: distribution, marketing, a booking engine, revenue management and guest loyalty. An independent keeps the royalty and the program fee, and it spends part of that money replacing what they bought. It pays commissions to online travel agencies on the bookings it cannot generate directly, and it builds its own reputation one review at a time. Independents tend to work where the location or the building is the draw: a resort town, a historic downtown, a destination a traveler searches for by name. They are hardest to run in highway and suburban markets, where travelers book by brand and by points. No public dataset reports what independents spend on distribution, so ask the seller for the actual channel mix and commission expense. #### Do lenders treat branded and independent hotels differently? No lender publishes separate terms. Underwriting turns on the hotel's income history, its market and who operates it.[2] Our October 2026 rate sheet marks conventional spreads and leverage as not yet published for every hotel segment, because lenders do not print them.[2] In practice a brand helps the credit story in two ways: the lender can see index data against a competitive set, and the reservation system gives it some comfort about demand if the operator changes. A branded loan also brings the franchisor into the file. Hilton issues a lender comfort letter only on request and only if the request meets its qualifications, for a $3,500 processing fee.[1] An independent with a long record of stable income and a proven operator can be financed. A first-time owner buying an independent with thin records should expect a harder conversation. SBA's procedures list hotels, motels and other lodging facilities as limited or special purpose property and draw no line between flagged and unflagged.[6] The options are compared at [Which lenders finance hotels?](/hotel-financing/hotel-lenders-by-type). Table: Branded versus independent hotel ownership, with published 2025 Hilton fee schedules Category | Branded | Independent Royalty | Hampton 6%, Tapestry 5%, Spark 5.5% of gross rooms revenue[1][3][4] | None Program or marketing fee | Hampton 4%, Tapestry 4%, Spark 3.0% to 3.5% of gross rooms revenue[1][3][4] | None. The owner funds its own marketing and distribution Loyalty program charge | Hampton: 4.9% of total eligible folio on Hilton Honors stays[1] | None, and no loyalty program unless the owner builds one Fee at purchase | Change of ownership application: Hampton $200,000, Tapestry $150,000, Spark $75,000[1][3][4] | None Capital required by a third party | A PIP on change of ownership, scope set by the brand[1] | None required. Reinvestment is the owner's call Published performance | Hampton 2024 average RevPAR index 121.0, range 39.5 to 334.4[1] | No public dataset Who can operate it | The owner or a management company the brand approves[1] | Anyone the owner and lender accept Cost to exit | Hampton after year two: average monthly royalty times 60[1] | None Lender terms | Not published[2] | Not published[2] First-party data point: Matthews Hotel Markets tracks pricing by segment, not by flag. The Matthews Hotel Index for Q1 2026 puts select-service cap rates in a 7.50 to 8.75 percent band across the 14 markets we cover.[5] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what a Hampton flag costs on $3.0M of rooms revenue): Hypothetical. An 80-key Hampton Inn with $3,000,000 of gross rooms revenue. Royalty at 6 percent is $180,000. Program fee at 4 percent is $120,000. Together that is $300,000 a year, or 10 percent of rooms revenue, before the Hilton Honors charge, technology fees and other Item 6 lines.[1] Now the comparison. Suppose the same building as an independent would produce $2,600,000 of rooms revenue. That figure is an assumption for the arithmetic. The flag then adds $400,000 of revenue and costs $300,000 in the two main fees. Revenue is not profit: the extra room nights also carry housekeeping, supplies and credit card costs. On these assumptions the flag roughly pays for itself and no more. If the independent would do $2,200,000, the flag adds $800,000 for the same $300,000 and the answer is clear. The whole decision rests on that one estimate, which is why the competitive set in the STR report deserves more time than the fee table. The exit. Average monthly royalty is $180,000 divided by 12, or $15,000. If Hilton terminated the agreement after year two, liquidated damages would be $15,000 times 60, or $900,000.[1] FAQ: - Q: How much are hotel franchise fees? A: They vary by brand. Hilton's 2025 disclosures list a 6 percent royalty plus a 4 percent program fee for Hampton, 5 plus 4 for Tapestry Collection, and 5.5 plus 3.0 to 3.5 for Spark, all on gross rooms revenue.[1][3][4] - Q: Is a branded hotel easier to finance? A: No lender publishes separate terms.[2] A brand gives the lender index data and a reservation system behind the income. An independent with a long, stable record and a proven operator can also be financed. - Q: Can I keep the seller's franchise agreement? A: Not under Hilton's 2025 Hampton agreement. The buyer applies, pays the application fee, signs the current form of agreement and agrees to requested upgrades. The term is generally the remaining term of the existing agreement.[1] - Q: Does a brand guarantee better performance? A: No. Hilton reports an average 2024 RevPAR index of 121.0 for comparable Hamptons, with individual hotels from 39.5 to 334.4, and states there is no assurance a franchisee will reach those levels.[1] - Q: What does it cost to drop a flag? A: Under the 2025 Hampton disclosure, if Hilton terminates after year two and before the last 60 months, damages are the hotel's average monthly royalty times 60. In the last 60 months, it is the months remaining.[1] - Q: Can I buy a branded hotel and convert it to a different brand? A: Yes, at a cost. Price the old brand's termination damages, the new brand's application fee and the conversion PIP before you bid. Each figure comes from the two brands' own disclosure documents. - Q: When does an independent hotel make sense? A: When the location or the building is what guests search for, such as a resort town or a historic downtown, and the owner can run distribution and marketing well. It is harder in highway and suburban markets, where travelers book by brand. Sources: - [1] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] 2025 Tapestry Collection by Hilton Franchise Disclosure Document (issued March 30, 2025), Items 5 and 6 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Tapestry.pdf - [4] 2025 Spark by Hilton Franchise Disclosure Document (issued March 30, 2025), Items 1, 5 and 6 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Spark.pdf - [5] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [6] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Borrower's Contribution and the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs ### How do I buy a hotel out of receivership or foreclosure? URL: https://matthewshotelmarkets.com/buy-a-hotel/buying-a-hotel-from-receivership-or-foreclosure Last updated: 2026-10-01 You buy from whoever controls the sale: a receiver, the foreclosing lender, or a bankruptcy trustee. In federal court, a receiver's private sale needs three appraisals and cannot be confirmed below two-thirds of appraised value.[1] In a bankruptcy sale the lender can bid its debt instead of cash.[2] Trepp put the lodging CMBS special servicing rate at 8.63 percent in July 2026.[3] The franchise does not transfer on its own. Key takeaways: - There are four doors: a receiver's sale, the foreclosure auction, a purchase from the lender after it takes title, and a bankruptcy section 363 sale. Each has a different seller and different rules. - A federal receiver's private sale is public in practice. The terms are published at least ten days before confirmation, and a bona fide offer at least 10 percent higher stops it.[1] - At a bankruptcy sale the secured lender may credit bid, offsetting its claim against the price.[2] You are bidding against someone who does not need cash. - Court sales are sold as-is. Your protection is title insurance, your own inspections before you bid, and the sale order. - The flag is a separate approval. Hilton's 2026 Hampton FDD lists a $200,000 change of ownership application fee and a $10,000 PIP fee, and the buyer signs a new franchise agreement.[4] #### What are the ways to buy a distressed hotel? A distressed hotel can be bought from the owner with lender consent, from a receiver, at the foreclosure sale, from the lender after foreclosure, or from a bankruptcy estate. Which door is open depends on how far the default has gone. Early on, the owner still controls the sale and needs the lender to accept the payoff. That path, and the owner's other exits, are explained from the seller's side at `/sell-a-hotel/selling-a-distressed-hotel`. Once a court appoints a receiver, the receiver runs the hotel and can be authorized to sell it. If the lender forecloses, there is an auction, and if nobody outbids the lender, the lender takes title and later sells the hotel as owned real estate. If the owner files bankruptcy, the sale runs through the bankruptcy court. Distress is not rare in 2026. Trepp reported that the lodging CMBS special servicing rate was 8.63 percent in July 2026, down 26 basis points on the month.[3] A loan in special servicing can end in an extension, a modification, a payoff or a sale, so the hotels that reach a court sale are a subset of that figure. We do not publish a discount to expect, because no public source measures one for hotels. #### How does a receivership sale work? The receiver markets the hotel, picks a buyer, and asks the court to approve the sale. In federal court, the statute sets the steps. Under 28 U.S.C. 2001, real property in a federal receiver's hands is sold at public sale unless the court orders otherwise. The court may order a private sale after a hearing with notice to interested parties, if it finds the estate's best interests are served. Before confirming a private sale, the court appoints three disinterested appraisers, and no private sale is confirmed below two-thirds of the appraised value. The terms must be published in a newspaper of general circulation at least ten days before confirmation, and the sale is not confirmed if a bona fide offer guarantees at least a 10 percent increase over the price.[1] A public sale of real estate under a federal court order requires notice published once a week for at least four weeks.[5] Personal property, which in a hotel means furniture, fixtures and equipment, is sold under the same rules unless the court orders otherwise.[6] Two cautions. First, a hotel receivership can also be in state court, and each state has its own receivership law. Read the appointing order and ask local counsel what it lets the receiver do. Second, the statute lets the court direct the terms and conditions of a sale, so read the sale order in your case. For a buyer, the 10 percent overbid rule means your signed contract is a floor price for someone else until the court confirms. Ask for a breakup fee or expense reimbursement in the contract if the court will allow one. #### What is a credit bid, and can I outbid the lender? A credit bid lets the secured lender bid the debt it is owed instead of cash. You can outbid it, but only by paying more cash than the lender values the hotel at. In a bankruptcy sale, section 363(k) of the Bankruptcy Code says that unless the court orders otherwise for cause, the holder of a lien securing an allowed claim may bid at the sale and offset its claim against the purchase price.[2] A foreclosure auction outside bankruptcy is run under state law, which sets who may bid and on what terms. Ask local counsel how the foreclosing lender's bid works in that state. That changes the auction math. A lender owed $10 million can bid up to $10 million without writing a check. It will stop bidding where it would prefer your cash to owning the hotel. So the useful work is done before the auction: talk to the lender or special servicer about the number at which it would rather be paid. Some lenders would rather sell the note or agree to a sale by the receiver than take title. Bankruptcy sales add one protection that buyers value. A sale order can transfer the hotel free and clear of other interests when the statute's conditions are met, and a good-faith purchaser is protected even if the sale order is later reversed on appeal, unless the sale was stayed.[2] #### What should I check on title before I bid? Check which liens the sale wipes out, which survive, and whether anyone has a right to redeem the hotel after you buy it. A foreclosure generally clears liens junior to the foreclosing mortgage and leaves senior ones, such as unpaid property taxes, in place. A title company will tell you which is which, and you should have its commitment before you bid, not after. Federal liens have their own rule. When real estate is sold to satisfy a lien that is senior to a lien held by the United States, the United States has one year from the sale to redeem the property. For a federal tax lien the period is 120 days or the state redemption period, whichever is longer.[7] Hotels that fell behind on payroll taxes can carry a federal tax lien, so ask for a lien search in the entity's name as well as the property's. Some states also give the former owner a statutory right to redeem after foreclosure. Whether that applies is a state law question for local counsel. On the physical side, court sales are as-is, with few or no seller warranties. Do the inspections you would do in any purchase, on a shorter clock. The full list is at `/buy-a-hotel/due-diligence-checklist`. A hotel that has been short of cash may have deferred maintenance, so the property condition report and the brand's PIP matter more here than in a normal deal. #### Will the hotel keep its flag? Only if the franchisor approves you. A franchise agreement does not pass to the buyer at a receiver's or foreclosure sale. Hilton's 2026 Hampton franchise disclosure document shows how one large franchisor handles it. An order appointing a receiver for the hotel is a ground for termination of the franchise agreement without an opportunity to cure (p. 71).[4] If the receiver was appointed at the lender's request, Hilton's comfort letter form says Hilton may require the receiver to sign its receiver agreement, which is how the flag stays on during the receivership.[4] A buyer goes through a change of ownership. The transferee must submit a change of ownership application, pay the franchise application fee, sign Hilton's then-current franchise agreement and agree to the upgrades Hilton requests (p. 74).[4] The listed application fee for a change of ownership is $200,000, and in 2025 franchisees paid between $25,000 and $200,000 (pp. 16-17).[4] The PIP fee is $10,000 (p. 16).[4] The new term is generally the remaining term of the old agreement or another term Hilton approves (p. 69).[4] If the lender takes title first, Hilton's comfort letter form gives the lender 15 days beyond the franchisee's cure period, plus an additional 180 days to complete its acquisition through foreclosure, and says that acquisition is not a transfer that violates the franchise agreement.[4] Your own lender will want a new comfort letter, which Hilton currently processes for $3,500 (p. 26).[4] Other brands have their own forms and fees. Read the brand's current FDD, and see the [Franchise Comfort Letter](/glossary/comfort-letter) entry. Start the brand conversation before you bid. A hotel bought without the flag is a different asset with a different value, as `/buy-a-hotel/branded-vs-independent` explains. #### Can I finance a purchase from a receiver or at auction? A receiver's sale or a purchase from the lender can be financed like any acquisition if the timeline allows. A cash auction usually cannot. Foreclosure auctions are cash sales on terms set by state law and the notice of sale, and a new lender is unlikely to complete an appraisal, an environmental report and a franchise approval in that window. Buyers at auction use cash or a line they already have, then put permanent debt on the hotel afterward. Buying without a Phase I also costs you the liability defense, which is set out at [Am I liable for contamination on a hotel I buy?](/buy-a-hotel/environmental-liability). A negotiated purchase from a receiver or from a lender that has taken title gives more time. The lender will underwrite trailing income that is weak by definition, so expect the loan to be sized on what the hotel earns now, not on your plan. No lender publishes the coverage or leverage it requires. For a first look at what the current income supports, use `/tools/hotel-loan-sizing-calculator`, and for value use `/tools/hotel-value-estimator`. Short-term options are compared at `/hotel-financing/bridge-loans`. Some selling lenders will finance the buyer themselves. It is worth asking. Table: Four ways to buy a distressed hotel, from the buyer's side Path | Who you buy from | Rules that set the process | What to watch Receiver's sale | Court-appointed receiver, with court approval | Federal court: three appraisals, two-thirds floor, 10 days' published notice, 10% overbid[1]. State court: state law | Your contract can be overbid until confirmation Foreclosure auction | Trustee, sheriff or referee under state law | Federal court public sale: notice weekly for at least four weeks[5]. State sales: state law | Bidding and cash terms set by state law; redemption rights[7] Purchase from the lender after it takes title | The lender, as owner | An ordinary contract | As-is terms; the flag may be running on a lender's comfort letter period[4] Bankruptcy section 363 sale | Trustee or debtor in possession, with court approval | Notice and hearing; credit bidding allowed; free and clear if conditions are met[2] | Auction against a credit bid; good-faith purchaser protection[2] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows what acquisition debt is priced from: the 10-year Treasury was 5.29 percent on September 30, 2026, SOFR was 3.90 percent, and the SBA 7(a) maximum variable rate was 10.00 percent.[8] A distressed price only helps if the hotel's current income can carry debt at those levels. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a private sale by a federal receiver, with the brand costs added): Hypothetical. A federal court receiver holds a 96-key branded hotel. The court's three appraisers value it at $8,400,000, $9,000,000 and $9,600,000. The statute does not say how three opinions are combined, so assume the court uses the average: $9,000,000. Floor. No private sale can be confirmed below two-thirds of appraised value: $9,000,000 x 2/3 = $6,000,000.[1] Your offer. You sign a contract with the receiver at $6,500,000, above the floor. The terms are published at least ten days before the confirmation hearing.[1] Overbid. Another buyer can stop your sale with a bona fide offer that guarantees at least 10 percent more: $6,500,000 x 1.10 = $7,150,000.[1] Below that, your contract stands. Brand costs on top of price, using the 2026 Hampton FDD's listed amounts: $200,000 change of ownership application fee + $10,000 PIP fee + $3,500 comfort letter fee = $213,500, before the cost of the PIP itself.[4] The PIP is the larger number and it is specific to the building. Get the brand's PIP before the confirmation hearing if the receiver will allow the inspection, because after confirmation the price is fixed. FAQ: - Q: Can I make an offer directly to a receiver on a hotel? A: Yes. The receiver, or the broker the receiver hired, takes offers. The receiver then asks the court to approve the sale. In federal court a private sale needs three appraisals and a price of at least two-thirds of appraised value.[1] - Q: What is a credit bid at a hotel foreclosure or bankruptcy sale? A: The lender bids the debt it is owed instead of cash. Section 363(k) of the Bankruptcy Code lets a lienholder offset its claim against the purchase price.[2] To win, you must offer more cash than the lender thinks the hotel is worth to it. - Q: Is a hotel in receivership cheaper? A: Not automatically. The federal statute sets a floor of two-thirds of appraised value for a private sale and lets a 10 percent higher offer displace yours.[1] No public source measures a typical discount for hotels, so we do not publish one. - Q: Does the franchise transfer when I buy a hotel at foreclosure? A: No. You apply to the brand as a new owner. Hilton's 2026 Hampton FDD lists a $200,000 change of ownership application fee, a $10,000 PIP fee, a new franchise agreement and the upgrades Hilton requests.[4] - Q: Can I get a loan to buy a hotel at a foreclosure auction? A: Rarely in time. Auction terms call for cash on a short clock, and a hotel loan needs an appraisal, reports and brand approval. Buyers use cash, then finance afterward. A receiver's sale or a purchase from the lender allows normal financing. - Q: What liens survive when I buy a hotel at foreclosure? A: Generally liens senior to the foreclosing mortgage, such as property taxes. The United States can redeem within one year if it held a junior lien, or 120 days for a federal tax lien, or the state period if longer.[7] Get a title commitment first. - Q: How long does it take to buy a hotel from a receiver? A: Longer than the contract suggests, because a court must approve. In federal court the terms of a private sale are published at least ten days before confirmation, and a public sale needs four weeks of published notice.[1][5] Brand approval runs alongside. - Q: I own the hotel that is in receivership. Where do I start? A: With the seller's version of this page: /sell-a-hotel/selling-a-distressed-hotel covers a lender-approved sale, a deed in lieu, the tax on forgiven debt, and what a receiver's appointment does to your franchise. Sources: - [1] 28 U.S. Code section 2001, Sale of realty generally (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/28/2001 - [2] 11 U.S. Code section 363, Use, sale, or lease of property: subsections (f), (k) and (m) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/11/363 - [3] CMBS Special Servicing Rate Falls as Office, Lodging Recover (July 2026 Trepp data) (CRE Daily, citing Trepp, accessed 2026-09-18): https://www.credaily.com/briefs/cmbs-special-servicing-rate-falls-as-office-lodging-recover/ - [4] 2026 Hampton Franchise Disclosure Document: Item 5 (pp. 16-17), Item 6 (p. 26), Item 17 (pp. 69-75) and Exhibit K lender comfort letter form (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [5] 28 U.S. Code section 2002, Notice of sale of realty (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/28/2002 - [6] 28 U.S. Code section 2004, Sale of personalty generally (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/28/2004 - [7] 28 U.S. Code section 2410(c), redemption by the United States; see also 26 U.S. Code section 7425(d) (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/28/2410 - [8] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How does depreciation work when I buy a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/depreciation-and-cost-segregation Last updated: 2026-10-12 Split the price first. Land does not depreciate, the building and its structural components run 39 years, and the furniture, fixtures and equipment run 5 or 7 years.[1][2] Since IRS Notice 2026-11, issued January 14, 2026, qualified property acquired after January 19, 2025 carries a permanent 100 percent first-year deduction, so the split is worth more than it used to be.[3] Key takeaways: - A hotel purchase is one price paid for several kinds of asset. Section 1060 makes buyer and seller allocate it among them by the residual method, and that allocation is what your depreciation schedule is built on.[4] - Bonus depreciation reaches anything with a recovery period of 20 years or less, so it covers the 5-year, 7-year and 15-year buckets and never the 39-year building.[5] - Used property counts. A hotel someone else built qualifies if you never used it before and did not buy it from a related party.[6] - A deduction you cannot use is not a benefit. Section 469 suspends losses from an activity you do not materially participate in, though a hotel is usually not a rental activity because the average period of customer use is seven days or less.[7][8] - None of this changes NOI, the cap rate, or what a lender will lend. It changes your after-tax return, and the furniture returns as ordinary income when you sell.[9] #### What part of a hotel purchase can I actually depreciate? Everything except the land, and only after the price has been split among the assets you bought, because each bucket runs on its own clock. A hotel does not trade as a building. It trades as a going concern: dirt, a structure, thousands of items of furniture and equipment, and in most deals some intangibles. The code treats that as an applicable asset acquisition, and section 1060 requires the consideration to be allocated among the assets the same way it is allocated under section 338(b)(5), which is the residual method, and a written allocation agreed between buyer and seller binds both of them unless the Secretary finds it inappropriate.[4] That last clause is the part buyers skip. The allocation is negotiated once and lived with for years, and the two sides want different answers: the seller wants more of the price on the building, the buyer wants more on the short-lived assets. Put it in the purchase agreement. Once the price is split, the clocks differ sharply. Land is not depreciable at all: Publication 946 says plainly that you cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up.[2] The building and its structural components are nonresidential real property, which section 168(c) puts on a 39-year recovery period, straight line with a mid-month convention.[1][5] Furniture, fixtures and equipment sit in the 5-year and 7-year classes: Form 4562's instructions put office furniture and equipment in the 7-year class, along with property not otherwise classified.[5] One bucket sits between them. Qualified improvement property is any improvement a taxpayer makes to the interior of a nonresidential building after the building was first placed in service, excluding enlargements, elevators and escalators, and the internal structural framework.[1] Section 168(e)(3)(E)(vii) makes it 15-year property.[1] A guest-room renovation after you take ownership qualifies. What you bought on day one does not, because the improvement has to be made by the taxpayer claiming it. #### What is a cost segregation study, and does it work on a hotel? It is an engineering-based analysis of what you actually bought, separating the parts of a building that are really personal property or land improvements so they depreciate over 5, 7 or 15 years instead of 39. The line it draws is the one between section 1245 property and section 1250 property. Section 1245(a)(3) defines section 1245 property as depreciable property that is personal property, plus a short list of other categories.[9] Whatever is left that is a building or a structural component is section 1250 property and runs 39 years.[1] Hotels are unusually dense in the first category, which is why the studies are common in this asset class. A 110-key select-service hotel carries case goods and soft goods in every room, a commercial kitchen and laundry, decorative lighting, signage, pool and fitness equipment, and specialty electrical and plumbing serving equipment rather than the building. None of that is a structural component. An apartment building of the same price carries a fraction of it. What a study cannot do is promise a number in advance. No public source publishes a typical share of a hotel's purchase price that reclassifies, and a percentage quoted before anyone has walked the property is a sales pitch rather than a finding. The result depends on the building, its age, what the last owner renovated and what the engineer can document. Ask a preparer what the study will contain and who signs it, not what percentage they expect to hit. A purchase is the moment to commission one, because the section 1060 allocation is being struck anyway and one piece of work feeds both schedules. See [what a buyer has to verify](/buy-a-hotel/due-diligence-checklist) for where this sits in the wider diligence list. #### How much is bonus depreciation worth on a hotel bought in 2026? One hundred percent of the qualifying buckets in the first year, because the One, Big, Beautiful Bill made the deduction permanent for qualified property acquired after January 19, 2025. Treasury and the IRS announced the rules in news release IR-2026-06 on January 14, 2026, issuing Notice 2026-11. The release states that the legislation provides a permanent 100 percent additional first year depreciation deduction for qualified property acquired, or specified plants that are planted or grafted, after January 19, 2025.[3] Publication 946 carries the same 100 percent figure.[2] The reach of that deduction is what matters for a hotel. Form 4562's instructions define qualified property as tangible property depreciated under MACRS with a recovery period of 20 years or less, plus a short list of other categories.[5] The 5-year and 7-year furniture and equipment qualify, and so does 15-year qualified improvement property. The 39-year building never does, however the deal is structured, which is the whole reason the allocation carries weight. Used property qualifies too, and buyers of existing hotels often assume otherwise. The IRS bonus depreciation FAQ sets out the conditions: the property was not used by the taxpayer or a predecessor at any time prior to the acquisition, it was not acquired from a related party or a component member of a controlled group, and the taxpayer's basis is not determined in whole or in part by the seller's adjusted basis.[6] A hotel bought at arm's length from an unrelated seller clears all three. That FAQ carries its own disclaimer that it may not be relied upon as legal authority.[6] There is also an election to take less: 40 percent, or 60 percent for certain property with longer production periods and certain aircraft, for qualified property placed in service during the first tax year ending after January 19, 2025.[3] Electing a smaller deduction sounds odd until you reach the next question. #### Can I actually use the deduction in the year I take it? Only if you materially participate in the hotel, because section 469 disallows a passive activity loss no matter how large the depreciation behind it is. Section 469(a)(1) is blunt: neither the passive activity loss nor the passive activity credit for the taxable year shall be allowed.[7] Section 469(c)(1) defines a passive activity as any activity involving the conduct of a trade or business in which the taxpayer does not materially participate, and section 469(c)(2) sweeps in any rental activity too.[7] Hotels get out of the second half of that, and most owners do not know it. Under 26 CFR 1.469-1T(e)(3)(ii)(A), an activity is not a rental activity if the average period of customer use for the property is seven days or less.[8] A transient hotel is the textbook case. A second exception at (e)(3)(ii)(B) covers an average period of customer use of 30 days or less where significant personal services are provided by or on behalf of the owner, which is where some extended-stay properties land.[8] Either way, the automatic rental label does not attach. So the question becomes material participation, and section 469(h)(1) sets the standard: the taxpayer must be involved in the operations of the activity on a basis which is regular, continuous, and substantial.[7] An owner-operator usually clears that. An owner who hires a management company and reads a monthly report has a real fight on their hands. One more cap sits above all of it. Section 461(l) disallows an excess business loss for a noncorporate taxpayer, defined as aggregate business deductions over aggregate business gross income plus a threshold of $250,000, or 200 percent of that amount on a joint return, indexed for taxable years beginning after December 31, 2025.[10] A large first-year deduction can hit that ceiling even when section 469 is satisfied. Put the sequence to your CPA before you sign rather than in April: allocate, test section 469, test section 461(l), then decide whether to elect out of the full 100 percent. #### What does the depreciation cost me when I sell the hotel? The furniture and equipment come back as ordinary income, which makes the fast deduction a timing shift rather than free money. Section 1245(a)(1) provides that on a disposition of section 1245 property, the amount by which the lower of the recomputed basis or the amount realized exceeds the adjusted basis is treated as ordinary income.[9] Recomputed basis is the adjusted basis plus all adjustments reflecting depreciation or amortization allowed or allowable.[9] In plain terms: every dollar you wrote off on the personal property is pulled back into ordinary income on the way out, to the extent there is gain to pull it from. The building follows a different path as section 1250 property, and the full picture on the sale side, including the rate that applies and how a 1031 exchange changes it, is set out at [what taxes you pay when you sell a hotel](/sell-a-hotel/taxes-when-selling-a-hotel). So the exercise is a deferral with a rate arbitrage attached. Whether it is a good trade turns on your rate now, your rate then, your hold period and whether you exchange rather than sell: facts about you rather than about the hotel. #### Does any of this change what the hotel is worth or what I should pay? No. Depreciation is not a cash expense, it is not in NOI, and no lender sizes a loan on it. Net operating income is struck before depreciation, interest and taxes. The cap rate is applied to that NOI. A lender's coverage and debt yield tests run off the same number. Change the allocation on your closing statement and not one of those figures moves. See [how to value a hotel](/hotel-valuation/how-to-value-a-hotel) and [NOI](/glossary/noi). Where it does show up is the after-tax equity return in the early years. Model that on its own line rather than buried in the operating pro forma, so you can see the deal with and without it. Build the underwriting first at [how to underwrite a hotel acquisition](/buy-a-hotel/how-to-underwrite-a-hotel-deal), then layer this on. And keep the sequence straight. A large first-year deduction cannot justify a price, because the deduction is a function of the price you pay, so paying more generates more of it. A hotel that only works after the tax benefit is a hotel that does not work. Table: How a hotel purchase price splits for depreciation, under the rules in force on September 23, 2026 What the dollars bought | Recovery period | Eligible for the 100 percent first-year deduction? | What it is when you sell Land | Not depreciable[2] | No: nothing to depreciate | Never depreciated, so nothing to recapture Building and its structural components | 39 years, straight line, mid-month convention[1][5] | No: the recovery period is longer than 20 years[5] | Section 1250 property Qualified improvement property: an interior improvement you make after the building was first placed in service, excluding enlargements, elevators, escalators and the internal structural framework[1] | 15 years[1] | Yes[5] | Section 1250 property Furniture, fixtures and equipment, and other personal property | 5 or 7 years, by class[5] | Yes[5] | Section 1245 property: depreciation returns as ordinary income[9] First-party data point: Matthews Hotel Markets' October 2026 rate sheet prices the debt on a hotel and says nothing about depreciation, which is the point. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and it marks maximum loan-to-value and the coverage floor as not yet published for every lender type except SBA, because lenders do not publish them.[11] A lender sizes your loan on NOI, which is struck before any of this. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 110-key select-service hotel bought for $14,000,000, placed in service June 15, 2026): This hotel does not exist and the allocation percentages are assumptions rather than a benchmark. The point is the shape of the arithmetic. The price is $14,000,000, or $127,273 per key. Assume an engineering study splits it three ways: land $1,750,000 (12.5 percent), furniture, fixtures, equipment and other section 1245 personal property $1,680,000 (12.0 percent), and the building with its structural components $10,570,000 (75.5 percent). Those three add to $14,000,000. Assume separately that the buyer completes a $700,000 interior renovation after closing, in the same tax year. That spend is qualified improvement property, because the improvement is made by the taxpayer claiming it, the test the purchase price itself cannot meet.[1] Now the first year. The $1,680,000 of personal property runs 5 or 7 years and the $700,000 renovation runs 15 years, so both sit inside the 20-year limit and both take the full 100 percent deduction.[5][3] That is $2,380,000. The building runs 39 years straight line on a mid-month convention, and June gives 6.5 months: $10,570,000 divided by 39 is $271,026 a year, and 6.5 twelfths of that is $146,806.[1][5] First-year depreciation is $1,680,000 + $700,000 + $146,806 = $2,526,806. Compare that with no study. The renovation is still qualified improvement property, because that status comes from what the work is rather than from any study, so it still deducts in full. But the whole $12,250,000 of purchase price above the land now sits on the 39-year schedule: divided by 39 that is $314,103 a year, and 6.5 twelfths is $170,139. First-year depreciation would be $700,000 + $170,139 = $870,139. So the study is worth $2,526,806 - $870,139 = $1,656,667 in year one. Check it the other way: it moved $1,680,000 off a 39-year clock that would have produced only $23,333 this year, and $1,680,000 - $23,333 is the same $1,656,667. At an assumed 37 percent marginal rate that is $612,967 of tax deferred. Three checks before anyone celebrates it. First, section 469: if a third-party manager runs the hotel and the owner is not involved on a regular, continuous and substantial basis, the loss is suspended rather than used.[7] Assume the hotel produces $1,050,000 of NOI in a full year: first-year depreciation is 2.4 times that, so this is a loss year on paper by a wide margin, and whether the loss is usable turns on participation alone. Second, section 461(l) caps an excess business loss above a threshold of $250,000, or $500,000 on a joint return, indexed for years beginning after 2025.[10] Third, the exit: the $1,680,000 written off on personal property returns as ordinary income under section 1245 on a sale, which at the same assumed 37 percent rate is $621,600 owed later.[9] The benefit is the use of that money in the meantime, not its permanent removal. FAQ: - Q: Can I depreciate the land under my hotel? A: No. Publication 946 states that you cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up.[2] Only the building, the improvements and the personal property depreciate. - Q: Is bonus depreciation still 100 percent for a hotel bought in 2026? A: Yes. IRS news release IR-2026-06, issued January 14, 2026 with Notice 2026-11, describes a permanent 100 percent additional first year depreciation deduction for qualified property acquired after January 19, 2025.[3] - Q: Does a hotel someone else built qualify for bonus depreciation? A: Yes, if it meets the used-property conditions: you and any predecessor never used it before, you did not acquire it from a related party, and your basis is not carried over from the seller.[6] - Q: How much of a hotel's price does a cost segregation study reclassify? A: No public source publishes a typical figure, and anyone quoting one before walking the property is guessing. It depends on the building, its age and what the engineer can document. - Q: Is owning a hotel a passive activity? A: Not automatically. An activity is not a rental activity where the average period of customer use is seven days or less, which covers most transient hotels.[8] It then turns on material participation.[7] - Q: Do I pay the depreciation back when I sell the hotel? A: On the personal property, yes. Section 1245 treats gain up to the depreciation allowed or allowable as ordinary income.[9] The building follows the section 1250 rules covered on the selling-taxes page. - Q: Does depreciation change what my hotel is worth? A: No. NOI is struck before depreciation, the cap rate is applied to NOI, and lenders test coverage off NOI. Depreciation changes your after-tax return, not the asset's value. - Q: Can Matthews Hotel Markets set up my cost segregation study? A: No. We sell hotels and arrange the debt behind them, and we do not give tax advice. Allocation, cost segregation and the elections above are work for your CPA and an engineering firm. Sources: - [1] 26 U.S.C. 168: applicable recovery periods in subsection (c), 15-year property in subsection (e)(3)(E)(vii), and the definition of qualified improvement property in subsection (e)(6) (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/uscode/text/26/168 - [2] Publication 946 (2025), How To Depreciate Property: land is not depreciable, the 39-year period for nonresidential real property, and the 100 percent special depreciation allowance (Internal Revenue Service, accessed 2026-09-23): https://www.irs.gov/publications/p946 - [3] IR-2026-06, Treasury and IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill, announcing Notice 2026-11, January 14, 2026 (Internal Revenue Service, accessed 2026-09-23): https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill - [4] 26 U.S.C. 1060: special allocation rules for certain asset acquisitions, including the residual method and binding written allocation agreements (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/uscode/text/26/1060 - [5] 2025 Instructions for Form 4562: MACRS property classes, the 39-year period for nonresidential real property, and qualified property for the special depreciation allowance (recovery period of 20 years or less) (Internal Revenue Service, accessed 2026-09-23): https://www.irs.gov/instructions/i4562 - [6] Additional First Year Depreciation Deduction (Bonus) FAQ: the requirements for used depreciable property under section 168(k)(2)(E)(ii) (Internal Revenue Service, accessed 2026-09-23): https://www.irs.gov/newsroom/additional-first-year-depreciation-deduction-bonus-faq - [7] 26 U.S.C. 469: disallowance of the passive activity loss, the definition of a passive activity, and the material participation standard in subsection (h)(1) (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/uscode/text/26/469 - [8] 26 CFR 1.469-1T(e)(3)(ii): the exceptions to the definition of a rental activity, including the seven-day average period of customer use (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/cfr/text/26/1.469-1T - [9] 26 U.S.C. 1245: gain from the disposition of certain depreciable property treated as ordinary income, and the definition of section 1245 property (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/uscode/text/26/1245 - [10] 26 U.S.C. 461(l): limitation on excess business losses of noncorporate taxpayers, the threshold amount and its cost-of-living adjustment (Legal Information Institute, Cornell Law School, accessed 2026-09-23): https://www.law.cornell.edu/uscode/text/26/461 - [11] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-23): https://matthewshotelmarkets.com/rates ### What due diligence do I need before buying a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/due-diligence-checklist Last updated: 2026-09-18 Eight workstreams, run at the same time: the STR report, financials restated to the USALI format, a property condition assessment under ASTM E2018-24, an ALTA/NSPS survey, a Phase I under ASTM E1527-21, the franchise application, the liquor license and the staffing plan.[1][2][3][4] As of September 2026, Hilton's Hampton agreement requires 60 days' written notice of a change of ownership.[5] Key takeaways: - A hotel is real estate and an operating business. Diligence has to cover both. - The standards are public: ASTM E2018-24 for the building, ASTM E1527-21 for the ground, the 2026 ALTA/NSPS standards for the survey, USALI for the books.[1][2][3][4] - You do not inherit the franchise. Under Hilton's 2025 Hampton agreement the buyer applies, pays the fee, signs a new agreement and agrees to the upgrades.[5] - A liquor license is a separate approval. California says most transfer investigations take about 55 to 65 days.[6] - Our published sale playbook budgets 60 to 90 days for due diligence and closing together, so start every third-party report in week one.[7] #### How do I verify the hotel's income? Rebuild the trailing twelve months from source documents, in the USALI format, and tie it to bank statements and tax returns. The Uniform System of Accounts for the Lodging Industry is the standard format for hotel financial statements. Its 12th revised edition was adopted on January 1, 2026.[2] Ask for three years of monthly profit and loss statements plus the trailing twelve months, then map every line to USALI departments so the hotel can be compared with others. An owner-operated hotel often shows no management fee, a family payroll that a new owner cannot match, and no reserve for replacing furniture and equipment. Each one overstates the income a buyer or lender will underwrite, and the worked example below shows how much that can move price. Then test the revenue. Tie monthly room revenue to the property management system's night audit reports, to occupancy tax filings and to bank deposits. Revenue that appears in the P&L and in none of those three is the red flag that matters most. Net operating income is defined at [NOI](/glossary/noi). #### What does the STR report tell me? How the hotel performs against its competitors on occupancy, rate and RevPAR, expressed as an index where 100 is fair share. Hilton's Hampton disclosure defines the measure plainly: RevPAR index is the hotel's RevPAR divided by its competitive set's RevPAR, times 100, and an index above 100 means the hotel takes more than its fair share.[5] Ask the seller for the monthly STAR reports covering the same three years as the financials. Look at the trend, not one month. A falling index with stable market RevPAR points at the hotel itself: condition, management or reviews. Check which hotels are in the competitive set too, because a set of weaker hotels flatters the index. The terms are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). STR data is licensed, so the seller shares it under the confidentiality agreement and you cannot republish it. #### What physical and site reports do I need? A property condition assessment, an ALTA/NSPS land title survey and a Phase I environmental site assessment. Most lenders will ask for all three. ASTM E2018-24 is the current standard guide for a baseline property condition assessment of commercial real estate.[1] The report lists physical deficiencies and the cost to cure them, which gives you a capital plan alongside the brand's PIP. Accessibility is a separate question with its own rules, and what a renovation obliges you to fix is at [hotel ADA requirements and renovations](/hotel-industry/ada-requirements). The 2026 ALTA/NSPS Land Title Survey standards took effect on February 23, 2026 and replaced the 2021 version.[3] Title insurers and lenders use the survey to evaluate title matters such as boundaries, easements, encroachments and access.[3] ASTM E1527-21 is the standard practice for a Phase I environmental site assessment.[4] EPA's rule on all appropriate inquiries names E1527-21 as a standard that may be used to comply.[8] ASTM says the practice is meant to let a buyer satisfy one of the requirements for the landowner liability protections under the federal Superfund law.[4] Hotels near former gas stations, dry cleaners or industrial sites need the closest reading. What the report actually buys you, and what you still owe after closing, is at [Am I liable for contamination on a hotel I buy?](/buy-a-hotel/environmental-liability). #### What do I have to do about the franchise? Apply for your own franchise agreement the day the purchase agreement is signed. You cannot assume the seller's. Hilton's 2025 Hampton disclosure sets out what a change of ownership takes. The seller gives 60 days' written notice. The buyer must meet the brand's current requirements for new franchisees, which the document lists as credit, a background investigation, operations experience and prior business dealings. The buyer submits a change of ownership application, pays the application fee, signs the current form of franchise agreement and agrees to the brand's request for upgrades.[5] The schedule lists a $200,000 application fee and a $10,000 PIP fee.[5] Two more items from the same document. Hilton may require an independent survey by an ADA consultant in a change of ownership.[5] If your lender needs a comfort letter from the brand, Hampton charges $3,500 to process one, and issues it only if the request meets its qualifications.[5] Other brands differ, so read Items 5, 6 and 17 of the current disclosure document for your brand. The PIP itself is explained at [PIP](/glossary/pip). #### What about the liquor license? It is a separate government approval on its own clock, and the rules are set state by state. A hotel with a bar, a restaurant or a market that sells beer and wine cannot serve under the seller's license once the seller is gone, unless the state has approved the change. California is one example of how long that takes. The state's Department of Alcoholic Beverage Control says most investigations for the issuance or transfer of a license take about 55 to 65 days, and that by law a license cannot be issued for at least 30 days.[6] It also allows the buyer to operate during the transfer under a 120-day temporary permit, if the premises are currently licensed and have been operating within the past 30 days.[6] Other states work differently. Ask a local liquor license attorney in the first week, because this approval can outlast every other item on the list. #### What do I owe the employees? If the hotel has 100 or more employees, the federal WARN Act can require 60 days' notice before a mass layoff or closing, and the sale splits that duty between seller and buyer. WARN covers employers with 100 or more employees, not counting part-time employees.[9] It requires at least 60 days' notice of a plant closing or mass layoff.[10] In a sale, the seller is responsible for notice of any covered event up to and including the effective date of the sale, and the buyer is responsible after that.[11] Many smaller hotels fall under the threshold. A large full-service or resort hotel may not, and some states have notice laws of their own. If you plan to change the management company or re-staff, settle who gives notice in the purchase agreement. #### How long does all this take? Our published sale playbook budgets 60 to 90 days for due diligence and closing together, from week 12 to week 24.[7] The length of the diligence period is a negotiated term of the purchase agreement, so the contract you sign sets your real deadline. [How to make an offer on a hotel](/buy-a-hotel/how-to-make-an-offer) reads three signed hotel agreements to show how short that window tends to be. The slow items are the ones with outside parties: the brand, the liquor authority, the lender's appraisal and the third-party reports. Order the property condition assessment, the survey and the Phase I in the first week, file the franchise application at signing, and leave the last weeks for negotiating what the reports found. The seller's view of the same calendar is at [How long does it take to sell a hotel?](/sell-a-hotel/how-long-it-takes), and the documents a seller should hand over are listed at [Documents needed to sell a hotel](/sell-a-hotel/documents-needed). Table: Hotel buyer due diligence checklist, with the public standard behind each item (September 2026) Item | What it answers | Standard or rule | Who orders it Financials: 3 years plus trailing twelve months | Is the income real and repeatable? | USALI, 12th revised edition, adopted January 1, 2026[2] | Buyer, from the seller STR STAR reports | Is the hotel gaining or losing share? | Index of 100 equals fair share[5] | Seller provides under NDA Property condition assessment | What is broken and what will it cost? | ASTM E2018-24[1] | Buyer or lender ALTA/NSPS land title survey | Boundaries, easements, encroachments, access | 2026 standards, effective February 23, 2026[3] | Buyer, with the title company Phase I environmental site assessment | Is there contamination risk? | ASTM E1527-21, named in 40 CFR 312.11[4][8] | Buyer or lender Franchise application and PIP | Will the brand approve me, and at what cost? | Brand FDD. Hampton: 60 days' notice, $200,000 application fee, $10,000 PIP fee[5] | Buyer, at signing Lender comfort letter | Will the brand recognize my lender? | Hampton: $3,500 processing fee[5] | Buyer, for the lender Liquor license | Can I serve on day one? | State law. California: most investigations take 55 to 65 days[6] | Buyer, with local counsel Employees and WARN | Who gives notice if staffing changes? | 100 or more employees, 60 days' notice[9][10][11] | Buyer and seller, in the contract Title, contracts, permits, taxes | What comes with the property? | Title commitment and the documents themselves | Buyer's counsel First-party data point: Matthews Hotel Markets publishes the cap-rate bands a diligence adjustment gets priced at. The Matthews Hotel Index for Q1 2026 puts select-service cap rates in a 7.50 to 8.75 percent band across the 14 markets we cover.[12] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: what restating the seller's NOI does to price): Hypothetical. An owner-operated, 90-key select-service hotel with $4,000,000 of total revenue. The seller's P&L shows net operating income of $1,500,000, with no management fee and no reserve. The buyer restates it the way a lender will. A management fee assumed at 3 percent of revenue is $120,000. A reserve for furniture, fixtures and equipment assumed at 4 percent of revenue is $160,000. Both percentages are assumptions for the arithmetic. Restated NOI is $1,500,000 minus $120,000 minus $160,000, or $1,220,000. At an 8.00 percent cap rate, inside the select-service band in the Matthews Hotel Index,[12] the seller's number implies $1,500,000 divided by 0.08, or $18,750,000. The restated number implies $1,220,000 divided by 0.08, or $15,250,000. The gap is $3,500,000, and it comes from two lines that were never on the seller's statement. Nothing was hidden. The statement was simply not built the way a buyer's lender reads it. The method is at [How do I value a hotel?](/hotel-valuation/how-to-value-a-hotel), and the ratio is defined at [cap rate](/glossary/cap-rate). FAQ: - Q: How long is due diligence when buying a hotel? A: As long as the purchase agreement says. Our published sale playbook budgets 60 to 90 days for due diligence and closing together.[7] Franchise approval and a liquor license transfer are the items most likely to set the pace. - Q: Can I take over the seller's franchise agreement? A: Not under Hilton's 2025 Hampton agreement. The buyer submits a change of ownership application, pays the fee, signs the current form of franchise agreement and agrees to requested upgrades.[5] Check Item 17 of your own brand's disclosure document. - Q: What is a T-12 and why do buyers ask for one? A: It is the profit and loss statement for the trailing twelve months. Buyers and lenders use it because it shows current earning power, where a calendar-year statement can be many months stale. - Q: Do I need a Phase I on a hotel? A: Almost always, and most lenders require one. ASTM E1527-21 is the current standard, and EPA's all appropriate inquiries rule names it as a standard that may be used to comply.[4][8] - Q: What is a PCA? A: A property condition assessment. ASTM E2018-24 is the current standard guide.[1] An engineer walks the building, lists physical deficiencies and estimates the cost to fix them. - Q: Does the WARN Act apply to a hotel sale? A: Only if the employer has 100 or more employees, not counting part-time staff.[9] If it does, the seller owes notice for covered layoffs through the sale date and the buyer owes it afterward.[11] - Q: What are the red flags in a hotel's financials? A: Revenue that does not tie to bank deposits or occupancy tax filings, no management fee, no reserve, family payroll below market, and repairs booked as capital. Each one makes reported income higher than a lender will underwrite. Sources: - [1] E2018-24 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process (ASTM International, accessed 2026-09-18): https://store.astm.org/e2018-24.html - [2] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (adopted January 1, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [3] ALTA/NSPS Land Title Survey Standards (2026 standards, effective February 23, 2026) (American Land Title Association, accessed 2026-09-18): https://www.alta.org/topics/topic-land-survey-standards - [4] E1527-21 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (ASTM International, accessed 2026-09-18): https://store.astm.org/e1527-21.html - [5] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 7, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [6] Frequently asked questions: licensing (transfer timing and the 120-day temporary permit) (California Department of Alcoholic Beverage Control, accessed 2026-09-18): https://www.abc.ca.gov/licensing/frequently-asked-questions/ - [7] How to sell a hotel: the 24-week transaction process (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/process - [8] 40 CFR 312.11, References (standards for conducting all appropriate inquiries) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/40/312.11 - [9] 20 CFR 639.3, WARN Act definitions (employer) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.3 - [10] 20 CFR 639.2, What does WARN require? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.2 - [11] 20 CFR 639.4, who must give notice (including in a sale of a business) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/20/639.4 - [12] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Am I liable for contamination on a hotel I buy? URL: https://matthewshotelmarkets.com/buy-a-hotel/environmental-liability Last updated: 2026-10-12 Yes, by default. CERCLA makes the current owner liable for cleanup whoever caused it.[1] A buyer escapes that only as a bona fide prospective purchaser, which takes all eight criteria in section 101(40), including all appropriate inquiries finished within one year before closing.[2][3] SBA's SOP 50 10 8.1, effective October 1, 2026, sets what a hotel lender must order.[4] Key takeaways: - Liability follows ownership, not fault. EPA says liability for contamination may be assigned based solely on property ownership.[5] - The defense is a list, not a report. All eight criteria in section 101(40)(B) have to be proved, and five describe what you do after closing.[2] - A Phase I has two clocks: one year before the acquisition date for the whole inquiry, 180 days for the records review, interviews, lien search and site visit.[3] - An SBA hotel loan does not start with a Phase I. NAICS 721110 is not on SBA's sensitive-industry list, so above $250,000 the work begins with a questionnaire and a records search.[4] - Petroleum is outside CERCLA, so a leaking fuel tank is a state-law and tank-rule problem instead.[2] #### Who is liable for cleaning up contamination at a hotel? The current owner is liable under CERCLA, whatever caused the contamination and whoever caused it. Section 107(a) of CERCLA makes the owner and operator of a facility liable for the government's removal and remedial costs, other necessary response costs and natural resource damages, subject only to the defenses in section 107(b).[1] EPA states the point without hedging: liability may be assigned based solely on property ownership.[5] The defenses are an act of God, an act of war, and an act or omission of an unrelated third party, and the third works only if the defendant proves it exercised due care and took precautions.[1] A buyer who did nothing wrong is still the owner. Two limits matter to a hotel. The definition of hazardous substance excludes petroleum and natural gas,[2] so a leaking gasoline or diesel tank sits outside CERCLA and inside state law and the federal tank rules. And a lender is not an owner or operator while it holds a mortgage only to protect its security interest and does not participate in management,[2] which is why the lender puts the environmental work on the borrower rather than carrying the risk itself. #### What does the bona fide prospective purchaser defense require? All eight criteria in CERCLA section 101(40)(B), proved by a preponderance of the evidence, for a facility acquired after January 11, 2002. The eight, in the statute's order: all disposal happened before you acquired the facility; you made all appropriate inquiries into previous ownership and uses; you give every legally required notice about a discovery or release; you exercise appropriate care by taking reasonable steps to stop a continuing release, prevent a threatened one and limit exposure; you give full cooperation, assistance and access to people authorized to run a response action; you comply with land use restrictions and do not impede an institutional control; you comply with information requests and administrative subpoenas; and you are not affiliated with a potentially liable party through family, contract, corporate or financial ties beyond the ties the conveyance creates.[2] Section 107(r)(1) is what the criteria buy: a purchaser whose only exposure is being treated as the owner is not liable, so long as it does not impede a response action.[1] What the status does not buy: if the United States cleans the site and the work raises the hotel's fair market value, it takes a lien for its unrecovered costs, capped at that increase in value.[1] The neighbouring routes turn on knowledge. An innocent landowner under section 101(35)(A) and a contiguous property owner under section 107(q) each have to show they had no reason to know about the contamination before buying, and section 107(q)(1)(C) sends a buyer who did know to this route instead.[1][5] A bona fide prospective purchaser may buy knowing exactly what is in the ground.[5] #### What counts as all appropriate inquiries? The process in 40 CFR part 312, which a Phase I environmental site assessment written to ASTM E1527-21 is designed to satisfy. All appropriate inquiries has three parts: an inquiry by an environmental professional, the buyer's own collection of information, and a search for recorded environmental cleanup liens, all conducted within one year before the date you take title.[3] Five components run on a tighter clock and must be conducted or updated within 180 days before that date: interviews with past and present owners, operators and occupants; the lien search; reviews of federal, tribal, state and local government records; visual inspections of the property and of adjoining properties; and the professional's declaration.[3] A report that satisfied the rule for a deal that slipped two quarters does not automatically satisfy the deal that closed. 40 CFR 312.11 names ASTM E1527-21 for a Phase I, and E2247-23 for forestland and rural property, as standards that may be used to comply.[6] The report must carry an opinion on whether the inquiry found conditions indicative of releases or threatened releases, the data gaps and what they do to that opinion, and the professional's qualifications.[7] Records are searched within one mile for National Priorities List and RCRA corrective action sites, within half a mile for state cleanup and brownfields sites, leaking tanks and engineering control registries, and on adjoining properties for registered tanks and RCRA generators.[8] Four inquiries belong to the buyer, not the consultant: the lien search, specialized knowledge, whether the price reasonably reflects what the property would be worth uncontaminated, and commonly known local information.[9] A price well under what the asset would fetch clean is a fact the rule makes you confront. #### Does my SBA lender have to order a Phase I on a hotel? No. A hotel's NAICS code is not on SBA's sensitive-industry list, so above $250,000 the work begins with a questionnaire and a records search. SOP 50 10 8.1 took effect October 1, 2026 and is the governing edition. It requires an environmental investigation of every commercial property taken as security for a 7(a) loan or a 504 debenture, and sets minimums rather than a ceiling.[4] The lender first identifies, in good faith, the NAICS codes for the property's current and known prior uses and compares them with Appendix 6, which lists dry cleaning where it has ever been on site, automotive repair, chemical manufacturing, marinas and about fifty other industries. NAICS 721110, hotels and motels, is not on it.[4] Where nothing matches, the loan amount picks the starting point: up to $250,000 the work may begin with an environmental questionnaire, and above $250,000 it must begin with a questionnaire and a records search with risk assessment.[4] Two footnotes do more work than the list. A Phase I should always be obtained where the business sells, supplies or dispenses fuel, gasoline or heating oil, whatever its NAICS code.[4] A Phase I is also not an asbestos survey: the renovation that follows the purchase has its own inspection and notice duties under the Clean Air Act, covered at [asbestos rules for a hotel renovation](/hotel-industry/asbestos-renovation-rules). And where a prior use matches, the investigation must begin with a Phase I regardless of loan amount, so a hotel on a former gas station pad starts with one plus the Appendix 7 gas station requirements.[4] The records search is no light document: the databases 40 CFR 312.26 lists for a compliant Phase I, plus historical sources back to the property's first developed use or to 1940, whichever is earlier, ending in a grade of low, elevated or high risk. Anything other than low risk means a Phase I, and the search must be dated within one year of the date the SBA loan number is issued, a different clock from the acquisition-date clock in 40 CFR 312.20.[3][4] One trap sits in the questionnaire: the current owner or operator has to sign it, and if the seller will not, the lender must obtain at least a Transaction Screen to ASTM E1528-22 instead.[4] [Documents needed to sell a hotel](/sell-a-hotel/documents-needed) is the list to hand over first. #### What happens if the report finds contamination? SBA will not lend on a contaminated property unless the risk is minimized to its satisfaction, and the cash route is a 150 percent escrow. The environmental professional first documents whether the contamination exceeds reportable or actionable levels, whether remediation is necessary, an estimate of the cost and the projected completion date, and the lender recommends a course of action covering the remediation plan, who is paying, and what any engineering or institutional control does to repayment ability, collateral value and marketability.[4] SBA weighs eight mitigating factors: a third party with the assets to honour it signs SBA's unmodifiable indemnification agreement, and that indemnitor cannot be the applicant or the operating company; remediation is complete in writing with a first year of monitoring results; there is a no further action or closure letter; contamination and cost are both de minimis and remediation will finish within a year; a cleanup fund has allocated enough; an escrow holds at least 150 percent of the estimate, controlled by the 7(a) lender or the 504 first mortgage holder as trustee, with no SBA loan proceeds in it; the contamination came from another site and someone else is remediating it; or extra collateral or equity covers the loss.[4] Two details get missed: SBA says more than 150 percent may be appropriate, so 150 percent is a floor, and nothing is released until the closure letter arrives or every monitoring well is decommissioned.[4] Outside the SBA programs no lender publishes an environmental policy, so what a bank or a debt fund will accept here is a question for that lender. [Hotel lenders by type](/hotel-financing/hotel-lenders-by-type) sets out who they are. #### What do I still owe after closing? Bona fide prospective purchaser status is a continuing duty, not a closing document. Five of the eight criteria describe conduct that starts the day you own the hotel: the notices, appropriate care to stop a continuing release and prevent a threatened one, cooperation and access for a response action, compliance with land use restrictions and institutional controls, and answers to information requests and subpoenas.[2] Stop satisfying one and the status goes, and the section 107(r)(1) liability bar with it.[1][2] The diligence that won the status is the cheap part. Tanks come with the keys. Federal underground storage tank rules reach a tank storing fuel solely for an emergency power generator: one installed on or before October 13, 2015 had to meet the subpart D requirements by October 13, 2018, and one installed later had to meet every applicable requirement at installation.[11] A tank of 110 gallons or less is excluded, as is equipment such as a hydraulic lift tank.[11] A tank storing heating oil for consumptive use on the premises where it is stored is not a federal underground storage tank at all,[12] though a state may regulate it anyway. The owner is whoever owns a tank system used to store, use or dispense a regulated substance,[12] which becomes the buyer at closing. Table: Where an SBA environmental investigation on a hotel starts, and what escalates it (SOP 50 10 8.1, effective October 1, 2026) Situation at the hotel | Where the investigation starts | What escalates it No sensitive prior use, loan of $250,000 or less | Environmental questionnaire, signed by the current owner or operator[4] | Any answer showing further investigation is warranted means at least a records search with risk assessment[4] No sensitive prior use, loan above $250,000 | Environmental questionnaire plus a records search with risk assessment[4] | A grade of anything other than low risk means a Phase I[4] Current owner or operator will not sign the questionnaire | Transaction Screen to ASTM E1528-22, with the site reconnaissance supervised by an environmental professional[4] | A conclusion that further investigation is warranted means a Phase I[4] A prior use matches Appendix 6, for example dry cleaning ever on site | Phase I, regardless of the loan amount[4] | A recommendation for further investigation means a Phase II, or an exception from SBA's Environmental Committee[4] A gas station on the site now or in the past (NAICS beginning 457) | Phase I plus the gas station requirements in Appendix 7[4] | Same as above[4] The business sells, supplies or dispenses fuel, gasoline or heating oil | Phase I, whatever the NAICS code says[4] | Same as above[4] A Phase II confirms contamination | No approval and no disbursement unless the risk is minimized to SBA's satisfaction[4] | One of eight mitigating factors, including an escrow of at least 150 percent of the estimated remediation cost[4] First-party data point: Matthews Hotel Markets' October 2026 rate sheet records the rulebook this page runs on: SBA's SOP 50 10 8.1 took effect October 1, 2026. As of September 30, 2026 the sheet shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, capping a variable-rate 7(a) loan above $350,000 at 10.00 percent.[13] None of that moves while an escrow holds the file. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: 92-key select-service hotel, $7,400,000, former dry cleaner next door, $5,000,000 SBA 7(a) loan): Hypothetical figures, used to show the arithmetic. The price is $7,400,000 divided by 92 keys, or $80,435 a key. Closing is March 2, 2027. NAICS 721110 is not on the Appendix 6 list, so the investigation does not start with a Phase I. It starts with an environmental questionnaire plus a records search with risk assessment, because the loan is above $250,000.[4] The search finds a dry cleaner on the adjoining parcel from 1968 to 1994, so the professional grades the hotel elevated risk rather than low risk. A Phase I is now required, it identifies a recognized environmental condition, and the Phase II confirms contamination at an estimated $240,000 over 14 months.[4] Because the work will not be finished at closing, SBA's escrow route needs at least 150 percent of the estimate: $240,000 times 1.50 is $360,000.[4] That is $120,000 more than the cleanup is expected to cost, it cannot be funded with SBA loan proceeds, and it equals 4.86 percent of the purchase price ($360,000 divided by $7,400,000). None of it comes back until the closure letter arrives or every monitoring well is decommissioned.[4] Now the clocks. The professional's inquiry has to fall within one year before the March 2, 2027 acquisition date, so no earlier than March 2, 2026, and the records review, interviews, lien search, inspections and declaration within 180 days, so no earlier than September 3, 2026.[3] A Phase I dated May 2026 satisfies the one-year clock and fails the 180-day one, and the fix is an update, not a new report.[3] Who funds the $360,000 is negotiated, and no public source publishes what hotel parties agree there, so this page prints no typical split. FAQ: - Q: Do I need a Phase I to buy a hotel? A: Not in every case. A Phase I to ASTM E1527-21 is how a buyer satisfies all appropriate inquiries.[3][6] An SBA lender on a hotel may start with a questionnaire and a records search instead.[4] - Q: Am I liable if the previous owner caused the contamination? A: Yes, unless a defense applies. Section 107(a) reaches the current owner, and EPA says liability may attach on ownership alone.[1][5] Section 101(40)(B) is the way out.[2] - Q: How long is a Phase I good for? A: One year for the inquiry as a whole, counted back from the date you take title. Five components, including the records review and the site visit, must be updated within 180 days.[3] - Q: Does the defense cover a leaking fuel tank? A: Not under CERCLA. The definition of hazardous substance excludes petroleum and natural gas, so a gasoline or diesel release is a state-law and federal tank-rule question.[2][11] - Q: Can I get an SBA loan on a hotel being cleaned up? A: Only if the risk is minimized to SBA's satisfaction. The escrow route needs at least 150 percent of the remediation estimate, held by the lender as trustee, with no loan proceeds in it.[4] - Q: Does my hotel's generator tank make me a tank owner? A: If it is underground, yes. A tank storing fuel solely for an emergency generator is covered, and the owner is whoever owns a tank system used to store a regulated substance.[11][12] - Q: Who can sign a Phase I report? A: An environmental professional under 40 CFR 312.10: a Professional Engineer or Geologist licence plus three years, a licence to perform environmental inquiries plus three years, an engineering or science degree plus five years, or ten years of experience.[10] - Q: Can the seller's Phase I be used for my loan? A: Only with SBA's standard reliance letter, whose language may not be modified and which is required even if the report is addressed to the lender.[4] The professional must also be impartial and insured for one million dollars per claim.[4] Sources: - [1] 42 U.S.C. 9607 (CERCLA section 107): subsection (a) making the owner and operator liable for removal and remedial costs, other response costs, natural resource damages and health assessments; the three defenses in (b); the contiguous property owner conditions in (q), including (q)(1)(C) routing a buyer with knowledge to the bona fide prospective purchaser provisions; and (r)(1) barring liability for a bona fide prospective purchaser that does not impede a response action, with the windfall lien in (r)(2) to (r)(4) capped at the increase in fair market value (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/uscode/text/42/9607 - [2] 42 U.S.C. 9601: paragraph (40) defining a bona fide prospective purchaser, including acquisition after January 11, 2002, the leasehold route and the eight criteria in (40)(B); paragraph (14) excluding petroleum, crude oil fractions not separately listed, natural gas and natural gas liquids from hazardous substance; paragraph (20)(F) excluding a lender holding indicia of ownership to protect a security interest without participating in management (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/uscode/text/42/9601 - [3] 40 CFR 312.20: all appropriate inquiries must be conducted within one year before the date of acquisition and must include the environmental professional's inquiry, the buyer's collection of information and a cleanup lien search, with interviews, the lien search, the government records review, the visual inspections and the professional's declaration conducted or updated within 180 days before acquisition (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.20 - [4] SBA SOP 50 10 8.1, effective October 1, 2026: Environmental Policies and Procedures (Section A, Chapter 5, Paragraph E, page 105), covering the NAICS comparison against Appendix 6, the $250,000 line between an environmental questionnaire and a questionnaire plus records search with risk assessment, the gas station and fuel-dispensing Phase I triggers, the escalation to Phase I and Phase II, and the eight mitigating factors including the escrow of at least 150 percent of the estimated remediation cost; Appendix 4 environmental definitions (page 288) for Records Search with Risk Assessment, Transaction Screen (ASTM E1528-22), Phase I ESA (ASTM E1527-21), Environmental Questionnaire and Environmental Professional, including impartiality and one million dollars per claim in errors and omissions coverage; Appendix 5 Reliance Letter (page 295); Appendix 6 NAICS Codes of Environmentally Sensitive Industries (page 299), which does not list NAICS 721110; Appendix 7 gas station requirements (page 303); Appendix 8 SBA Environmental Indemnification Agreement (page 305) (U.S. Small Business Administration, accessed 2026-10-09): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [5] Brownfields All Appropriate Inquiries: EPA's statement that strict liability under CERCLA means liability may be assigned based solely on property ownership, that ASTM E1527-21 and E2247-23 are consistent with the all appropriate inquiries final rule, and that the three landowner protections are the innocent landowner, the contiguous property owner and the bona fide prospective purchaser, who may buy with knowledge of the contamination (U.S. Environmental Protection Agency, accessed 2026-10-12): https://www.epa.gov/brownfields/brownfields-all-appropriate-inquiries - [6] 40 CFR 312.11: the industry standards that may be used to comply with 40 CFR 312.23 through 312.31, being ASTM E1527-21 for a Phase I environmental site assessment and ASTM E2247-23 for forestland and rural property (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.11 - [7] 40 CFR 312.21: the environmental professional's inquiry and the three things the written report must contain at a minimum, being the opinion on conditions indicative of releases or threatened releases, the identification of data gaps with comment on their significance, and the professional's qualifications (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.21 - [8] 40 CFR 312.26: the federal, tribal, state and local records to review and the search distances, being one mile for National Priorities List and RCRA corrective action sites, half a mile for state and tribal voluntary cleanup and brownfields sites, leaking underground storage tanks, delisted National Priorities List sites and engineering control registries, and adjoining properties for registered storage tanks and RCRA generators, with the distances modifiable on documented professional judgment (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.26 - [9] 40 CFR 312.22: the four additional inquiries the prospective purchaser must conduct, being the environmental cleanup lien search, specialized knowledge or experience, the relationship of the purchase price to the fair market value of the property if it were not contaminated, and commonly known or reasonably ascertainable information (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.22 - [10] 40 CFR 312.10: the definition of an environmental professional, with the four qualification routes (Professional Engineer or Professional Geologist licence plus three years, a licence or certification to perform environmental inquiries plus three years, a baccalaureate or higher degree in engineering or science plus five years, or ten years of full-time relevant experience), the supervision rule for someone who does not qualify, and the note that the definition does not preempt state licensing law (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/312.10 - [11] 40 CFR 280.10: the underground storage tank requirements apply to all owners and operators of a UST system, with tanks storing fuel solely for emergency power generators required to meet subpart D by October 13, 2018 if installed on or before October 13, 2015 and all applicable requirements at installation if installed later, and exclusions for systems of 110 gallons or less and for equipment such as hydraulic lift tanks (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/280.10 - [12] 40 CFR 280.12: the definition of an underground storage tank, which excludes a tank used for storing heating oil for consumptive use on the premises where stored, and the definition of owner as any person who owns a UST system used for storage, use or dispensing of regulated substances (Legal Information Institute, Cornell Law School, accessed 2026-10-09): https://www.law.cornell.edu/cfr/text/40/280.12 - [13] Matthews Hotel Markets hotel debt rate sheet, October 2026 edition: the 10-year Treasury at 5.29% and Prime at 7.00% as of September 30, 2026, the 10.00% SBA 7(a) maximum on a variable-rate loan above $350,000, and the changelog note that SOP 50 10 8.1 took effect October 1, 2026 (Matthews Hotel Markets, accessed 2026-10-09): https://matthewshotelmarkets.com/rates ### How do I buy my first hotel with no hotel experience? URL: https://matthewshotelmarkets.com/buy-a-hotel/first-hotel-no-experience Last updated: 2026-10-01 You can, but someone qualified has to run it. Hilton's 2025 Hampton disclosure requires qualified and experienced management, by you or by a management company the brand has approved.[1] A first-time owner must complete owner education within 90 days of a change of ownership.[1] Lenders do not publish an experience minimum. As of September 2026, SBA's rule leaves that to the lender's own credit process.[2] Key takeaways: - No public rule says a first-time buyer cannot own a hotel. The brand and the lender each decide, deal by deal. - Hilton's 2025 Hampton disclosure lists operations experience among the requirements a buyer must meet in a change of ownership.[1] - The same document lets the brand require an approved management company if it finds the owner is not qualified to operate the hotel.[1] - SBA's lending criteria name credit history, cash flow, and equity or collateral. They set no hotel experience minimum, and they tell lenders to use their own commercial credit process.[2] - Under SBA 504, a business that has operated two years or less contributes at least 20 percent on a hotel, not 15.[3][4] #### Will a brand approve me with no hotel experience? It can, if the management is qualified. The brand approves the operator as well as the owner. Hilton's 2025 Hampton disclosure is the clearest public statement we have read. In a change of ownership, the buyer must meet the brand's current requirements for new franchisees, which the document lists as credit, a background investigation, operations experience, prior business dealings and other relevant factors.[1] Item 15 of the same document covers who runs the hotel. The franchisee must provide qualified and experienced management. The hotel must be operated by the franchisee or by a third-party management company that Hilton has approved. Hilton may refuse to approve an owner or a management company that it judges inexperienced or unqualified. An owner who wants to manage directly needs Hilton's written approval and must complete its training program, unless Hilton waives that.[1] Other brands write their own rules, so read Items 11, 15 and 17 of the current disclosure document for the brand you are buying. #### Do I have to hire a management company? Not always, but the brand can require it, and for a first-time owner it is the most direct way to supply the experience the brand is asking about. Under the Hampton disclosure, if Hilton determines at any time that the owner is not qualified to operate the hotel, it may require the owner to retain a management company that is acceptable to it.[1] For a newly developed hotel, the document says that if Hilton does not approve the proposed management, the owner must hire a professional hotel management company for at least the first year, and Hilton will reevaluate after that year if asked.[1] Hiring a manager does not transfer the owner's obligations. The disclosure says the owner remains solely responsible for the management and operation of the hotel, and that engaging a management company does not reduce the owner's obligations under the franchise agreement. If the management company resigns or is terminated, the owner has 90 days to retain a replacement the brand accepts.[1] Management fees are set by contract between the owner and the manager. They are not published, so get proposals from more than one company. #### What training does the brand require from a new owner? Under Hilton's 2025 Hampton disclosure, an owner education course within 90 days of the change of ownership and an owner orientation within 180 days.[1] The disclosure describes a program called New to Hospitality Owner Education. It is a virtual course for franchisees without prior hospitality or comparable brand experience, and it covers revenue management, asset management, sales generation and talent management. It must be taken within 90 days after a change of ownership, at least one person in the organization must complete it, and the listed cost is up to $2,500 per participant, paid to the vendor.[1] Owner orientation is separate. When a change of ownership takes place and the buyer is a first-time franchisee of the brand, the buyer must attend within 180 days of the transfer. The document lists no separate fee for it.[1] After approving a management company, Hilton can also require the general manager and other key staff to attend training for their roles.[1] #### Will a lender finance a first-time hotel buyer? Some will. No lender publishes an experience requirement, and SBA's rule does not set one. SBA's regulation on lending criteria says the applicant must be creditworthy and the loan must be so sound as to reasonably assure repayment. It tells lenders to use the same prudent commercial credit analysis they use on similar non-SBA loans, and it names the criteria they may consider: credit score or credit history, earnings or cash flow, and equity or collateral.[2] Hotel experience is not on that list, which means it comes in through each lender's own credit policy. One lender may accept a first-time owner with an approved management company and strong liquidity. Another may not. The only way to know is to ask, early, and in writing. Banks, CMBS lenders, life companies and debt funds do not publish sponsor requirements either. Our October 2026 rate sheet marks their leverage and pricing terms as not yet published for the same reason: nobody prints them.[5] The lender types are compared at [Which lenders finance hotels?](/hotel-financing/hotel-lenders-by-type). #### Does being new change how much I need to put down? Under SBA 504 it can. A hotel buyer contributes at least 15 percent of project cost, and at least 20 percent if the business has operated two years or less.[3][4] The 504 regulation sets the higher minimum when two conditions are both true: the building is limited or single purpose, which SBA says a hotel is, and the borrower has operated for two years or less.[3][4] Ask the Certified Development Company how SBA will classify your acquisition before you budget. Under both SBA programs, holders of at least a 20 percent ownership interest generally must guarantee the loan.[6] The full cash picture is at [How much money do I need to buy a hotel?](/buy-a-hotel/how-much-money-do-you-need). #### What should a first-time buyer do first? Line up the three approvals a hotel purchase depends on, in this order: the operator, the lender, the brand. Start with the operator, because the other two will ask who it is. Interview management companies that already run the brand and the size of hotel you are looking at, and ask each for the list of hotels it manages today. Then talk to lenders with the operator's name in hand and ask each one, in writing, whether it lends to first-time hotel owners and on what conditions. Then read the brand's disclosure document before you make an offer, so the application fee, the training and the PIP are in your budget. Only then go shopping. The [hotels for sale](/listings) page shows current listings, and the diligence list for the one you pick is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). Table: What public documents say about a hotel buyer's experience (September 2026) Who decides | What the public document says | Source The brand, on the buyer | Buyer must meet current requirements for new franchisees: credit, background investigation, operations experience, prior business dealings | 2025 Hampton FDD, Item 17[1] The brand, on the operator | Hotel must be run by the owner or an approved management company. Brand may refuse one it finds inexperienced or unqualified | 2025 Hampton FDD, Item 15[1] The brand, on training | New to Hospitality Owner Education within 90 days of a change of ownership, up to $2,500 per participant. Owner orientation within 180 days | 2025 Hampton FDD, Item 11[1] The brand, if the manager leaves | Owner has 90 days to retain a replacement the brand accepts | 2025 Hampton FDD, Item 15[1] SBA lenders | Criteria named: credit history, cash flow, equity or collateral. No experience minimum. Lender uses its own commercial credit process | 13 CFR 120.150[2] SBA 504, on equity | At least 15% on a hotel, 20% if the business has operated two years or less | 13 CFR 120.910 and SOP 50 10 8.1[3][4] Banks, CMBS, life companies, debt funds | Not published | Rate sheet[5] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows what a first-time buyer's most likely loan costs today: the SBA 7(a) maximum allowable rate is 10.00%, with Prime at 7.00% since September 17, 2026, and the 25-year SBA 504 debenture priced at 6.54% on September 10, 2026.[5] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what a management fee does to loan coverage): Hypothetical. A first-time buyer is looking at a 70-key branded hotel with $3,000,000 of total revenue and net operating income of $900,000 on the seller's statement. The seller ran the hotel personally, so the statement has no management fee. The buyer plans to hire an approved management company. Assume a fee of 3 percent of revenue, which is $90,000. That percentage is an assumption for the arithmetic, not a market figure. Income after the fee is $900,000 minus $90,000, or $810,000. Assume annual debt service of $600,000. Before the fee, coverage is $900,000 divided by $600,000, or 1.50x. After the fee it is $810,000 divided by $600,000, or 1.35x. The owner training adds little by comparison: two participants at up to $2,500 each is $5,000.[1] The point is that the experience gap has a price, and it shows up in coverage, which is the number that sizes the loan. Run your own figures in the [DSCR calculator](/tools/dscr-calculator). The ratio is defined at [DSCR](/glossary/dscr). FAQ: - Q: Can I buy a hotel with no experience? A: Yes, if qualified management runs it. Hilton's 2025 Hampton disclosure requires the hotel to be operated by the owner or by a management company Hilton has approved, and it may refuse an operator it finds inexperienced.[1] - Q: Do lenders require hotel experience? A: No lender publishes a requirement. SBA's lending criteria name credit history, cash flow and equity or collateral, and leave the rest to the lender's own commercial credit process.[2] Ask each lender in writing. - Q: Can I get an SBA loan for my first hotel? A: Yes. SBA's procedures classify hotels as limited or special purpose property under 504, and a buyer whose business has operated two years or less contributes at least 20 percent of project cost.[3][4] - Q: Can I manage the hotel myself? A: Under the 2025 Hampton disclosure, only with Hilton's prior written approval and after completing its training program, unless Hilton waives it. Hilton can later require a management company if it finds the owner is not qualified.[1] - Q: What training does a new hotel owner have to take? A: For Hampton, a New to Hospitality Owner Education course within 90 days of the change of ownership, at up to $2,500 per participant, and an owner orientation within 180 days if you are new to the brand.[1] - Q: Does a management company take over my obligations to the brand? A: No. The Hampton disclosure says the owner stays solely responsible for the hotel, and that hiring a management company does not reduce the owner's obligations under the franchise agreement.[1] - Q: Will I have to personally guarantee the loan? A: On an SBA loan, holders of at least a 20 percent ownership interest generally must guarantee it.[6] Conventional recourse terms are set by each lender and are not published. Sources: - [1] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 11, 15 and 17 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [2] 13 CFR 120.150, What are SBA's lending criteria? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.150 - [3] 13 CFR 120.910, How much must the Borrower contribute? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [4] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Borrower's Contribution and the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [5] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [6] 13 CFR 120.160, Loan conditions (guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 ### How much money do I need to buy a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/how-much-money-do-you-need Last updated: 2026-10-01 There is no single number. As of September 2026, the one equity minimum written into federal regulation for a hotel purchase is SBA 504: at least 15 percent of project cost, or 20 percent for a business two years old or less.[1][2] Conventional lenders set their own and do not publish it. Then add the brand's application fee, $200,000 on Hilton's 2025 Hampton schedule.[3] Key takeaways: - SBA 504 requires at least 15 percent of project cost from a hotel buyer, and 20 percent if the business has operated two years or less.[1][2] - Banks, CMBS lenders, life companies and debt funds do not publish an equity requirement. Get it in writing from the lender you are talking to.[4] - The down payment is not the check. Franchise fees, a PIP, closing costs and reserves sit on top of it. - Hilton's 2025 Hampton disclosure lists a $200,000 change of ownership application fee and a $10,000 PIP fee. Franchisees paid $0 to $200,000 in 2024.[3] - Anyone holding 20 percent or more of an SBA borrower generally signs a personal guarantee.[5] #### What is the minimum down payment on a hotel? Under SBA 504 it is 15 percent of project cost, or 20 percent if the business has operated two years or less. No other lender type publishes a minimum.[1][2] The 504 rule comes from two documents read together. The regulation sets the borrower's contribution at 15 percent when the project is a limited or single purpose building, and at 20 percent when the borrower has also operated for two years or less.[1] SBA's operating procedures list hotels, motels and other lodging facilities as limited or special purpose property.[2] An ordinary building with an established operator needs 10 percent, so a hotel always sits above that floor.[1] These are minimums. A lender or Certified Development Company can ask for more. If you are buying through a newly formed company, ask the CDC early whether SBA will treat the borrower as a business that has operated two years or less, because that one answer moves the minimum from 15 to 20 percent. #### How much do conventional lenders want down? They do not say in public. No bank, CMBS lender, life company or debt fund publishes its loan-to-value ceiling for hotels.[4] Our October 2026 rate sheet marks maximum loan-to-value as not yet published for every lender type except SBA, because no lender type prints one.[4] What is public is the cost of the money. The 10-year Treasury was 5.29 percent on September 30, 2026, SOFR was 3.90 percent for the same day, and Prime has been 7.00 percent since September 17, 2026.[4] A lender's equity requirement follows from its own sizing tests on the hotel's income, so two lenders can look at the same hotel and ask for different down payments. The way to find your number is to ask for it in a written term sheet. The comparison of lender types is at [Which lenders finance hotels?](/hotel-financing/hotel-lenders-by-type), and the sizing tests are explained at [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements). #### What does SBA 7(a) require? A 7(a) loan caps at $5 million, and SBA's program page gives no single equity percentage for it.[6] SBA describes 7(a) interest rates as negotiated between borrower and lender, subject to SBA maximums.[6] With Prime at 7.00 percent, the maximum on a variable-rate 7(a) loan over $350,000 is 10.00 percent.[4] The detailed 7(a) underwriting rules, including how much of the borrower's own money must go in, live in SBA's operating procedures, and the lender applies them alongside its own credit policy.[2] Treat any 7(a) down payment figure you hear as one lender's answer, and get it in writing. The two programs are compared side by side at [SBA 7(a) versus 504 for a hotel](/hotel-financing/sba-7a-vs-504). #### What does the brand charge a buyer? An application fee and a PIP fee up front, both listed in the brand's Franchise Disclosure Document. On Hilton's 2025 Hampton schedule that is $200,000 and $10,000.[3] A buyer does not take over the seller's franchise agreement. The buyer applies for a new one. Hilton's 2025 Hampton disclosure lists a $200,000 Franchise Application Fee for a change of ownership, due with the application, and a $10,000 fee to prepare the property improvement plan.[3] The same document says the fee is sometimes reduced, and that franchisees paid between $0 and $200,000 for change of ownership applications in 2024.[3] If the sale does not close, Hilton refunds the fee less a $7,500 processing charge.[3] If your lender wants a comfort letter from the brand, Hampton charges $3,500 to process it.[3] Other brands publish different schedules. Hilton's 2025 disclosures list a $150,000 change of ownership application fee for Tapestry Collection and $75,000 for Spark.[7][8] Read Item 5 of the current disclosure document for the brand you are buying. Do not carry one brand's fee over to another. #### How much should I hold back for a PIP? Whatever the brand's written scope says, priced by a contractor. No public source gives a reliable per-room figure for a change of ownership PIP. Hilton's Hampton disclosure says a buyer in a change of ownership may be required to upgrade the hotel to current standards, on deadlines the brand sets in the PIP.[3] The scope is specific to the building, so the cost is too. Order the PIP inspection early in due diligence, get the scope in writing, and have a contractor price it before your deposit goes hard. The financing side, including loans that fund the work after closing, is covered at [How do I finance a PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The worked example below uses a hypothetical per-room figure only to show the arithmetic. #### What closing costs and reserves come on top? Title insurance, a survey, legal fees, an appraisal, a property condition assessment, a Phase I environmental report, lender fees, and working capital for the first months. None of these has a published national price. Each comes from a quote: the title company, the surveyor, your attorney, the lender's fee letter. Ask for the quotes during due diligence so the closing statement holds no surprises. The third-party reports are described at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). Reserves are the item first-time buyers skip. A hotel pays staff, utilities and franchise fees from the first day, while receivables and seasonal swings work against the new owner. Lenders often require a reserve at closing as well. Neither amount is published, so ask the lender for its requirement and set your own working capital target on top of it. #### Can I buy a hotel with no money down? Not with SBA 504, because the borrower contribution is a regulatory minimum.[1] The 504 regulation requires the borrower to contribute at least 15 percent of project cost on a hotel.[1][2] Conventional lenders size to the hotel's income and to value, which leaves a gap the buyer fills. Partners can fill part of it, and so can a seller note where the senior lender allows one, but both come with conditions. Under SBA rules, holders of at least a 20 percent ownership interest generally must guarantee the loan, so bringing in partners spreads the guarantee along with the equity.[5] Table: Where the cash goes when you buy a hotel, and what is public about each item (September 2026) Item | Who sets it | What is public Equity, SBA 504 | Federal regulation | At least 15% of project cost for a hotel, 20% if the business has operated two years or less[1][2] Equity, SBA 7(a) | SBA procedures and the lender | Loan maximum of $5 million. No single equity percentage on SBA's program page[6] Equity, conventional loan | The lender | Not published by any lender type[4] Franchise application fee | The brand's FDD, Item 5 | Change of ownership: $200,000 Hampton, $150,000 Tapestry, $75,000 Spark (2025 disclosures)[3][7][8] PIP fee | The brand's FDD | $10,000 on Hampton's 2025 schedule[3] PIP work | The brand's written scope | Property specific. Not published Lender comfort letter | The brand's FDD, Item 6 | $3,500 on Hampton's 2025 schedule[3] Closing costs | Title company, surveyor, counsel, lender, state | Quotes only. No national figure Reserves and working capital | The lender and you | Not published First-party data point: Matthews Hotel Markets' October 2026 rate sheet publishes the one hotel leverage ceiling that is written down anywhere: SBA rules cap a 504 hotel structure at 85% of project cost. It marks maximum LTV as not yet published for every other lender type, and it puts the 25-year 504 debenture at 6.54% as of September 10, 2026.[4] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: cash to close on an $8.0M, 80-key Hampton under SBA 504): Hypothetical. An 80-key Hampton Inn at an $8,000,000 purchase price, financed under SBA 504. The stack. The bank's first lien must be at least 50 percent of project cost on a hotel, so $4,000,000.[9] The borrower contributes 15 percent, or $1,200,000.[1] The CDC debenture covers the remaining 35 percent, $2,800,000, which is under the $5 million hotel cap.[2] The brand. Hampton's 2025 schedule lists a $200,000 change of ownership application fee, a $10,000 PIP fee and a $3,500 comfort letter fee, for $213,500.[3] Assumptions for the rest. Closing costs at 2 percent of price, $160,000. Working capital of $150,000. A PIP at $10,000 per room, $800,000. All three are assumptions for the arithmetic, not market figures. Total cash: $1,200,000 plus $213,500 plus $160,000 plus $150,000 plus $800,000 equals $2,523,500. That is 2.1 times the down payment. If SBA treats the borrower as a business that has operated two years or less, the contribution rises to 20 percent, $1,600,000, and the total to $2,923,500.[1] Ask the lender whether the PIP can be included in project cost, because that changes how much of it you fund in cash. FAQ: - Q: How much do I need to put down on a hotel? A: Under SBA 504, at least 15 percent of project cost, or 20 percent if the business has operated two years or less.[1][2] Conventional lenders set their own requirement and do not publish it, so ask for it in a written term sheet. - Q: Can I buy a hotel with 10 percent down? A: Not under SBA 504. The 10 percent minimum applies to ordinary buildings with an established operator. A hotel is limited or special purpose property, so the minimum is 15 percent.[1][2] - Q: What is the franchise application fee when I buy a branded hotel? A: It depends on the brand. Hilton's 2025 Hampton disclosure lists $200,000 for a change of ownership and says franchisees paid $0 to $200,000 in 2024.[3] Read Item 5 of the current disclosure document for your brand. - Q: Does the seller or the buyer pay for the PIP? A: The brand requires the buyer to agree to the upgrades as a condition of the new franchise agreement.[3] Who bears the cost is a price negotiation. Buyers usually deduct a priced PIP from their offer. - Q: Do I have to personally guarantee a hotel loan? A: On an SBA loan, holders of at least a 20 percent ownership interest generally must guarantee it.[5] Conventional lenders set their own recourse terms, and those terms are not published. - Q: What interest rate should I budget for? A: As of September 30, 2026, the 10-year Treasury is 5.29 percent, SOFR is 3.90 percent and Prime is 7.00 percent. The SBA 7(a) maximum is 10.00 percent and the 25-year 504 debenture priced at 6.54 percent.[4] Conventional spreads are not published. - Q: How large a hotel can an SBA loan finance? A: A 7(a) loan caps at $5 million.[6] A 504 debenture on a hotel caps at $5 million, with a bank first lien alongside it, so the total project can be larger.[2] Sources: - [1] 13 CFR 120.910, How much must the Borrower contribute? (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.910 - [2] SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 7 and 17 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [4] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [5] 13 CFR 120.160, Loan conditions (guarantees) (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.160 - [6] 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration, accessed 2026-09-18): https://www.sba.gov/sba-lenders/#7a-terms - [7] 2025 Tapestry Collection by Hilton Franchise Disclosure Document (issued March 30, 2025), Item 5 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Tapestry.pdf - [8] 2025 Spark by Hilton Franchise Disclosure Document (issued March 30, 2025), Item 5 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Spark.pdf - [9] 13 CFR 120.920, Required participation by Third Party Lenders (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/13/120.920 ### How do I make an offer on a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/how-to-make-an-offer Last updated: 2026-10-12 An offer on a hotel starts as a letter of intent and becomes a purchase and sale agreement. Three hotel agreements filed with the SEC between December 2024 and November 2025 show the shape: prices of $8.4 million to $22.5 million, deposits of 1.06% to 3.57% of price, and 32 to 47 days from signature to the outside closing date.[1][2][3] Key takeaways: - An offer moves in two steps: a letter of intent sets price and the main terms, and a purchase and sale agreement makes them enforceable. Letters of intent are private, so use the terms a signed agreement carries as your checklist. - Deposit size is negotiated, not standard. The three filed agreements put 2.22%, 3.57% and 1.06% of the purchase price into escrow.[1][2][3] - A free look is not automatic. Two of the three made the deposit non-refundable the day it was delivered, and one of those two still gave the buyer a 30-day study period.[2][3] - The franchisor sits inside your offer. All three agreements say the seller is not authorised to sell unless the buyer has been approved by the brand and has signed a new franchise agreement.[1][2][3] - What the seller stands behind shrinks fast. In the Grapevine agreement the representations survive six months, claims under $25,000 are not actionable at all, and recovery is capped at $337,500, which is 1.50% of the $22,500,000 price.[1] #### What does an offer on a hotel actually consist of? Two documents: a letter of intent that sets price and the main terms, and a purchase and sale agreement that turns them into obligations a court would enforce. Nobody files a letter of intent anywhere, so no public source describes what a typical one contains, and this page will not invent one. What does become public is the agreement the letter turns into, when a public company is on one side and attaches it to a Form 8-K. Three of those are the spine of this page, all Texas hotels sold by Moody National REIT II: the Residence Inn Grapevine, under contract on December 13, 2024 at $22,500,000 to MCR Hotel Acquisitions;[1] the Homewood Suites Houston-Woodlands in Spring, under contract on November 17, 2025 at $8,400,000 to Alay Investment Group;[2] and the Homewood Suites Austin/Airport Area South, under contract on November 24, 2025 at $9,400,000 to Farmington Hotel Partners I.[3] Read those agreements backwards and you get the only honest letter of intent checklist there is: deposit amount and when it hardens, how long you inspect, the outside closing date, who carries brand approval, and how long the seller stands behind what it told you. Each is cheap to agree before you sign and expensive to argue after. Price comes first, and [how to underwrite a hotel acquisition](/buy-a-hotel/how-to-underwrite-a-hotel-deal) covers how you reach a number worth putting in a letter. #### How much earnest money does a hotel deal take, and when does it go hard? There is no standard number. The three filed agreements put 2.22%, 3.57% and 1.06% of the purchase price into escrow, and two of the three made it non-refundable on the day it was delivered. The Grapevine agreement is the familiar two-stage structure. The buyer wired $250,000 within two business days of the effective date, and on expiry of the inspection period, if it elected to proceed, wired another $250,000. That is $500,000, or 2.22% of the $22,500,000 price.[1] The two 2025 agreements are harder and smaller at once. Houston-Woodlands took $300,000 within one business day, non-refundable on deposit except for a short list of named seller-side failures, which is 3.57% of $8,400,000.[2] Austin took $100,000 within one business day, non-refundable on deposit, which is 1.06% of $9,400,000.[3] A small deposit is not a soft deal, and a hard deposit is not always a large one. What matters is the combination, and you agree the combination in the letter of intent. One line hides in all three. A slice of the deposit is independent consideration the seller keeps whatever happens: $100 in the Houston and Austin agreements, released to the seller on a buyer termination, and in Grapevine an amount fully earned on signature that is not applied against the purchase price.[1][3] It is what makes the agreement binding at all. It is small, and it is gone. #### How long do I get to inspect, and how fast does a hotel deal close? Short, in all three: a 17-day inspection period on one, a 30-day study period on another, and 32 to 47 days from signature to the outside closing date. Grapevine gave the buyer until 5 p.m. Central on December 30, 2024, which is 17 days from the December 13 effective date. Inside that window the buyer could terminate in its sole and absolute discretion, on a written notice, and the escrow agent had to return the deposit.[1] Closing was due on or before 30 days after that window shut, so January 29, 2025, with an option to push to January 30 for a further $50,000 that joined the earnest money and was itself non-refundable.[1] Signature to outside closing: 47 days. Houston-Woodlands set closing on or before December 19, 2025 against a November 17 signature, which is 32 days, with no inspection period standing between the deposit and the risk.[2] Austin ran a 30-day study period from its November 24 effective date, ending December 24, 2025, against closing on or before December 29: 35 days in total, and five days between the end of study and the closing.[3] That pace has one practical consequence: your property condition assessment, environmental site assessment, survey and title review have to be commissioned the week you sign. The Grapevine agreement also requires 24 hours notice before each site visit and bars Phase II environmental testing without the seller's approval, so an invasive test is a negotiation, not a right.[1] What a clean report is worth, and what happens when it is not clean, is at [Am I liable for contamination on a hotel I buy?](/buy-a-hotel/environmental-liability). [The due diligence checklist](/buy-a-hotel/due-diligence-checklist) sets out what has to fit inside the window. #### Why does the franchisor decide whether my offer can close? Because the brand licence does not travel with the building, and the franchise agreement forbids the seller from selling to a buyer the brand has not approved. All three agreements say it in nearly identical words. Grapevine, where the hotel ran under a Residence Inn by Marriott relicensing franchise agreement dated September 27, 2017: the seller "is not authorized to sell the Property unless Purchaser has been approved by Licensor, and Purchaser and Licensor have entered into a new franchise agreement with Licensor with respect to the Property".[1] Both Homewood Suites agreements carry the same sentence with Hilton Franchise Holding LLC as licensor.[2][3] The buyer also has to get the seller, the manager and any guarantor released from the old agreement, in the form the brand customarily gives, and pays the franchise costs including the change of ownership application fee.[1][2] In Grapevine the seller agreed to pay the cost of ordering, but not completing, the property improvement plan scope, which was the one piece of brand cost the seller carried.[1] The three diverge on what happens if approval does not land. Houston-Woodlands says plainly that the buyer's inability to enter a new franchise agreement or obtain approval by closing is not a default.[2] The other two do not say that, which leaves a buyer who cannot get approved facing its own default. Ask for that sentence in the letter of intent. You can read the conditions before you offer. Item 17 of a franchise disclosure document has to set out, in tabular form, transfer by the franchisee, franchisor approval of a transfer, and the conditions for that approval.[4] See [franchise transfer when a hotel sells](/sell-a-hotel/franchise-transfer), [franchise agreement](/glossary/franchise-agreement) and [PIP](/glossary/pip). #### What else has to say yes before closing? Title, the liquor authority, your lender, the tax allocation you and the seller sign, and sometimes the seller's own board. Title runs on the same clock as inspection. Grapevine required the seller to order the title commitment within one business day of the effective date, and any objection the buyer did not raise before the inspection period expired became a permitted exception.[1] An objection you forget is an objection you have accepted. Alcohol is its own regulator. The Grapevine agreement makes the buyer "fully responsible, at its sole cost and expense" for applying for and obtaining transfer of the liquor licence held by a seller affiliate, and for paying the transfer and licence fees.[1] In Texas the state alcoholic beverage regulator has to be notified within 30 days of changes to ownership or principal parties.[7] Build that into the timeline rather than discovering it in the closing week, and see [the due diligence checklist](/buy-a-hotel/due-diligence-checklist) for how long the approval itself can run. The price allocation is a joint decision with tax consequences. Grapevine required both sides to use commercially reasonable efforts to agree, before due diligence expired, an allocation of the price between real property, personal property and intangible assets.[1] Section 1060 allocates the consideration under the residual method, and a written agreement on allocation binds both parties unless the IRS determines it is not appropriate.[5] What that allocation is worth to you afterwards is at [hotel depreciation and cost segregation](/buy-a-hotel/depreciation-and-cost-segregation). Two smaller gates. A seller affidavit giving a US taxpayer identification number and stating the seller is not a foreign person removes the 15% withholding section 1445 otherwise imposes.[6] And the Austin agreement conditions the seller's own authority on approval by the board and shareholders of Moody National REIT II, so ask who on the other side still has to vote.[3] #### What happens if I walk away, or the seller does? In the Grapevine agreement the seller's only remedy for a buyer default is the deposit, as liquidated damages, and nothing beyond it. The clause is explicit. On a buyer default the seller may terminate and take the earnest money and the extension deposit with accrued interest as liquidated damages, and that remedy "shall be Seller's sole and exclusive remedy, at law or in equity", because both sides acknowledge the seller's actual damages would be extremely difficult to ascertain.[1] Read that as pricing rather than as a penalty. Your deposit is what the seller collects if you do not close, so it is also what buys you credibility against a competing offer. Raising it is the cheapest way to win a deal you are certain about and the most expensive way to win one you are not. Casualty and condemnation sit alongside. Grapevine keeps risk of loss with the seller until closing and splits the outcome at a repair cost of $1,000,000, determined by a contractor or architect both sides accept: at or below that figure the parties may elect to have the seller repair, extending the closing if the work runs long.[1] On threatened or commenced condemnation the buyer may terminate outright.[1] Neither clause is boilerplate in a hurricane or wildfire market. #### What does the seller still stand behind after closing? Less, and for less time, than most first-time buyers expect: six months, a $25,000 floor and a $337,500 ceiling on a $22,500,000 hotel. The Grapevine limitations clause is worth reading in full before you sign anything. The seller's representations survive closing and delivery of the deed for six months. No claim is actionable or payable unless valid claims collectively aggregate $25,000 or more. Above that floor, recovery is capped at $337,500, which is 1.50% of the purchase price, and outside fraud the seller's aggregate liability cannot exceed it.[1] A second limit costs buyers more often than the cap does. No claim is actionable if it rests on something the buyer actually knew, or on something disclosed in the due diligence items the seller delivered.[1] What you were shown, you cannot come back on. Seller knowledge itself is narrowed to the actual knowledge of one named individual after inquiry of the hotel's general manager, with nothing imputed from anyone else.[1] Two hotel-specific lines are easy to miss. Grapevine has the seller terminate every hotel employee at closing, pay accrued compensation and unused paid time off through the day before, and pay severance to anyone the buyer does not rehire, with the buyer free to offer employment as it sees fit.[1] The federal notice obligations that can sit on top of that are at [the due diligence checklist](/buy-a-hotel/due-diligence-checklist). And the final night's room revenue, from rooms occupied at 12:01 a.m. on the closing date, was shared equally in Grapevine and retained by the seller in both 2025 agreements.[1][2][3] No other property type has that line. Table: Terms in three hotel purchase and sale agreements filed with the SEC, December 2024 to November 2025 Term | Residence Inn Grapevine, TX | Homewood Suites Houston-Woodlands, TX | Homewood Suites Austin/Airport South, TX Agreement dated | December 13, 2024 | November 17, 2025 | November 24, 2025 Purchase price | $22,500,000 | $8,400,000 | $9,400,000 Earnest money | $250,000 at signing plus $250,000 at inspection expiry | $300,000 at signing | $100,000 at signing Deposit as a share of price | 2.22% | 3.57% | 1.06% Refundable if the buyer walks on diligence | Yes, buyer's sole discretion, until December 30, 2024 | No, non-refundable on deposit except for named seller failures | No, non-refundable on deposit Inspection or study period | 17 days | None stated | 30 days Outside closing date | January 29, 2025, extendable one day for $50,000 | December 19, 2025 | December 29, 2025 Days from signing to outside closing | 47 | 32 | 35 Franchisor whose approval is required | Marriott International, Inc. | Hilton Franchise Holding LLC | Hilton Franchise Holding LLC No brand approval by closing is a buyer default | Not excluded | Expressly not a default | Not excluded Seller's broker named in the agreement | Eastdil Secured | CBRE Hotels | JLL Hotels and Hospitality Final night's room revenue | Split equally | Retained by seller | Retained by seller First-party data point: Matthews Hotel Markets' October 2026 rate sheet is the reason to be careful with a financing contingency in a letter of intent. It shows the 10-year Treasury at 5.29% on September 30, 2026 and Prime at 7.00%, unchanged since September 17, and it marks maximum loan-to-value and the coverage floor as not yet published for every lender type except SBA, because no lender publishes them.[8] You can date the index in your letter. You cannot date proceeds nobody has quoted you yet. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 90-key select-service hotel at $11,250,000, on the Grapevine agreement's terms): This hotel does not exist. The price is exactly half the Residence Inn Grapevine price, so every term in that agreement scales one for one and the arithmetic can be checked line by line.[1] Price and unit price. $11,250,000 across 90 keys is $125,000 per key. See [price per key](/glossary/per-key) for what that number can and cannot tell you. The deposit. Grapevine's $250,000 initial deposit is 1.11% of $22,500,000, so the same percentage here is $125,000, due within two business days of signing. The matching second deposit at inspection expiry is another $125,000. Total $250,000, which is 2.22% of the price, the same share the real deal carried. The clock. Day 0 is signature. Day 17 is the end of inspection, matching Grapevine's December 13 to December 30 window. Until day 17 you can terminate for any reason and get the full $250,000 back. From day 18 the whole $250,000 is the seller's if you do not close. Closing is due 30 days after the window shuts, on day 47, and a one-day extension costs a further $25,000 on Grapevine's ratio, which does not come back either. What the seller still owes you afterwards. Grapevine's cap is 1.50% of price, so here it is $168,750, and the floor is $25,000, which at this smaller price is 0.22% rather than Grapevine's 0.11%. A defect worth $200,000 found in month four therefore pays you $168,750 and leaves $31,250 with you. The same defect found in month seven pays nothing, because the representations have expired. The same defect visible in the data room pays nothing at any point, because it was disclosed. That is the argument for spending real money on third-party reports inside a 17-day window. The reports cost a fraction of $31,250, and the clause limiting your recovery is already written. FAQ: - Q: Is a letter of intent on a hotel binding? A: Parts of it usually are and parts are not, and only the document you sign decides which. No public source describes a typical hotel letter of intent. Treat every term as binding until your lawyer tells you it is not. - Q: How much earnest money does a hotel purchase take? A: There is no standard. Three hotel agreements filed with the SEC between December 2024 and November 2025 took 2.22%, 3.57% and 1.06% of the purchase price.[1][2][3] Size and hardness are negotiated together. - Q: How long is due diligence when you buy a hotel? A: Shorter than buyers expect. The Grapevine agreement gave 17 days of inspection, the Austin agreement a 30-day study period, and the Houston agreement none at all.[1][2][3] Order your reports the week you sign. - Q: Does the hotel brand have to approve me before I can buy? A: Yes on a branded hotel. All three filed agreements say the seller is not authorised to sell unless the brand has approved the buyer and the buyer has signed a new franchise agreement.[1][2][3] - Q: Who pays the franchise application fee when a hotel changes hands? A: The buyer, in both Homewood Suites agreements and in Grapevine. Each makes the buyer responsible for the franchise costs, including the change of ownership application fee.[1][2] - Q: What happens to my deposit if I walk away from a hotel deal? A: After the inspection window, the seller keeps it. In the Grapevine agreement the earnest money as liquidated damages is the seller's sole and exclusive remedy, at law or in equity, for a buyer default.[1] - Q: How long does a hotel seller stand behind its representations? A: Briefly. In the Grapevine agreement they survive six months, claims under $25,000 are not actionable, and recovery is capped at $337,500 on a $22,500,000 price, which is 1.50%.[1] - Q: Why does the purchase price have to be allocated in the contract? A: Because section 1060 allocates the consideration by the residual method, and an allocation the parties agree in writing binds both of them unless the IRS decides it is not appropriate.[5] Agree it before diligence closes. Sources: - [1] Purchase and Sale Agreement dated December 13, 2024 (Residence Inn Grapevine, Texas; $22,500,000), Exhibit 10.1 to Moody National REIT II, Inc. Form 8-K filed December 19, 2024 (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-24): https://www.sec.gov/Archives/edgar/data/1615222/000199937124015575/ex10-1.htm - [2] Agreement of Purchase and Sale dated November 17, 2025 (Homewood Suites Houston-Woodlands, Spring, Texas; $8,400,000), Exhibit 10.1 to Moody National REIT II, Inc. Form 8-K filed November 21, 2025 (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-24): https://www.sec.gov/Archives/edgar/data/1615222/000199937125018380/ex10-1.htm - [3] Agreement of Purchase and Sale dated November 24, 2025 (Homewood Suites Austin/Airport Area South, Austin, Texas; $9,400,000), Exhibit 10.1 to Moody National REIT II, Inc. Form 8-K filed November 28, 2025 (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-24): https://www.sec.gov/Archives/edgar/data/1615222/000199937125018942/ex10-1.htm - [4] 16 CFR 436.5(q), Item 17: Renewal, Termination, Transfer, and Dispute Resolution (Legal Information Institute, Cornell Law School, accessed 2026-09-24): https://www.law.cornell.edu/cfr/text/16/436.5 - [5] 26 U.S.C. 1060, Special allocation rules for certain asset acquisitions (Legal Information Institute, Cornell Law School, accessed 2026-09-24): https://www.law.cornell.edu/uscode/text/26/1060 - [6] 26 U.S.C. 1445, Withholding of tax on dispositions of United States real property interests (Legal Information Institute, Cornell Law School, accessed 2026-09-24): https://www.law.cornell.edu/uscode/text/26/1445 - [7] Manage and report changes to an existing license (Texas Alcoholic Beverage Commission, accessed 2026-09-24): https://www.tabc.texas.gov/services/tabc-licenses-permits/manage-report-changes-to-an-existing-license - [8] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-24): https://matthewshotelmarkets.com/rates ### How do I underwrite a hotel acquisition? URL: https://matthewshotelmarkets.com/buy-a-hotel/how-to-underwrite-a-hotel-deal Last updated: 2026-10-12 Underwriting a hotel means rebuilding the seller's trailing twelve months into the income the asset will produce under your ownership. Apple Hospitality REIT's 2025 Form 10-K, filed February 23, 2026, shows the shape of that at scale across 217 hotels: 60.0% of revenue went to hotel operating expense and 6.4% to property taxes, insurance and other.[1] Key takeaways: - Start from the trailing twelve months, never the offering memorandum's pro forma. - Three lines go missing on an owner-operator's statement: a management fee, an FF&E reserve, and taxes and insurance at what they will cost you. Apple Hospitality paid management fees of 3.3% of revenue in 2025 and spent 6.2% of revenue on capital improvements.[1] - The benchmarks are free. The 2026 US Hampton disclosure document puts 2025 average occupancy at 71.0% and average RevPAR at $105.90 across 1,893 comparable hotels.[2] - Debt does not set the price. The only published leverage ceilings are the 85% supervisory loan-to-value limit on improved property and SBA's 15% minimum borrower contribution.[4][5] Coverage floors and spreads are lender-set and unpublished. - A number you cannot trace to a third party is an assumption. Price the hotel on income an appraiser and a credit committee will accept. #### What financials should I ask for before I underwrite? A trailing twelve month operating statement, three full years behind it, the current budget, the STR benchmarking report, the franchise agreement and its latest quality inspection, two years of tax bills, the insurance loss runs and the capital spending history. Ask for all of it in one request and in native format. A PDF summary is a presentation; the monthly export is the record. If a seller will send only a one-page summary, you are being asked to underwrite a claim rather than a hotel. The offering memorandum is not on that list on purpose. It is a marketing document written to a seller's brief, which is why its forward year is nearly always better than its trailing year. Read it for the market and the capital plan, then underwrite from the data room. Two documents carry more than buyers expect. The franchise agreement says what the brand will charge the next owner, and the brand's disclosure document sets out the fee schedule and the system's reported performance in a form the Federal Trade Commission's Franchise Rule requires the franchisor to stand behind.[3] Both sides of that exchange are covered at [what a seller has to produce](/sell-a-hotel/documents-needed) and [what a buyer has to verify](/buy-a-hotel/due-diligence-checklist). #### What is a T-12, and why does every buyer ask for one? A T-12 is the hotel's profit and loss statement for the most recent twelve consecutive months, presented month by month, and it is the only view that captures one full season without waiting for a calendar year to close. Hotels are seasonal, and their cost structure does not flex as fast as revenue. A calendar year statement ending nine months ago describes a hotel that no longer exists. A T-12 ending last month describes this one. Ask for it month by month, never as one annual column. That view is where the useful questions live: which months carry the year, whether a rate increase held or was discounted back out, whether payroll moved with occupancy. Ask for the trailing three months too. When the T-3 annualised runs well below the T-12, the hotel is softening. Then run the cross-check most buyers skip. The franchisor bills its royalty on gross rooms revenue, so the brand's statements are a third party's record of the number the seller reports to you. Hilton's 2026 US Hampton document sets the monthly royalty at 6% of gross rooms revenue and the program fee at 4%.[2] Rooms revenue that will not reconcile to what the brand invoiced is the first thing to resolve. #### Which expense lines do owners leave out? A management fee where the seller manages the hotel themselves, a reserve for furniture, fixtures and equipment, and property taxes and insurance at what they will cost you rather than what they cost the seller. None of these omissions is dishonest. An owner who runs their own hotel has no management fee line, and one who pays for a roof out of cash flow has no reserve line. They are still costs you will carry. The public filings price the first two. Apple Hospitality REIT, which owned 217 hotels with 29,583 rooms at the end of 2025, reports management fees generally within 2.5% to 3.5% of gross revenues under its variable structure, and booked $47.1 million against $1.41 billion of revenue, or 3.3%.[1] Its capital improvements were $88.2 million, or 6.2% of revenue, with $80 million to $90 million guided for 2026.[1] A buyer underwriting a 4% reserve is underwriting less than a well-capitalised owner of the same kind of hotel actually spent. See [FF&E reserve](/glossary/ffe-reserve) and [NOI](/glossary/noi). Fixed costs are the third trap, and they move on a sale. Apple Hospitality's property taxes, insurance and other expense was 6.4% of revenue in 2025 and rose 6.3% year over year while revenue fell 1.3%.[1] In California, a change in ownership resets the base year value to fair market value on the date of the change, so the buyer's tax bill is struck on the price just paid.[7] Other states reassess on their own cycles. Underwrite the bill you will receive. #### What can I check my assumptions against? Two free public sources: the brand's own franchise disclosure document, and the annual filings of the public companies that own the same kind of hotel. Item 19 of a franchise disclosure document is the closest thing to published operating data the hotel business has. The Franchise Rule lets a franchisor make a financial performance representation only where there is a reasonable basis for it.[3] Hilton's 2026 US Hampton document reports on 1,893 comparable hotels for 2025: average occupancy 71.0%, average room rate $149.08, average RevPAR $105.90, and an average RevPAR index of 120.8 against each hotel's competitive set.[2] When you are testing one asset the ranges matter more. RevPAR across that set ran from $34.81 to $300.28, occupancy from 30.7% to 98.2%, and the index from 58.9 to 361.6.[2] A pro forma that moves a hotel from the bottom of those ranges toward the top is not an assumption. It is a plan, and it needs capital and a timeline attached. The public owners give you the direction of travel. Apple Hospitality's comparable hotels ran 74.1% occupancy, $159.09 ADR and $117.95 RevPAR in 2025, against 75.3%, $159.31 and $119.92 in 2024: rate held, occupancy gave way.[1] For the cap rate, the [Matthews Hotel Index](/research/mhi/q1-2026) publishes select-service bands by market each quarter, and [a good hotel cap rate in 2026](/hotel-valuation/hotel-cap-rates) explains what moves one hotel inside its band.[9] #### What are the red flags in a hotel's financials and its offering memorandum? Anything the seller cannot trace to a third party, and any improvement that has no capital, staffing or contract behind it. The ones worth stopping for: a forward year beside the T-12 with no stated reason for the gap; occupancy carried by house, complimentary or crew rooms that will not repeat; one group or government contract holding up ADR with no evidence it renews; repairs capitalised onto the balance sheet so the expense line looks light; payroll below market, which usually means understaffed rather than efficient; property taxes that predate the last reassessment; insurance at an expiring premium; and a short remaining franchise term with no property improvement plan estimate attached. None of these makes a hotel a bad buy. Each changes the price. Turn every flag into a line in the model rather than a note in the margin, because a flag left in the margin becomes a re-trade three weeks before closing, when you have the least leverage. The memorandum's optimism is structural rather than moral: a broker writes to the seller's instruction and presents the asset at its best. See [what an IOM is](/glossary/iom) and [what buyers look for](/sell-a-hotel/what-buyers-look-for). #### How much debt will the deal support? Less than the published ceilings suggest, because the tests that actually bind are set by each lender and none of them publish those tests. Three leverage numbers are genuinely published. Bank regulators set a supervisory loan-to-value limit of 85% on improved property and tell institutions their internal limits should not exceed it.[4] SBA requires a borrower contribution of at least 15% of project cost where the project involves a limited or single purpose building, which is how a hotel is treated, and 20% where the operating business has also traded for two years or less.[5] SBA's 7(a) program caps a loan at $5 million, with up to 25 years on real estate.[6] Everything else is unpublished. No bank, CMBS lender, life company or debt fund publishes its coverage floor, debt yield floor or spread, which is why our [rate sheet](/rates) marks maximum loan-to-value and coverage as not yet published for every lender type other than SBA.[8] Anyone quoting a market coverage floor is quoting a memory. So size the debt the only honest way. Build the pro forma, take it to two or three lenders, and let their quotes say what the hotel finances at. [DSCR](/glossary/dscr) and [debt yield](/glossary/debt-yield) explain the tests they run. #### How do I get from the pro forma to an offer? Divide the NOI you can defend by the cap rate the market is actually trading at, sanity-check the result per key, then test whether the equity left behind the debt earns what you need it to. The order matters. Value comes from income and the cap rate, not from the loan proceeds available. A buyer working backwards from the largest loan they can get has priced the debt market rather than the hotel. Run the per-key cross-check next, because it catches modelling errors a cap rate calculation hides. If your price implies a number per key well outside what the segment trades at, one assumption is doing too much work. [Price per key](/glossary/per-key) covers its limits. Then keep the exit honest. A forward year that only works at a lower exit cap rate than you paid is a bet on the rate market, not on the hotel. Write that down in your own memo, because the appraiser and the credit committee will find it anyway. [Walk through the valuation math](/hotel-valuation/how-to-value-a-hotel) sets out the calculation, and [how to make an offer on a hotel](/buy-a-hotel/how-to-make-an-offer) covers the terms that go around the number once you have one. Table: Where the money went at Apple Hospitality REIT's 217 hotels, year ended December 31, 2025 Line | US$ thousands | Percent of total revenue Room revenue | 1,278,423 | 90.5% Food and beverage revenue | 65,676 | 4.7% Other revenue | 68,287 | 4.8% Total revenue | 1,412,386 | 100.0% Hotel operating expense, including franchise and management fees | 847,322 | 60.0% of which franchise fees | 62,550 | 4.4% of which management fees | 47,057 | 3.3% Property taxes, insurance and other | 89,732 | 6.4% Revenue less those two expense lines | 475,332 | 33.7% Capital improvements during 2025 | 88,200 | 6.2% First-party data point: Matthews Hotel Markets' October 2026 rate sheet marks maximum loan-to-value and coverage as not yet published for every lender type except SBA, whose 504 structure caps at 85% of project cost. It puts the SBA 7(a) maximum allowable rate at 10.00% on the 7.00% Prime effective September 17, 2026.[8] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 100-key select-service hotel, using published 2025 benchmarks): This hotel does not exist. Every input is a public figure, so the arithmetic can be checked line by line. Start with revenue. The 2026 US Hampton document reports 2025 average occupancy of 71.0% and an average room rate of $149.08 for its comparable hotels.[2] Multiplied, those give a RevPAR of $105.85. The same document separately reports an average RevPAR of $105.90, because each figure averages a different distribution: averages do not compose.[2] At $105.85 across 100 keys for 365 nights, rooms revenue is $3,863,000. Room revenue was 90.5% of Apple Hospitality's total revenue in 2025, so grossing up gives about $4,268,000.[1] Now the costs, at the rates a public owner of the same kind of hotel recorded in 2025. Hotel operating expense at 60.0% is $2,560,000 and property taxes, insurance and other at 6.4% is $271,000. That leaves $1,437,000, or 33.7% of revenue, matching the portfolio's own 33.7%.[1] A reserve at the 6.2% Apple Hospitality spent on capital improvements is $267,000, so underwritten NOI is $1,170,000. Here is why the missing lines matter. A seller who manages the hotel themselves and funds capital out of cash flow shows neither the fee nor the reserve, so their statement reports $1,437,000 plus the $142,000 management fee, or $1,579,000. Against a $14,500,000 asking price, which is $145,000 per key, the seller's number is a 10.89% cap rate and yours is 8.07%. The $409,000 between them is worth $5,112,500 at an 8.00% cap rate. That gap, not the negotiation, decides this deal. Test the debt third, never first. At the 85% supervisory loan-to-value limit the ceiling is $12,325,000, leaving $2,175,000 of equity, and the bank's internal limit sits below that and is published nowhere.[4] An SBA 504 structure needs at least 15% of project cost from the borrower, the same $2,175,000 here.[5] SBA's 7(a) maximum of $5,000,000, amortised over 25 years at the 10.00% maximum allowable rate, costs $545,000 a year, covered 2.15 times by the underwritten NOI.[6][8] Coverage is not the constraint. The $5,000,000 cap is, at 34.5% of the price, which is how a buyer learns early that this is a conventional financing rather than an SBA one. FAQ: - Q: What is a T-12 in a hotel deal? A: The hotel's profit and loss statement for the most recent twelve consecutive months, month by month. It carries a full season of the hotel as it actually traded, which a calendar year ending months ago no longer does. - Q: How do buyers verify a hotel's reported NOI? A: By tying the T-12 to third-party records: the franchisor's royalty billings, the STR benchmarking report, bank statements, tax bills and insurance loss runs. A number with no third-party trail is an assumption. - Q: Should I underwrite a management fee if I will run the hotel myself? A: Yes. Apple Hospitality REIT disclosed management fees generally within 2.5% to 3.5% of gross revenues in its 2025 Form 10-K and paid 3.3% of revenue.[1] Your buyer and your lender will underwrite that line anyway. - Q: What FF&E reserve should a hotel buyer use? A: No public source sets a required number. Apple Hospitality spent $88.2 million on capital improvements in 2025, 6.2% of revenue.[1] The 4% common in models is below what that owner actually spent. - Q: Why is an offering memorandum more optimistic than the T-12? A: Because it is a marketing document written to the seller's instruction, using the seller's numbers, to attract the widest field of credible buyers. Read it for the market and the capital plan, then underwrite from the data room. - Q: What loan-to-value can I assume when underwriting a hotel? A: Do not assume one. Regulators set an 85% supervisory limit on improved property and expect internal limits below it.[4] No lender publishes its ceiling, coverage floor or spread, so get quotes first. - Q: How much does a franchise brand take off the top? A: Each brand publishes it. Hilton's 2026 US Hampton document sets a monthly royalty of 6% of gross rooms revenue plus a 4% program fee.[2] Read your own brand's document rather than a rule of thumb. - Q: Will my property taxes change after I buy a hotel? A: Often, and sometimes immediately. California resets a property's base year value to fair market value on a change in ownership.[7] Other states reassess on their own cycles. Underwrite the bill you will get. Sources: - [1] Apple Hospitality REIT, Inc., Form 10-K for the year ended December 31, 2025, filed February 23, 2026: consolidated statements of operations, hotel operating performance and capital improvements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-22): https://www.sec.gov/Archives/edgar/data/1418121/000119312526064008/aple-20251231.htm - [2] 2026 US Hampton franchise disclosure document, Item 6 (other fees) and Item 19 (financial performance representations), issued March 30, 2026 (Hilton Franchise Holding LLC, accessed 2026-09-22): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [3] 16 CFR 436.5(s), Item 19: Financial Performance Representations (Legal Information Institute, Cornell Law School, accessed 2026-09-22): https://www.law.cornell.edu/cfr/text/16/436.5 - [4] Interagency Guidelines for Real Estate Lending Policies, supervisory loan-to-value limits, appendix A to subpart D of 12 CFR part 34 (Legal Information Institute, Cornell Law School, accessed 2026-09-22): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_D_of_part_34 - [5] 13 CFR 120.910, Borrower contributions under the 504 program (Legal Information Institute, Cornell Law School, accessed 2026-09-22): https://www.law.cornell.edu/cfr/text/13/120.910 - [6] 7(a) loan terms: maximum loan amount, maximum interest rate and maturity (U.S. Small Business Administration, accessed 2026-09-22): https://www.sba.gov/sba-lenders/ - [7] California Revenue and Taxation Code section 110.1: base year value on purchase or change in ownership (California Legislative Information, accessed 2026-09-22): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=110.1 - [8] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-22): https://matthewshotelmarkets.com/rates - [9] Matthews Hotel Index, Q1 2026: select-service cap-rate bands by market (Matthews Hotel Markets (first-party), accessed 2026-09-22): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Can I get seller financing to buy a hotel? URL: https://matthewshotelmarkets.com/buy-a-hotel/seller-financing Last updated: 2026-10-26 Yes, if the seller agrees and your senior lender allows it. On an SBA 7(a) purchase, SBA requires at least 10 percent equity, and a seller note can cover up to half of that only if it is on full standby for the life of the SBA loan.[1] As of September 18, 2026, the IRS mid-term applicable federal rate for October is 4.61 percent, the floor for the note's rate.[2] Key takeaways: - A seller note is a loan from the seller for part of the price. It sits behind the bank's mortgage, so the bank decides whether it is allowed at all. - SBA counts a seller note as equity only when it is on full standby: no principal or interest payments for the term of the 7(a) loan. Even then it can be no more than half of the required 10 percent.[1] - A seller note that is being paid is debt, not equity. The lender has to put its payments into the debt service coverage test, which SBA sets at 1.15 or higher.[3] - For the seller, a carried note is an installment sale. Gain is spread over the payments, but depreciation recapture is taxed in the year of sale no matter when the cash arrives.[4] - A note that charges less than the applicable federal rate gets part of its principal recharacterized as interest by the IRS.[4] #### What is seller financing on a hotel purchase? Seller financing means the seller takes part of the purchase price as a promissory note from the buyer instead of cash at closing. A seller note can be the whole loan, but when a hotel purchase also has a first mortgage the seller note is a second-position piece. A bank, an SBA lender or another senior lender makes the first mortgage, the buyer brings cash, and the seller note fills part of the space between them. The note can be secured by a second lien, a pledge of ownership interests or a guaranty, and its rate and maturity are whatever the two sides agree to and the senior lender accepts. Sellers agree to it for three reasons: it widens the pool of buyers who can close, it can support the price, and it lets the seller report part of the gain over time under the installment method.[4] Buyers ask for it because it lowers the cash needed at closing. The cash side of a purchase is laid out at `/buy-a-hotel/how-much-money-do-you-need`. No public data set reports how often hotel sellers carry paper or at what rates, so this page does not print a typical rate or a typical share of the price. #### Will my bank or SBA lender allow a seller note? The senior lender decides, and its answer depends on whether the note is on standby, whether it is subordinated, and whether the hotel's cash flow covers it. A first mortgage lender does not want a second creditor that can sue the borrower or foreclose ahead of it. So a lender that allows a seller note can be expected to ask for a written subordination and limits on what the seller may do after a default. Conventional lenders do not publish these policies, so ask before you negotiate the note with the seller. SBA publishes its rules. In the 7(a) program, the lender's credit memo must discuss any seller financing and any standby agreements.[3] A standby creditor must sign SBA Form 155 or the lender's equivalent, must subordinate any lien on the collateral to the lender, and may take no action against the borrower or the collateral without the lender's consent.[1] If the buyer borrows more from the seller than the minimum injection requires, the lender must address the repayment terms and any standby or subordination terms in its file.[5] The note also counts in the coverage math. SBA defines debt service as the required principal and interest payments on all business debt, and the ratio of operating cash flow to debt service must be 1.15 or higher.[3] A seller note with current payments makes that test harder to pass. A note on full standby does not add payments during the SBA loan. #### Can a seller note count as my down payment on an SBA loan? Partly. SOP 50 10 8 lets seller debt count toward the required equity injection only if it is on full standby for the life of the SBA loan and is no more than half of that injection.[1] The SOP's words, for a complete change of ownership: SBA requires an equity injection of at least 10 percent of the total project costs, and seller debt may not be considered part of the equity injection unless it is on full standby for the life of the SBA loan and it does not exceed half of the SBA-required equity injection.[1] Full standby is defined as no payments of principal or interest for the term of the 7(a) loan. The standby debt may accrue interest, and it may be amortized after the 7(a) loan is paid in full.[1] That is a long wait for the seller. A 7(a) real estate loan can run up to 25 years.[6] In practice the seller is paid when the buyer refinances or sells. Under SOP 50 10 8, a seller note must have been in place and current, not on standby, for at least 24 months before a 7(a) loan can refinance it.[7] The rules changed on October 1, 2026, when SOP 50 10 8.1 took effect. It keeps the 10 percent minimum for an initial acquisition, says that injection cannot be reduced or eliminated, keeps seller debt among the sources limited to half of the required injection, and lengthens the seasoning period before seller debt can be refinanced to 36 months.[8] It raises the required debt service coverage on an initial acquisition from 1.15 to 1.25, measured on historical or adjusted results, and it adds a rule that acquisition debt which is not on full standby and is interest-only must be underwritten on an amortization of no more than 10 years.[8] If your loan was approved before that date, ask your lender which version applies. The two SBA programs are compared at `/hotel-financing/sba-7a-vs-504`. #### What interest rate does a seller note need to carry? At least the IRS applicable federal rate for its term, or the IRS will treat part of the principal as interest. IRS Publication 537 says an installment sale contract generally has adequate stated interest if its rate is at least the test rate, which is built from the applicable federal rate (AFR). The AFR depends on the note's term: the short-term rate for 3 years or less, the mid-term rate for over 3 and up to 9 years, and the long-term rate for over 9 years.[4] If the contract does not provide adequate stated interest, section 1274 or section 483 recharacterizes part of the stated principal as interest.[4] For October 2026 the annual AFRs are 4.25 percent short-term, 4.61 percent mid-term and 5.22 percent long-term.[2] Those are tax floors, not market rates. A second-position note behind a hotel mortgage is riskier than a Treasury, and the seller is entitled to price it that way. For context, Matthews Hotel Markets' rate sheet shows the 10-year Treasury at 5.29 percent on September 30, 2026 and the SBA 7(a) maximum variable rate at 10.00 percent.[9] #### I am the seller. How is a carried note taxed? As an installment sale: you report gain as you receive payments, except for depreciation recapture, which is all taxed in the year of sale.[4] Publication 537 defines an installment sale as a sale of property where you receive at least one payment after the tax year of the sale. Each payment is split into interest, return of basis and gain, using the gross profit percentage.[4] You report it on Form 6252 unless you elect out. Three rules matter for a hotel. First, recapture. If you sell property for which you claimed depreciation, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year.[4] Hotels carry a lot of depreciated furniture and equipment, so a note defers less tax than owners expect. Second, allocation. A hotel is a group of assets that make up a business, so buyer and seller must allocate the price among the assets using the residual method, and the installment method is tested asset by asset.[4] Third, size. If the sale price is over $150,000 and your outstanding installment obligations from the year exceed $5 million at year end, you owe interest on the deferred tax.[4] And if you pledge the note as security for a loan, the loan proceeds can be treated as a payment on the note.[4] The full tax picture for a sale is at `/sell-a-hotel/taxes-when-selling-a-hotel`. Use a CPA before you agree to terms. #### What should the note say? The note should match what the senior lender approved, because the intercreditor terms control what the seller can do if the buyer stops paying. Terms to settle in the purchase agreement, not at the closing table: the amount, the rate and whether interest is paid or accrues; the maturity and whether it falls before or after the first mortgage matures; the collateral (a recorded second lien, a pledge of ownership interests, or a personal guaranty); standby or payment terms that match the lender's approval; what happens on a sale or refinance; and the seller's remedies, which under an SBA standby agreement require the lender's consent.[1] Sellers should also think about what they are lending against. If the buyer defaults on the first mortgage, the seller note is behind it. Publication 537 has separate rules for a seller who repossesses real property after an installment sale.[4] A seller who would not want the hotel back should size the note accordingly. To see what first mortgage the hotel's income supports, use `/tools/hotel-loan-sizing-calculator`. For a value check before you negotiate price, use `/tools/hotel-value-estimator`. Table: How a seller note is treated: SBA 7(a) rules in force on September 18, 2026 and the posted October 1, 2026 rules Question | SOP 50 10 8 (effective June 1, 2025) | SOP 50 10 8.1 (effective October 1, 2026) Minimum equity on a purchase by a new owner | At least 10% of total project costs[1] | 10% for an initial acquisition; cannot be reduced or eliminated[8] Can seller debt count as equity? | Only on full standby for the life of the SBA loan, and no more than half of the required injection[1] | Only if subordinated and on full standby; limited sources together no more than half of the required injection[8] What full standby means | No payments of principal or interest for the term of the 7(a) loan; interest may accrue[1] | Same definition[8] Seller note that is being paid | Counts as business debt in the 1.15 coverage test[3] | Counts in the coverage test, which rises to 1.25 for an initial acquisition; if interest-only, underwritten on an amortization of no more than 10 years[8] When a 7(a) loan can refinance the seller note | After 24 months in place and current, not on standby[7] | After 36 months in place and current[8] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the SBA 7(a) maximum variable rate at 10.00 percent and the 25-year SBA 504 debenture at 6.54 percent.[9] A seller note is priced between the IRS floor and what that senior debt costs, by negotiation. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a seller note inside an SBA 7(a) hotel purchase, from both sides): Hypothetical. A buyer agrees to pay $4,700,000 for a roadside hotel and has $300,000 of closing costs and working capital, so total project costs are $5,000,000. Buyer's side. The required SBA equity injection is 10 percent of $5,000,000, or $500,000.[1] A seller note on full standby can cover at most half: $250,000. The buyer brings the other $250,000 in cash. The stack is a $4,250,000 7(a) loan, $250,000 cash, a $250,000 standby seller note, and a second $250,000 seller note that is paid currently and does not count as equity. $4,250,000 + $250,000 + $250,000 + $250,000 = $5,000,000. Coverage. At an assumed 10.00 percent rate over 25 years, the 7(a) loan costs about $463,437 a year. The paying seller note, assumed at 7.00 percent over 10 years, costs about $34,833 a year. At SBA's 1.15 ratio the hotel needs operating cash flow of at least ($463,437 + $34,833) x 1.15 = $573,010.[3] At the 1.25 ratio in the October 1, 2026 rules, the same debt needs $622,838.[8] The standby note. At an assumed 7.00 percent accruing annually, $250,000 grows to about $491,788 if the buyer refinances in year 10. The seller receives nothing on it until then. Seller's side. The seller's adjusted basis is $2,900,000, selling expenses are $200,000, and depreciation recapture income is assumed at $400,000. Recapture is taxed in the year of sale and added to the installment sale basis: $2,900,000 + $200,000 + $400,000 = $3,500,000.[4] Gross profit is $4,700,000 - $3,500,000 = $1,200,000, and the gross profit percentage is 25.53 percent. The seller receives $4,200,000 in the year of sale, so $1,072,340 of that gain is taxed then. Only $500,000 x 25.53 percent = $127,660 is deferred. The notes are 10.6 percent of the price, so they defer about that share of the non-recapture gain. This is a simplified illustration, not tax advice. FAQ: - Q: Can I buy a hotel with seller financing and no bank loan? A: Only if the seller owns the hotel free of debt or can pay off the mortgage at closing, and is willing to carry most of the price. With a bank or SBA first mortgage, the seller note is a second piece behind it. - Q: Does a seller note count as my down payment for an SBA loan? A: Up to half of it can. SBA requires at least 10 percent equity, and seller debt counts only if it is on full standby for the life of the SBA loan and is no more than half of that injection.[1] - Q: What does full standby mean on an SBA seller note? A: No payments of principal or interest for the term of the 7(a) loan. Interest may accrue, and the note can be amortized after the SBA loan is paid in full. The seller signs SBA Form 155 or the lender's equivalent.[1] - Q: What interest rate should a hotel seller charge on a carried note? A: At least the IRS applicable federal rate for the note's term, or part of the principal is treated as interest.[4] For October 2026 the mid-term rate is 4.61 percent.[2] The actual rate on a second-position hotel note is negotiated between buyer and seller. - Q: I am selling my hotel. Does carrying a note defer my taxes? A: It defers the gain tied to the payments you receive later. Depreciation recapture is taxed in the year of sale regardless.[4] If the note is a small share of the price, the deferral is small too. - Q: Are the SBA seller note rules changing? A: Yes. SOP 50 10 8.1 took effect October 1, 2026. It keeps the 10 percent minimum and the half limit, raises required coverage on an initial acquisition to 1.25, and lengthens the wait to refinance seller debt from 24 to 36 months.[7][8] - Q: What happens to the seller note if I default on the bank loan? A: The seller is behind the bank. Under an SBA standby agreement the seller has subordinated its lien and cannot act against you or the collateral without the lender's consent.[1] That risk is why sellers limit the size of the note. - Q: Can I refinance the seller note later with an SBA loan? A: Under SOP 50 10 8, a seller note must have been in place and current, not on standby, for at least 24 months after the purchase.[7] The October 1, 2026 version raises that to 36 months.[8] Sources: - [1] SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section B, Ch. 1: equity requirements for changes of ownership and Standby Agreements (pp. 131-133) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [2] Rev. Rul. 2026-19, Table 1: applicable federal rates for October 2026 (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/pub/irs-drop/rr-26-19.pdf - [3] SOP 50 10 8, Section B, Ch. 1: debt service definition, 1.15 debt service coverage requirement, and seller financing and standby agreements in the credit memorandum (pp. 129-130) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [4] Publication 537 (2025), Installment Sales (Internal Revenue Service, accessed 2026-09-18): https://www.irs.gov/publications/p537 - [5] SOP 50 10 8, Section B, Ch. 5: verifying equity injection, borrowed funds and seller financing in excess of the minimum injection (p. 320) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [6] SOP 50 10 8, Section B, Ch. 1: 7(a) loan maturities, real estate loans must not exceed 25 years (p. 120) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [7] SOP 50 10 8, Section B, Ch. 1: refinancing debt used to finance a change of ownership, seller note in place and current for 24 months (p. 112) (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - [8] SOP 50 10 8.1 (effective October 1, 2026), Appendix 15: 7(a) Changes of Ownership, equity injection sources and seller debt (U.S. Small Business Administration, accessed 2026-09-18): https://legacy.sba.gov/sites/default/files/2026-08/SOP%2050%2010%208.1%20effective%2010.1.2026_0.docx - [9] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/rates ## How much does a hotel franchise cost? ### How much does a hotel franchise cost? URL: https://matthewshotelmarkets.com/hotel-franchise-costs Last updated: 2026-10-12 A hotel franchise costs an application fee up front, a percentage of rooms revenue every month, and the cost of building or renovating to the brand's standard. Hilton's Hampton disclosure document issued March 30, 2026 lists a $100,000 application fee, a 6 percent royalty, a 4 percent program fee, and an estimated initial investment of $17,043,739 to $24,732,532 for an 89-room hotel, before land.[1] Key takeaways: - The numbers live in each brand's Franchise Disclosure Document (FDD). Items 5 and 6 list fees, Item 7 estimates the initial investment, Item 17 covers term and transfer, and Item 19 holds any performance figures.[1] - Across the eight Hilton brands covered here, Item 7 estimates run from $3,251,531 for a 100-room Spark conversion[2] to $126,260,147 for a 225-room DoubleTree Suites,[3] all excluding real estate. - Monthly royalties in those eight FDDs run from 5 to 6 percent of gross rooms revenue, with Homewood Suites starting new hotels at 3.5 percent, and program fees run from 2.5 to 4 percent.[1][3][4] - A buyer of an existing franchised hotel applies for a new franchise. Hampton's change of ownership application fee is $200,000, plus a $10,000 PIP fee, before the cost of the PIP itself.[1] - The FDD is the franchisor's document and fees change every year. Get the current FDD from the franchisor before you rely on any figure here. #### Where do hotel franchise costs come from? From the Franchise Disclosure Document, which federal rules require a franchisor to give a prospective franchisee before a sale. The Federal Trade Commission's Franchise Rule sets the contents of the FDD item by item at 16 CFR 436.5.[5] Hilton's own guide at the front of the 2026 Hampton FDD points a reader to the items that carry the money: Items 5 and 6 list the fees paid to the franchisor or at its direction, Item 7 lists the initial investment to open, and Item 19 may give information about sales, costs, profits or losses. The cover page says a prospective franchisee must receive the document at least 14 calendar days before signing a binding agreement or paying anything.[1] The term is defined at [franchise disclosure document](/glossary/franchise-fdd). The FDD is written by the franchisor. It is a disclosure, not an offer, and it is reissued every year. Every figure in this cluster is quoted from the document named in the sources, with the item and the printed page. These are neutral fee guides. They do not rank brands or recommend one. Ask the franchisor for the current FDD before you sign anything. #### What does Item 5 of a hotel FDD cover? Item 5 lists the initial fees paid to the franchisor before the hotel opens, and the conditions under which they are refundable.[5] In a hotel FDD the main Item 5 fee is the franchise application fee, and it depends on the kind of deal. Hampton's 2026 FDD charges $100,000 plus $400 per guest room over 150 for a new development or conversion, $200,000 for a change of ownership and $100,000 for re-licensing an existing franchisee. A $10,000 fee pays for Hilton to prepare the property improvement plan, or [PIP](/glossary/pip), on a conversion, change of ownership or re-licensing.[1] Item 5 also holds the brand's computer system, training and opening charges. The rule requires a franchisor whose initial fees are not uniform to disclose the range or formula for fees paid in the prior fiscal year.[5] That sentence is worth finding. Hampton's says franchisees paid application fees from $0 to $100,000 for new development or conversion and $25,000 to $200,000 for a change of ownership in 2025, which tells you the printed fee is sometimes negotiated.[1] #### What does Item 6 cover? Item 6 is the table of every other fee paid to the franchisor or its affiliates, including the formula used to compute each one.[5] For a hotel, the two large lines are the royalty and the program or marketing fee, both charged as a percentage of gross rooms revenue. In Hilton's 2026 FDDs the monthly royalty is 6 percent for Hampton and Home2 Suites, 5.5 percent for Hilton Garden Inn, Tru and Spark, and 5 percent for Tapestry Collection and DoubleTree.[1][2][3][6][7][8][9] Homewood Suites steps a new hotel's royalty from 3.5 percent in year one to 4.5 percent in year two and 5.5 percent after that.[4] Program fees run from 2.5 percent at Homewood Suites to 4 percent at Hampton.[1][4] Item 6 also carries the loyalty program charge, which Hilton bills on total eligible guest folio, not on rooms revenue: 4.6 percent at Hampton and 1.7 percent at Homewood Suites, for example.[1][4] Because the bases differ, the percentages cannot be added into one rate. Technology fees, transfer and lender comfort letter fees, and the liquidated damages formula for early termination are in the same table. Hampton's formula after the second year is the hotel's average monthly royalty fees multiplied by 60.[1] #### What does Item 7 cover, and what does it leave out? Item 7 is the franchisor's low-to-high estimate of the initial investment to open, laid out in a required table that includes a line for additional funds during the initial period.[5] Hotel Item 7 tables are built around a prototype of a stated size, which lets a reader divide by rooms. Hampton's 2026 estimate is $17,043,739 to $24,732,532 for an 89-room hotel, about $191,500 to $277,900 per room by our arithmetic.[1] Three cautions apply. First, Hilton's Item 7 totals exclude real estate, market studies, insurance and interest. Second, they do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership, so a buyer of an existing hotel cannot use them to price a PIP.[1] Third, ranges can be very wide: the Tapestry Collection estimate for 125 rooms runs from $2,861,047 to $70,253,147 because construction is shown as $0 to $45,954,000.[9] Spark by Hilton is the exception on conversions. It is offered for conversions only, and its Item 7 prices a standard 100-room conversion at $3,251,531 to $5,906,193, with mechanical, electrical, roofing, HVAC, life safety and structural work outside the estimate.[2] Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Item 17 tell a buyer or a seller? Item 17 is the table of renewal, termination, transfer and dispute resolution terms, cross-referenced to the franchise agreement.[5] Three rows matter most in a hotel deal. The term: Hampton's is generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, and Spark's conversion term is generally 10 to 15 years.[1][2] Renewal: Hilton's franchisees do not have the right to renew or extend, and a re-licensing is at Hilton's discretion on the then-current contract.[1] Transfer: a sale that changes control requires 60 days' written notice, and the buyer must qualify as a new franchisee, pay the application fee, sign the then-current [franchise agreement](/glossary/franchise-agreement) and agree to the brand's requested upgrades.[1] That last row is why a franchised hotel sale runs on the brand's calendar as well as the lender's. The seller's side is at [What is involved in selling a hotel?](/sell-a-hotel), and the buyer's side is at [How do I buy a hotel?](/buy-a-hotel). #### What can Item 19 tell me, and what can it not? Item 19 holds any financial performance representation the franchisor chooses to make, and a franchisor that makes one must have a reasonable basis and written substantiation for it.[5] Seven of the eight Hilton FDDs covered here make a representation. Hampton's reports a 2025 average room rate of $149.08, average occupancy of 71.0 percent, average RevPAR of $105.90 and an average RevPAR index of 120.8 for 1,893 comparable U.S. hotels, with the median, the range and the share of hotels that met each average.[1] Spark's reports only a RevPAR index.[2] Tapestry Collection makes no representation at all and carries the statement the rule requires in that case: "We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets."[5][9] Read what is absent. Hilton's Item 19 tables are rooms revenue measures. They contain no expenses, no profit and no return on investment, and none can be derived from them. Each one ends with Hilton's statement that individual results may differ and that there is no assurance a hotel will achieve the results shown.[1] The measures are defined at [RevPAR](/glossary/revpar). #### Is key money in the FDD? The possibility is, in Item 10. The amount is not. Item 10 discloses financing the franchisor offers.[5] Hilton's 2026 Hampton FDD says Hilton generally does not offer financing but may, in its sole discretion, offer a development incentive on a new hotel. The incentive is documented by a note, bears no interest, and does not have to be repaid unless the franchise terminates before the end of the term or the hotel is transferred. The repayable amount falls by an equal share each year, and on a sale the seller repays the balance unless Hilton lets the buyer assume the note.[1] The term is defined at [key money](/glossary/key-money). #### How do I pay for franchise fees, a PIP or a conversion? With equity and a loan sized to the hotel's income. The franchise costs sit inside the project budget your lender underwrites. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[10] Lenders do not publish their spreads or leverage limits, so the only real quote is a written one. The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). Flagged hotels on the market are listed at [Hampton Inn hotels for sale](/hotels-for-sale/hampton-inn) and [Hilton hotels for sale](/hotels-for-sale/hilton). Table: Hotel franchise costs by brand, from each brand's 2026 FDD. Hilton-family FDDs were issued March 30, 2026; the other issue dates are in the sources. Item 7 estimates cover the hotel type and room count shown, and the Hilton and Hyatt figures exclude real estate. Columns read across franchisors that define fees differently, so compare within the FDDs before relying on a row. Brand guide | Application fee: new or conversion / change of ownership | Monthly royalty | Monthly program fee | Loyalty charge | Item 7 estimate [Hampton Inn](/hotel-franchise-costs/hampton-inn) | $100,000 / $200,000[1] | 6% of gross rooms revenue[1] | 4%[1] | 4.6% of eligible folio[1] | $17,043,739 to $24,732,532, 89 rooms[1] [Hilton Garden Inn](/hotel-franchise-costs/hilton-garden-inn) | $100,000 / $200,000[6] | 5.5%[6] | 4%[6] | 3.3% of eligible folio[6] | $25,499,320 to $37,352,033, 134 rooms[6] [Home2 Suites](/hotel-franchise-costs/home2-suites) | $100,000 / $200,000[7] | 6%[7] | 3.5%[7] | 2.0% of eligible folio[7] | $18,075,688 to $26,550,592, 107 suites[7] [Homewood Suites](/hotel-franchise-costs/homewood-suites) | $100,000 / $200,000[4] | 3.5% year 1, 4.5% year 2, then 5.5%. 5.5% on a change of ownership[4] | 2.5%[4] | 1.7% of eligible folio[4] | $23,757,245 to $34,728,465, 131 suites[4] [Tru by Hilton](/hotel-franchise-costs/tru-by-hilton) | $100,000 / $150,000[8] | 5.5%[8] | 4%[8] | 2% of eligible folio[8] | $14,258,164 to $20,659,558, 98 rooms[8] [Spark by Hilton](/hotel-franchise-costs/spark-by-hilton) | $75,000 conversion / $75,000[2] | 5.5%[2] | 3.5%[2] | 2% of eligible folio[2] | $3,251,531 to $5,906,193, 100-room conversion[2] [Tapestry Collection](/hotel-franchise-costs/tapestry-collection) | $100,000 / $150,000[9] | 5%[9] | 4%[9] | 4% of eligible folio[9] | $2,861,047 to $70,253,147, 125 rooms[9] [DoubleTree](/hotel-franchise-costs/doubletree) | $85,000 / $175,000[3] | 5%[3] | 4%[3] | 4% of eligible folio[3] | $31,454,554 to $108,661,784, 225 rooms[3] [Hyatt Place](/hotel-franchise-costs/hyatt-place) | $75,000 plus $500 per room over 150 / $150,000[11] | 5%[11] | 3.5% commercial services fee[11] | World of Hyatt, 4% of eligible member revenue[11] | $23,431,820 to $29,885,898, 127 rooms, excluding real estate[11] [Comfort Inn and Comfort Suites](/hotel-franchise-costs/comfort-inn) | $500 per room, $50,000 minimum / $750 per room, $65,000 minimum[12] | 6%[12] | 3.5% marketing and reservation fee[12] | Choice Privileges, 4.5% to 5.5% of member room revenue[12] | $822,951 to $3,335,295, 80-room conversion[12] [Days Inn](/hotel-franchise-costs/days-inn) | Greater of $35,000 or $350 per room[13] | 5.5%[13] | 3.8% system assessment[13] | Wyndham Rewards, 4.25% to 5.5%[13] | $248,324 to $3,627,625, 100-room conversion[13] [Super 8](/hotel-franchise-costs/super-8) | Greater of $25,000 or $250 per room[14] | 5.5%[14] | 3% system assessment[14] | Wyndham Rewards, 4.25% to 5.5%[14] | $285,156 to $2,626,641, 100-room conversion[14] [La Quinta](/hotel-franchise-costs/la-quinta) | Greater of $55,000 or $550 per room[15] | 5.5% for 24 months, then 6%[15] | 3.5% system assessment[15] | Wyndham Rewards, 4.25% to 5.5%[15] | $1,670,705 to $7,399,531, 100-room conversion[15] [Best Western](/hotel-franchise-costs/best-western) | $4,000 evaluation fee plus $45,000 and $200 per room over 50 (membership entrance fee)[16] | 5% of property room revenue (monthly fees)[16] | 2.10% marketing and technology fees, plus per-room advertising and annual dues[16] | Best Western Rewards, 5.5% on point-earning stays[16] | $581,925 to $2,557,075, 75-room conversion[16] [Quality Inn](/hotel-franchise-costs/quality-inn) | $500 per room, $45,000 minimum / $550 per room, $45,000 minimum[17] | 5.25%[17] | 3.5% marketing and reservation fee[17] | Choice Privileges, 4.5% to 5.5% of member room revenue[17] | $332,295 to $1,859,295, 75-room conversion[17] [Sleep Inn](/hotel-franchise-costs/sleep-inn) | $300 per room, $40,000 minimum, new construction / $550 per room, $45,000 minimum[18] | 5.5%[18] | 3.5% marketing and reservation fee[18] | Choice Privileges, 4.5% to 5.5% of member room revenue[18] | $9,160,125 to $14,367,915, 84 rooms, new construction[18] [Econo Lodge](/hotel-franchise-costs/econo-lodge) | $350 per room, $35,000 minimum / $500 per room, $35,000 minimum[19] | 5.0%[19] | 3.5% marketing and reservation fee[19] | Choice Privileges, 5% of member room revenue[19] | $194,595 to $1,106,595, 68-room conversion[19] [Cambria Hotels](/hotel-franchise-costs/cambria) | $500 per room, $60,000 minimum / $750 per room, $65,000 minimum[20] | 6%[20] | 3% marketing and reservation fee[20] | Choice Privileges, 4.5% to 5.5% of member room and food and beverage revenue[20] | $16,210,100 to $33,556,222, 124 rooms, new construction[20] [WoodSpring Suites](/hotel-franchise-costs/woodspring-suites) | $50,000 up to 122 rooms / $60,000 up to 122 rooms[21] | 6.0%[21] | 2.5% marketing and reservation fee[21] | None listed in Item 6[21] | $8,835,420 to $14,566,908, 122 rooms, new construction[21] [Hyatt House](/hotel-franchise-costs/hyatt-house) | $75,000 plus $500 per room over 150 / $150,000[22] | 5%[22] | 3.5% commercial services fee[22] | World of Hyatt, 4% of eligible member revenue[22] | $26,934,987 to $33,427,565, 128 rooms, excluding real estate[22] [SureStay by Best Western](/hotel-franchise-costs/surestay) | $2,500 application fee plus $35,000 and $100 per room over 100 / then current initial fee[23] | 4%[23] | 4% sales and marketing fee[23] | Best Western Rewards, 5.5% of PRR[23] | $176,975 to $1,221,975, 60-room conversion[23] [Red Roof Inn](/hotel-franchise-costs/red-roof-inn) | $3,000 application fee plus $27,000 and $300 per room over 100 / $2,500 application fee plus $15,000 transfer fee[24] | 5%[24] | 4% marketing and reservation fee[24] | RediRewards, 4% of preferred member room revenue[24] | $264,850 to $1,596,100, 65-room conversion[24] [Motel 6](/hotel-franchise-costs/motel-6) | $5,000 application fee plus $25,000 / $5,000 application fee plus $12,500[25] | 5%[25] | 3% program fee plus 1% reservation fee[25] | None listed in Item 6[25] | $195,259 to $1,600,000, 100-room renovation[25] [Microtel by Wyndham](/hotel-franchise-costs/microtel) | Greater of $40,000 or $400 per room[26] | 6%[26] | 2% marketing and reservation contribution[26] | Wyndham Rewards, 4.25% to 5.5%[26] | $7,511,622 to $9,558,175, 81 rooms, new construction[26] First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a franchise fee, a PIP or a conversion is priced against.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what a buyer of an existing Hampton Inn pays the brand in year one): Hypothetical. A buyer closes on an existing Hampton Inn that then earns $3,000,000 of gross rooms revenue in its first year under the new franchise agreement. The revenue figure is an assumption for arithmetic, not a forecast and not a figure from the FDD. At application: a $200,000 change of ownership application fee and a $10,000 PIP fee, together $210,000.[1] If the sale does not close, Hilton refunds the application fee less a $7,500 processing fee.[1] During the year: a royalty at 6 percent, $3,000,000 x 0.06 = $180,000, and a program fee at 4 percent, $3,000,000 x 0.04 = $120,000, together $300,000.[1] Year-one total of those lines: $510,000. The PIP itself, Hilton Honors charges, technology fees, distribution charges and training come on top. The PIP is set by Hilton's inspection of the building and is not estimated in the FDD, so it is not estimated here. FAQ: - Q: How much does a Hampton Inn franchise cost? A: Hilton's 2026 Hampton FDD, issued March 30, 2026, lists a $100,000 application fee, a 6 percent royalty, a 4 percent program fee, and an estimated initial investment of $17,043,739 to $24,732,532 for an 89-room hotel, excluding real estate.[1] - Q: What percent of revenue goes to the brand? A: In Hilton's 2026 FDDs, royalty plus program fee runs from 8 percent of gross rooms revenue at Homewood Suites after year two to 10 percent at Hampton. Loyalty, technology and distribution charges are billed on other bases on top.[1][4] - Q: Does the Item 7 figure include the land? A: No. Hilton's 2026 Item 7 totals state that they do not include real estate costs, market studies, insurance or interest.[1] - Q: Does a buyer pay a franchise fee when buying an existing branded hotel? A: Yes. The buyer applies for a new franchise. Hampton's 2026 FDD lists a $200,000 change of ownership application fee and a $10,000 PIP fee, and the buyer agrees to the brand's requested upgrades.[1] - Q: Does the FDD tell me how much profit a hotel makes? A: No. Hilton's Item 19 tables report room rate, occupancy, RevPAR and RevPAR index for comparable hotels. They report no expenses or profit, and the Tapestry Collection FDD makes no performance representation at all.[1][9] - Q: Do franchise fees change? A: Yes. The FDD is reissued every year. Hilton's 2026 documents say the program fee may change at any time, up to the current rate plus 1 percent of gross rooms revenue over the term. Get the current FDD from the franchisor.[1] - Q: Can I renew a hotel franchise agreement? A: Not as of right under Hilton's 2026 FDDs. Item 17 says the franchisee has no right to renew or extend. Hilton may agree to re-license the hotel, on a contract that may differ materially and with PIP conditions.[1] Sources: - [1] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): cover page and How to Use This FDD; Item 5, pp. 15-17; Item 6, pp. 20-32; Item 7, pp. 33-36; Item 10, pp. 44-45; Item 17, pp. 69-74; Item 19, pp. 77-84 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [2] 2026 Spark by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 1, p. 6; Item 5, pp. 15-16; Item 6, pp. 20-24; Item 7, pp. 33-35; Item 17, p. 71; Item 19, pp. 80-82 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Spark.pdf - [3] 2026 DoubleTree by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 17; Item 6, pp. 23-26; Item 7, pp. 36-39 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-DoubleTree.pdf - [4] 2026 Homewood Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 15; Item 6, pp. 20-24; Item 7, pp. 34-36 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Homewood.pdf - [5] 16 CFR 436.5, Disclosure items (FTC Franchise Rule): Items 5, 6, 7, 10, 17 and 19 (Code of Federal Regulations, via Legal Information Institute, accessed 2026-09-18): https://www.law.cornell.edu/cfr/text/16/436.5 - [6] 2026 Hilton Garden Inn Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 17; Item 6, pp. 21-25; Item 7, pp. 35-37 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-HGI.pdf - [7] 2026 Home2 Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 16; Item 6, pp. 21-25; Item 7, pp. 36-37 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf - [8] 2026 Tru by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 15; Item 6, pp. 20-23; Item 7, pp. 33-34 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Tru.pdf - [9] 2026 Tapestry Collection by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 5, p. 17; Item 6, pp. 22-26; Item 7, pp. 36-38; Item 19, pp. 91-92 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Tapestry.pdf - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [11] Hyatt Place Franchise Disclosure Document, issued March 27, 2026, amended August 5, 2026 (Hyatt Franchising, L.L.C., via Wisconsin DFI (file 640505), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640505&hash=1054368882&search=external&type=GENERAL - [12] Comfort Franchise Disclosure Document, issued April 1, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 35771-202604-09), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BB0A9219E-0000-C61B-8F69-FDCF9E1C6035%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [13] Days Inn Franchise Disclosure Document, issued March 31, 2026 (Days Inns Worldwide, Inc., via Wisconsin DFI (file 640621), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640621&hash=1766667238&search=external&type=GENERAL - [14] Super 8 Franchise Disclosure Document, issued March 31, 2026 (Super 8 Worldwide, Inc., via Wisconsin DFI (file 640628), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640628&hash=1250533202&search=external&type=GENERAL - [15] La Quinta Franchise Disclosure Document, issued March 31, 2026 (La Quinta Franchising LLC, via Wisconsin DFI (file 640629), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640629&hash=1899216290&search=external&type=GENERAL - [16] Best Western 2026 Membership Disclosure Document, issued February 27, 2026 (Best Western International, Inc., via Wisconsin DFI (file 640279), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640279&hash=1862337841&search=external&type=GENERAL - [17] Quality Franchise Disclosure Document, issued April 1, 2026, as amended May 20, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 36789-202606-03), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [18] Sleep Inn Franchise Disclosure Document, issued April 1, 2026, as amended May 20, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 36798-202606-03), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B0026AD9E-0000-CD15-8AE2-0AF2F83210B2%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [19] Econo Lodge Franchise Disclosure Document, issued April 1, 2026, as amended May 20, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 36786-202606-03), accessed 2026-10-12): https://cards.web.commerce.state.mn.us/documents/%7BC00AAE9E-0000-C21E-AD4F-7B5548EBBC6A%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [20] Cambria Franchise Disclosure Document, issued April 1, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 35798-202604-03), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B40668C9D-0000-C710-B30A-B1F9EB74F462%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [21] WoodSpring Suites Franchise Disclosure Document, issued April 1, 2026, as amended May 20, 2026 (Choice Hotels International, via Minnesota Commerce CARDS (document 35788-202604-11), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B503B8D9E-0000-C31C-804D-870B9402993E%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [22] Hyatt House Franchise Disclosure Document, issued March 27, 2026, amended August 5, 2026 (Hyatt House Franchising, L.L.C., via Minnesota Commerce CARDS (document 37110-202608-04), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B1023FB9F-0000-C81F-BD9C-6AD05228A886%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [23] SureStay by Best Western Franchise Disclosure Document, issued February 27, 2026 (SureStay, Inc., via Minnesota Commerce CARDS (document 35444-202602-05), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BA012C39C-0000-CD12-A923-AFFA64F628E5%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [24] Red Roof Inn Franchise Disclosure Document, issued April 9, 2026 (Red Roof Franchising, LLC, via Minnesota Commerce CARDS (document 35927-202604-09), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BF0B2419E-0000-C118-A550-C31DCB422DD0%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [25] Motel 6 Franchise Disclosure Document, issued March 5, 2026, as amended August 1, 2026 (G6 Hospitality Franchising LLC, via Minnesota Commerce CARDS (document 37091-202608-03), accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B2024F19F-0000-C017-AE72-5946EB5949AC%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [26] Microtel Inn and Suites by Wyndham Franchise Disclosure Document, issued March 31, 2026 (Microtel Inns and Suites Franchising, Inc., via Wisconsin DFI (file 640626), accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640626&hash=1429391954&search=external&type=GENERAL ### How much does a Best Western franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/best-western Last updated: 2026-10-01 Best Western is a membership association, and its disclosure document issued February 27, 2026 prices a membership, not a standard franchise. The entrance fee for a 75-room Best Western is $54,000. Monthly fees are 5 percent of property room revenue, marketing and technology fees 2.10 percent, plus per-room dues and advertising. Item 7 estimates $581,925 to $2,557,075 to convert a 75-room hotel.[1] Key takeaways: - Entrance fee: a $4,000 evaluation fee plus an affiliation fee of $45,000 and $200 per room over 50.[1] - Monthly fees: 5 percent of property room revenue, or 3.5 percent for a member controlled by owners who were members on July 1, 2016.[1] - Marketing and technology fees: 2.10 percent of property room revenue. Advertising assessment: $16.86 per room per month.[1] - Term: 20 years, renewing automatically for 10-year terms. Membership terminates on a sale of the hotel unless it is transferred with Best Western's approval.[1] - Fees change every year. Best Western's current FDD and membership documents govern, not this page. #### Is Best Western a franchise or a membership? Best Western International, Inc. describes itself in its 2026 FDD as an Arizona nonprofit corporation that operates as a membership association and licensor, and the hotel owner signs a membership agreement as a member.[1] The FDD says Best Western began granting memberships under a franchise disclosure document in April 2020, that certain state actions have alleged its memberships are franchises, and that it neither admits nor denies those allegations (Item 1, p. 1).[1] For an owner comparing flags, the practical differences are in the fee structure and the governance. Several Best Western fees are set per room in dollars, not as a percentage of revenue, and the FDD marks some fees as subject to amendment by a majority vote of member hotels. The board's annual increase in dues is capped at the lesser of 5 percent or the prior year's consumer price inflation unless a majority of hotels vote for more (Item 6, pp. 18-19).[1] The same document covers Best Western, Best Western Plus, Best Western Premier, Executive Residency, @Home, GLo and Aiden. SureStay hotels are franchised by a subsidiary, SureStay, Inc., and the BW Premier and BW Signature collections are offered under a separate disclosure document, so this page does not cover them (Item 1, pp. 1-2).[1] The general term is defined at [franchise disclosure document](/glossary/franchise-fdd). #### What does Best Western charge up front? Best Western's 2026 Item 5 sets an entrance fee made of a non-refundable $4,000 evaluation fee plus an affiliation fee of $45,000, with $200 added for each guest room over 50, up to 1,000 rooms.[1] The FDD works the affiliation fee out as $50,000 for a 75-room Best Western, $53,000 for a 90-room Best Western Plus and $59,000 for a 120-room Best Western Premier. If the board does not approve the application, the affiliation fee is refunded. An optional $4,000 impact study fee is credited toward the affiliation fee on approval. Best Western says it accepted decreased entrance fees of $0 to $25,000 in fiscal 2025 after arm's-length negotiation (Item 5, pp. 14-17).[1] An approved new-build applicant must start construction within 12 months. Extensions come in six-month increments at $5,000 for the first and $10,000 for each later one, to a maximum of three years and $35,000. An extension of the opening date costs one quarter of the entrance fee per three months, which the FDD states as $13,500 for a 75-room Best Western. Set-up charges include $1,500 for the AutoClerk property management system, $1,500 for the two-way reservation interface, $550 for interface hardware, $2,100 to $3,500 for the managed security service, and a photography package from $1,200 (Item 5, pp. 15-17).[1] #### What are the ongoing Best Western fees? Best Western's 2026 Item 6 lists monthly fees of 5 percent of property room revenue, marketing and technology fees of 2.10 percent, an advertising assessment of $16.86 per room per month, and annual dues on a per-room scale.[1] The monthly fees are 3.5 percent, not 5 percent, for a member whose ownership is at least 50 percent held by owners who were Best Western members on July 1, 2016. Annual dues are $2,345.45 for the first 20 rooms, $78.85 per room for rooms 21 to 50, $30.66 per room for rooms 51 to 400, and $3.07 per room above 400. Property room revenue includes revenue from loyalty redemptions, guaranteed no-show revenue, and the breakfast share of a rate that includes breakfast (Item 6, pp. 18-19, 34).[1] The Best Western Rewards fee is 5.5 percent of property room revenue on stays that earn points, at 10 points per dollar and $0.0055 per point. It is 2.75 percent for Executive Residency and @Home. On a newly enrolled member's stay the fee is rebated, in full with a valid email address and at half without one, up to five nights and $500 (Item 6, pp. 20-21).[1] Distribution is charged per booking or as commission: $7.90 per global distribution system booking, $4.60 per third-party internet booking, and 10 percent of property room revenue on reservations from performance-based digital marketing. New hotels also pay $15,000 for the on-boarding program over 12 months. Property management and guest messaging support is $3.97 per room per month, the security service $130 per month, and the annual convention $949 whether or not attended (Item 6, pp. 19, 23, 25-26).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a Best Western? Best Western's 2026 Item 7 estimates $581,925 to $2,557,075 to convert a 75-room hotel to a Best Western, and $6,130,275 to $12,658,075 to build one.[1] In the 75-room conversion table, renovation work runs $0 to $677,250 and furniture, fixtures and equipment $0 to $934,500, because Best Western says an existing hotel may or may not need work to conform. The computer system is $117,250 to $118,650, and three months of additional funds $270,900 to $291,900. The tables carry no line for land or a purchase price, and the FDD says the estimates do not include debt service or lease costs (Item 7, pp. 35-37, 55-57).[1] Best Western does not state per-room totals, so none is printed here. For a 90-room Best Western Plus the estimates are $671,325 to $3,209,625 for a conversion and $7,795,575 to $15,802,375 for new construction. For a 120-room Best Western Premier they are $962,225 to $7,441,025 and $17,000,975 to $32,499,275 (Item 7, pp. 38-42).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). A design visit to create a property improvement plan is $2,650 (Item 6, p. 29).[1] The plan itself is defined at [PIP](/glossary/pip). #### How long does a Best Western membership last? The initial Best Western term starts when the hotel is activated on the reservations system and ends on the last day of the fiscal year in which the 240th month falls, and the membership agreement then renews automatically for successive 10-year terms.[1] Either party can stop the renewal by giving written notice at least 12 months before the end of the current term. The member does not sign a new membership agreement on renewal (Item 17, p. 84).[1] A member may resign from the membership. After opening, resignation or termination carries liquidated damages equal to the lesser of 48 months of average monthly fees and assessments, or those fees and assessments for the months remaining in the term, based on the prior 12 months. Before opening, the figure is $2,000 per authorized guest room. Continued use of the marks more than 15 days after the membership ends costs 15 percent of the hotel's average room rate times its total rooms, per day (Item 6, pp. 30-31; Item 17, pp. 85-86).[1] #### What happens to the Best Western membership when I sell the hotel? The Best Western membership agreement terminates on a sale or lease of the hotel or a transfer of control, unless the membership is transferred to the buyer with Best Western's prior approval.[1] To transfer a membership with a sale, the hotel must have passed its past two inspections and comply with the current design program, the seller must give the buyer the required documents, and the seller must be current on all dues, fees, assessments and conditions of membership (Item 17, pp. 85-87).[1] The transfer fee for a change of 50 percent or more of the ownership is one half of the then current entrance fee, due within 20 days of the sale. Item 7 says a new member buying a membership from an existing member pays that transfer fee in place of an entrance fee. A buyout of existing partners of 50 percent or more is one quarter of the entrance fee (Item 6, p. 27; Item 7, p. 53).[1] The FDD lists no right of first refusal and no option for Best Western to buy the hotel (Item 17, p. 87).[1] Best Western hotels on the market are listed at [Best Western hotels for sale](/hotels-for-sale/best-western), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### Does Best Western publish hotel performance in Item 19? No. Best Western's 2026 Item 19 states that it makes no representations about a member's future financial performance or the past financial performance of company-owned or member-owned hotels.[1] The FDD adds that Best Western does not authorize its employees or representatives to make such representations, and that a buyer of an existing hotel may be given that hotel's actual records (Item 19, p. 89).[1] So this page reports no occupancy, rate or revenue figures for Best Western hotels. Item 20 does report the count: 1,748 licensed and 2 company-owned hotels at the end of 2025, down from 1,768 and 2 a year earlier (Item 20, pp. 89-90).[1] Table: Best Western membership fees, 2026 Membership FDD issued February 27, 2026 Fee | Amount | Where in the FDD Evaluation fee | $4,000, non-refundable[1] | Item 5, p. 15 Affiliation fee | $45,000 plus $200 per room over 50, up to 1,000 rooms; $50,000 at 75 rooms[1] | Item 5, p. 15 Monthly fees | 5% of property room revenue; 3.5% for qualifying pre-July 2016 member ownership[1] | Item 6, p. 18 Marketing and technology fees | 2.10% of property room revenue[1] | Item 6, p. 19 Advertising assessment | $16.86 per room per month[1] | Item 6, p. 18 Annual dues | $2,345.45 for 20 rooms, plus $78.85 per room for rooms 21 to 50 and $30.66 per room for rooms 51 to 400[1] | Item 6, p. 18 Best Western Rewards fee | 5.5% of property room revenue on point-earning stays[1] | Item 6, p. 20 GDS and third-party internet booking fees | $7.90 and $4.60 per booking[1] | Item 6, p. 19 Performance-based marketing commission | 10% of property room revenue on reservations from a digital opportunity[1] | Item 6, p. 19 Property management and guest messaging support | $3.97 per room per month[1] | Item 6, p. 23 On-boarding program, new hotels | $15,000, billed over 12 months[1] | Item 6, p. 25 Transfer fee, 50% or more change of ownership | One half of the then current entrance fee[1] | Item 6, p. 27 Design visit, including to create a PIP | $2,650[1] | Item 6, p. 29 Liquidated damages, after opening | Lesser of 48 months of average monthly fees and assessments, or the months remaining in the term[1] | Item 6, pp. 30-31 Estimated initial investment, 75-room Best Western conversion | $581,925 to $2,557,075[1] | Item 7, p. 37 Estimated initial investment, new 75-room Best Western | $6,130,275 to $12,658,075[1] | Item 7, p. 36 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an entrance fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Best Western fees on assumed room revenue): Hypothetical. Assume a 75-room Best Western earns $2,000,000 of property room revenue in a year. The revenue figure and the loyalty share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Monthly fees at 5 percent: $2,000,000 x 0.05 = $100,000.[1] Marketing and technology fees at 2.10 percent: $2,000,000 x 0.021 = $42,000.[1] Advertising assessment: $16.86 x 75 rooms x 12 months = $15,174.[1] Annual dues: $2,345.45 + (30 x $78.85) + (25 x $30.66) = $2,345.45 + $2,365.50 + $766.50 = $5,477.45.[1] Together: $162,651.45, or about 8.13 percent of room revenue. At the 3.5 percent monthly fee rate the first line would be $70,000. If $600,000 of that revenue is on stays that earn Best Western Rewards points, the 5.5 percent rewards fee is $33,000.[1] Booking fees, commissions, technology support, training and convention charges come on top and depend on the hotel, so they are not estimated here. FAQ: - Q: How much does a Best Western franchise cost? A: For a 75-room hotel, the 2026 FDD lists a $54,000 entrance fee, monthly fees of 5 percent of room revenue, marketing and technology fees of 2.10 percent, and per-room dues and advertising. Item 7 estimates $581,925 to $2,557,075 for a conversion.[1] - Q: Is Best Western a franchise? A: Best Western's FDD describes it as an Arizona nonprofit membership association and licensor. Owners sign a membership agreement. The FDD notes that certain state actions have alleged the memberships are franchises, which Best Western neither admits nor denies.[1] - Q: I'm buying a Best Western. Does the membership come with the hotel? A: Not automatically. The membership agreement terminates on a sale unless Best Western approves a transfer. The hotel must have passed its past two inspections, and the transfer fee is one half of the then current entrance fee.[1] - Q: How long is a Best Western agreement? A: About 20 years from activation on the reservations system, then automatic 10-year renewals unless either party gives 12 months' written notice. No new agreement is signed on renewal.[1] - Q: What does it cost to leave Best Western early? A: After opening, the lesser of 48 months of average monthly fees and assessments, or those fees for the months remaining in the term. Before opening, $2,000 per authorized guest room.[1] - Q: Does Best Western disclose what its hotels earn? A: No. The 2026 Item 19 states that Best Western makes no financial performance representations. A buyer of an existing hotel may be given that hotel's actual records.[1] - Q: Will these Best Western fees be the same next year? A: Not necessarily. The FDD says its Item 6 fees apply to fiscal year 2026 and that fees, dues and assessments are subject to change, some only within stated caps or by member vote. The current documents govern.[1] Sources: - [1] Best Western International, Inc. 2026 Membership Franchise Disclosure Document (issued February 27, 2026): Item 1, pp. 1-2; Item 5, pp. 14-17; Item 6, pp. 18-34; Item 7, pp. 35-57; Item 17, pp. 84-88; Item 19, p. 89; Item 20, pp. 89-90. Wisconsin DFI franchise registration file 640279 (Best Western International, Inc., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640279&hash=1862337841&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Cambria Hotels franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/cambria Last updated: 2026-10-01 Choice Hotels' Cambria disclosure document, issued April 1, 2026, estimates $16,210,100 to $33,556,222 to build a 124-room Cambria hotel, before real estate. The affiliation fee is $500 per room with a $60,000 minimum. The royalty is 6 percent and the marketing and reservation fee 3 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $500 per room, $60,000 minimum, for a new franchise. $750 per room, $65,000 minimum, for a transfer or renewal.[1] - Royalty: 6 percent of gross room revenues. Marketing and reservation fee: 3 percent.[1] - Item 7: $16,210,100 to $33,556,222 for 124 rooms, or $130,727 to $270,615 per room, excluding real estate.[1] - Term: 20 years, no renewal provision, and no anniversary termination windows for either side.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What is different about the Cambria FDD? Cambria is the upscale brand in Choice's 2026 filings, and its FDD departs from the Choice template on exit rights: Item 17 gives neither side a termination window, and liquidated damages can run to 60 months.[1] Choice's Quality FDD of the same season gives the franchisee and Choice a right to terminate on the 5th, 10th or 15th anniversary, and caps liquidated damages at 36 months at $70 per room per month.[3] The Cambria Item 17 lists franchisee termination only for Choice's uncured default, marks termination by Choice without cause as not applicable, and adds a right of first refusal for Choice on a sale. The Cambria damages formula uses $100 per room per month and a 60-month cap (Item 6, p. 42; Item 17, pp. 77-78).[1] The fee mix differs too. The royalty is 6 percent against Quality's 5.25 percent, the marketing and reservation fee is 3 percent against 3.5 percent, and ChoiceROCS revenue management service is mandatory for at least the first 12 months.[1][3] Eleven of the 76 open Cambria hotels at December 31, 2025 were owned by Choice itself (Item 19, p. 82).[1] The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs). #### What does Choice charge up front for a Cambria franchise? The 2026 Cambria FDD lists an affiliation fee of $500 per room with a $60,000 minimum for a new franchise, and $750 per room with a $65,000 minimum for a transfer or renewal.[1] The fee is due no later than signing and is non-refundable once Choice signs. If Choice does not grant the franchise, it refunds the affiliation fee. Choice states that affiliation fees on new Cambria agreements in the 12 months ending December 31, 2025 ranged between $5,000 and $87,000 (Item 5, p. 27).[1] The mandatory Brand in a Box program costs about $26,750 to $41,250 and covers the choiceADVANTAGE property management system license, its hardware and other pre-opening items. A food and beverage opening support fee of $8,500 to $20,000 may apply. Changing a confirmed opening date within two weeks costs $2,500 plus travel. Training is $2,450 per attendee for the three-day Upscale Immersion Program, $1,395 for the general manager's HOST certification and $1,600 for the director of sales workshop. An extension of the construction deadline is $5,000 per three months (Item 5, pp. 27-29).[1] #### What are the ongoing Cambria franchise fees? Choice's 2026 Item 6 lists a 6 percent royalty and a 3 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 29-30, 42).[1] The Choice Privileges fee is 4.5 to 5.5 percent of room revenue and food and beverage revenue from rewards members. Choice Accelerate is 3 percent of gross room revenue from stays booked through direct online channels. Third-party distribution is $3.00 per consumed reservation, and global distribution system reservations are currently $7.70 each. The ResConnect call program is optional at 3.0 percent of the gross room revenue its team books (Item 6, pp. 30-32, 39).[1] The property technology and service fee is $6.60 per room per month, with a $600 minimum and a $1,200 maximum. ChoiceROCS revenue management service is mandatory for at least the first 12 months at $1,340 to $1,900 per month, and a revenue management system, either ChoiceMAX or IDeaS G3, is mandatory with a set-up fee of up to $4,500 (Item 6, pp. 34-35).[1] A note to Item 7 adds that Choice requires up to 5 percent of monthly gross room revenues to be placed in escrow for furniture, fixtures and equipment (Item 7, p. 47).[1] The reserve concept is defined at [FF&E reserve](/glossary/ffe-reserve). These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to build a Cambria hotel? Choice's 2026 Item 7 estimates $16,210,100 to $33,556,222 for a 124-room Cambria, which Choice states as $130,727 to $270,615 per room.[1] Construction is the largest line at $12,560,205 to $24,395,018. Choice bases it on wood frame construction, and includes general contractor overhead and profit of 10 percent and sitework of $800,000 to $900,000. Furniture, fixtures and equipment run $2,168,400 to $6,240,000, opening supplies and equipment $334,750 to $424,360, and professional design services $350,000 to $800,000. Working capital before opening is $275,000 to $425,000, and additional funds for the first three months are $100,000 to $175,000 (Item 7, pp. 44-47).[1] The table excludes the cost of buying or leasing real estate. For an existing hotel, Choice says it is unable to estimate the initial investment because it depends on the hotel's condition and the upgrades needed (Item 7, p. 46).[1] Financing for a build is covered at [hotel construction loans](/hotel-financing/construction-loans), and conversion work at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is a Cambria franchise agreement, and can I get out early? The Cambria franchise term is 20 years from the opening date, with no renewal provision and no scheduled termination windows.[1] Item 17 lets the franchisee terminate only if Choice is in default of material obligations and fails to cure within 60 days of written notice. Termination by Choice without cause is listed as not applicable. For a replacement agreement on an existing Cambria, Choice may offer a term shorter than 20 years (Item 17, p. 77).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $100 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next date the franchisee could terminate without penalty, capped at 60 months. Before opening, the amount is the room count times 60 months times $100. Continued use of the marks after termination costs $2,500 per day (Item 6, p. 42).[1] #### What happens to the Cambria franchise when I sell the hotel? Choice holds a right of first refusal: the owner must give 90 days' notice of any good faith offer, and Choice may buy the hotel on the same terms.[1] If Choice does not exercise that right, a buyer of a controlling interest must meet Choice's qualifications, sign the then current franchise agreement and pay a relicensing fee equal to the then current affiliation fee. Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $65,000, whichever is greater. The buyer also pays a $3,000 property improvement plan fee and $995 for relicensing training. A transfer of less than 50 percent carries a $7,500 assumption fee (Item 5, pp. 27, 29; Item 6, p. 37; Item 17, p. 78).[1] A lender [comfort letter](/glossary/comfort-letter) is $2,500, plus $500 if needed within one to three days (Item 6, p. 37).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Choice's Item 19 say about Cambria performance? Choice's 2026 Item 19 reports that 51 franchised Cambria hotels in its performance sample averaged 67.5 percent occupancy, a $167.57 average daily rate and $113.12 RevPAR in 2025.[1] There were 76 open Cambria hotels in the United States at December 31, 2025: 65 owned by franchisees and eleven owned by Choice. The sample is the 51 franchised hotels operating on or before January 1, 2025, excluding hotels that repositioned from another Choice brand, had incomplete data, were interrupted for more than 30 consecutive days, or were developed before January 1, 2013 under a different prototype. The median RevPAR was $96.24, the range was $63.34 to $251.38, and 16 hotels, or 31.4 percent, met or exceeded the average (Item 19, p. 82).[1] Choice also reports an average total Choice proprietary contribution of 51.9 percent of gross room revenues and an average Choice Privileges contribution of 50.8 percent. The Cambria proprietary figure excludes online travel agent bookings (Item 19, pp. 83-84).[1] Choice states that the figures come from information franchisees provided, and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 84).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Cambria Hotels franchise fees, 2026 FDD issued April 1, 2026 Fee | Amount | Where in the FDD Affiliation fee, new franchise | $500 per room, $60,000 minimum[1] | Item 5, p. 27 Affiliation fee, transfer or renewal | $750 per room, $65,000 minimum[1] | Item 5, p. 27 Royalty fee | 6% of gross room revenues[1] | Item 6, p. 29 Marketing and reservation fee | 3% of gross room revenues[1] | Item 6, p. 30 Choice Privileges rewards program fee | 4.5% to 5.5% of room revenue and food and beverage revenue from rewards members[1] | Item 6, p. 30 Choice Accelerate (direct online bookings) | 3% of gross room revenue from stays booked through direct online channels[1] | Item 6, p. 31 Third-party distribution and GDS | $3.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 31-32 Property technology and service fee | $6.60 per room per month, $600 minimum, $1,200 maximum[1] | Item 6, p. 34 ChoiceROCS revenue management (mandatory, first 12 months) | $1,340 to $1,900 per month[1] | Item 6, p. 35 Brand in a Box (pre-opening) | About $26,750 to $41,250[1] | Item 5, p. 28 Transfer fee, 50% or more of equity | Then current affiliation fee or $65,000, whichever is greater[1] | Item 6, p. 37 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 37 Liquidated damages, after opening | Greater of $100 per room per month or average monthly gross room revenues times the royalty, times months to the next penalty-free termination date, up to 60[1] | Item 6, p. 42 Estimated initial investment, new 124-room hotel | $16,210,100 to $33,556,222; $130,727 to $270,615 per room, excluding real estate[1] | Item 7, p. 46 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and SOFR at 3.90% on September 30, 2026, the indexes a construction loan or an acquisition loan for a franchised hotel is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Cambria brand fees on assumed room revenue): Hypothetical. Assume a 124-room Cambria earns $5,000,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Affiliation fee at signing: 124 rooms x $500 = $62,000, which is over the $60,000 minimum.[1] Royalty fee at 6 percent: $5,000,000 x 0.06 = $300,000.[1] Marketing and reservation fee at 3 percent: $5,000,000 x 0.03 = $150,000.[1] Together: $450,000, or 9 percent of room revenue. Property technology and service fee: 124 rooms x $6.60 = $818.40 per month, inside the $600 to $1,200 band, or $9,820.80 for the year.[1] If $2,000,000 of revenue comes from Choice Privileges members, the rewards program fee at 4.5 to 5.5 percent is $90,000 to $110,000.[1] On the same assumptions, at the 60-month cap, the revenue side of the liquidated damages formula is $5,000,000 / 12 x 0.06 x 60 = $1,500,000. That is more than $100 x 124 rooms x 60 months = $744,000, so $1,500,000 would apply.[1] Revenue management fees, Choice Accelerate, per-reservation charges, commissions and training come on top, so they are not estimated here. FAQ: - Q: How much does a Cambria Hotels franchise cost? A: Choice's 2026 FDD lists a $500 per room affiliation fee with a $60,000 minimum, a 6 percent royalty and a 3 percent marketing and reservation fee. Item 7 estimates $16,210,100 to $33,556,222 to build 124 rooms, before real estate.[1] - Q: How much does it cost per room to build a Cambria? A: Choice's 2026 Item 7 states $130,727 to $270,615 per room for a 124-room wood frame hotel. That includes about $800,000 to $900,000 of sitework and excludes land.[1] - Q: Can I terminate a Cambria franchise early? A: Not on a schedule. The 2026 Item 17 lets the franchisee terminate only for Choice's uncured material default. Liquidated damages for a default termination can run up to 60 months.[1] - Q: Does Choice have a right to buy my Cambria if I sell? A: Yes. Item 17 gives Choice a right of first refusal. The owner must give 90 days' notice of any good faith offer, and Choice may purchase the hotel on the same terms.[1] - Q: I'm buying a Cambria. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $65,000, whichever is greater. The transfer rate is $750 per room. Add a $3,000 property improvement plan fee and $995 for relicensing training.[1] - Q: Does the Cambria FDD say what a Cambria earns? A: Item 19 reports 2025 occupancy, average daily rate, RevPAR and contribution percentages for 51 franchised hotels. It gives no expenses and no profit.[1] - Q: Will these Cambria fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] Cambria Franchise Disclosure Document (issued April 1, 2026): Item 5, pp. 26-29; Item 6, pp. 29-43; Item 7, pp. 44-48; Item 17, pp. 77-81; Item 19, pp. 81-85. Minnesota CARDS document 35798-202604-03, file number 11647, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B40668C9D-0000-C710-B30A-B1F9EB74F462%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Quality Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 6, pp. 27-28, 40; Item 17, p. 72. Minnesota CARDS document 36789-202606-03, file number 48, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 ### How much does a Comfort Inn or Comfort Suites franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/comfort-inn Last updated: 2026-10-01 Choice Hotels' Comfort disclosure document, issued April 1, 2026, estimates $822,951 to $3,335,295 to convert an 80-room hotel to a Comfort Inn or Comfort Suites, and $10,318,405 to $16,302,115 to build an 89-room Comfort Inn, both before real estate. The affiliation fee is $500 per room with a $50,000 minimum. The royalty is 6 percent and the marketing and reservation fee 3.5 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $500 per room, $50,000 minimum, for a new franchise. $750 per room, $65,000 minimum, for a transfer or renewal.[1] - Royalty: 6.0 percent of gross room revenues. Marketing and reservation fee: 3.5 percent.[1] - Choice Privileges fee: 4.5 to 5.5 percent of room revenue from rewards members.[1] - Term: 20 years with no renewal provision. Either side may terminate on set anniversaries with 12 months' notice.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What does Choice charge up front for a Comfort franchise? Choice's 2026 Comfort FDD lists an affiliation fee of $500 per room with a $50,000 minimum for a new franchise, and $750 per room with a $65,000 minimum for a transfer or renewal.[1] A non-refundable $5,000 application fee is credited toward the affiliation fee. If Choice does not grant the franchise, it refunds the affiliation fee less that $5,000. Choice states that affiliation fees in the 12 months ending December 31, 2025 ranged from $0 to $75,000, and that it has reduced the fee for multi-unit owners, larger properties and owners leaving other chains, without any obligation to do so (Item 5, pp. 22-23).[1] The mandatory Brand in a Box program costs about $15,150 to $30,000 and covers the choiceADVANTAGE property management system license, its hardware and other pre-opening items. Required training runs $3,345 to $5,295 per person before travel. An extension of the construction or renovation deadline is $5,000 per three months. A waiver from the approved interior design schemes is $20,000, and a non-prototype building design review is another $20,000, payable whether or not the waiver is granted (Item 5, pp. 23-24).[1] #### What are the ongoing Comfort Inn franchise fees? Choice's 2026 Item 6 lists a 6.0 percent royalty and a 3.5 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] Gross room revenues include sleeping rooms, meeting rooms and banquet rooms, guaranteed no-show revenue, early departure and late checkout fees, and business interruption proceeds. Food and beverage sales and taxes are excluded. Choice may raise the marketing and reservation fee for inflation or cost increases if the increase applies to all or most of its U.S. hotels. The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 25, 38-39).[1] Loyalty and distribution charges sit on other bases. The Choice Privileges fee is 4.5 to 5.5 percent of room revenue from rewards members, varying with the hotel's enrollment performance. Choice Accelerate is 3 percent of gross room revenue from stays booked through direct online channels. Third-party distribution is $4.00 per consumed reservation from directly connected online travel agents, and global distribution system reservations are currently $7.70 each (Item 6, pp. 26-28).[1] Technology and revenue management are mandatory. The property technology and service fee is $10.10 per room per month, with a $650 minimum and a $950 maximum. ChoiceROCS revenue management runs $970 to $1,900 per month, bundled with the ChoiceMAX pricing software at $400 to $525 per month, and ChoiceMAX set-up is $2,500 (Item 6, pp. 29-31).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a Comfort Inn? Choice's 2026 Item 7 estimates $822,951 to $3,335,295 to convert an 80-room hotel to a Comfort brand, which Choice states as $10,287 to $41,691 per room.[1] Property improvements are the largest conversion line at $600,000 to $2,411,000. Choice bases that on a typical property improvement plan and says it excludes deferred maintenance such as the parking lot, HVAC and exterior, and excludes the labor for the improvements. Choice issues a customized plan on application and says actual costs may fall outside the range (Item 7, pp. 39-41).[1] For new construction, Choice estimates $10,318,405 to $16,302,115 for an 89-room Comfort Inn or Comfort Inn and Suites, or $115,937 to $183,170 per room, and $11,478,095 to $18,328,875 for an 89-room Comfort Suites, or $128,967 to $205,942 per room. Both exclude real estate, sitework, general conditions and general contractor fees (Item 7, pp. 42-48).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a Comfort Inn franchise agreement, and can I get out early? The Comfort franchise term is 20 years from the opening date, the FDD lists no renewal provision, and both parties hold termination rights on set anniversaries.[1] For a hotel that is not newly built, either the franchisee or Choice may terminate on the 5th, 10th and 15th anniversaries of the opening date. For a newly built hotel the windows are the 10th and 15th anniversaries. Either side must give at least 12 months' written notice, and the franchisee must keep paying all fees through the end. An owner who takes Choice's developer incentive waives the 5th anniversary window unless the incentive note is a five-year note, and Choice waives its own in the same case. For a replacement agreement on an existing Comfort hotel, Choice may offer a term shorter than 20 years (Item 17, pp. 77-78).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $85 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next penalty-free termination date, capped at 36 months. Before opening, the amount is the room count times 36 months times $85. Continued use of the marks after termination costs $2,500 per day (Item 6, p. 38).[1] #### What happens to the Comfort franchise when I sell the hotel? Choice must approve any transfer of more than 5 percent of the ownership, and a buyer of a controlling interest signs Choice's then current franchise agreement and pays a relicensing fee.[1] Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $65,000, whichever is greater. The buyer also pays a $3,000 property improvement plan fee for the inspection and the plan that is written into the buyer's agreement, $995 for relicensing training, and a $500 property management system database clean-up fee. A transfer of less than 50 percent carries a $7,500 assumption fee and a $3,000 change of ownership fee. A transfer to a close family member on death or disability carries an application fee of up to $7,500 (Item 5, p. 23; Item 6, pp. 29, 32-33; Item 17, p. 79).[1] The buyer must meet Choice's qualifications for new franchisees, and the hotel must meet the then current brand image and standards (Item 17, p. 79).[1] A lender comfort letter is $2,500, plus $500 if needed within one to three days (Item 6, p. 32).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Choice's Item 19 say about Comfort hotel performance? Choice's 2026 Item 19 reports that 1,581 Comfort hotels in its performance sample averaged 59.7 percent occupancy, a $107.62 average daily rate and $64.28 RevPAR in 2025.[1] There were 1,643 open Comfort hotels in the United States at December 31, 2025, all franchised. The performance sample is the 1,581 that were operating on or before January 1, 2025, excluding hotels that repositioned from another Choice brand during 2025, had at least 30 days of incomplete data, or were interrupted for more than 30 consecutive days. The median RevPAR was $62.63, the range was $17.80 to $239.88, and 731 hotels, or 46.2 percent, met or exceeded the average (Item 19, pp. 82-83).[1] By brand, 1,042 Comfort Inn and Comfort Inn and Suites hotels averaged $63.12 RevPAR, and 539 Comfort Suites averaged $66.53. Choice also reports an average total Choice enterprise contribution of 81.3 percent of gross room revenues and an average Choice Privileges contribution of 51.8 percent. The enterprise figure counts online travel agent bookings made through Choice's negotiated relationships (Item 19, pp. 83-86).[1] Choice states that the figures come from information franchisees provided, and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 86).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Comfort Inn, Comfort Inn and Suites and Comfort Suites franchise fees, 2026 FDD issued April 1, 2026 Fee | Amount | Where in the FDD Affiliation fee, new franchise | $500 per room, $50,000 minimum; $5,000 application fee credited toward it[1] | Item 5, pp. 22-23 Affiliation fee, transfer or renewal | $750 per room, $65,000 minimum[1] | Item 5, p. 22 Royalty fee | 6.0% of gross room revenues[1] | Item 6, p. 25 Marketing and reservation fee | 3.5% of gross room revenues[1] | Item 6, p. 25 Choice Privileges rewards program fee | 4.5% to 5.5% of room revenue from rewards members[1] | Item 6, p. 26 Choice Accelerate (direct online bookings) | 3% of gross room revenue from stays booked through direct online channels[1] | Item 6, p. 26 Third-party distribution and GDS | $4.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 27-28 Property technology and service fee | $10.10 per room per month, $650 minimum, $950 maximum[1] | Item 6, p. 29 Revenue management (mandatory) | ChoiceROCS $970 to $1,900 per month; ChoiceMAX $400 to $525 per month, bundled[1] | Item 6, p. 30 Transfer fee, 50% or more of equity | Then current affiliation fee or $65,000, whichever is greater[1] | Item 6, p. 33 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 32 Liquidated damages, after opening | Greater of $85 per room per month or average monthly gross room revenues times the royalty, times months to the next termination window, up to 36[1] | Item 6, p. 38 Estimated initial investment, 80-room conversion | $822,951 to $3,335,295; $10,287 to $41,691 per room, excluding real estate[1] | Item 7, p. 41 Estimated initial investment, new 89-room Comfort Inn | $10,318,405 to $16,302,115; $115,937 to $183,170 per room, excluding real estate[1] | Item 7, p. 44 Estimated initial investment, new 89-room Comfort Suites | $11,478,095 to $18,328,875; $128,967 to $205,942 per room, excluding real estate[1] | Item 7, p. 48 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an affiliation fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Comfort brand fees on assumed room revenue): Hypothetical. Assume an 80-room Comfort Inn earns $2,500,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty fee at 6.0 percent: $2,500,000 x 0.06 = $150,000.[1] Marketing and reservation fee at 3.5 percent: $2,500,000 x 0.035 = $87,500.[1] Together: $237,500, or 9.5 percent of room revenue. Property technology and service fee: 80 rooms x $10.10 = $808 per month, inside the $650 to $950 band, or $9,696 for the year.[1] If $1,000,000 of that revenue comes from Choice Privileges members, the rewards program fee at 4.5 to 5.5 percent is $45,000 to $55,000.[1] Revenue management fees, Choice Accelerate, per-reservation charges, commissions and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Comfort Inn franchise cost? A: Choice's 2026 FDD lists a $500 per room affiliation fee with a $50,000 minimum, a 6 percent royalty and a 3.5 percent marketing and reservation fee. Item 7 estimates $822,951 to $3,335,295 to convert an 80-room hotel, before real estate.[1] - Q: Is Comfort Suites more expensive to build than Comfort Inn? A: On Choice's 2026 estimates, yes. An 89-room Comfort Suites is $11,478,095 to $18,328,875, against $10,318,405 to $16,302,115 for an 89-room Comfort Inn. Both exclude real estate and sitework.[1] - Q: What percent of revenue does Choice Hotels take from a Comfort Inn? A: Six percent royalty plus 3.5 percent marketing and reservation fee on gross room revenues. Choice Privileges, Choice Accelerate, technology, revenue management and per-reservation charges are billed on other bases on top.[1] - Q: Can I leave Choice Hotels before the 20 years are up? A: The 2026 FDD gives a conversion hotel termination windows on the 5th, 10th and 15th anniversaries of opening, with 12 months' written notice. A new build has the 10th and 15th. Choice holds the same rights.[1] - Q: I'm buying a Comfort Inn. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $65,000, whichever is greater, plus a $3,000 property improvement plan fee and $995 for relicensing training. The buyer signs Choice's then current agreement.[1] - Q: Does the Comfort Inn conversion estimate include the whole renovation? A: No. Choice says its $600,000 to $2,411,000 property improvements line excludes deferred maintenance such as the parking lot, HVAC and exterior, and excludes labor. The customized plan comes on application.[1] - Q: Will these Comfort Inn fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] Comfort Inn, Comfort Inn and Suites and Comfort Suites Franchise Disclosure Document (issued April 1, 2026): Item 5, pp. 22-25; Item 6, pp. 25-39; Item 7, pp. 39-50; Item 17, pp. 77-80; Item 19, pp. 82-87. Minnesota CARDS document 35771-202604-09, file number 3577, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BB0A9219E-0000-C61B-8F69-FDCF9E1C6035%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Days Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/days-inn Last updated: 2026-10-01 Wyndham's Days Inn disclosure document, issued March 31, 2026, estimates $248,324 to $3,627,625 to convert a 100-room hotel the owner already holds, and $8,128,742 to $10,088,760 to build an 89-room Days Inn, before land. The initial fee is the greater of $35,000 or $350 per room. The royalty is 5.5 percent and the system assessment fee 3.8 percent of gross room revenues.[1] Key takeaways: - Initial fee: the greater of $35,000 or $350 per guest room, with a $2,500 application fee credited toward it.[1] - Royalty: 5.5 percent of gross room revenues. System assessment fee: 3.8 percent.[1] - Wyndham Rewards loyalty charge: 4.25 to 5.5 percent of the amounts on which members earn points.[1] - Term: 20 years for new construction and 15 years for conversions and transfers, with no renewal right.[1] - Fees change every year. Wyndham's current FDD and the signed franchise agreement govern, not this page. #### What does Wyndham charge up front for a Days Inn franchise? The 2026 Days Inn FDD lists an initial fee equal to the greater of $35,000 or $350 per guest room for a new construction or conversion hotel, with a non-refundable $2,500 application fee credited toward it.[1] The franchisor states that initial fees in 2025 ranged from $10,000 to $21,870, and that it may negotiate the amount and payment terms when business circumstances warrant. It may also defer part of the fee under an initial fee note (Item 5, pp. 30-31).[1] Technology set-up comes next. The SynXis property management system carries a one-time $6,000 set-up and implementation fee. The OPERA alternative runs $11,000 to $22,100 plus interfaces. The Wyndham Gateway internet portal equipment is $1,500. Temporary signage for a conversion that opens before its permanent sign is $1,250, a custom interior design review is up to $6,000, and an extension of the opening deadline is $5,000 (Item 5, pp. 31-32).[1] #### What are the ongoing Days Inn franchise fees? The 2026 Days Inn Item 6 lists a 5.5 percent royalty and a 3.8 percent system assessment fee, both on gross room revenues and due monthly.[1] Gross room revenues are revenues from guest room rentals, including guaranteed no-show revenue and business interruption proceeds, and excluding food and beverage and sales, occupancy and use taxes. The system assessment fee can change on 30 days' notice after consultation with the franchisee advisory committee. The franchisor may also raise any fixed-dollar fee by up to 10 percent a year, cumulatively (Item 6, pp. 32-33, 44).[1] The Wyndham Rewards loyalty program charge is 4.25 to 5.5 percent of the amounts on which members earn points, varying with the hotel's enrollment results. A missed enrollment fee is currently $750 per quarter (Item 6, p. 39).[1] Distribution is charged per booking or as commission. Global distribution, third-party channel and internet booking fees are each $2.08 per reservation. The mandatory digital pay-for-performance commission is currently 7 percent, and can be up to 10 percent, of gross room revenues on reservations that arrive through paid search and similar links. The mandatory Wyndham Connect Plus service is 3.5 percent of gross room revenues on each reservation it books. Agency commissions can reach 20 percent on qualifying reservations (Item 6, pp. 35-38).[1] Property management system support is $734 to $1,050 per month by room count. Revenue management service is optional at Days Inn, at 0.75 percent of gross room revenues for the standard level, with a $645 monthly minimum and a $1,395 maximum (Item 6, pp. 38, 40).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a Days Inn? The 2026 Days Inn Item 7 estimates $248,324 to $3,627,625 for a 100-room conversion, which the FDD states as $2,483 to $36,276 per room and which assumes the owner already owns the hotel.[1] The width of that range is the building. Facility improvements run from $0, where the exterior, public areas, guest rooms and mechanical systems already meet standards, to $1,985,000 where the hotel needs extensive structural renovation. Furniture, fixtures and equipment run $16,614 to $522,034, and a conversion contingency is set at 5 percent of facility improvements (Item 7, pp. 50-53).[1] For new construction, the FDD estimates $8,128,742 to $10,088,760 for an 89-room Days Inn, or $91,334 to $113,357 per room, excluding the cost of buying or leasing real estate. The franchisor says actual spending depends on region, labor costs and timetable and may fall outside the ranges (Item 7, pp. 46-48).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a Days Inn franchise agreement, and can I renew? The Days Inn term is 20 years for a new construction hotel and 15 years for a conversion or a transfer, starting the first day of the month after opening, and Item 17 states there are no renewal or extension rights.[1] If both sides choose to renew, the franchisee signs the then current franchise agreement, which may have materially different terms, and pays the then current relicense fee, which uses the same formula as the initial fee. The FDD reports that 2025 relicense fees for renewals ranged from $21,000 to $35,000 (Item 5, p. 30; Item 17, p. 82).[1] The franchisee's termination rights in Item 17 are limited to casualty and condemnation (Item 17, pp. 82-83).[1] Separately, a footnote to Item 6 describes a current policy that lets an owner terminate without liquidated damages on 60 to 90 days' notice if, among other conditions, the hotel has been in the system at least two years, its occupancy was below 50 percent and at least 10 points under the Smith Travel Research scale tract occupancy for the prior 12 months, its quality and guest scores met set thresholds for two years, and all fees were paid on time (Item 6, pp. 45-46).[1] The FDD calls this a policy the franchisor currently permits, so confirm it is in the agreement you sign. #### What does it cost to leave the Days Inn system early? Days Inn liquidated damages are the greater of $2,000 per guest room or 24 times the average monthly royalties and system assessment fees for the 12 months before termination.[1] If fewer than 24 months remain in the term, the amount is that monthly average times the months remaining. Termination before opening is charged at one half of the formula amount. The room count is the number the franchisor authorized, regardless of later reductions. Payment is due within 10 days. An owner who does not de-identify the hotel afterward owes $2,000 per day. Reconnecting to the reservation system after a suspension for default is currently $4,000 (Item 6, pp. 42-44, 46).[1] #### What happens to the Days Inn franchise when I sell the hotel? The franchisor approves all transfers and qualifies every buyer in its sole discretion, and the buyer pays the application fee and a relicense fee equal to the greater of $35,000 or $350 per room.[1] The buyer signs the then current franchise agreement and must improve the hotel to the standards for conversion hotels entering the system. The seller and its owners sign general releases unless the law restricts them, and the seller may have to repay a development incentive unless the buyer assumes it. The FDD reports that 2025 relicense fees on transfers ranged from $15,000 to $35,000. An assignment to an affiliate of the original franchisee is a flat $5,000, and an assignment to a lender or receiver is $7,500 (Item 5, pp. 30-31; Item 6, p. 33; Item 17, pp. 84-85).[1] A property improvement plan prepared after opening is currently $1,500 per request, a lender comfort letter is $1,000, and taking over an existing property management system without an upgrade is $995 (Item 5, p. 31; Item 6, pp. 34, 43).[1] Wyndham-flagged hotels on the market are listed at [Wyndham hotels for sale](/hotels-for-sale/wyndham), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about Days Inn performance? The 2026 Days Inn Item 19 reports that 498 qualified Days Inn hotels averaged an $89.33 average daily rate, 52.5 percent occupancy and $46.86 RevPAR in 2025.[1] There were 1,201 Days Inn hotels in the United States at December 31, 2025. The 498 qualified hotels are those that opened before January 1, 2025, passed their most recent quality assurance inspection or had not yet had one, and had at least ten guest reviews averaging 3.0 or better out of 5.0. Hotels that left the system during 2025, 73 in all, are excluded. The median RevPAR was $43.06, and 211 of the 498, or 42.4 percent, met or exceeded the average (Item 19, pp. 87-88).[1] The FDD reports an average competitive set RevPAR index of 109.0 percent for the qualified hotels, from Smith Travel Research data the franchisor says it has not audited or verified. For all 1,201 hotels it reports an average central reservation system contribution of 81.5 percent of gross room revenue, of which Wyndham Rewards members account for 53.7 percent. The central reservation figure includes third-party websites (Item 19, pp. 88-90).[1] Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Days Inn by Wyndham franchise fees, 2026 FDD issued March 31, 2026 Fee | Amount | Where in the FDD Application fee | $2,500, non-refundable, credited toward the initial fee[1] | Item 5, p. 30 Initial fee, new construction or conversion | Greater of $35,000 or $350 per guest room[1] | Item 5, p. 30 Relicense fee, transfer or renewal | Greater of $35,000 or $350 per guest room[1] | Item 5, p. 30; Item 6, p. 33 Royalty | 5.5% of gross room revenues[1] | Item 6, p. 32 System assessment fee (marketing and reservations) | 3.8% of gross room revenues[1] | Item 6, p. 33 Wyndham Rewards loyalty program charge | 4.25% to 5.5% of amounts on which members earn points[1] | Item 6, p. 39 GDS, third-party channel and internet booking fees | $2.08 per reservation, each[1] | Item 6, pp. 35-36 Digital pay-for-performance commission | Currently 7%, up to 10%, of gross room revenues on qualifying reservations[1] | Item 6, pp. 36-37 Wyndham Connect Plus | 3.5% of gross room revenues on each reservation booked through the service[1] | Item 6, p. 37 Property management system support | $734 to $1,050 per month[1] | Item 6, p. 40 PIP preparation fee, after opening | $1,500 per request[1] | Item 6, p. 34 Liquidated damages | Greater of $2,000 per room or 24 times average monthly royalties and system assessment fees[1] | Item 6, p. 43 Estimated initial investment, 100-room conversion | $248,324 to $3,627,625; $2,483 to $36,276 per room; assumes the hotel is already owned[1] | Item 7, p. 52 Estimated initial investment, new 89-room hotel | $8,128,742 to $10,088,760; $91,334 to $113,357 per room, excluding real estate[1] | Item 7, p. 48 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a relicense fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Days Inn brand fees on assumed room revenue): Hypothetical. Assume a 100-room Days Inn earns $1,500,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty at 5.5 percent: $1,500,000 x 0.055 = $82,500.[1] System assessment fee at 3.8 percent: $1,500,000 x 0.038 = $57,000.[1] Together: $139,500, or 9.3 percent of room revenue. If Wyndham Rewards members earn points on $500,000 of that revenue, the loyalty program charge at 4.25 to 5.5 percent is $21,250 to $27,500.[1] On the same assumptions, 24 months of average royalties and system assessment fees is $139,500 / 12 x 24 = $279,000. That is more than $2,000 x 100 rooms = $200,000, so $279,000 would be the liquidated damages figure under the Item 6 formula.[1] Per-reservation fees, commissions, technology support and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Days Inn franchise cost? A: The 2026 FDD lists an initial fee of the greater of $35,000 or $350 per room, a 5.5 percent royalty and a 3.8 percent system assessment fee. Item 7 estimates $248,324 to $3,627,625 to convert a 100-room hotel the owner already holds.[1] - Q: What percent of revenue does Wyndham take from a Days Inn? A: A 5.5 percent royalty plus a 3.8 percent system assessment fee on gross room revenues. Loyalty charges, booking fees, commissions and technology support are billed on other bases on top.[1] - Q: I'm buying a Days Inn. What is the relicense fee? A: The greater of $35,000 or $350 per room, plus the $2,500 application fee. The FDD says 2025 relicense fees on transfers ranged from $15,000 to $35,000. The buyer signs the then current agreement and upgrades the hotel.[1] - Q: How long is a Days Inn franchise agreement? A: Twenty years for new construction and 15 years for conversions and transfers. Item 17 states there are no renewal or extension rights. A renewal, if both sides agree, means a new agreement and a relicense fee.[1] - Q: Why is the Days Inn conversion range so wide? A: Because it depends on the building. Facility improvements run from $0 for a hotel already at standard to $1,985,000 for one needing extensive structural renovation, per Item 7 of the 2026 FDD.[1] - Q: Does the Days Inn FDD say what a Days Inn earns? A: Item 19 reports 2025 average daily rate, occupancy, RevPAR, RevPAR index and reservation contribution for 498 qualified hotels. It gives no expenses and no profit.[1] - Q: Will these Days Inn fees be the same next year? A: Not necessarily. The FDD is reissued every year, and the franchisor may raise any fixed-dollar fee by up to 10 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] Days Inn Franchise Disclosure Document (issued March 31, 2026): Item 5, pp. 30-32; Item 6, pp. 32-46; Item 7, pp. 46-54; Item 17, pp. 82-87; Item 19, pp. 87-90. Wisconsin DFI franchise registration file 640621 (Days Inns Worldwide, Inc., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640621&hash=1766667238&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a DoubleTree franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/doubletree Last updated: 2026-10-01 Hilton's 2026 DoubleTree Franchise Disclosure Document, issued March 30, 2026, estimates $31,454,554 to $108,661,784 to open a newly built 225-room DoubleTree and $33,007,054 to $126,260,147 for a 225-room DoubleTree Suites, both excluding real estate. The application fee is $85,000, the monthly royalty is 5 percent of gross rooms revenue and the monthly program fee is 4 percent.[1] Key takeaways: - Item 7 total: $31,454,554 to $108,661,784 for a 225-room DoubleTree, which is about $139,800 to $482,900 per room by our arithmetic, before land.[1] - Ongoing: 5 percent royalty plus 4 percent program fee on gross rooms revenue, Hilton Honors at 4 percent of total eligible guest folio, and a 2 percent spa royalty only if the hotel adds an eforea spa.[1] - A buyer of an existing DoubleTree pays a $175,000 change of ownership application fee and a $10,000 PIP fee. In 2025 buyers paid $0 to $175,000.[1] - The term is generally 23 years for new construction and 10 to 20 years for a conversion. There is no right to renew.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a DoubleTree franchise cost up front? An $85,000 franchise application fee for a new build or a conversion, plus $400 for each guest room or suite over 250, under Item 5 of the 2026 DoubleTree FDD.[1] Item 5 (pp. 17-19) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $175,000 and a re-licensing application is $85,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $93,150 to $246,150 for hardware, software and installation, other start-up fees are $6,500, training program fees run $5,000 to $20,000, and the opening process services fee is $20,000. Pre-opening revenue management support, which Hilton may require when a hotel opens on an expedited schedule of 150 days or less, is $4,059 to $8,880.[1] Two optional programs carry their own initial fees: $25,000 when the owner signs an eforea spa amendment, and a $75,000 development services fee for each Hilton restaurant brand selected.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 19).[1] #### What are the DoubleTree royalty and program fees? The monthly royalty fee is 5 percent of gross rooms revenue and the monthly program fee is 4 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 23) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees such as resort fees, and guaranteed no-show revenue (Note 1, p. 32).[1] A monthly spa royalty of 2 percent of gross spa revenue is payable only if an eforea spa amendment is in effect. The Item 6 table lists no royalty on food and beverage revenue.[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 33).[1] Other recurring charges sit on top. Hilton Honors is currently 4 percent of total eligible guest folio, waived for stays where the guest enrolls at the property. The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 26).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $2,359 to $6,752 per month (p. 23).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per room? Item 7 of the 2026 DoubleTree FDD totals $31,454,554 to $108,661,784 for a 225-room DoubleTree and $33,007,054 to $126,260,147 for a 225-room DoubleTree Suites, excluding real estate.[1] Divided by 225 rooms, that is about $139,800 to $482,900 per room for the DoubleTree and about $146,700 to $561,200 per room for the DoubleTree Suites. The division is ours. The FDD does not print a per-room figure.[1] Construction and leasehold improvements drive the spread: $18,216,000 to $74,675,250 for the DoubleTree and $18,216,000 to $87,561,000 for the Suites. Furniture, fixtures and equipment are $7,245,000 to $10,867,500 for the DoubleTree, and an eforea spa adds $0 to $4,950,000 (pp. 36-39).[1] The cover page adds that up to $500,030 of the total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 37).[1] For an owner converting an existing hotel, or a buyer of an existing DoubleTree, the number that matters is the PIP scope from Hilton, not an Item 7 total. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about DoubleTree hotel performance? Item 19 of the 2026 DoubleTree FDD reports a 2025 average room rate of $159.90, average occupancy of 68.4 percent and average RevPAR of $109.35 across 294 comparable U.S. DoubleTree and DoubleTree Suites hotels.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 415 U.S. DoubleTree and DoubleTree Suites hotels at December 31, 2025, 294 were comparable: 24 company-managed and 270 franchisee-managed (p. 93).[1] Medians were a $150.96 room rate, 68.2 percent occupancy and $104.11 RevPAR. The ranges were $95.40 to $318.84 for room rate, 30.4 to 98.5 percent for occupancy and $39.96 to $310.94 for RevPAR. Of franchisee-managed hotels, 101, or 37.4 percent, met or exceeded the average RevPAR (pp. 94-95).[1] The average RevPAR index was 105.2 and the median 106.5, with a range from 48.8 to 248.7, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source and excludes 1 hotel with insufficient data (pp. 95-96).[1] Hilton Honors members accounted for an average 68.5 percent of occupied room nights, with a range from 22.7 to 94.2 percent (pp. 96-97).[1] Item 19 reports rooms revenue measures only. It gives no food and beverage or banquet results, no expenses, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 97).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### How long is a DoubleTree franchise agreement, and can I renew it? Hilton's 2026 DoubleTree FDD sets the term at generally 23 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 DoubleTree FDD (p. 79) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $85,000 (Item 6, p. 28).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the DoubleTree franchise when the hotel is sold? A sale that changes control of a DoubleTree is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 DoubleTree FDD (p. 88) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($175,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 28).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave DoubleTree before the term ends? Hilton's liquidated damages for a DoubleTree that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 DoubleTree FDD (p. 29) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 35) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. DoubleTree hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a DoubleTree? Hilton may, in its sole discretion, offer a development incentive on a DoubleTree, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 DoubleTree FDD (p. 51) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance DoubleTree franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the DoubleTree FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 DoubleTree Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 24 instances during 2025 (Item 6, p. 33), and in 2025 franchisees paid application fees from $42,500 to $100,000 for new development or conversion, $0 to $175,000 for a change of ownership and $0 to $100,000 for re-licensing (Item 5, p. 20).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: DoubleTree by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $85,000 plus $400 per guest room or suite over 250[1] | Item 5, p. 17 Application fee, change of ownership | $175,000[1] | Item 5, p. 17 Application fee, re-licensing | $85,000[1] | Item 5, p. 18 PIP fee | $10,000[1] | Item 5, p. 18 OnQ system: hardware, software, installation | $93,150 to $246,150[1] | Item 5, p. 18 Opening process services fee | $20,000[1] | Item 5, p. 19 eforea spa initial fee (optional) | $25,000[1] | Item 5, p. 18 Monthly royalty fee | 5% of gross rooms revenue[1] | Item 6, p. 23 Monthly spa royalty fee (only with an eforea spa) | 2% of gross spa revenue[1] | Item 6, p. 23 Monthly program fee | 4% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 23 and 33 Hilton Honors | 4% of total eligible guest folio[1] | Item 6, p. 26 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 26 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $2,359 to $6,752 per month[1] | Item 6, p. 23 Permitted transfer processing fee | $5,500[1] | Item 6, p. 28 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 28 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, p. 30 Estimated initial investment, 225-room DoubleTree | $31,454,554 to $108,661,784, excluding real estate[1] | Item 7, p. 37 Estimated initial investment, 225-room DoubleTree Suites | $33,007,054 to $126,260,147, excluding real estate[1] | Item 7, p. 39 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of DoubleTree brand fees on assumed rooms revenue): Hypothetical. Assume a DoubleTree earns $8,000,000 of gross rooms revenue in a year, has no eforea spa, and that $3,200,000 of guest folios are eligible Hilton Honors folios. These figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 5 percent: $8,000,000 x 0.05 = $400,000.[1] Monthly program fee at 4 percent: $8,000,000 x 0.04 = $320,000.[1] Hilton Honors at 4 percent of eligible folio: $3,200,000 x 0.04 = $128,000.[1] OnQ connectivity plus hardware and software maintenance: $2,759 to $7,352 per month, or $33,108 to $88,224 a year.[1] Total of these four lines: $881,108 to $936,224. Food and beverage revenue carries no royalty in the Item 6 table, so it does not enter this arithmetic. Hilton Advance fees, third-party reservation charges, group and travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: How much does it cost to open a DoubleTree by Hilton? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $31,454,554 to $108,661,784 for a newly built 225-room DoubleTree, excluding real estate, market studies, insurance and interest. Up to $500,030 of that is paid to Hilton or its affiliates.[1] - Q: What is the DoubleTree royalty fee? A: 5 percent of gross rooms revenue, paid monthly, plus a 4 percent monthly program fee. Hilton reports it agreed to modify the royalty in 24 instances during 2025, so the rate is sometimes negotiated.[1] - Q: What does it cost to convert a hotel to DoubleTree? A: The 2026 FDD lists an $85,000 application fee and a $10,000 PIP fee. Item 7 does not separately identify conversion costs, so Hilton's property improvement plan for the specific building sets the renovation scope.[1] - Q: I'm buying an existing DoubleTree. What will Hilton charge me? A: A $175,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. In 2025, buyers paid from $0 to $175,000.[1] - Q: How long does a DoubleTree franchise last? A: Generally 23 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a DoubleTree owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index and Hilton Honors contribution for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: What does it cost to terminate a DoubleTree franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Sources: - [1] 2026 DoubleTree by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 17-22; Item 6, pp. 23-36; Item 7, pp. 36-42; Item 10, pp. 51-52; Item 17, pp. 79-93; Item 19, pp. 93-98 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-DoubleTree.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does an Econo Lodge franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/econo-lodge Last updated: 2026-10-12 Choice Hotels' Econo Lodge disclosure document, issued April 1, 2026 and amended May 20, 2026, estimates $194,595 to $1,106,595 to convert a 68-room hotel to an Econo Lodge the owner already holds. The affiliation fee is $350 per room with a $35,000 minimum. The royalty is 5.0 percent and the marketing and reservation fee 3.5 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $350 per room for a hotel new to the system, $500 per room for a transfer or renewal, $35,000 minimum either way.[1] - Royalty: 5.0 percent of gross room revenues. Marketing and reservation fee: 3.5 percent.[1] - Choice Privileges fee: a flat 5 percent of room revenue from rewards members.[1] - Term: 20 years with no renewal provision. Either side may terminate on the 5th, 10th or 15th anniversary with 12 months' notice.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What is different about the Econo Lodge FDD? Several Econo Lodge charges are lower than the same lines in Choice's Quality FDD of the same date: a 5.0 percent royalty, a $25 per room liquidated damages rate and a $1.00 third-party distribution fee.[1][3] Choice files one disclosure document per brand on a shared template, so the structure matches its other brands. The numbers that move are these. The royalty is 5.0 percent at Econo Lodge and 5.25 percent at Quality. The per-room rate inside the liquidated damages formula is $25 at Econo Lodge and $70 at Quality. The third-party distribution fee is $1.00 per consumed reservation at Econo Lodge and $4.00 at Quality. The property technology fee is $8.35 per room per month at Econo Lodge and $9.65 at Quality.[1][3] Two programs that are mandatory at Quality are optional here: the ChoiceMAX pricing software and the ResConnect call program. The Choice Privileges fee is a flat 5 percent at Econo Lodge, where Quality's runs 4.5 to 5.5 percent with enrollment performance.[1][3] Choice says it does not generally offer new construction franchises for Econo Lodge (Item 7, p. 41).[1] This page does not rank the brands. The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs). #### What does Choice charge up front for an Econo Lodge franchise? The 2026 Econo Lodge FDD lists an affiliation fee of $350 per room for a hotel new to the system and $500 per room for a transfer or renewal, with a $35,000 minimum in both cases.[1] A non-refundable $5,000 application fee is credited toward the affiliation fee. If Choice does not grant the franchise, it refunds the affiliation fee less that $5,000. Choice states that affiliation fees on new Econo Lodge agreements in the 12 months ending December 31, 2025 ranged from $1,000 to $25,000, and that it has reduced the fee in certain circumstances without any obligation to do so (Item 5, p. 24).[1] The first opening inspection is free, and each re-inspection after a failed one is $1,500. The mandatory Brand in a Box program costs about $11,650 to $30,000 and covers the choiceADVANTAGE property management system license, its hardware and other pre-opening items. Required training runs $3,345 to $5,295 per person before travel. An extension of the renovation deadline is $5,000 per three months, and a waiver from the approved interior design schemes is $20,000 (Item 5, pp. 24-26).[1] #### What are the ongoing Econo Lodge franchise fees? Choice's 2026 Item 6 lists a 5.0 percent royalty and a 3.5 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 26-27, 38).[1] The Choice Privileges fee is 5 percent of room revenue from rewards members. Choice Accelerate is 3 percent of gross room revenue from stays booked through direct online channels. Third-party distribution is $1.00 per consumed reservation from directly connected online travel agents, and global distribution system reservations are currently $7.70 each (Item 6, pp. 27-29).[1] The property technology and service fee is $8.35 per room per month, with a $400 minimum and a $700 maximum. ChoiceMAX pricing software is optional at $130 to $180 per month with a $1,500 set-up fee for hotels that take it, and ChoiceROCS revenue management service is optional at $635 to $1,400 per month. The optional ResConnect program is $3.00 per call transferred (Item 6, pp. 30-32, 35).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert a motel to an Econo Lodge? Choice's 2026 Item 7 estimates $194,595 to $1,106,595 to convert a 68-room hotel, which Choice states as $2,862 to $16,273 per room.[1] Property improvements are the largest line at $72,100 to $583,700. Choice bases it on a typical property improvement plan and says it excludes deferred maintenance such as the parking lot, HVAC and exterior, and excludes the labor for the improvements. Signs run $20,000 to $100,000 and opening supplies $11,000 to $73,600 (Item 7, pp. 40-41).[1] The total assumes the hotel is open and operating with its own real estate, furniture, fixtures and equipment and staff. If the furniture, fixtures and equipment do not meet Choice's standards, Choice estimates another $4,500 to $6,000 per room (Item 7, p. 42).[1] Choice issues a customized plan on application. Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is an Econo Lodge franchise agreement, and can I get out early? The Econo Lodge franchise term is 20 years from the opening date, the FDD lists no renewal provision, and both parties hold termination rights on set anniversaries.[1] Either the franchisee or Choice may terminate on the 5th, 10th or 15th anniversary of the opening date with at least 12 months' written notice, and the franchisee must keep paying all fees through the end. An owner who takes Choice's incentive program waives the 5th anniversary window unless the incentive note is a five-year note, and Choice waives its own in the same case. For a replacement agreement on an existing Econo Lodge, Choice may offer a term shorter than 20 years (Item 17, pp. 68-69).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $25 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next penalty-free termination date, capped at 36 months. Before opening, the amount is the room count times 36 months times $25. Continued use of the marks after termination costs $2,500 per day (Item 6, p. 38).[1] #### What happens to the Econo Lodge franchise when I sell the motel? A buyer of a controlling interest signs Choice's then current franchise agreement and pays a relicensing fee equal to the then current affiliation fee.[1] Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $35,000, whichever is greater, and Choice's consent is needed for any transfer of more than 5 percent. The buyer also pays a $3,000 property improvement plan fee and $995 for relicensing training. A transfer of less than 50 percent carries a $7,500 assumption fee and a $3,000 change of ownership fee (Item 5, p. 24; Item 6, pp. 32-34; Item 17, p. 70).[1] A lender [comfort letter](/glossary/comfort-letter) is $2,500, plus $500 if needed within one to three days (Item 6, p. 33).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Choice's Item 19 say about Econo Lodge performance? Choice's 2026 Item 19 reports that 562 Econo Lodge hotels in its performance sample averaged 46.2 percent occupancy, a $70.43 average daily rate and $32.55 RevPAR in 2025.[1] There were 599 open Econo Lodge hotels in the United States at December 31, 2025, all franchised. The sample is the 562 that were operating on or before January 1, 2025, excluding hotels that repositioned from another Choice brand during 2025, had at least 30 days of incomplete data, or were interrupted for more than 30 consecutive days. The median RevPAR was $30.64, the range was $6.27 to $100.88, and 245 hotels, or 43.6 percent, met or exceeded the average (Item 19, pp. 72-73).[1] Choice also reports an average total Choice enterprise contribution of 57.9 percent of gross room revenues and an average Choice Privileges contribution of 33.8 percent. The enterprise figure counts online travel agent bookings made through Choice's negotiated relationships. A second table covers the 215 sample hotels with a guest recommendation score above the brand average, which averaged $37.73 RevPAR. Item 20 shows the franchised count falling from 643 to 599 during 2025 (Item 19, pp. 73-74; Item 20, p. 75).[1] Choice states that the figures come from information franchisees provided, and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 75).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Econo Lodge and Econo Lodge Inn and Suites franchise fees, 2026 FDD issued April 1, 2026, as amended May 20, 2026 Fee | Amount | Where in the FDD Affiliation fee, hotel new to the system | $350 per room, $35,000 minimum; $5,000 application fee credited toward it[1] | Item 5, p. 24 Affiliation fee, transfer or renewal | $500 per room, $35,000 minimum[1] | Item 5, p. 24 Royalty fee | 5.0% of gross room revenues[1] | Item 6, p. 26 Marketing and reservation fee | 3.5% of gross room revenues[1] | Item 6, p. 27 Choice Privileges rewards program fee | 5% of room revenue from rewards members[1] | Item 6, p. 27 Choice Accelerate (direct online bookings) | 3% of gross room revenue from stays booked through direct online channels[1] | Item 6, p. 27 Third-party distribution and GDS | $1.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 28-29 Property technology and service fee | $8.35 per room per month, $400 minimum, $700 maximum[1] | Item 6, p. 30 Revenue management (optional) | ChoiceMAX $130 to $180 per month; ChoiceROCS $635 to $1,400 per month[1] | Item 6, p. 31 Re-inspection before opening | $1,500 for each re-inspection after a failed first inspection[1] | Item 5, p. 24 Transfer fee, 50% or more of equity | Then current affiliation fee or $35,000, whichever is greater[1] | Item 6, p. 33 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 33 Liquidated damages, after opening | Greater of $25 per room per month or average monthly gross room revenues times the royalty, times months to the next termination window, up to 36[1] | Item 6, p. 38 Estimated initial investment, 68-room conversion | $194,595 to $1,106,595; $2,862 to $16,273 per room; assumes the hotel is already owned and operating[1] | Item 7, p. 41 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an affiliation fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Econo Lodge brand fees on assumed room revenue): Hypothetical. Assume a 68-room Econo Lodge earns $800,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Affiliation fee at signing: 68 rooms x $350 = $23,800, which is under the minimum, so $35,000.[1] Royalty fee at 5.0 percent: $800,000 x 0.05 = $40,000.[1] Marketing and reservation fee at 3.5 percent: $800,000 x 0.035 = $28,000.[1] Together: $68,000, or 8.5 percent of room revenue. Property technology and service fee: 68 rooms x $8.35 = $567.80 per month, inside the $400 to $700 band, or $6,813.60 for the year.[1] If $250,000 of that revenue comes from Choice Privileges members, the rewards program fee at 5 percent is $12,500.[1] On the same assumptions, with 36 months to the next termination window, the revenue side of the liquidated damages formula is $800,000 / 12 x 0.05 x 36 = $120,000. That is more than $25 x 68 rooms x 36 months = $61,200, so $120,000 would apply.[1] Choice Accelerate, per-reservation charges, commissions and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does an Econo Lodge franchise cost? A: Choice's 2026 FDD lists a $350 per room affiliation fee with a $35,000 minimum, a 5.0 percent royalty and a 3.5 percent marketing and reservation fee. Item 7 estimates $194,595 to $1,106,595 to convert a 68-room hotel the owner already holds.[1] - Q: What percent of revenue does Choice Hotels take from an Econo Lodge? A: A 5.0 percent royalty plus a 3.5 percent marketing and reservation fee on gross room revenues. The 5 percent Choice Privileges fee, Choice Accelerate, technology and per-reservation charges are billed on other bases on top.[1] - Q: Can I build a new Econo Lodge? A: Choice says in the 2026 FDD that it does not generally offer new construction franchises for Econo Lodge, and that if it did, construction costs would be higher than the conversion estimate.[1] - Q: I'm buying an Econo Lodge. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $35,000, whichever is greater. The transfer rate is $500 per room. Add a $3,000 property improvement plan fee and $995 for relicensing training.[1] - Q: Can I leave Econo Lodge before the 20 years are up? A: The 2026 FDD gives termination windows on the 5th, 10th and 15th anniversaries of opening, with 12 months' written notice. Choice holds the same rights. Taking an incentive can waive the 5th anniversary window.[1] - Q: Does the Econo Lodge conversion estimate include new furniture? A: Not in full. The total assumes the hotel's furniture, fixtures and equipment already meet standards. If they do not, Choice estimates another $4,500 to $6,000 per room. Deferred maintenance and labor are also excluded.[1] - Q: Will these Econo Lodge fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] Econo Lodge Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, pp. 24-26; Item 6, pp. 26-39; Item 7, pp. 40-42; Item 17, pp. 68-72; Item 19, pp. 72-75; Item 20, p. 75. Minnesota CARDS document 36786-202606-03, file number 3576, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-10-12): https://cards.web.commerce.state.mn.us/documents/%7BC00AAE9E-0000-C21E-AD4F-7B5548EBBC6A%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Quality Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 6, pp. 27-33, 37, 40. Minnesota CARDS document 36789-202606-03, file number 48, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 ### How much does a Hampton Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/hampton-inn Last updated: 2026-10-01 Hilton's 2026 Hampton Franchise Disclosure Document, issued March 30, 2026, estimates $17,043,739 to $24,732,532 to open a newly built 89-room Hampton Inn and $19,964,850 to $29,121,080 for a 113-room Hampton Inn & Suites, both excluding real estate. The application fee is $100,000, the monthly royalty is 6 percent of gross rooms revenue and the monthly program fee is 4 percent.[1] Key takeaways: - Item 7 total: $17,043,739 to $24,732,532 for an 89-room Hampton Inn, which is about $191,500 to $277,900 per room by our arithmetic, before land.[1] - Ongoing: 6 percent royalty plus 4 percent program fee on gross rooms revenue, and a Hilton Honors charge of 4.6 percent of total eligible guest folio.[1] - A buyer of an existing Hampton pays a $200,000 change of ownership application fee and a $10,000 PIP fee, then funds the PIP itself.[1] - The term is generally 22 years for new construction and 10 to 20 years for a conversion. There is no right to renew.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Hampton Inn franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, plus $400 for each guest room over 150, under Item 5 of the 2026 Hampton FDD.[1] Item 5 (pp. 15-16) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $200,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $27,590 to $83,959 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $17,500, and the opening process services fee is $6,000. If Hilton's supply affiliate furnishes the hotel, its procurement fee is 4 to 10 percent of project cost.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur. Once Hilton approves the application, the fee is non-refundable (Item 5, Note 1, p. 17).[1] #### What are the Hampton Inn royalty and program fees? The monthly royalty fee is 6 percent of gross rooms revenue and the monthly program fee is 4 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 20) defines gross rooms revenue under the Uniform System of Accounts for the Lodging Industry. It includes revenue from loyalty point redemptions, breakfast included in the room rate, mandatory guest fees, late cancellation fees and guaranteed no-show revenue, whether or not collected (Note 1, p. 30).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 30).[1] Other recurring charges sit on top. Hilton Honors is currently 4.6 percent of total eligible guest folio, waived for stays where the guest enrolls at the property. The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 23).[1] OnQ connectivity is $400 to $600 per month, hardware and software maintenance is $1,114 to $2,568 per month, and the brand conference is $2,500 per attendee (pp. 20-22).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per room? Item 7 of the 2026 Hampton FDD totals $17,043,739 to $24,732,532 for an 89-room Hampton Inn and $19,964,850 to $29,121,080 for a 113-room Hampton Inn & Suites with 81 rooms and 32 studio suites.[1] Divided by the room counts Hilton uses, that is about $191,500 to $277,900 per room for the Hampton Inn and about $176,700 to $257,700 per room for the Hampton Inn & Suites. The division is ours. The FDD does not print a per-room figure.[1] Construction and leasehold improvements are the largest line at $12,478,374 to $18,024,318 for the 89-room hotel, and furniture, fixtures and equipment are $1,254,480 to $1,782,681 (pp. 33-35).[1] The cover page adds that up to $225,380 of the Hampton Inn total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 35).[1] A buyer of an existing Hampton should expect a PIP scope from Hilton, not an Item 7 number. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Hampton hotel performance? Item 19 of the 2026 Hampton FDD reports a 2025 average room rate of $149.08, average occupancy of 71.0 percent and average RevPAR of $105.90 across 1,893 comparable Hampton hotels in the United States.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 2,410 U.S. Hampton hotels at December 31, 2025, 1,893 were comparable, and 1,878 of those were franchisee-managed (pp. 77-78).[1] Medians were a $140.32 room rate, 71.1 percent occupancy and $100.01 RevPAR. The ranges were $83.46 to $318.92 for room rate, 30.7 to 98.2 percent for occupancy and $34.81 to $300.28 for RevPAR. Of franchisee-managed hotels, 757, or 40.3 percent, met or exceeded the average RevPAR (pp. 78-79).[1] The average RevPAR index was 120.8 and the median 122.5, with a range from 58.9 to 361.6, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source and excludes 13 hotels with insufficient data (p. 80).[1] Hilton Honors members accounted for an average 77.8 percent of occupied room nights, with a range from 29.4 to 97.4 percent (p. 80).[1] For the 294 comparable hotels opened during or after 2018, the averages were a $158.11 room rate, 72.3 percent occupancy, $114.33 RevPAR and a 125.4 RevPAR index (pp. 81-83).[1] Item 19 reports revenue measures only. It gives no expenses, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 84).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### How long is a Hampton franchise agreement, and can I renew it? Hilton's 2026 Hampton FDD sets the term at generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Hampton FDD (p. 69) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 25).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Hampton franchise when the hotel is sold? A sale that changes control of a Hampton is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Hampton FDD (p. 74) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($200,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 26).[1] Hamptons on the market are listed at [Hampton Inn hotels for sale](/hotels-for-sale/hampton-inn) and [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Hampton before the term ends? Hilton's liquidated damages for a Hampton that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Hampton FDD (p. 27) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 32) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Hampton hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Hampton? Hilton may, in its sole discretion, offer a development incentive on a Hampton, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Hampton FDD (p. 45) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Hampton franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Hampton FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Hampton Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 75 instances during 2025 (Item 6, p. 30), and in 2025 franchisees paid application fees from $0 to $100,000 for new development or conversion, $25,000 to $200,000 for a change of ownership and $50,000 to $100,000 for re-licensing (Item 5, p. 17).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Hampton by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000 plus $400 per guest room over 150[1] | Item 5, p. 15 Application fee, change of ownership | $200,000[1] | Item 5, p. 16 Application fee, re-licensing | $100,000[1] | Item 5, p. 16 PIP fee | $10,000[1] | Item 5, p. 16 OnQ system: hardware, software, installation | $27,590 to $83,959[1] | Item 5, p. 16 Monthly royalty fee | 6% of gross rooms revenue[1] | Item 6, p. 20 Monthly program fee | 4% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 20 and 30 Hilton Honors | 4.6% of total eligible guest folio[1] | Item 6, p. 23 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 23 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,114 to $2,568 per month[1] | Item 6, p. 20 Room addition fee | $400 per added guest room[1] | Item 6, p. 20 Permitted transfer processing fee | $5,500[1] | Item 6, p. 25 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 26 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, p. 27 Estimated initial investment, 89-room Hampton Inn | $17,043,739 to $24,732,532, excluding real estate[1] | Item 7, p. 35 Estimated initial investment, 113-room Hampton Inn & Suites | $19,964,850 to $29,121,080, excluding real estate[1] | Item 7, p. 36 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Hampton brand fees on assumed rooms revenue): Hypothetical. Assume a Hampton Inn earns $3,000,000 of gross rooms revenue in a year, and that $1,200,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 6 percent: $3,000,000 x 0.06 = $180,000.[1] Monthly program fee at 4 percent: $3,000,000 x 0.04 = $120,000.[1] Hilton Honors at 4.6 percent of eligible folio: $1,200,000 x 0.046 = $55,200.[1] OnQ connectivity plus hardware and software maintenance: $1,514 to $3,168 per month, or $18,168 to $38,016 a year.[1] Total of these four lines: $373,368 to $393,216. Hilton Advance fees, third-party reservation charges, travel planner commissions, training, the brand conference and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: How much does it cost to open a Hampton Inn? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $17,043,739 to $24,732,532 for a newly built 89-room Hampton Inn, excluding real estate, market studies, insurance and interest. Up to $225,380 of that is paid to Hilton or its affiliates.[1] - Q: What is the Hampton Inn royalty fee? A: 6 percent of gross rooms revenue, paid monthly, plus a 4 percent monthly program fee. Hilton reports it agreed to modify the royalty in 75 instances during 2025, so the rate is sometimes negotiated.[1] - Q: I'm buying an existing Hampton Inn. What will Hilton charge me? A: A $200,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. The fee is refunded less $7,500 if the sale does not close.[1] - Q: How long does a Hampton Inn franchise last? A: Generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a Hampton Inn franchise owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index and Hilton Honors contribution for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: What does it cost to terminate a Hampton Inn franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] - Q: Does Hilton finance a Hampton Inn? A: Generally no. Item 10 says Hilton may, in its sole discretion, offer a development incentive that is repayable on a declining basis if the franchise ends early or the hotel transfers. Amounts are not published.[1] Sources: - [1] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 15-20; Item 6, pp. 20-33; Item 7, pp. 33-39; Item 10, pp. 44-46; Item 17, pp. 69-77; Item 19, pp. 77-84 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Hilton Garden Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/hilton-garden-inn Last updated: 2026-10-01 Hilton's 2026 Hilton Garden Inn Franchise Disclosure Document, issued March 30, 2026, estimates $25,499,320 to $37,352,033 to open a typical 134-room hotel, excluding real estate. The franchise application fee is $100,000, the monthly royalty is 5.5 percent of gross rooms revenue, the monthly program fee is 4 percent, and Hilton Honors is 3.3 percent of total eligible guest folio.[1] Key takeaways: - Item 7 total: $25,499,320 to $37,352,033 for 134 rooms, which is about $190,300 to $278,700 per room by our arithmetic, before land.[1] - Ongoing: 5.5 percent royalty plus 4 percent program fee on gross rooms revenue, and a Hilton Honors charge of 3.3 percent of total eligible guest folio.[1] - A buyer of an existing Hilton Garden Inn pays a $200,000 change of ownership application fee and a $10,000 PIP fee, then funds the PIP itself.[1] - An optional Hilton restaurant brand carries a $75,000 development services fee per restaurant brand.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Hilton Garden Inn franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, plus $400 for each guest room or suite over 150, under Item 5 of the 2026 Hilton Garden Inn FDD.[1] Item 5 (pp. 17-18) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $200,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $30,016 to $118,322 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $20,000, and the opening process services fee is $6,000. Restaurant brands are optional, and each one selected carries a $75,000 development services fee, half at signing and half when the restaurant opens.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 18).[1] #### What are the Hilton Garden Inn royalty and program fees? The monthly royalty fee is 5.5 percent of gross rooms revenue and the monthly program fee is 4 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 21) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees and guaranteed no-show revenue (Note 1, p. 32).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 32).[1] The Item 6 table lists no royalty on food and beverage revenue.[1] Other recurring charges sit on top. Hilton Honors is currently 3.3 percent of total eligible guest folio, waived for stays where the guest enrolls at the property. The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 25).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $1,148 to $2,922 per month (p. 22).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per room? Item 7 of the 2026 Hilton Garden Inn FDD totals $25,499,320 to $37,352,033 for a 134-room hotel, excluding real estate.[1] Divided by 134 rooms, that is about $190,300 to $278,700 per room. The division is ours. The FDD does not print a per-room figure.[1] Construction and leasehold improvements are the largest line at $18,354,015 to $26,654,355, and furniture, fixtures and equipment are $2,366,737 to $3,484,640 (pp. 35-37).[1] The cover page adds that up to $339,322 of the total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 37).[1] A buyer of an existing Hilton Garden Inn should expect a PIP scope from Hilton, not an Item 7 number. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Hilton Garden Inn performance? Item 19 of the 2026 Hilton Garden Inn FDD reports a 2025 average room rate of $160.66, average occupancy of 71.4 percent and average RevPAR of $114.75 across 617 comparable U.S. hotels.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 762 U.S. Hilton Garden Inn hotels at December 31, 2025, 617 were comparable, and 614 of those were franchisee-managed (p. 84).[1] Medians were a $148.48 room rate, 70.7 percent occupancy and $105.35 RevPAR. The ranges were $91.21 to $335.82 for room rate, 38.6 to 98.1 percent for occupancy and $46.72 to $326.13 for RevPAR. Of franchisee-managed hotels, 209, or 34.0 percent, met or exceeded the average RevPAR (pp. 84-85).[1] The average RevPAR index was 113.2 and the median 114.5, with a range from 65.8 to 262.2, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source and excludes 4 hotels with insufficient data (p. 86).[1] Hilton Honors members accounted for an average 78.2 percent of occupied room nights, with a range from 39.6 to 95.6 percent (pp. 86-87).[1] For the 110 comparable hotels opened during or after 2018, the averages were a $169.73 room rate, 72.8 percent occupancy, $123.57 RevPAR and a 118.4 RevPAR index (pp. 87-90).[1] Item 19 reports revenue measures only. It gives no expenses, no food and beverage results, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 90).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### How long is a Hilton Garden Inn franchise agreement, and can I renew it? Hilton's 2026 Hilton Garden Inn FDD sets the term at generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Hilton Garden Inn FDD (p. 72) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 27).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Hilton Garden Inn franchise when the hotel is sold? A sale that changes control of a Hilton Garden Inn is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Hilton Garden Inn FDD (p. 79) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($200,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 27).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Hilton Garden Inn before the term ends? Hilton's liquidated damages for a Hilton Garden Inn that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Hilton Garden Inn FDD (p. 28) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 34) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Hilton Garden Inn hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Hilton Garden Inn? Hilton may, in its sole discretion, offer a development incentive on a Hilton Garden Inn, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Hilton Garden Inn FDD (p. 46) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Hilton Garden Inn franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Hilton Garden Inn FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Hilton Garden Inn Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 24 instances during 2025 (Item 6, p. 32), and in 2025 franchisees paid application fees from $50,000 to $100,000 for new development or conversion, $0 to $200,000 for a change of ownership and $0 to $100,000 for re-licensing (Item 5, p. 19).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Hilton Garden Inn franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000 plus $400 per guest room or suite over 150[1] | Item 5, p. 17 Application fee, change of ownership | $200,000[1] | Item 5, p. 17 Application fee, re-licensing | $100,000[1] | Item 5, p. 17 PIP fee | $10,000[1] | Item 5, p. 17 OnQ system: hardware, software, installation | $30,016 to $118,322[1] | Item 5, p. 17 Restaurant brand development services fee (optional) | $75,000 per restaurant brand[1] | Item 5, p. 17 Monthly royalty fee | 5.5% of gross rooms revenue[1] | Item 6, p. 21 Monthly program fee | 4% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 21 and 32 Hilton Honors | 3.3% of total eligible guest folio[1] | Item 6, p. 25 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 25 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,148 to $2,922 per month[1] | Item 6, p. 22 Room addition fee | $400 per added guest room or suite[1] | Item 6, p. 22 Permitted transfer processing fee | $5,500[1] | Item 6, p. 27 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 27 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, pp. 28-29 Estimated initial investment, 134 rooms | $25,499,320 to $37,352,033, excluding real estate[1] | Item 7, p. 37 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Hilton Garden Inn brand fees on assumed rooms revenue): Hypothetical. Assume a Hilton Garden Inn earns $3,000,000 of gross rooms revenue in a year, and that $1,200,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 5.5 percent: $3,000,000 x 0.055 = $165,000.[1] Monthly program fee at 4 percent: $3,000,000 x 0.04 = $120,000.[1] Hilton Honors at 3.3 percent of eligible folio: $1,200,000 x 0.033 = $39,600.[1] OnQ connectivity plus hardware and software maintenance: $1,548 to $3,522 per month, or $18,576 to $42,264 a year.[1] Total of these four lines: $343,176 to $366,864. Hilton Advance fees, third-party reservation charges, travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: How much does it cost to open a Hilton Garden Inn? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $25,499,320 to $37,352,033 for a typical 134-room Hilton Garden Inn, excluding real estate, market studies, insurance and interest. Up to $339,322 of that is paid to Hilton or its affiliates.[1] - Q: What is the Hilton Garden Inn royalty fee? A: 5.5 percent of gross rooms revenue, paid monthly, plus a 4 percent monthly program fee. Hilton reports it agreed to modify the royalty in 24 instances during 2025, so the rate is sometimes negotiated.[1] - Q: I'm buying an existing Hilton Garden Inn. What will Hilton charge me? A: A $200,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. In 2025, buyers paid from $0 to $200,000.[1] - Q: How long does a Hilton Garden Inn franchise last? A: Generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a Hilton Garden Inn owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index and Hilton Honors contribution for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: Does Hilton charge a royalty on Hilton Garden Inn restaurant revenue? A: Item 6 of the 2026 FDD charges the 5.5 percent royalty and the 4 percent program fee on gross rooms revenue. An optional Hilton restaurant brand is covered by a separate amendment with a $75,000 development services fee.[1] - Q: What does it cost to terminate a Hilton Garden Inn franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Sources: - [1] 2026 Hilton Garden Inn Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 16-20; Item 6, pp. 21-35; Item 7, pp. 35-39; Item 10, pp. 46-47; Item 17, pp. 71-83; Item 19, pp. 83-90 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-HGI.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Home2 Suites franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/home2-suites Last updated: 2026-10-01 Hilton's 2026 Home2 Suites Franchise Disclosure Document, issued March 30, 2026, estimates $18,075,688 to $26,550,592 to open a newly built 107-suite hotel, excluding real estate. The franchise application fee is $100,000, the monthly royalty is 6 percent of gross rooms revenue, the monthly program fee is 3.5 percent, and Hilton Honors is 2.0 percent of total eligible guest folio.[1] Key takeaways: - Item 7 total: $18,075,688 to $26,550,592 for 107 suites, which is about $168,900 to $248,100 per suite by our arithmetic, before land.[1] - Ongoing: 6 percent royalty plus 3.5 percent program fee on gross rooms revenue, and a Hilton Honors charge of 2.0 percent of total eligible guest folio.[1] - A buyer of an existing Home2 Suites pays a $200,000 change of ownership application fee and a $10,000 PIP fee. In 2025 buyers paid $100,000 to $200,000.[1] - Item 19 adds extended-stay measures: stays of 5 or more nights were about 42 percent of the brand's consumed room nights in 2025.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Home2 Suites franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, under Item 5 of the 2026 Home2 Suites FDD.[1] Item 5 (pp. 16-17) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $200,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $27,606 to $101,971 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $17,500, and the opening process services fee is $6,000. If Hilton's supply affiliate furnishes the hotel, its procurement fee is 4 to 10 percent of project cost.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 18).[1] #### What are the Home2 Suites royalty and program fees? The monthly royalty fee is 6 percent of gross rooms revenue and the monthly program fee is 3.5 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 21) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees and guaranteed no-show revenue (Note 1, p. 32).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 32).[1] Other recurring charges sit on top. Hilton Honors is currently 2.0 percent of total eligible guest folio, waived for stays where the guest enrolls at the property (p. 25). The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 24).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $1,060 to $2,553 per month (p. 21).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per suite? Item 7 of the 2026 Home2 Suites FDD totals $18,075,688 to $26,550,592 for a newly built 107-suite hotel, excluding real estate.[1] Divided by 107 suites, that is about $168,900 to $248,100 per suite. The division is ours. The FDD does not print a per-suite figure.[1] Construction and leasehold improvements are the largest line at $12,800,000 to $18,555,000, and furniture, fixtures and equipment are $1,910,000 to $2,770,000 (pp. 36-37).[1] The cover page adds that up to $245,471 of the total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 37).[1] A buyer of an existing Home2 Suites should expect a PIP scope from Hilton, not an Item 7 number. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Home2 Suites performance? Item 19 of the 2026 Home2 Suites FDD reports a 2025 average room rate of $144.47, average occupancy of 78.0 percent and average RevPAR of $112.63 across 561 comparable U.S. hotels.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 731 U.S. Home2 Suites hotels at December 31, 2025, 561 were comparable, and 559 of those were franchisee-managed (p. 82).[1] Medians were a $140.77 room rate, 79.1 percent occupancy and $110.67 RevPAR. The ranges were $80.04 to $263.67 for room rate, 46.0 to 97.0 percent for occupancy and $54.43 to $249.29 for RevPAR. Of franchisee-managed hotels, 250, or 44.7 percent, met or exceeded the average RevPAR (pp. 82-83).[1] The average RevPAR index was 125.1 and the median 127.0, with a range from 69.5 to 243.0, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source and excludes 4 hotels with insufficient data (p. 84).[1] Hilton Honors members accounted for an average 80.4 percent of occupied room nights, with a range from 11.8 to 97.3 percent (pp. 84-85).[1] Item 19 reports revenue measures only. It gives no expenses, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 87).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### What does the Home2 Suites FDD say about extended stays? Item 19 defines an extended stay as a completed guest stay of 5 or more consecutive nights and reports that Home2 Suites had about 7.1 million extended stay nights in 2025, about 42 percent of all consumed room nights.[1] For comparable hotels in 2025, the average room rate on extended stays was $135.52 and the median was $132.28, with a range from $73 to $275 (pp. 85-86).[1] Extended Stay Per Available Room, which Hilton abbreviates ESPAR, measures the percentage of available guest rooms occupied by extended stays. The average was 33.3 percent and the median 32.0 percent, with a range from 7 to 87 percent. Of franchisee-managed comparable hotels, 249, or 44.5 percent, met or exceeded the average (p. 86).[1] The average length of an extended stay was 11.9 nights and the median 11.0 nights, calculated as total extended stay room nights divided by total extended stays. Extended stays ranged from 6 to 124 nights (pp. 86-87).[1] The same caveat applies: these are results some hotels achieved, with no assurance for any other hotel.[1] #### How long is a Home2 Suites franchise agreement, and can I renew it? Hilton's 2026 Home2 Suites FDD sets the term at generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Home2 Suites FDD (p. 72) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 27).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Home2 Suites franchise when the hotel is sold? A sale that changes control of a Home2 Suites is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Home2 Suites FDD (p. 78) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($200,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 27).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Home2 Suites before the term ends? Hilton's liquidated damages for a Home2 Suites that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Home2 Suites FDD (p. 28) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 34) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Home2 Suites hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Home2 Suites? Hilton may, in its sole discretion, offer a development incentive on a Home2 Suites, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Home2 Suites FDD (p. 47) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Home2 Suites franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Home2 Suites FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Home2 Suites Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 32 instances during 2025 (Item 6, p. 32), and in 2025 franchisees paid application fees from $0 to $100,000 for new development or conversion and $100,000 to $200,000 for a change of ownership (Item 5, p. 18).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Home2 Suites by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000[1] | Item 5, p. 16 Application fee, change of ownership | $200,000[1] | Item 5, p. 16 Application fee, re-licensing | $100,000[1] | Item 5, p. 16 PIP fee | $10,000[1] | Item 5, p. 16 OnQ system: hardware, software, installation | $27,606 to $101,971[1] | Item 5, p. 17 Monthly royalty fee | 6% of gross rooms revenue[1] | Item 6, p. 21 Monthly program fee | 3.5% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 21 and 32 Hilton Honors | 2.0% of total eligible guest folio[1] | Item 6, p. 25 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 24 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,060 to $2,553 per month[1] | Item 6, p. 21 Room addition fee | $400 per added guest room or suite[1] | Item 6, p. 21 Permitted transfer processing fee | $5,500[1] | Item 6, p. 27 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 27 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, pp. 28-29 Estimated initial investment, 107 suites | $18,075,688 to $26,550,592, excluding real estate[1] | Item 7, p. 37 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Home2 Suites brand fees on assumed rooms revenue): Hypothetical. Assume a Home2 Suites earns $3,000,000 of gross rooms revenue in a year, and that $1,200,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 6 percent: $3,000,000 x 0.06 = $180,000.[1] Monthly program fee at 3.5 percent: $3,000,000 x 0.035 = $105,000.[1] Hilton Honors at 2.0 percent of eligible folio: $1,200,000 x 0.02 = $24,000.[1] OnQ connectivity plus hardware and software maintenance: $1,460 to $3,153 per month, or $17,520 to $37,836 a year.[1] Total of these four lines: $326,520 to $346,836. Hilton Advance fees, third-party reservation charges, travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: What are Home2 Suites franchise fees? A: Under Hilton's 2026 FDD, issued March 30, 2026: a $100,000 application fee, a 6 percent monthly royalty and a 3.5 percent monthly program fee on gross rooms revenue, and Hilton Honors at 2.0 percent of total eligible guest folio.[1] - Q: How much does it cost to build a Home2 Suites? A: Hilton estimates $18,075,688 to $26,550,592 for a newly built 107-suite hotel, excluding real estate, market studies, insurance and interest. Up to $245,471 of that is paid to Hilton or its affiliates.[1] - Q: I'm buying an existing Home2 Suites. What will Hilton charge me? A: A $200,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. In 2025, buyers paid $100,000 to $200,000.[1] - Q: How long does a Home2 Suites franchise last? A: Generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a Home2 Suites owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index, Hilton Honors contribution and extended-stay measures for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: How much of Home2 Suites business is extended stay? A: Hilton reports about 7.1 million extended stay nights in 2025, about 42 percent of all consumed room nights, counting stays of 5 or more consecutive nights. The average extended stay at comparable hotels was 11.9 nights.[1] - Q: What does it cost to terminate a Home2 Suites franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Sources: - [1] 2026 Home2 Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 16-20; Item 6, pp. 21-36; Item 7, pp. 36-40; Item 10, pp. 46-47; Item 17, pp. 72-81; Item 19, pp. 81-88 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Homewood Suites franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/homewood-suites Last updated: 2026-10-01 Hilton's 2026 Homewood Suites Franchise Disclosure Document, issued March 30, 2026, estimates $23,757,245 to $34,728,465 to open a newly built 131-suite hotel, excluding real estate. The application fee is $100,000. The monthly royalty on a new build or conversion is 3.5 percent of gross rooms revenue in year one, 4.5 percent in year two and 5.5 percent after that, and the program fee is 2.5 percent.[1] Key takeaways: - Item 7 total: $23,757,245 to $34,728,465 for 131 suites, which is about $181,400 to $265,100 per suite by our arithmetic, before land.[1] - The royalty steps up on a new development or conversion: 3.5 percent in year one, 4.5 percent in year two, 5.5 percent for the rest of the term. A change of ownership or re-licensing pays 5.5 percent from the start.[1] - The monthly program fee is 2.5 percent of gross rooms revenue, and Hilton Honors is 1.7 percent of total eligible guest folio.[1] - A buyer of an existing Homewood Suites pays a $200,000 change of ownership application fee and a $10,000 PIP fee.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Homewood Suites franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, plus $400 for each guest room or suite over 150, under Item 5 of the 2026 Homewood Suites FDD.[1] Item 5 (pp. 15-16) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $200,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $28,296 to $118,424 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $17,500, and the opening process services fee is $6,000.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 17).[1] #### What are the Homewood Suites royalty and program fees? On a new development or conversion the monthly royalty fee is 3.5 percent of gross rooms revenue in the first year of operation, 4.5 percent in the second year and 5.5 percent for the remainder of the term. On a change of ownership or re-licensing it is 5.5 percent.[1] Item 6 (p. 20) sets the monthly program fee at 2.5 percent of gross rooms revenue. Both fees use gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees and guaranteed no-show revenue (Note 1, p. 30).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 31).[1] Other recurring charges sit on top. Hilton Honors is currently 1.7 percent of total eligible guest folio, waived for stays where the guest enrolls at the property (p. 24). The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 23).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $1,321 to $2,714 per month (p. 20).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per suite? Item 7 of the 2026 Homewood Suites FDD totals $23,757,245 to $34,728,465 for a newly built 131-suite hotel, excluding real estate.[1] Divided by 131 suites, that is about $181,400 to $265,100 per suite. The division is ours. The FDD does not print a per-suite figure.[1] Construction and leasehold improvements are the largest line at $16,900,000 to $24,500,000, and furniture, fixtures and equipment are $2,480,000 to $3,600,000 (pp. 34-36).[1] The cover page adds that up to $261,924 of the total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 36).[1] A buyer of an existing Homewood Suites should expect a PIP scope from Hilton, not an Item 7 number. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Homewood Suites performance? Item 19 of the 2026 Homewood Suites FDD reports a 2025 average room rate of $160.14, average occupancy of 78.9 percent and average RevPAR of $126.35 across 417 comparable U.S. hotels.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 538 U.S. Homewood Suites hotels at December 31, 2025, 417 were comparable, and 411 of those were franchisee-managed (p. 78).[1] Medians were a $150.02 room rate, 79.3 percent occupancy and $119.27 RevPAR. The ranges were $78.01 to $313.38 for room rate, 40.1 to 96.3 percent for occupancy and $40.53 to $298.02 for RevPAR. Of franchisee-managed hotels, 155, or 37.7 percent, met or exceeded the average RevPAR (pp. 78-79).[1] The average RevPAR index was 123.8 and the median 124.1, with a range from 76.5 to 227.2, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source (p. 80).[1] Hilton Honors members accounted for an average 81.2 percent of occupied room nights, with a range from 39.2 to 97.7 percent (pp. 80-81).[1] For the 90 comparable hotels opened during or after 2018, the averages were a $166.83 room rate, 79.7 percent occupancy and $132.96 RevPAR (pp. 81-83).[1] Item 19 reports revenue measures only. It gives no expenses, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 84).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### What does the Homewood Suites FDD say about extended stays? Item 19 defines an extended stay as a completed guest stay of 5 or more consecutive nights and reports that Homewood Suites had about 6.6 million extended stay nights in 2025, about 48 percent of all consumed room nights.[1] For comparable hotels in 2025, the average room rate on extended stays was $147.89 and the median was $142.47, with a range from $55 to $706 (p. 83).[1] Extended Stay Per Available Room, which Hilton abbreviates ESPAR, measures the percentage of available guest rooms occupied by extended stays. The average was 38.3 percent and the median 37.6 percent, with a range from 12 to 87 percent (p. 84).[1] The average length of an extended stay was 13.1 nights and the median 11.7 nights. Extended stays ranged from 6 to 86 nights (p. 84).[1] The same caveat applies: these are results some hotels achieved, with no assurance for any other hotel.[1] #### How long is a Homewood Suites franchise agreement, and can I renew it? Hilton's 2026 Homewood Suites FDD sets the term at generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Homewood Suites FDD (p. 69) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 26).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Homewood Suites franchise when the hotel is sold? A sale that changes control of a Homewood Suites is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Homewood Suites FDD (p. 74) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($200,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 26).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Homewood Suites before the term ends? Hilton's liquidated damages for a Homewood Suites that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Homewood Suites FDD (p. 27) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 33) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Homewood Suites hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Homewood Suites? Hilton may, in its sole discretion, offer a development incentive on a Homewood Suites, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Homewood Suites FDD (p. 44) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Homewood Suites franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Homewood Suites FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Homewood Suites Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 47 instances and the monthly program fee in 3 instances during 2025 (Item 6, p. 31), and in 2025 franchisees paid application fees from $0 to $100,000 for new construction or conversion, $20,000 to $200,000 for a change of ownership and $0 to $100,000 for re-licensing (Item 5, p. 17).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Homewood Suites by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000 plus $400 per guest room or suite over 150[1] | Item 5, p. 15 Application fee, change of ownership | $200,000[1] | Item 5, p. 15 Application fee, re-licensing | $100,000[1] | Item 5, p. 15 PIP fee | $10,000[1] | Item 5, p. 15 OnQ system: hardware, software, installation | $28,296 to $118,424[1] | Item 5, p. 16 Monthly royalty fee, new development or conversion | 3.5% of gross rooms revenue in year 1, 4.5% in year 2, 5.5% after[1] | Item 6, p. 20 Monthly royalty fee, change of ownership or re-licensing | 5.5% of gross rooms revenue[1] | Item 6, p. 20 Monthly program fee | 2.5% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 20 and 31 Hilton Honors | 1.7% of total eligible guest folio[1] | Item 6, p. 24 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 23 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,321 to $2,714 per month[1] | Item 6, p. 20 Permitted transfer processing fee | $5,500[1] | Item 6, p. 26 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 26 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, pp. 27-28 Estimated initial investment, 131 suites | $23,757,245 to $34,728,465, excluding real estate[1] | Item 7, p. 36 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: Homewood Suites brand fees on assumed rooms revenue, by year): Hypothetical. Assume a Homewood Suites earns $3,000,000 of gross rooms revenue in each year, and that $1,200,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. A new hotel's revenue would not be flat, so read this as a rate illustration only. New development or conversion, year one: royalty at 3.5 percent is $105,000 and program fee at 2.5 percent is $75,000, together $180,000.[1] Year two: royalty at 4.5 percent is $135,000, plus $75,000, together $210,000.[1] Year three onward, and any change of ownership or re-licensing: royalty at 5.5 percent is $165,000, plus $75,000, together $240,000.[1] Hilton Honors at 1.7 percent of eligible folio adds $1,200,000 x 0.017 = $20,400, and OnQ connectivity plus hardware and software maintenance add $20,652 to $39,768 a year.[1] At the 5.5 percent royalty, these four lines total $281,052 to $300,168. Hilton Advance fees, reservation charges, commissions and training are extra. The example shows fees only. It says nothing about profit. FAQ: - Q: What is the Homewood Suites royalty fee? A: Under the 2026 FDD, a new development or conversion pays 3.5 percent of gross rooms revenue in year one, 4.5 percent in year two and 5.5 percent after. A change of ownership or re-licensing pays 5.5 percent. The program fee is 2.5 percent.[1] - Q: How much does it cost to build a Homewood Suites? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $23,757,245 to $34,728,465 for a newly built 131-suite hotel, excluding real estate, market studies, insurance and interest. Up to $261,924 of that is paid to Hilton or its affiliates.[1] - Q: I'm buying an existing Homewood Suites. Do I get the lower starting royalty? A: No. The stepped royalty applies to new development and conversion. Item 6 lists 5.5 percent for a change of ownership, plus a $200,000 application fee and a $10,000 PIP fee. In 2025 buyers paid application fees of $20,000 to $200,000.[1] - Q: How long does a Homewood Suites franchise last? A: Generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a Homewood Suites owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index, Hilton Honors contribution and extended-stay measures for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: How much of Homewood Suites business is extended stay? A: Hilton reports about 6.6 million extended stay nights in 2025, about 48 percent of all consumed room nights, counting stays of 5 or more consecutive nights. The average extended stay at comparable hotels was 13.1 nights.[1] - Q: What does it cost to terminate a Homewood Suites franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months. Fee ramps are excluded when the average is calculated.[1] Sources: - [1] 2026 Homewood Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 15-19; Item 6, pp. 20-34; Item 7, pp. 34-38; Item 10, pp. 44-45; Item 17, pp. 68-77; Item 19, pp. 78-85 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Homewood.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Hyatt House franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/hyatt-house Last updated: 2026-10-01 Hyatt's 2026 Hyatt House disclosure document, issued March 27, 2026 and amended August 5, 2026, estimates $26,934,987 to $33,427,565 to build a 128-room extended-stay hotel, excluding real estate. The application fee is $75,000, or $150,000 to buy an existing Hyatt House. Ongoing, the royalty is 5 percent and the commercial services fee 3.5 percent of gross rooms revenue.[1] Key takeaways: - Application fee: $75,000 plus $500 per room over 150 for a hotel new to the brand, and $150,000 for a change of ownership.[1] - Royalty: 5 percent of gross rooms revenue. Commercial services fee: currently 3.5 percent, capped at 7 percent.[1] - World of Hyatt assessment: currently 4 percent of eligible revenue from members, or 2 percent on a stay where the guest enrolls at the hotel.[1] - Term: 20 years from opening, with one 10-year successor franchise for a complying owner.[1] - Fees change every year. Hyatt's current FDD and the signed franchise agreement govern, not this page. #### How is the Hyatt House FDD different from Hyatt Place? The fee schedule is the same in both 2026 documents. What differs is the building and the performance data: Hyatt House's Item 7 is $26,934,987 to $33,427,565 for 128 rooms, against $23,431,820 to $29,885,898 for a 127-room Hyatt Place.[1][3] Both FDDs list a $75,000 application fee, a $150,000 change of ownership fee, a 5 percent royalty and a 3.5 percent commercial services fee, and both use the same liquidated damages formula.[1][3] The construction line is where the two part: $22,677,248 to $25,877,248 at Hyatt House (Item 7, p. 31).[1] The Item 19 samples differ in kind as well as size. Hyatt House reports on 120 hotels, 111 of them franchised, and says about 9.9 percent of 2025 reservations were for 30 or more nights and another 9.3 percent for 12 to 29 nights (Item 19, pp. 76-77).[1] Financing for this segment is covered at [extended-stay hotel financing](/hotel-financing/extended-stay-financing). The full fee mechanics are on the [Hyatt Place guide](/hotel-franchise-costs/hyatt-place) and the [hotel franchise cost hub](/hotel-franchise-costs), so they are kept short here. #### What does Hyatt charge up front for a Hyatt House franchise? Hyatt House's 2026 Item 5 lists a $75,000 application fee for a hotel new to the brand and a $150,000 change of ownership application fee for a buyer of an existing Hyatt House.[1] The new development fee rises by $500 for each guest room over 150. If Hyatt does not approve the application, or the applicant withdraws before approval, Hyatt refunds the fee less $7,500. After approval the fee is non-refundable (Item 5, p. 9).[1] A conversion or a purchase of an existing Hyatt House also pays a PIP preparation fee that Hyatt expects to run $5,000 to $10,000, on top of a design review fee of $5,000 to $45,000. Operator approval and onboarding is $15,000 for two participants when the owner or management company is not already an approved operator. Initial training tuition is estimated at $15,750 to $34,500. An opening deadline extension is $10,000 (Item 5, pp. 9-12).[1] Hyatt states that in its 2025 fiscal year franchisees paid or committed to total initial fees of $35,077 to $186,998 (Item 5, p. 13).[1] The terms are defined at [PIP](/glossary/pip) and [comfort letter](/glossary/comfort-letter). #### What are the ongoing Hyatt House franchise fees? Hyatt House's 2026 Item 6 lists a 5 percent royalty and a 3.5 percent commercial services fee, both on gross rooms revenue, plus loyalty, digital and per-reservation charges billed on other bases.[1] Hyatt says the commercial services fee could increase if costs increase, up to 7 percent of gross rooms revenue, a cap that may itself rise by up to 10 percent a year. The fee covers brand marketing, central reservations, large-account sales, the property management system services and Hyatt's digital platforms (Item 6, pp. 20, 28).[1] The digital acquisition fee is currently 1.35 percent of gross rooms revenue booked through Hyatt's own websites and apps. Global distribution system reservations currently average about $8.50 each, passed through at cost. The property management system subscription is $3.90 per room per month. Mandatory vendor contracts are allocated at $1,500 to $7,500 per month. Revenue management service is optional at $500 to $3,675 per month by tier (Item 6, pp. 15, 20-21, 29).[1] The World of Hyatt assessment is currently 4 percent of eligible revenue, or 2 percent when the guest enrolls at the hotel for that stay. Each lender comfort letter is currently $2,500 (Item 6, p. 14).[1] These percentages apply to different revenue bases, so they cannot be added into one rate. #### How much does it cost to build or convert a Hyatt House? Hyatt House's 2026 Item 7 estimates $26,934,987 to $33,427,565 to build a new 128-room Hyatt House, excluding real estate costs.[1] Construction, improvements and sitework are the largest line at $22,677,248 to $25,877,248. Furniture, fixtures and equipment run $1,792,000 to $2,944,000, operating supplies and equipment $640,000 to $1,024,000, and architecture and design $576,000 to $832,000. A liquor license is estimated at $30,000 to $400,000. The table includes three months of additional funds at $276,000 to $525,000 and excludes finance charges, interest and debt service. Hyatt says these hotels typically occupy 1 to 3 acres (Item 7, pp. 31-35).[1] Hyatt does not state a per-room total, so none is printed here. Item 7 does not price a conversion. Hyatt says an owner converting from another brand, or buying an existing Hyatt House, will still incur significant costs to renovate to current standards, that those costs vary widely with the hotel's condition, and that Hyatt will prepare a PIP before the franchise agreement is signed (Item 7, p. 35).[1] Financing for that work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is the Hyatt House franchise term, and what does leaving cost? The Hyatt House franchise term expires 20 years after the first day of the month in which the hotel opens, and a complying franchisee may acquire one 10-year successor franchise on Hyatt's then current terms.[1] To qualify, the owner must have substantially complied during the term, be fully complying at the time, meet Hyatt's standards for new franchisees, have passing quality assurance scores for the previous three years, and hold rights to the hotel for at least 10 more years. The owner must also renovate, sign the then current agreement, which Hyatt says may be materially different including fees, pay the PIP fee, and sign a general release where state law allows (Item 17, p. 71).[1] Liquidated damages equal the lesser of 36 or the months remaining in the term, multiplied by the sum of 5 percent and 3.5 percent of average monthly gross rooms revenue. Payment is due within 15 days. The amount rises to 150 percent if the termination involves a transfer to a competitor, or if three or more Hyatt select service franchise agreements with the owner or its affiliates end through default or breach. An owner who keeps operating under the marks after termination owes $5,000 per day plus costs (Item 6, pp. 17, 26).[1] #### What happens to the Hyatt House franchise when I sell the hotel? A sale of the hotel or of a controlling ownership interest needs Hyatt's approval, and the buyer or seller pays the then current change of ownership application fee, which is $150,000 in the 2026 FDD.[1] Hyatt charges no separate transfer fee, and says the change of ownership fee will not exceed $200,000, a cap that may rise by up to 10 percent a year. It refunds the fee, less $7,500, if it disapproves the transfer (Item 6, p. 17).[1] Conditions for approval include a qualified buyer, completed training, a renovation commitment, a release from the seller and its guarantors, and Hyatt's view that the buyer's capital structure and debt service will not adversely affect the hotel. Hyatt may have the buyer sign its then current franchise agreement or assume the existing one. A buyer who acquires an existing Hyatt House from a franchisee takes the seller's remaining term (Item 17, pp. 71, 74).[1] Hyatt holds a right of first offer only where the parties sign Exhibit C, which Hyatt says it requires only in markets it treats as strategic (Item 17, p. 75).[1] Hyatt-flagged hotels on the market are listed at [Hyatt hotels for sale](/hotels-for-sale/hyatt), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Hyatt's Item 19 say about Hyatt House performance? Hyatt House's 2026 Item 19 reports that 111 franchised Hyatt House hotels open for all of 2025 averaged 74.9 percent occupancy, a $164.33 average daily rate and $123.00 RevPAR.[1] Those 111 hotels are the franchised subset of 120 covered hotels in the United States and Canada that operated during all of 2025. Three hotels that opened in 2025 are excluded. The covered hotels average 145 rooms and had carried the Hyatt House name for an average of 10.1 years. Among the franchised hotels, the median average daily rate was $154.79 and the median RevPAR $112.14, and 45 of the 111, or 40.5 percent, exceeded the average RevPAR. Hyatt reports the 33 franchised urban hotels separately, at $138.97 RevPAR (Item 19, pp. 76-79).[1] Hyatt also reports an average Smith Travel RevPAR index of 107.1 for the franchised hotels, an average of 62.1 percent of revenue from World of Hyatt members, and 58.9 percent of gross rooms revenue from direct channels. Hyatt says it did not develop Smith Travel's methodology and cannot confirm its accuracy (Item 19, pp. 80-83).[1] These are revenue statistics. Hyatt states that no certified public accountant audited them and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 83).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Hyatt House franchise fees, 2026 FDD issued March 27, 2026, as amended August 5, 2026 Fee | Amount | Where in the FDD Application fee, hotel new to the brand | $75,000 plus $500 per guest room over 150; refundable less $7,500 before approval[1] | Item 5, p. 9 Application fee, change of ownership | $150,000[1] | Item 5, p. 9 PIP preparation fee (conversion or purchase) | $5,000 to $10,000[1] | Item 5, pp. 9-10 Design review fee | $5,000 to $45,000[1] | Item 5, p. 12 Royalty fee | 5% of gross rooms revenue[1] | Item 6, p. 14 Commercial services fee | Currently 3.5% of gross rooms revenue, not to exceed 7%[1] | Item 6, p. 20 World of Hyatt program assessment | Currently 4% of eligible revenue, or 2% when the guest enrolls at the hotel for that stay[1] | Item 6, p. 14 Digital acquisition fee | Currently 1.35% of gross rooms revenue through Hyatt's digital channels[1] | Item 6, p. 20 GDS and other reservation services | Currently averages about $8.50 per reservation[1] | Item 6, p. 20 Property management system subscription | $3.90 per room per month[1] | Item 6, p. 15 Comfort letter fee | Currently $2,500 per letter[1] | Item 6, p. 14 Transfer | No transfer fee; the then current change of ownership application fee applies, not to exceed $200,000[1] | Item 6, p. 17 Liquidated damages | Lesser of 36 or months remaining, times 8.5% of average monthly gross rooms revenue; 150% in a consequential termination[1] | Item 6, pp. 17, 26 Estimated initial investment, new 128-room hotel | $26,934,987 to $33,427,565, excluding real estate[1] | Item 7, p. 33 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and SOFR at 3.90% on September 30, 2026, the indexes a construction loan or an acquisition loan for a franchised hotel is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Hyatt House brand fees on assumed rooms revenue): Hypothetical. Assume a 128-room Hyatt House earns $5,500,000 of gross rooms revenue in a year. The revenue figure and the channel and member shares below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty at 5 percent: $5,500,000 x 0.05 = $275,000.[1] Commercial services fee at 3.5 percent: $5,500,000 x 0.035 = $192,500.[1] Together: $467,500, or 8.5 percent of gross rooms revenue. If $1,500,000 of that revenue books through Hyatt's digital channels, the digital acquisition fee at 1.35 percent is $20,250.[1] If $3,000,000 is eligible revenue from World of Hyatt members, the assessment at 4 percent is $120,000.[1] Property management system subscription: 128 rooms x $3.90 x 12 months = $5,990.40.[1] On the same assumptions, liquidated damages at the 36-month cap would be $5,500,000 / 12 x 0.085 x 36 = $1,402,500, and 150 percent of that, $2,103,750, in a consequential termination.[1] Per-reservation fees, mandatory contract allocations and training come on top, so they are not estimated here. FAQ: - Q: How much does a Hyatt House franchise cost? A: The 2026 FDD lists a $75,000 application fee, a 5 percent royalty and a 3.5 percent commercial services fee. Item 7 estimates $26,934,987 to $33,427,565 to build a 128-room hotel, excluding real estate.[1] - Q: Is Hyatt House more expensive to build than Hyatt Place? A: On Hyatt's 2026 estimates, yes. A 128-room Hyatt House is $26,934,987 to $33,427,565, against $23,431,820 to $29,885,898 for a 127-room Hyatt Place. Both exclude real estate.[1][3] - Q: What percent of revenue does Hyatt take from a Hyatt House? A: A 5 percent royalty plus a 3.5 percent commercial services fee on gross rooms revenue. World of Hyatt, digital acquisition, per-reservation and technology charges are billed on other bases on top.[1] - Q: I'm buying an existing Hyatt House. What will Hyatt charge? A: A $150,000 change of ownership application fee, a PIP preparation fee Hyatt expects to run $5,000 to $10,000, and the cost of the PIP itself. There is no separate transfer fee. The buyer takes the seller's remaining term.[1] - Q: Can I renew a Hyatt House franchise? A: A complying owner may acquire one 10-year successor franchise on Hyatt's then current terms, after renovating, signing the then current agreement and paying the PIP fee.[1] - Q: Does the Hyatt House FDD say what a Hyatt House earns? A: Item 19 reports 2025 occupancy, average daily rate, RevPAR, Smith Travel indexes, World of Hyatt contribution and channel mix for 120 hotels. It gives no expenses and no profit.[1] - Q: Will these Hyatt House fees be the same next year? A: Not necessarily. Hyatt reissues the FDD every year, and most of its current fees carry a stated cap that can rise by up to 10 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] Hyatt House Franchise Disclosure Document (issued March 27, 2026, as amended August 5, 2026; Minnesota-specific filing): Item 5, pp. 9-13; Item 6, pp. 13-30; Item 7, pp. 31-35; Item 17, pp. 70-76; Item 19, pp. 76-84. Minnesota CARDS document 37110-202608-04, file number 5629, Clean FDD (Hyatt House Franchising, L.L.C., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B1023FB9F-0000-C81F-BD9C-6AD05228A886%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Hyatt Place Franchise Disclosure Document (issued March 27, 2026, as amended August 5, 2026): Item 5; Item 6; Item 7 total for a 127-room hotel. Wisconsin DFI franchise registration file 640505 (Hyatt Franchising, L.L.C., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640505&hash=1054368882&search=external&type=GENERAL ### How much does a Hyatt Place franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/hyatt-place Last updated: 2026-10-01 Hyatt's 2026 Hyatt Place disclosure document, issued March 27, 2026 and amended August 5, 2026, estimates $23,431,820 to $29,885,898 to build a 127-room hotel, excluding real estate. The application fee is $75,000, or $150,000 to buy an existing Hyatt Place. Ongoing, the royalty is 5 percent and the commercial services fee 3.5 percent of gross rooms revenue.[1] Key takeaways: - Application fee: $75,000 plus $500 per room over 150 for a hotel new to the brand, and $150,000 for a change of ownership.[1] - Royalty: 5 percent of gross rooms revenue. Commercial services fee: currently 3.5 percent of gross rooms revenue.[1] - World of Hyatt assessment: currently 4 percent of eligible revenue from members, or 2 percent on a stay where the guest enrolls at the hotel.[1] - Term: 20 years from opening. A buyer of an existing Hyatt Place takes the seller's remaining term.[1] - Fees change every year. Hyatt's current FDD and the signed franchise agreement govern, not this page. #### What does Hyatt charge up front for a Hyatt Place franchise? Hyatt Place's 2026 Item 5 lists a $75,000 application fee for a hotel new to the brand and a $150,000 change of ownership application fee for a buyer of an existing Hyatt Place.[1] The new development fee rises by $500 for each guest room over 150. If Hyatt does not approve the application, or the applicant withdraws before approval, Hyatt refunds the fee less $7,500. After approval the fee is non-refundable (Item 5, p. 9).[1] A conversion or a purchase of an existing Hyatt Place also pays a PIP preparation fee that Hyatt expects to run $5,000 to $10,000, on top of a design review fee of $5,000 to $45,000. Operator approval and onboarding is $15,000 for two participants when the owner or management company is not already an approved operator. Each lender comfort letter is $2,500. An opening deadline extension is $10,000 (Item 5, pp. 9-12).[1] Hyatt states that in its 2025 fiscal year franchisees paid or committed to total initial fees of $43,027 to $221,098 (Item 5, p. 13).[1] The terms are defined at [PIP](/glossary/pip) and [comfort letter](/glossary/comfort-letter). #### What are the ongoing Hyatt Place franchise fees? Hyatt Place's 2026 Item 6 lists a 5 percent royalty and a 3.5 percent commercial services fee, both on gross rooms revenue, plus loyalty, digital and per-reservation charges billed on other bases.[1] Gross rooms revenue follows the Uniform System of Accounts definition of total rooms revenue, plus resort or destination fees. For a newly built hotel, Hyatt says it may agree to reduce the royalty for the first one to three years (Item 6, pp. 13, 21-22).[1] The commercial services fee covers brand marketing, central reservations, revenue management technology, large-account group sales, the property management system and Hyatt's digital platforms. Hyatt says it could increase if costs increase (Item 6, pp. 19, 26-27).[1] The digital acquisition fee is currently 1.35 percent of gross rooms revenue booked through Hyatt's own websites and apps. Global distribution system reservations currently average about $8.50 each, passed through at cost. The property management system subscription is $3.90 per room per month (Item 6, pp. 15, 19, 27).[1] The World of Hyatt assessment is currently 4 percent of eligible revenue from members who give their number when booking, or 2 percent when the guest enrolls at the hotel for that stay (Item 6, pp. 14, 22).[1] These percentages apply to different revenue bases, so they cannot be added into one rate. #### How much does it cost to build or convert a Hyatt Place? Hyatt Place's 2026 Item 7 estimates $23,431,820 to $29,885,898 to build a new 127-room Hyatt Place, excluding real estate costs.[1] Construction, improvements and sitework are the largest line at $19,325,082 to $22,500,082. Furniture, fixtures and equipment run $1,651,000 to $2,794,000, and operating supplies and equipment $635,000 to $1,016,000. The table includes three months of additional funds at $276,000 to $525,000 and excludes finance charges, interest and debt service (Item 7, pp. 29-33).[1] Hyatt does not state a per-room total, so none is printed here. Item 7 does not price a conversion. Hyatt says an owner converting from another brand, or buying an existing Hyatt Place, will still incur significant costs to renovate to current standards, that those costs vary widely with the hotel's condition, and that Hyatt will prepare a PIP before the franchise agreement is signed (Item 7, p. 33).[1] Financing for that work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is the Hyatt Place franchise term, and can I renew? The Hyatt Place franchise term expires 20 years after the first day of the month in which the hotel opens, and a complying franchisee may acquire one 10-year successor franchise on Hyatt's then current terms.[1] To qualify for the successor franchise, the owner must have substantially complied during the term, be fully complying at the time, meet Hyatt's standards for new franchisees, have passing quality assurance scores for the previous three years, and hold rights to the hotel for at least 10 more years. The owner must also renovate, sign the then current agreement, which Hyatt says may be materially different including fees, pay the PIP fee, and sign a general release where state law allows (Item 17, pp. 69-70).[1] The franchisee may not terminate the franchise agreement except as the law allows, and Hyatt may not terminate it without cause (Item 17, pp. 70-71).[1] #### What happens to the Hyatt Place franchise when I sell the hotel? A sale of the hotel or of a controlling ownership interest needs Hyatt's approval, and the buyer or seller pays the then current change of ownership application fee, which is $150,000 in the 2026 FDD.[1] Hyatt charges no separate transfer fee. It refunds the change of ownership application fee, less $7,500, if it disapproves the transfer (Item 6, p. 16).[1] Conditions for approval include a qualified buyer, completed training, a renovation commitment, a release from the seller and its guarantors, and Hyatt's view that the buyer's capital structure and debt service will not adversely affect the hotel. Hyatt may have the buyer sign its then current franchise agreement or assume the existing one. A buyer who assumes an existing agreement takes the seller's remaining term (Item 17, pp. 69, 72-73).[1] Hyatt holds a right of first offer only where the parties sign Exhibit C, which Hyatt says it requires only in markets it treats as strategic (Item 17, p. 73).[1] Hyatt-flagged hotels on the market are listed at [Hyatt hotels for sale](/hotels-for-sale/hyatt). #### What does it cost to leave the Hyatt Place system early? Hyatt Place liquidated damages equal the lesser of 36 or the months remaining in the term, multiplied by 8.5 percent of average monthly gross rooms revenue.[1] The 8.5 percent is the sum of 5 percent for lost royalty fees and 3.5 percent for lost system services charges. Average monthly revenue is generally the hotel's average monthly gross rooms revenue over the 12 full months before termination. Payment is due within 15 days. The amount rises to 150 percent if the termination involves a transfer to a competitor, or if three or more Hyatt select service franchise agreements with the owner or its affiliates end through default or breach. An owner who keeps operating under the marks after termination owes $5,000 per day plus costs (Item 6, pp. 16, 24).[1] #### What does Hyatt's Item 19 say about Hyatt Place performance? Hyatt Place's 2026 Item 19 reports that 321 franchised Hyatt Place hotels open for all of 2025 averaged 71.2 percent occupancy, a $157.87 average daily rate and $112.46 RevPAR.[1] Those 321 hotels are the franchised subset of 346 covered hotels in the United States and Canada that operated during all of 2025. Eleven hotels that opened in 2025 and four that closed temporarily are excluded. The covered hotels average 139 rooms and had carried the Hyatt Place name for an average of 11.8 years. Among the franchised hotels, the median average daily rate was $141.12 and the median RevPAR $99.06, and 115 of the 321, or 35.8 percent, exceeded the average RevPAR (Item 19, pp. 75-77).[1] Hyatt also reports an average Smith Travel RevPAR index of 105.8 for the franchised hotels, an average of 56.5 percent of revenue from World of Hyatt members, and 57.2 percent of gross rooms revenue from direct channels. Hyatt says it did not develop Smith Travel's methodology and cannot confirm its accuracy (Item 19, pp. 78-81).[1] These are revenue statistics. Hyatt states that no certified public accountant audited them and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, pp. 81-82).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Hyatt Place franchise fees, 2026 FDD issued March 27, 2026, as amended August 5, 2026 Fee | Amount | Where in the FDD Application fee, hotel new to the brand | $75,000 plus $500 per room over 150[1] | Item 5, p. 9 Application fee, change of ownership | $150,000[1] | Item 5, p. 9 PIP preparation fee (conversion or purchase) | $5,000 to $10,000 expected[1] | Item 5, p. 9 Royalty fee | 5% of gross rooms revenue[1] | Item 6, p. 13 Commercial services fee (marketing, reservations, technology) | Currently 3.5% of gross rooms revenue[1] | Item 6, p. 19 World of Hyatt loyalty assessment | Currently 4% of eligible member revenue; 2% on an enrolling stay[1] | Item 6, pp. 14, 22 Digital acquisition fee | Currently 1.35% of gross rooms revenue booked through Hyatt's digital channels[1] | Item 6, p. 19 Global distribution and other reservation services | Currently averages about $8.50 per reservation[1] | Item 6, p. 19 Property management system subscription | $3.90 per room per month[1] | Item 6, p. 15 Transfer | No transfer fee; the then current change of ownership application fee applies[1] | Item 6, p. 16 Comfort letter | $2,500 per letter[1] | Item 6, p. 14 Liquidated damages | Lesser of 36 or months remaining, times 8.5% of average monthly gross rooms revenue; 150% in a consequential termination[1] | Item 6, p. 24 Estimated initial investment, new 127-room hotel | $23,431,820 to $29,885,898, excluding real estate[1] | Item 7, p. 31 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an application fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Hyatt Place brand fees on assumed rooms revenue): Hypothetical. Assume a 127-room Hyatt Place earns $5,000,000 of gross rooms revenue in a year. The revenue figure and the channel splits below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty fee at 5 percent: $5,000,000 x 0.05 = $250,000.[1] Commercial services fee at 3.5 percent: $5,000,000 x 0.035 = $175,000.[1] Together: $425,000, or 8.5 percent of rooms revenue. If $1,500,000 of that revenue is booked through Hyatt's digital channels, the digital acquisition fee at 1.35 percent is $20,250. If $2,500,000 is eligible World of Hyatt member revenue, the 4 percent assessment is $100,000. The property management system subscription at $3.90 x 127 rooms x 12 months is $5,943.60.[1] Per-reservation charges, training, conferences and quality assurance fees come on top and depend on the hotel, so they are not estimated here. FAQ: - Q: How much does a Hyatt Place franchise cost? A: Hyatt's 2026 FDD lists a $75,000 application fee, a 5 percent royalty, a 3.5 percent commercial services fee, and an estimated $23,431,820 to $29,885,898 to build a 127-room hotel, excluding real estate.[1] - Q: I'm buying an existing Hyatt Place. What does Hyatt charge me? A: The 2026 FDD lists a $150,000 change of ownership application fee, a PIP preparation fee expected at $5,000 to $10,000, and the cost of whatever renovation the PIP requires. Hyatt must approve the buyer.[1] - Q: What percent of revenue does Hyatt Place take? A: Five percent royalty plus a 3.5 percent commercial services fee, both on gross rooms revenue. The World of Hyatt assessment, digital acquisition fee and reservation charges are billed on other bases on top.[1] - Q: How long is a Hyatt Place franchise agreement? A: Twenty years from the first day of the month the hotel opens. A complying franchisee may acquire one 10-year successor franchise on Hyatt's then current terms, which may differ materially.[1] - Q: Does the Hyatt Place Item 7 estimate include land? A: No. The 2026 total excludes real estate costs, and it also excludes finance charges, interest and debt service.[1] - Q: Does Hyatt publish what a Hyatt Place earns? A: Item 19 reports 2025 occupancy, average daily rate, RevPAR, Smith Travel indexes and loyalty contribution for 346 covered hotels. It reports revenue measures only. It gives no expenses and no profit.[1] - Q: Will these Hyatt Place fees be the same next year? A: Not necessarily. Hyatt reissues the FDD every year and marks many fees as current amounts that could increase. The current FDD and the signed franchise agreement govern.[1] Sources: - [1] Hyatt Place 2026 Franchise Disclosure Document (issued March 27, 2026, as amended August 5, 2026): Item 5, pp. 9-13; Item 6, pp. 13-28; Item 7, pp. 29-33; Item 17, pp. 69-74; Item 19, pp. 74-82. Wisconsin DFI franchise registration file 640505 (Hyatt Place Franchising LLC, filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640505&hash=1054368882&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a La Quinta franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/la-quinta Last updated: 2026-10-01 Wyndham's La Quinta disclosure document, issued March 31, 2026, estimates $1,670,705 to $7,399,531 to convert a 100-room hotel the owner already holds, and $13,063,365 to $18,217,394 to build a 110-room La Quinta, before land. The initial fee is the greater of $55,000 or $550 per room. The royalty is 5.5 percent for the first 24 months and 6 percent after, plus a 3.5 percent system assessment fee.[1] Key takeaways: - Initial fee: the greater of $55,000 or $550 per guest room, with a $5,000 application fee credited toward it.[1] - Royalty: 5.5 percent of gross room revenues through the 24th full month after opening, then 6.0 percent. System assessment fee: 3.5 percent.[1] - Wyndham Rewards loyalty charge: 4.25 to 5.5 percent of the amounts on which members earn points.[1] - Term: 20 years, with no renewal right. Liquidated damages run to 36 months of royalties and system assessment fees.[1] - Fees change every year. Wyndham's current FDD and the signed franchise agreement govern, not this page. #### What does Wyndham charge up front for a La Quinta franchise? The 2026 La Quinta FDD lists an initial fee equal to the greater of $55,000 or $550 per guest room for a new construction or conversion hotel, with a non-refundable $5,000 application fee credited toward it.[1] The franchisor states that initial fees in 2025 ranged from $25,000 to $55,000, and that it may negotiate the amount and payment terms when business circumstances warrant. A dual-brand La Quinta and Hawthorn Suites project pays separate application and initial fees under each agreement (Item 5, pp. 25-26).[1] The SynXis property management system carries a one-time $6,000 set-up and implementation fee. The OPERA alternative, with on-site deployment, runs $15,550 to $29,300 plus interfaces. The Wyndham Gateway internet portal equipment is $1,500, a custom interior design review is up to $6,000, and an extension of the opening deadline is $10,000. A new construction franchisee must attend a development open house within six months of signing, at $1,499 (Item 5, pp. 26-28).[1] #### What are the ongoing La Quinta franchise fees? The 2026 La Quinta Item 6 lists a royalty of 5.5 percent of gross room revenues from opening through the 24th full calendar month and 6.0 percent for the rest of the term, plus a 3.5 percent system assessment fee.[1] Once the royalty is at 6.0 percent, the FDD says a hotel that achieves superior results may be eligible for a 0.5 percent annual royalty credit. On a transfer, a hotel already at 6.0 percent stays there. La Quinta's gross room revenues definition includes revenue from the rental or use of meeting rooms. The system assessment fee can change on 30 days' notice, and the franchisor may raise any fixed-dollar fee by up to 10 percent a year, cumulatively (Item 6, pp. 28, 40-41).[1] The Wyndham Rewards loyalty program charge is 4.25 to 5.5 percent of the amounts on which members earn points, varying with the hotel's enrollment results (Item 6, p. 35).[1] Global distribution system bookings are $7.85 per reservation, and third-party channel and internet booking fees are $2.60 each. The mandatory digital pay-for-performance commission is currently 7 percent, and can be up to 10 percent, of gross room revenues on qualifying reservations. The mandatory Wyndham Connect Plus service is 3.5 percent of gross room revenues on each reservation it books (Item 6, pp. 31-34).[1] La Quinta requires more services than Wyndham's economy brands. Standard revenue management is required at a minimum, at 0.75 percent of gross room revenues with a $645 monthly minimum and a $1,395 maximum. The remote sales service is required at $1,500 per month. The FDD says either requirement can be met another way under criteria set in system standards. The mobile operations program is mandated at $0.60 per room per month, property management system support is $734 to $1,050 per month, and continuing education is $1,200 per year (Item 6, pp. 30, 34-35, 37).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a La Quinta? The 2026 La Quinta Item 7 estimates $1,670,705 to $7,399,531 for a 100-room conversion, which the FDD states as $16,707 to $73,995 per room and which assumes the owner already owns the hotel.[1] Facility improvements are the largest conversion line at $375,000 to $4,535,000, with a conversion contingency of $18,750 to $226,750 (Item 7, pp. 46-47).[1] Unlike the Days Inn and Super 8 estimates, the low end is not zero. For new construction, the FDD estimates $13,063,365 to $18,217,394 for a 110-room La Quinta, or $118,758 to $165,613 per room, excluding the cost of buying or leasing real estate. The initial fee line in that table is $60,500, which is $550 times 110 rooms. For a new dual-brand La Quinta and Hawthorn Suites on a 103-room prototype, the FDD estimates $14,445,089 to $19,896,600, or $140,244 to $193,171 per room (Item 7, pp. 42-46).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a La Quinta franchise agreement, and can I terminate if occupancy is low? The La Quinta term is 20 years from the first day of the month on or after the opening date, Item 17 states there are no renewal or extension rights, and the agreement carries an occupancy-based termination right.[1] If the franchisor grants a 25-year term, the franchisee can terminate without cause after 20 years. If both sides choose to renew, the franchisee signs the then current agreement and pays the then current relicense fee (Item 17, pp. 78-79).[1] The occupancy right works on two consecutive measurement years after the second anniversary of opening, with written notice within 30 days after each year, and only for a franchisee in full compliance. Average monthly occupancy below 50 percent in both years allows termination with no termination fee. Between 50 and 60 percent, the fee equals the royalties that accrued over the preceding 12 months. Between 60 and 70 percent, it equals the royalties over the preceding 30 months. The franchisee must also have implemented the franchisor's marketing, sales and revenue management recommendations and must sign a general release (Item 6, pp. 41-42).[1] For a dual-brand operation this right is deleted (Item 17, p. 80).[1] #### What does it cost to leave the La Quinta system early? La Quinta liquidated damages are the greater of $3,000 per guest room or 36 times the monthly average of royalties and system assessment fees accrued over the preceding 12 full calendar months.[1] If fewer than 36 months remain in the term, the amount is that monthly average times the months remaining. For a termination before opening, or before the first anniversary of opening, the amount is the greater of $250,000 or $2,500 per authorized guest room. Payment is due within 10 days. An owner who does not de-identify the hotel afterward owes $2,000 per day, and reconnecting to the reservation system after a suspension is currently $5,000 (Item 6, pp. 38-40).[1] #### What happens to the La Quinta franchise when I sell the hotel? The buyer submits an application, pays the application fee and a relicense fee equal to the greater of $55,000 or $550 per room, signs the then current franchise agreement and improves the hotel as applicable.[1] The FDD reports that 2025 relicense fees on transfers ranged from $7,500 to $55,000, and on renewals from $10,000 to $55,000. An assignment to an affiliate of the franchisee is a flat $30,000, and an assignment to a lender or receiver is $7,500. The seller and its owners sign general releases unless the law restricts them, and the seller may have to repay a development incentive unless the buyer assumes it (Item 5, p. 26; Item 6, p. 29; Item 17, pp. 81-82).[1] A property improvement plan prepared after opening is currently $2,500 per request, a lender comfort letter is $1,000, and a failed-inspection reinspection is $3,000 to $5,500 plus travel (Item 6, pp. 29, 39).[1] Wyndham-flagged hotels on the market are listed at [Wyndham hotels for sale](/hotels-for-sale/wyndham), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about La Quinta performance? The 2026 La Quinta Item 19 reports that 435 qualified La Quinta hotels averaged a $112.75 average daily rate, 66.5 percent occupancy and $74.95 RevPAR in 2025.[1] There were 867 La Quinta hotels in the United States and Canada at December 31, 2025. The 435 qualified hotels are those that opened before January 1, 2024 and had at least ten guest reviews averaging 4.0 or better out of 5.0, a higher bar than the 3.0 used in the Days Inn and Super 8 documents. Hotels that left the system during 2025, 31 in all, are excluded. The median RevPAR was $73.13, and 201 of the 435, or 46.2 percent, met or exceeded the average (Item 19, pp. 84-85).[1] The FDD reports an average competitive set RevPAR index of 100 percent for the qualified hotels, from Smith Travel Research data the franchisor says it has not audited or verified. For all 867 hotels it reports an average central reservation system contribution of 88.0 percent of gross room revenue, of which Wyndham Rewards members account for 56.6 percent. The central reservation figure includes third-party websites (Item 19, pp. 85-86).[1] Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: La Quinta by Wyndham franchise fees, 2026 FDD issued March 31, 2026 Fee | Amount | Where in the FDD Application fee | $5,000, non-refundable, credited toward the initial fee[1] | Item 5, pp. 25-26 Initial fee, new construction or conversion | Greater of $55,000 or $550 per guest room[1] | Item 5, p. 26 Relicense fee, transfer or renewal | Greater of $55,000 or $550 per guest room[1] | Item 5, p. 26; Item 6, p. 29 Royalty | 5.5% of gross room revenues through the 24th full month, then 6.0%[1] | Item 6, p. 28 System assessment fee (marketing, advertising, reservations) | 3.5% of gross room revenues[1] | Item 6, p. 28 Wyndham Rewards loyalty program charge | 4.25% to 5.5% of amounts on which members earn points[1] | Item 6, p. 35 GDS fee; third-party channel and internet booking fees | $7.85 per reservation; $2.60 per reservation[1] | Item 6, pp. 31-32 Digital pay-for-performance commission | Currently 7%, up to 10%, of gross room revenues on qualifying reservations[1] | Item 6, p. 33 Wyndham Connect Plus | 3.5% of gross room revenues on each reservation booked through the service[1] | Item 6, pp. 33-34 Standard revenue management (required at a minimum) | 0.75% of gross room revenues; $645 to $1,395 per month[1] | Item 6, p. 34 Remote sales service (required) | $1,500 per month[1] | Item 6, pp. 34-35 PIP preparation fee, after opening | $2,500 per request[1] | Item 6, p. 29 Liquidated damages | Greater of $3,000 per room or 36 times average monthly royalties and system assessment fees[1] | Item 6, pp. 39-40 Estimated initial investment, 100-room conversion | $1,670,705 to $7,399,531; $16,707 to $73,995 per room; assumes the hotel is already owned[1] | Item 7, p. 47 Estimated initial investment, new 110-room hotel | $13,063,365 to $18,217,394; $118,758 to $165,613 per room, excluding real estate[1] | Item 7, p. 44 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a relicense fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of La Quinta brand fees on assumed room revenue): Hypothetical. Assume a 100-room La Quinta earns $3,000,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty in the first 24 months at 5.5 percent: $3,000,000 x 0.055 = $165,000. After month 24 at 6.0 percent: $3,000,000 x 0.06 = $180,000.[1] System assessment fee at 3.5 percent: $3,000,000 x 0.035 = $105,000.[1] Together: $270,000, or 9.0 percent of room revenue, in the first 24 months, and $285,000, or 9.5 percent, after. If Wyndham Rewards members earn points on $1,000,000 of that revenue, the loyalty program charge at 4.25 to 5.5 percent is $42,500 to $55,000.[1] Revenue management, remote sales, per-reservation fees, commissions and technology support come on top and depend on the hotel, so they are not estimated here. FAQ: - Q: How much does a La Quinta franchise cost? A: The 2026 FDD lists an initial fee of the greater of $55,000 or $550 per room, a royalty of 5.5 percent rising to 6 percent after 24 months, and a 3.5 percent system assessment fee. Item 7 estimates $1,670,705 to $7,399,531 for a 100-room conversion.[1] - Q: What royalty does Wyndham charge on a La Quinta? A: 5.5 percent of gross room revenues from opening through the 24th full calendar month, then 6.0 percent for the rest of the term. A hotel at 6.0 percent with superior results may be eligible for a 0.5 percent annual credit.[1] - Q: I'm buying a La Quinta. What is the relicense fee? A: The greater of $55,000 or $550 per room, plus the $5,000 application fee. The FDD says 2025 relicense fees on transfers ranged from $7,500 to $55,000. The buyer signs the then current agreement and improves the hotel as applicable.[1] - Q: Can I terminate a La Quinta franchise if occupancy is low? A: Yes, under conditions. Two consecutive measurement years below 50 percent average monthly occupancy allow termination with no fee. Between 50 and 70 percent, a fee of 12 or 30 months of royalties applies. Full compliance and timely notice are required.[1] - Q: How much does it cost to build a new La Quinta? A: The 2026 Item 7 estimates $13,063,365 to $18,217,394 for a 110-room hotel, or $118,758 to $165,613 per room, excluding the cost of buying or leasing real estate.[1] - Q: Does the La Quinta FDD say what a La Quinta earns? A: Item 19 reports 2025 average daily rate, occupancy, RevPAR, RevPAR index and reservation contribution for 435 qualified hotels. It gives no expenses and no profit.[1] - Q: Will these La Quinta fees be the same next year? A: Not necessarily. The FDD is reissued every year, and the franchisor may raise any fixed-dollar fee by up to 10 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] La Quinta Franchise Disclosure Document (issued March 31, 2026): Item 5, pp. 25-28; Item 6, pp. 28-42; Item 7, pp. 42-50; Item 17, pp. 78-84; Item 19, pp. 84-87. Wisconsin DFI franchise registration file 640629 (La Quinta Franchising LLC, filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640629&hash=1899216290&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Microtel by Wyndham franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/microtel Last updated: 2026-10-01 Wyndham's Microtel disclosure document, issued March 31, 2026, estimates $7,511,622 to $9,558,175 to build an 81-room Microtel Inn and Suites, or $92,736 to $118,002 per room, before land. The initial fee is the greater of $40,000 or $400 per room. The royalty is 6 percent and the marketing and reservation contribution 2 percent of gross room revenue.[1] Key takeaways: - Initial fee: the greater of $40,000 or $400 per guest room, with a $2,500 application fee credited toward it. The relicense fee on a sale uses the same formula.[1] - Royalty: 6 percent of gross room revenue. Marketing and reservation contribution: 2 percent.[1] - Item 7 prices new construction only: $7,511,622 to $9,558,175 for 81 rooms, excluding land.[1] - Term: 20 years, with no renewal right. Liquidated damages: the greater of $3,000 per room or 36 months of average recurring fees.[1] - Fees change every year. Wyndham's current FDD and the signed franchise agreement govern, not this page. #### How is the Microtel FDD different from Wyndham's other economy brands? Microtel is the new construction brand in this group. Its 2026 Item 7 prices only an 81-room new building, its royalty is 6 percent with a 2 percent marketing contribution, and its liquidated damages run 36 months.[1] Wyndham files its brands on a shared template, so the booking fees, the Wyndham Rewards charge and the technology schedule read the same as on the [Super 8 guide](/hotel-franchise-costs/super-8) and the [Days Inn guide](/hotel-franchise-costs/days-inn). The numbers that move are these. Super 8's 2026 FDD lists a 5.5 percent royalty and a 3 percent system assessment fee, an initial fee of the greater of $25,000 or $250 per room, and liquidated damages of the greater of $2,000 per room or 24 months of average fees.[3] Microtel lists 6 percent and 2 percent, the greater of $40,000 or $400 per room, and the greater of $3,000 per room or 36 months (Item 5, p. 26; Item 6, pp. 29, 42).[1] The Super 8 Item 7 includes a conversion table. The Microtel Item 7 does not, and its Item 19 breaks out hotels newly built since 2019.[1][3] The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs), so they are kept short here. #### What does Wyndham charge up front for a Microtel franchise? The 2026 Microtel FDD lists an initial fee for a new construction hotel equal to the greater of $40,000 or $400 per guest room, with a non-refundable $2,500 application fee credited toward it.[1] The franchisor states that initial fees in 2025 ranged from $16,000 to $25,000, and that it may negotiate the amount and payment terms when business circumstances warrant (Item 5, pp. 26-27).[1] The SynXis property management system carries a one-time $6,000 set-up and implementation fee. The OPERA alternative runs $11,000 to $22,100 plus interfaces. The Wyndham Gateway internet portal equipment is $1,500. A new construction franchisee must attend a Development Open House within six months of signing, at $1,499. A custom interior design review is up to $6,000, and an extension of the opening deadline is $5,000 (Item 5, pp. 27-28).[1] #### What are the ongoing Microtel franchise fees? The 2026 Microtel Item 6 lists a 6 percent royalty and a 2 percent marketing and reservation contribution, both on gross room revenue and due monthly.[1] The franchisor may raise any fixed-dollar fee by up to 10 percent a year, cumulatively (Item 6, pp. 29, 42).[1] The Wyndham Rewards loyalty program charge is 4.25 to 5.5 percent of the amounts on which members earn points, varying with the hotel's enrollment results (Item 6, p. 36).[1] Global distribution, third-party channel and internet booking fees are each $2.08 per reservation. The mandatory digital pay-for-performance commission is currently 7 percent, and can be up to 10 percent, of gross room revenue on reservations that arrive through paid search and similar links. The Wyndham Connect Plus service is 3.5 percent of gross room revenue on each reservation it books. Agency commissions can reach 20 percent (Item 6, pp. 32-33, 35).[1] Property management system support is $734 to $1,050 per month for SynXis and the lower OPERA tiers. Standard revenue management service is optional at 0.75 percent of gross room revenue, with a $645 monthly minimum and a $1,395 maximum (Item 6, pp. 35, 38).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to build a Microtel? The 2026 Microtel Item 7 estimates $7,511,622 to $9,558,175 for an 81-room new construction hotel, which the FDD states as $92,736 to $118,002 per room, excluding land.[1] Facility construction is the largest line at $5,895,800 to $7,209,975, with a contingency set at 5 percent of that. The FDD says the construction line includes minimal sitework and landscaping. Furniture, fixtures and equipment run $455,709 to $498,451, opening inventory $275,875 to $299,373, signage $40,000 to $100,000, and architecture, engineering, permits and related fees $182,250 to $485,500. Three months of additional funds are $118,052 to $183,647, which the FDD says excludes debt service and rent (Item 7, pp. 44-47).[1] The table does not include real estate. The franchisor says a site of about one to two acres is needed, and that impact fees, site evaluation, geotechnical and civil engineering fees are not in the estimate (Item 7, p. 46).[1] The FDD gives no estimate for improving an existing Microtel on a sale. That work is covered at [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans), a re-flag at [brand conversion financing](/hotel-financing/brand-conversion-financing), and a build at [hotel construction loans](/hotel-financing/construction-loans). #### How long is a Microtel franchise agreement, and what does leaving cost? The Microtel term is 20 years, starting the first day of the month after the opening date, and Item 17 states there are no renewal or extension rights.[1] If both sides choose to renew, the franchisee signs the then current franchise agreement, which may have materially different terms, and pays the then current relicense fee. The franchisee's termination rights in Item 17 are limited to casualty and condemnation (Item 17, pp. 75-76).[1] Liquidated damages are the greater of $3,000 per guest room or the average monthly recurring fees for the 12 months before termination, multiplied by 36. Recurring fees are the royalty and the marketing and reservation contribution. If fewer than 36 months remain, the average is multiplied by the months remaining. Termination before opening is charged at one half of the formula amount. The room count is the number the franchisor authorized, regardless of later reductions. Payment is due within 10 days. An owner who does not de-identify afterward owes $2,000 per day, and reconnecting to the reservation system after a suspension is currently $4,000 (Item 6, pp. 41-43).[1] #### What happens to the Microtel franchise when I sell the hotel? The buyer submits a franchise application and pays the application fee and a relicense fee equal to the greater of $40,000 or $400 per room.[1] The buyer signs the then current franchise agreement and must improve the hotel to the standards for hotels entering the chain. The seller and its owners sign general releases unless the law restricts them, and the seller may have to repay a development incentive unless the franchisor consents to the buyer assuming it. The FDD reports that 2025 relicense fees for transfers and renewals ranged from $25,000 to $40,000. An assignment to an affiliate of the original franchisee is a flat $5,000, and an assignment to a lender or receiver is $7,500 (Item 5, pp. 26-27; Item 6, p. 29; Item 17, pp. 77-78).[1] A property improvement plan prepared after opening is currently $1,500 per request, a three-party agreement or lender [comfort letter](/glossary/comfort-letter) is $1,000, and taking over an existing property management system without an upgrade is $995 (Item 5, p. 27; Item 6, pp. 30, 41).[1] Wyndham-flagged hotels on the market are listed at [Wyndham hotels for sale](/hotels-for-sale/wyndham), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about Microtel performance? The 2026 Microtel Item 19 reports that 141 qualified Microtel hotels averaged a $103.41 average daily rate, 57.6 percent occupancy and $59.60 RevPAR in 2025.[1] There were 307 Microtel hotels in the United States and Canada at December 31, 2025. The 141 qualified hotels are those with at least ten guest reviews in 2025 averaging 4.0 or better out of 5.0, excluding hotels that had not yet had a quality assurance inspection. Eight hotels that left the system during 2025 are excluded. The median RevPAR was $57.98, and 64 of the 141, or 45.4 percent, met or exceeded the average. The 24 qualified hotels newly built and opened since January 1, 2019 averaged a $125.26 rate and $73.29 RevPAR (Item 19, pp. 81-82).[1] The FDD reports an average competitive set RevPAR index of 108.5 percent for the qualified hotels, from Smith Travel Research data the franchisor says it has not audited or verified, and notes that 40 percent of the hotels in those competitive sets were economy hotels. For all 307 hotels it reports an average central reservation system contribution of 85.5 percent of gross room revenue, of which Wyndham Rewards members account for 60.7 percent. The central reservation figure includes third-party websites (Item 19, pp. 82-83).[1] More than half of the system did not meet the review-score screen, so the qualified averages describe the better-reviewed hotels, not the whole brand. Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Microtel Inn and Suites by Wyndham franchise fees, 2026 FDD issued March 31, 2026 Fee | Amount | Where in the FDD Application fee | $2,500, non-refundable, credited toward the initial fee[1] | Item 5, p. 26 Initial fee, new construction | Greater of $40,000 or $400 per guest room[1] | Item 5, p. 26 Relicense fee, transfer or renewal | Greater of $40,000 or $400 per guest room[1] | Item 5, p. 26; Item 6, p. 29 Royalty | 6% of gross room revenue[1] | Item 6, p. 29 Marketing and reservation contribution | 2% of gross room revenue[1] | Item 6, p. 29 Wyndham Rewards loyalty program charge | 4.25% to 5.5% of amounts on which members earn points[1] | Item 6, p. 36 GDS, third-party channel and internet booking fees | $2.08 per reservation, each[1] | Item 6, p. 32 Digital pay-for-performance commission | Currently 7%, up to 10%, of gross room revenue on qualifying reservations[1] | Item 6, p. 33 Wyndham Connect Plus | 3.5% of gross room revenue on each reservation booked through the service[1] | Item 6, p. 35 Property management system support | $734 to $1,050 per month[1] | Item 6, p. 38 Development Open House (new construction) | $1,499[1] | Item 5, p. 28 PIP preparation fee, after opening | $1,500 per request[1] | Item 6, p. 30 Liquidated damages | Greater of $3,000 per room or 36 times average monthly recurring fees[1] | Item 6, p. 42 Estimated initial investment, new 81-room hotel | $7,511,622 to $9,558,175; $92,736 to $118,002 per room, excluding land[1] | Item 7, p. 45 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a relicense fee, a PIP or a new build is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Microtel brand fees on assumed room revenue): Hypothetical. Assume an 81-room Microtel earns $1,750,000 of gross room revenue in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Initial or relicense fee: 81 rooms x $400 = $32,400, which is under $40,000, so $40,000. At 120 rooms it would be $48,000.[1] Royalty at 6 percent: $1,750,000 x 0.06 = $105,000.[1] Marketing and reservation contribution at 2 percent: $1,750,000 x 0.02 = $35,000.[1] Together: $140,000, or 8 percent of room revenue. If Wyndham Rewards members earn points on $700,000 of that revenue, the loyalty program charge at 4.25 to 5.5 percent is $29,750 to $38,500.[1] On the same assumptions, 36 months of average recurring fees is $140,000 / 12 x 36 = $420,000. That is more than $3,000 x 81 rooms = $243,000, so $420,000 would be the liquidated damages figure under the Item 6 formula.[1] Per-reservation fees, commissions, technology support and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Microtel franchise cost? A: The 2026 FDD lists an initial fee of the greater of $40,000 or $400 per room, a 6 percent royalty and a 2 percent marketing and reservation contribution. Item 7 estimates $7,511,622 to $9,558,175 to build an 81-room hotel, excluding land.[1] - Q: What percent of revenue does Wyndham take from a Microtel? A: A 6 percent royalty plus a 2 percent marketing and reservation contribution on gross room revenue. Loyalty charges, booking fees, commissions and technology support are billed on other bases on top.[1] - Q: I'm buying a small Microtel. What is the relicense fee? A: The greater of $40,000 or $400 per room, so $40,000 for any hotel of 100 rooms or fewer, plus the $2,500 application fee. The FDD says 2025 relicense fees ranged from $25,000 to $40,000.[1] - Q: Can I convert an existing hotel to a Microtel? A: The 2026 Item 7 prices only an 81-room new construction hotel and gives no conversion estimate. Item 5 does mention conversion facilities, so ask the franchisor what it would require for a specific building.[1] - Q: How long is a Microtel franchise agreement? A: Twenty years. Item 17 states there are no renewal or extension rights. A renewal, if both sides agree, means signing the then current agreement and paying the relicense fee.[1] - Q: What does it cost to leave Microtel early? A: The greater of $3,000 per guest room or 36 times the average monthly royalty and marketing contribution for the prior 12 months, due within 10 days. Before opening it is one half of that.[1] - Q: Will these Microtel fees be the same next year? A: Not necessarily. The FDD is reissued every year, and the franchisor may raise any fixed-dollar fee by up to 10 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] Microtel Inn and Suites by Wyndham Franchise Disclosure Document (issued March 31, 2026): Item 5, pp. 26-28; Item 6, pp. 29-43; Item 7, pp. 44-47; Item 17, pp. 75-80; Item 19, pp. 80-83. Wisconsin DFI franchise registration file 640626 (Microtel Inns and Suites Franchising, Inc., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640626&hash=1429391954&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Super 8 Franchise Disclosure Document (issued March 31, 2026): Item 5, p. 24; Item 6, pp. 27, 37; Item 7, pp. 39-46. Wisconsin DFI franchise registration file 640628 (Super 8 Worldwide, Inc., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640628&hash=1250533202&search=external&type=GENERAL ### How much does a Motel 6 franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/motel-6 Last updated: 2026-10-01 G6 Hospitality Franchising's Motel 6 disclosure document, issued March 5, 2026 and amended August 1, 2026, estimates $195,259 to $1,600,000 to renovate a 100-room motel into a Motel 6, and $6,251,265 to $8,900,000 to build one, before land or acquisition costs. The franchise fee is $25,000. The royalty is 5 percent, the program fee 3 percent and the reservation fee 1 percent of gross room revenues.[1] Key takeaways: - Franchise fee: currently $25,000, plus a $5,000 application fee, a $1,950 PIP or site evaluation fee, and opening fees of $4,750 and $4,600.[1] - Royalty: 5 percent of gross room revenues. Program fee: currently 3 percent. Reservation fee: currently 1 percent.[1] - Transfer: a $5,000 transfer application fee plus a transfer franchise fee of currently $12,500.[1] - Term: 15 years for a conversion, 20 years for a new build, with a 10-year renewal.[1] - Fees change every year. The current FDD and the signed franchise agreement govern, not this page. #### What does Motel 6 charge up front for a franchise? The 2026 Motel 6 FDD lists a franchise fee of currently $25,000, payable on signing, plus a $5,000 application fee.[1] A conversion also pays a $1,950 PIP fee for the franchisor to prepare the [property improvement plan](/glossary/pip), and a new build pays the same amount as a site evaluation fee. The opening package fee is currently $4,750 and the opening assistance fee $4,600. Item 7 totals these initial fees at $41,300 for a 100-room motel (Item 5, pp. 9-10; Item 7, pp. 22-23).[1] The franchisor says it may reduce the franchise fee, in its sole discretion, for existing Motel 6 or Studio 6 franchisees in compliance, for owners signing several agreements at once, for market conditions, or for an applicant who qualifies for its LIGHT THE WAY incentive program. An inspection or re-inspection before opening is $3,000 to $5,000, and an opening extension is $2,500 to $5,000 for every six months. The FDD also says all fixed dollar amounts may be adjusted each year for changes in the Consumer Price Index (Item 5, pp. 9-11; Item 6, p. 21).[1] #### What are the ongoing Motel 6 franchise fees? The 2026 Item 6 lists a 5 percent royalty, a program fee of currently 3 percent and a reservation fee of currently 1 percent, all on gross room revenues.[1] The two smaller fees can move. The program fee may rise by no more than 0.5 percent in any 12-month period, to a maximum of 5.5 percent over the term. The reservation fee may rise on the same pace to a maximum of 2 percent. Gross room revenues are gross receipts from the rental of authorized guest rooms, collected or not, and are not reduced by credit card commissions, bad debts or refunds (Item 6, pp. 11-12, 21).[1] Technology is charged per room. The IT services fee is currently $400 per month plus $4.00 per authorized guest room per month, and the property management software fee is $4.00 per room per month. Each can rise to $6.00 per room. Booking fees and travel agency commissions currently run up to 20 percent of the room rate on the bookings they apply to. Direct connect channel fees are $1.50 to $2.50 per reservation, and the mandatory call transfer program is 3.5 percent of consumed revenue, capped at $6.95 per call. The annual conference fee is $1,850 to $5,000 per motel (Item 6, pp. 12-14, 16).[1] The Item 6 table lists no loyalty program charge. Revenue management for hire is optional at $499 to $1,999 per month by tier (Item 6, p. 13).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a Motel 6? The 2026 Item 7 estimates $195,259 to $1,600,000 to renovate a 100-room motel, which the FDD states as $1,953 to $16,000 per guest room.[1] Construction expenses for a renovation run from $0 to $620,000 and furniture, fixtures and equipment from $17,500 to $430,000, each with its own contingency line. Signage is $5,830 to $60,500, and three months of additional funds are $110,000 to $175,000. A footnote prices a renovation to the older Motel 6 Classic scheme at $709,479 to $2,145,596 (Item 7, pp. 22-25).[1] New construction of a 100-room motel on the current prototype is estimated at $6,251,265 to $8,900,000, or $62,513 to $89,000 per guest room. Both totals exclude land and acquisition costs, and the franchisor gives no estimate for buying an existing motel to convert. It says a new construction motel typically needs about 1 acre (Item 7, p. 23).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is a Motel 6 franchise agreement, and can I get out early? The Motel 6 term is 15 years for a conversion or 20 years for a new build, measured from the opening date, with a 10-year renewal the franchisor may allow.[1] Renewal requires compliance, a renewal application and application fee of currently $5,000, a renewal franchise fee of currently $12,500, training, a PIP, a general release and the then current form of agreement, which may be materially different (Item 6, p. 20; Item 17, p. 44).[1] The franchisee has two exits in Item 17. One follows a casualty that would cost more than 50 percent of the motel's fair market value to repair, with no liquidated damages if notice is given within 60 days. The other opens in or after the 25th month from opening, on advance notice and payment of any applicable liquidated damages, and only if the motel has met guest satisfaction and quality standards, stayed in compliance, joined all advertising campaigns, and run at or below the occupancy level written into its agreement for the prior 12 months. The FDD adds that the franchisor may negotiate mutual termination windows without liquidated damages in some cases (Item 17, p. 45).[1] #### What does it cost to leave the Motel 6 system early? Motel 6 liquidated damages are currently the greater of $2,000 per authorized guest room or 24 times the average monthly royalty, program and reservation fees accrued over the prior 12 full months.[1] They are payable immediately if the agreement ends early through the franchisee's default, including a failure to open. The same table carries a separate line, lost future profits for early termination, stated as gross operating revenue minus operating expenses, multiplied by the months remaining in the term, payable if the franchisee stops operating under the marks or loses possession of the motel. An owner who does not de-identify owes $50 per authorized guest room per day plus the cost of removing signs. Reconnection to the reservation system after a default is up to $2,500 (Item 6, pp. 18-19).[1] Anyone weighing an exit should have franchise counsel read both damages lines in the agreement itself. #### What happens to the Motel 6 franchise when I sell the motel? The buyer pays a transfer application fee of currently $5,000 and a transfer franchise fee of currently $12,500, which the FDD describes as generally 50 percent of the then current franchise fee.[1] That transfer fee buys the remainder of the seller's term. A buyer who wants a longer term may pay an additional fee of up to $12,500, which brings the total to the franchise fee for a new franchise. The buyer also pays a $1,950 PIP fee, a transfer package of up to $4,600 and training and assistance of up to $4,750. The fee drops to $2,500 when a majority owner buys out a minority owner (Item 6, pp. 19-21).[1] Conditions include a qualified buyer, the then current agreement, a guarantee from the buyer's owners, a general release from the seller, manager training and conformity with current standards. The franchisor holds a right of first refusal to buy the motel on the terms of a bona fide offer. A lender [comfort letter](/glossary/comfort-letter) is $1,000 to $1,500, and a rush document request adds $1,000 to $2,500 (Item 6, p. 16; Item 17, p. 47).[1] The flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about Motel 6 performance? The 2026 Item 19 reports that 1,119 franchised Motel 6 locations averaged 57.01 percent occupancy, a $68.69 average daily rate and $39.23 RevPAR in 2025.[1] The sample is the franchised motels in the United States that had operated as franchised properties for at least two full years at December 31, 2025. The median RevPAR was $35.84, the range was $4.90 to $145.24, and 451 motels, or 42.9 percent, met or exceeded the average. A second chart covers the 539 motels, about 48.2 percent of the sample, that held the franchisor's internal A or B ranking. They averaged 68.3 percent occupancy, a $71.02 average daily rate and $48.49 RevPAR. Item 20 counts 1,197 franchised outlets at the end of 2025 (Item 19, pp. 49-50; Item 20, p. 51).[1] The franchisor says the data comes from its internal records based on information franchised locations supplied electronically, that it has not audited the franchisee data, and that there is no assurance a buyer will achieve the stated results. Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it (Item 19, p. 50).[1] The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Motel 6 franchise fees, 2026 FDD issued March 5, 2026, as amended August 1, 2026 Fee | Amount | Where in the FDD Application fee | Currently $5,000[1] | Item 5, p. 9 Franchise fee | Currently $25,000[1] | Item 5, p. 9 PIP fee (conversion) or site evaluation fee (new construction) | Currently $1,950[1] | Item 5, p. 9 Opening package fee and opening assistance fee | Currently $4,750 and $4,600[1] | Item 5, pp. 9-10 Royalty fee | 5% of gross room revenues[1] | Item 6, p. 11 Program fee | Currently 3% of gross room revenues, maximum 5.5%[1] | Item 6, p. 12 Reservation fee | Currently 1% of gross room revenues, maximum 2%[1] | Item 6, p. 12 IT services fee | Currently $400 per month plus $4.00 per authorized guest room per month[1] | Item 6, p. 12 PMS software fee | Currently $4.00 per authorized guest room per month[1] | Item 6, p. 12 Booking fees and travel agency commissions | Currently up to 20% of the total room rate and other commissionable charges[1] | Item 6, p. 14 Transfer application fee and transfer franchise fee | Currently $5,000 and $12,500[1] | Item 6, p. 19 Renewal application fee and renewal franchise fee | Currently $5,000 and $12,500, for a 10-year renewal[1] | Item 6, p. 20 Liquidated damages for early termination | Greater of $2,000 per authorized guest room or 24 times average monthly royalty, program and reservation fees[1] | Item 6, p. 18 Estimated initial investment, 100-room renovation | $195,259 to $1,600,000; $1,953 to $16,000 per guest room, excluding acquisition costs[1] | Item 7, p. 23 Estimated initial investment, new 100-room motel | $6,251,265 to $8,900,000; $62,513 to $89,000 per guest room, excluding land[1] | Item 7, p. 23 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a franchise fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Motel 6 brand fees on assumed room revenue): Hypothetical. Assume a 100-room Motel 6 earns $1,400,000 of gross room revenues in a year. The revenue figure is an assumption for arithmetic. It is not a forecast and it is not a figure from the FDD. Royalty fee at 5 percent: $1,400,000 x 0.05 = $70,000.[1] Program fee at 3 percent: $1,400,000 x 0.03 = $42,000.[1] Reservation fee at 1 percent: $1,400,000 x 0.01 = $14,000.[1] Together: $126,000, or 9 percent of room revenue. IT services fee: $400 + 100 rooms x $4.00 = $800 per month, or $9,600 for the year. PMS software fee: 100 rooms x $4.00 = $400 per month, or $4,800 for the year.[1] On the same assumptions, 24 months of average fees is $126,000 / 12 x 24 = $252,000. That is more than $2,000 x 100 rooms = $200,000, so $252,000 would be the liquidated damages figure, before the separate lost future profits line.[1] A buyer of the same motel would pay $5,000 + $12,500 + $1,950 = $19,450 in transfer application, transfer franchise and PIP fees, before the transfer package and training.[1] Booking fees, commissions and conference fees come on top, so they are not estimated here. FAQ: - Q: How much does a Motel 6 franchise cost? A: The 2026 FDD lists a $25,000 franchise fee, a $5,000 application fee, a 5 percent royalty, a 3 percent program fee and a 1 percent reservation fee. Item 7 estimates $195,259 to $1,600,000 to renovate a 100-room motel.[1] - Q: What percent of revenue does Motel 6 take? A: Currently 9 percent of gross room revenues: a 5 percent royalty, a 3 percent program fee and a 1 percent reservation fee. The program fee can rise to 5.5 percent and the reservation fee to 2 percent. Technology, booking fees and commissions come on top.[1] - Q: I'm buying a Motel 6. What does the transfer cost? A: Currently a $5,000 transfer application fee, a $12,500 transfer franchise fee for the seller's remaining term, and a $1,950 PIP fee, plus a transfer package of up to $4,600 and training of up to $4,750.[1] - Q: How much does it cost to build a new Motel 6? A: The 2026 Item 7 estimates $6,251,265 to $8,900,000 for a 100-room motel, or $62,513 to $89,000 per guest room, excluding land. The franchisor says a new motel typically needs about 1 acre.[1] - Q: How long is a Motel 6 franchise agreement? A: Fifteen years for a conversion and 20 years for a new build, from the opening date. The franchisor may allow a 10-year renewal for a renewal franchise fee of currently $12,500.[1] - Q: Does Motel 6 charge a loyalty program fee? A: The 2026 Item 6 table lists no loyalty program charge. It lists a program fee, a reservation fee, technology fees, booking fees and commissions.[1] - Q: Will these Motel 6 fees be the same next year? A: Not necessarily. The FDD is reissued every year, most fees are stated as current amounts, and the franchisor may adjust fixed dollar amounts each year for changes in the Consumer Price Index.[1] Sources: - [1] Motel 6 Franchise Disclosure Document (issued March 5, 2026, as amended August 1, 2026): Item 5, pp. 9-11; Item 6, pp. 11-22; Item 7, pp. 22-26; Item 17, pp. 44-49; Item 19, pp. 49-50; Item 20, p. 51. Minnesota CARDS document 37091-202608-03, file number 5053, Clean FDD (G6 Hospitality Franchising LLC, filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B2024F19F-0000-C017-AE72-5946EB5949AC%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Quality Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/quality-inn Last updated: 2026-10-12 Choice Hotels' Quality disclosure document, issued April 1, 2026 and amended May 20, 2026, estimates $332,295 to $1,859,295 to convert a 75-room hotel to a Quality Inn, before real estate. The affiliation fee is $500 per room with a $45,000 minimum. The royalty is 5.25 percent and the marketing and reservation fee 3.5 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $500 per room for a hotel new to the system, $550 per room for a transfer or renewal, $45,000 minimum either way.[1] - Royalty: 5.25 percent of gross room revenues. Marketing and reservation fee: 3.5 percent.[1] - Item 7 prices a conversion only. The 2026 Quality FDD has no new construction table.[1] - Term: 20 years with no renewal provision. Either side may terminate on the 5th, 10th or 15th anniversary with 12 months' notice.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What is different about the Quality Inn FDD? Quality is a conversion brand in Choice's 2026 filings: its Item 7 estimates only the cost of converting an existing hotel, and its royalty is 5.25 percent.[1] Choice files one disclosure document per brand on a shared template, so most of the fee table reads the same from brand to brand. The numbers that move are the royalty, the affiliation fee, the technology fee and the liquidated damages rate. In the 2026 filings read for this page, the royalty is 5.25 percent at Quality, 5.5 percent at Sleep Inn and 5.0 percent at Econo Lodge, and the marketing and reservation fee is 3.5 percent at all three.[1][3][4] The per-room rate inside the liquidated damages formula is $70 at Quality, $80 at Sleep Inn and $25 at Econo Lodge.[1][3][4] The Quality Item 7 is built on a 75-room conversion. The Sleep Inn Item 7 is built on an 84-room new building and says Choice cannot estimate a conversion.[1][3] The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs). #### What does Choice charge up front for a Quality Inn franchise? The 2026 Quality FDD lists an affiliation fee of $500 per room for a hotel new to the system and $550 per room for a transfer or renewal, with a $45,000 minimum in both cases.[1] A non-refundable $5,000 application fee is credited toward the affiliation fee. If Choice does not grant the franchise, it refunds the affiliation fee less that $5,000. Choice states that affiliation fees on new Quality agreements in the 12 months ending December 31, 2025 ranged from $2,500 to $65,450, and that it has reduced the fee for multi-unit owners, larger properties and owners leaving other chains, without any obligation to do so (Item 5, p. 25).[1] The mandatory Brand in a Box program costs about $15,150 to $30,000 and covers the choiceADVANTAGE property management system license, its hardware and other pre-opening items. Choice will bill it over 12 months with no interest. Required training runs $3,345 to $5,295 per person before travel. An extension of the renovation deadline is $5,000 per three months, and a waiver from the approved interior design schemes is $20,000, payable whether or not it is granted (Item 5, pp. 25-27).[1] #### What are the ongoing Quality Inn franchise fees? Choice's 2026 Item 6 lists a 5.25 percent royalty and a 3.5 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] Gross room revenues include sleeping rooms, meeting rooms and banquet rooms, guaranteed no-show revenue, early departure and late checkout fees, and business interruption proceeds. Food and beverage sales and taxes are excluded. Choice may raise the marketing and reservation fee for inflation or cost increases if the increase applies to all or most of its U.S. hotels. The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 27-28, 40-41).[1] The Choice Privileges fee is 4.5 to 5.5 percent of room revenue from rewards members, varying with the hotel's enrollment performance. Choice Accelerate is 3 percent of gross room revenue from stays booked through direct online channels. Third-party distribution is $4.00 per consumed reservation from directly connected online travel agents, and global distribution system reservations are currently $7.70 each. The mandatory ResConnect program is 3.50 percent of the gross room revenue its team books for the hotel (Item 6, pp. 28-30, 37).[1] The property technology and service fee is $9.65 per room per month, with a $625 minimum and a $925 maximum. The ChoiceMAX pricing software is mandatory at $235 to $360 per month with a $2,500 set-up fee. ChoiceROCS revenue management service is optional at $635 to $1,400 per month (Item 6, pp. 31, 33).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert a hotel to a Quality Inn? Choice's 2026 Item 7 estimates $332,295 to $1,859,295 to convert a 75-room hotel to a Quality brand, which Choice states as $4,431 to $24,791 per room.[1] Property improvement is the largest line at $159,000 to $1,186,000. Choice bases it on a typical property improvement plan and says it excludes deferred maintenance such as the parking lot, HVAC and exterior, and excludes the labor for the improvements. Signs run $20,000 to $100,000 and opening supplies $27,300 to $153,000. The table excludes the cost of buying or leasing real estate (Item 7, pp. 42-43).[1] The total assumes the hotel is open and operating with its own furniture, fixtures and equipment. If those do not meet Choice's standards, Choice estimates another $5,000 to $7,000 per room to bring them up (Item 7, p. 44).[1] Choice issues a customized plan on application. Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a Quality Inn franchise agreement, and can I get out early? The Quality franchise term is 20 years from the opening date, the FDD lists no renewal provision, and both parties hold termination rights on set anniversaries.[1] Either the franchisee or Choice may terminate on the 5th, 10th or 15th anniversary of the opening date with at least 12 months' written notice, and the franchisee must keep paying all fees through the end. An owner who takes Choice's incentive program waives the 5th anniversary window unless the incentive note is a five-year note, and Choice waives its own in the same case. For a replacement agreement on an existing Quality hotel, Choice may offer a term shorter than 20 years (Item 17, p. 72).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $70 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next penalty-free termination date, capped at 36 months. Before opening, the amount is the room count times 36 months times $70. Continued use of the marks after termination costs $2,500 per day, and reinstatement to the reservation system after a suspension is $5,000 (Item 6, p. 40).[1] #### What happens to the Quality Inn franchise when I sell the hotel? Choice must approve any transfer of more than 5 percent of the ownership, and a buyer of a controlling interest signs Choice's then current franchise agreement and pays a relicensing fee.[1] Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $45,000, whichever is greater. The buyer also pays a $3,000 property improvement plan fee for the inspection and the plan that is written into the buyer's agreement, $995 for relicensing training, and a $500 property management system database clean-up fee. A transfer of less than 50 percent carries a $7,500 assumption fee and a $3,000 change of ownership fee (Item 5, p. 25; Item 6, pp. 32, 34-36; Item 17, p. 73).[1] The buyer must meet Choice's qualifications for new franchisees, and the hotel must meet the then current brand image and standards (Item 17, p. 73).[1] A lender [comfort letter](/glossary/comfort-letter) is $2,500, plus $500 if needed within one to three days (Item 6, p. 35).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Choice's Item 19 say about Quality Inn performance? Choice's 2026 Item 19 reports that 1,498 Quality hotels in its performance sample averaged 50.7 percent occupancy, an $87.96 average daily rate and $44.57 RevPAR in 2025.[1] There were 1,566 open Quality hotels in the United States at December 31, 2025, all franchised. The sample is the 1,498 that were operating on or before January 1, 2025, excluding hotels that repositioned from another Choice brand during 2025, had at least 30 days of incomplete data, or were interrupted for more than 30 consecutive days. The median RevPAR was $43.83, the range was $8.32 to $133.99, and 726 hotels, or 48.5 percent, met or exceeded the average (Item 19, pp. 76-77).[1] Choice also reports an average total Choice enterprise contribution of 74.2 percent of gross room revenues and an average Choice Privileges contribution of 44.9 percent. The enterprise figure counts online travel agent bookings made through Choice's negotiated relationships. A second table covers the 719 sample hotels with a guest recommendation score above the brand average, which averaged $51.01 RevPAR (Item 19, pp. 77-78).[1] Choice states that the figures come from information franchisees provided, and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 78).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Quality Inn, Quality Inn and Suites, Quality Hotel, Quality Resort and Quality Suites franchise fees, 2026 FDD issued April 1, 2026, as amended May 20, 2026 Fee | Amount | Where in the FDD Affiliation fee, hotel new to the system | $500 per room, $45,000 minimum; $5,000 application fee credited toward it[1] | Item 5, p. 25 Affiliation fee, transfer or renewal | $550 per room, $45,000 minimum[1] | Item 5, p. 25 Royalty fee | 5.25% of gross room revenues[1] | Item 6, p. 27 Marketing and reservation fee | 3.5% of gross room revenues[1] | Item 6, p. 28 Choice Privileges rewards program fee | 4.5% to 5.5% of room revenue from rewards members[1] | Item 6, p. 28 Choice Accelerate (direct online bookings) | 3% of gross room revenue from stays booked through direct online channels[1] | Item 6, p. 29 Third-party distribution and GDS | $4.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 29-30 ResConnect program (mandatory) | 3.50% of gross room revenue booked by the ResConnect team[1] | Item 6, p. 37 Property technology and service fee | $9.65 per room per month, $625 minimum, $925 maximum[1] | Item 6, p. 31 Revenue management | ChoiceMAX (mandatory) $235 to $360 per month; ChoiceROCS (optional) $635 to $1,400 per month[1] | Item 6, p. 33 Transfer fee, 50% or more of equity | Then current affiliation fee or $45,000, whichever is greater[1] | Item 6, p. 35 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 35 Liquidated damages, after opening | Greater of $70 per room per month or average monthly gross room revenues times the royalty, times months to the next termination window, up to 36[1] | Item 6, p. 40 Estimated initial investment, 75-room conversion | $332,295 to $1,859,295; $4,431 to $24,791 per room, excluding real estate[1] | Item 7, p. 43 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an affiliation fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Quality Inn brand fees on assumed room revenue): Hypothetical. Assume a 75-room Quality Inn earns $1,250,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty fee at 5.25 percent: $1,250,000 x 0.0525 = $65,625.[1] Marketing and reservation fee at 3.5 percent: $1,250,000 x 0.035 = $43,750.[1] Together: $109,375, or 8.75 percent of room revenue. Property technology and service fee: 75 rooms x $9.65 = $723.75 per month, inside the $625 to $925 band, or $8,685 for the year.[1] If $500,000 of that revenue comes from Choice Privileges members, the rewards program fee at 4.5 to 5.5 percent is $22,500 to $27,500.[1] On the same assumptions, with 36 months to the next termination window, the revenue side of the liquidated damages formula is $1,250,000 / 12 x 0.0525 x 36 = $196,875. That is more than $70 x 75 rooms x 36 months = $189,000, so $196,875 would apply.[1] Choice Accelerate, ResConnect, per-reservation charges, commissions and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Quality Inn franchise cost? A: Choice's 2026 FDD lists a $500 per room affiliation fee with a $45,000 minimum, a 5.25 percent royalty and a 3.5 percent marketing and reservation fee. Item 7 estimates $332,295 to $1,859,295 to convert a 75-room hotel, before real estate.[1] - Q: What percent of revenue does Choice Hotels take from a Quality Inn? A: A 5.25 percent royalty plus a 3.5 percent marketing and reservation fee on gross room revenues. Choice Privileges, Choice Accelerate, ResConnect, technology and per-reservation charges are billed on other bases on top.[1] - Q: Can I build a new Quality Inn? A: The 2026 Quality FDD prices only a conversion. Its Item 7 note says a newly built hotel may fall outside the estimated ranges, and it gives no new construction table.[1] - Q: I'm buying a Quality Inn. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $45,000, whichever is greater. The transfer rate is $550 per room. Add a $3,000 property improvement plan fee and $995 for relicensing training.[1] - Q: Can I leave Choice Hotels before the 20 years are up? A: The 2026 FDD gives termination windows on the 5th, 10th and 15th anniversaries of opening, with 12 months' written notice. Choice holds the same rights. Taking an incentive can waive the 5th anniversary window.[1] - Q: Does the Quality Inn conversion estimate include the whole renovation? A: No. Choice says its $159,000 to $1,186,000 property improvement line excludes deferred maintenance such as the parking lot, HVAC and exterior, and excludes labor. Substandard furniture adds an estimated $5,000 to $7,000 per room.[1] - Q: Will these Quality Inn fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] Quality Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, pp. 25-27; Item 6, pp. 27-41; Item 7, pp. 41-45; Item 17, pp. 71-76; Item 19, pp. 76-79. Minnesota CARDS document 36789-202606-03, file number 48, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Sleep Inn Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 6, pp. 28, 39; Item 7, pp. 41-43. Minnesota CARDS document 36798-202606-03, file number 1799, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B0026AD9E-0000-CD15-8AE2-0AF2F83210B2%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [4] Econo Lodge Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 6, pp. 26-27, 38. Minnesota CARDS document 36786-202606-03, file number 3576, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-10-12): https://cards.web.commerce.state.mn.us/documents/%7BC00AAE9E-0000-C21E-AD4F-7B5548EBBC6A%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 ### How much does a Red Roof Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/red-roof-inn Last updated: 2026-10-01 Red Roof Franchising's disclosure document, issued April 9, 2026, estimates $264,850 to $1,596,100 to convert a 65-room property to a Red Roof Inn, and $7,253,500 to $8,899,600 to build an 82-room one, before land. The initial franchise fee is $27,000 for up to 100 rooms plus a $3,000 application fee. The royalty is 5 percent and the marketing and reservation fee 4 percent of gross room revenues.[1] Key takeaways: - Initial franchise fee: $27,000 for up to 100 guest rooms, plus $300 per additional room, on top of a $3,000 application fee.[1] - Royalty: 5 percent of gross room revenues. Marketing and reservation fee: 4 percent, which can rise to a maximum of 5 percent.[1] - Transfer: a $2,500 transfer application fee plus a flat $15,000 transfer fee.[1] - Term: 20 years, with a 10-year renewal for a complying owner at 50 percent of the then current initial fee.[1] - Fees change every year. The current FDD and the signed franchise agreement govern, not this page. #### What does Red Roof charge up front for a franchise? The 2026 Red Roof Inn FDD lists a $27,000 initial franchise fee for hotels with up to 100 guest rooms, $300 for each additional room, and a separate $3,000 application fee.[1] The application fee is refundable only if Red Roof rejects the application before visiting the site or providing drawings or technical information. The initial franchise fee is never refundable. Red Roof states that in 2025 its initial franchise fees ranged from $12,000 to $27,000 and its application fees from $0 to $3,000, and that its fees are subject to negotiation (Item 5, pp. 8, 10).[1] The software license fee for the reservation platform and property management system is $15,000. The opening package, a professional photo shoot and training materials, is $2,500. Training is $1,000 to $1,250 for the general manager's virtual course, $1,000 to $1,600 per person for new owner orientation, and $4,500 to $5,000 for the on-site trainer at opening. A re-visit after a failed opening inspection is $2,250 to $5,000. A qualifying women-owned or veteran-owned business receives a $10,000 reduction in the initial fee, repayable if the inn is transferred before the first anniversary of opening (Item 5, pp. 8-9).[1] #### What are the ongoing Red Roof Inn franchise fees? The 2026 Item 6 lists a 5 percent royalty and a 4 percent marketing and reservation fee, both on gross room revenues, plus a 4 percent RediRewards charge on revenue from preferred members.[1] The marketing and reservation fee and the RediRewards fee can each rise to a maximum of 5 percent. Red Roof says it may currently rebate up to 0.5 percent of gross room revenues for a 12-month period to an inn that meets its written guest satisfaction standards, a program it may change or end at any time (Item 6, p. 10).[1] Distribution is charged per booking or as commission. Booking fees are $6.60 to $7.00 per global distribution system booking, $3.30 to $3.60 per third-party internet booking and $1.99 to $2.25 per direct connect booking, and a mobile app booking is $1.75. Commissions and listing fees run from 0 to 25 percent of the net booking. The digital performance marketing fee is no less than 3 percent of gross room revenues on a qualifying stay and can be raised to no more than 15 percent. Centrally billed RediBill revenue carries 5 to 6 percent (Item 6, pp. 11, 17-18).[1] The reservation platform and property management system fee is currently $490 per month plus $3.85 per room per month, and may rise by up to 5 percent a year. The mandatory revenue management software is 0.3 percent of gross room revenues, with a $100 minimum and a $400 maximum per month. Reputation response service is $125 to $250 (Item 6, pp. 12, 18).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a Red Roof Inn? The 2026 Item 7 estimates $264,850 to $1,596,100 to convert a 65-room property to a Red Roof Inn or Red Roof Inn and Suites.[1] Construction and renovation run $35,750 to $650,000 and furniture, fixtures, soft goods and equipment $41,600 to $455,000. Signage is $10,000 to $51,000. The franchisor's own fees are fixed at $30,000 for the application and initial fee, and the reservation platform and computer systems run $16,500 to $22,000. Red Roof says it may let a converting owner complete the property improvement plan in phases after the hotel has converted, so part of the estimate may be spent after opening. A 65-room Red Roof PLUS+ conversion is estimated at $353,000 to $1,659,100 (Item 7, pp. 30-32, 37).[1] New construction of an 82-room Red Roof Inn is estimated at $7,253,500 to $8,899,600, excluding land, with facility construction at $5,986,000 to $6,906,500. Red Roof says a typical inn needs about two acres and that it does not estimate the cost of real estate. The FDD states no per-room totals, so none are printed here (Item 7, pp. 19-20, 30).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a Red Roof Inn franchise agreement, and can I renew? The Red Roof term is 20 years, though the FDD says an earlier termination date may be set under certain conditions, and a complying owner may renew for 10 years.[1] To renew, the owner must not be in default, must have paid all monetary obligations, and must submit a renewal application, complete training and upgrading requirements, sign a general release, sign the then current franchise agreement, which may be materially different, and pay a renewal fee of 50 percent of the then current initial franchise fee. Item 17 lists no termination right for the franchisee, and says Red Roof may not terminate without cause (Item 6, p. 14; Item 17, p. 55).[1] #### What does it cost to leave the Red Roof system early? Red Roof liquidated damages are $100,000 before opening, and after opening the greater of $100,000 or a formula built on 36 months of average fees.[1] The formula is the average monthly royalty, marketing and reservation fee and RediRewards fee for the 36 months before termination, or for the months operated if fewer, multiplied by the lesser of 36 or the months remaining in the term. Payment is due within five days. Closing the inn or starting an unauthorized remodel before the agreement expires carries a separate $25,000 fee. An owner who keeps using the marks after termination owes $2,500 per day plus attorney's fees, and reinstatement after a termination or a removal from the reservation system is currently $5,000 (Item 6, pp. 14, 16-17).[1] #### What happens to the Red Roof franchise when I sell the inn? Red Roof approves all transfers, and the 2026 FDD charges a $2,500 transfer application fee plus a $15,000 transfer fee payable at closing.[1] The buyer signs the then current franchise agreement and a transfer addendum, must have proper qualifications, and its owners sign a guarantee. The seller pays money owed, signs a general release and remains liable for obligations that arose before the transfer. The buyer's manager must be trained, the new majority owner attends new owner orientation at $1,000 to $1,600 per person, and the inn must conform to current standards. Red Roof also holds a right of first refusal to buy on the terms of any bona fide offer the owner wishes to accept (Item 6, p. 14; Item 17, pp. 56-57).[1] The flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the contract is defined at [franchise agreement](/glossary/franchise-agreement). #### What does Item 19 say about Red Roof Inn performance? The 2026 Item 19 reports that 567 franchised Red Roof Inn and Red Roof PLUS+ inns averaged a $68.65 daily room rate, 54.0 percent occupancy and $37.10 RevPAR in 2025.[1] The tables cover inns open and operating for at least one year and for all of 2025, with any temporary closure under 90 days: 567 franchised inns and 27 affiliate-owned inns. Twenty-nine franchised inns that opened in 2025 are excluded. Among the franchised inns the median RevPAR was $35.72, and 259, or 45.7 percent, met or exceeded the average. The 508 franchised Red Roof Inns averaged $35.79 RevPAR and the 59 franchised Red Roof PLUS+ inns $45.91. The 27 affiliate-owned inns averaged $46.91 (Item 19, pp. 58-62).[1] Red Roof also reports an average brand contribution of 36.4 percent of room revenue for the franchised inns, with a median of 30.8 percent. Its definition counts the brand website, the call center, group and national sales, global distribution systems, third-party websites, and RediRewards members who book directly with the inn. The 2025 RevPAR index against each inn's competitive set averaged 103.2 for franchised inns (Item 19, pp. 59, 63).[1] Red Roof states that the data has not been audited and that there is no assurance a buyer will earn as much. Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it (Item 19, pp. 63-64).[1] The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Red Roof Inn and Red Roof PLUS+ franchise fees, 2026 FDD issued April 9, 2026 Fee | Amount | Where in the FDD Application fee | $3,000[1] | Item 5, p. 8 Initial franchise fee | $27,000 for up to 100 guest rooms, plus $300 per additional room[1] | Item 5, p. 8 Reservation platform and PMS software license fee | $15,000[1] | Item 5, p. 9 Royalty | 5% of gross room revenues[1] | Item 6, p. 10 Marketing and reservation fee | 4% of gross room revenues, maximum 5%[1] | Item 6, p. 10 RediRewards preferred member program | 4% of gross room revenues from preferred members, maximum 5%[1] | Item 6, p. 10 Booking fees | $6.60 to $7.00 per GDS booking; $3.30 to $3.60 per third-party internet booking; $1.99 to $2.25 per direct connect booking[1] | Item 6, p. 11 Digital performance marketing program | No less than 3%, no more than 15%, of gross room revenues on an applicable stay[1] | Item 6, p. 18 Reservation platform and PMS fee | Currently $490 per month plus $3.85 per room per month[1] | Item 6, p. 12 Revenue management software | 0.3% of gross room revenues, $100 minimum and $400 maximum per month[1] | Item 6, p. 12 Transfer application fee and transfer fee | $2,500 and $15,000[1] | Item 6, p. 14 Renewal fee | 50% of the then current initial franchise fee[1] | Item 6, p. 14 Liquidated damages, after opening | Greater of $100,000 or average monthly royalty, marketing and RediRewards fees times the lesser of 36 or the months remaining[1] | Item 6, p. 16 Estimated initial investment, 65-room conversion | $264,850 to $1,596,100[1] | Item 7, p. 31 Estimated initial investment, new 82-room Red Roof Inn | $7,253,500 to $8,899,600, excluding land[1] | Item 7, p. 20 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an initial fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Red Roof Inn brand fees on assumed room revenue): Hypothetical. Assume a 65-room Red Roof Inn earns $900,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty at 5 percent: $900,000 x 0.05 = $45,000.[1] Marketing and reservation fee at 4 percent: $900,000 x 0.04 = $36,000.[1] Together: $81,000, or 9 percent of room revenue. If RediRewards preferred members account for $250,000 of that revenue, the program charge at 4 percent is $10,000.[1] Reservation platform and property management system fee: $490 + 65 rooms x $3.85 = $740.25 per month, or $8,883 for the year. Revenue management software at 0.3 percent is $2,700 for the year, or $225 per month, inside the $100 to $400 band.[1] On the same assumptions, the three fees in the liquidated damages formula total $91,000 a year, or $7,583.33 per month. With 36 or more months left, $7,583.33 x 36 = $273,000, which is more than the $100,000 floor.[1] Booking fees, commissions and digital marketing charges come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Red Roof Inn franchise cost? A: The 2026 FDD lists a $27,000 initial franchise fee for up to 100 rooms, a $3,000 application fee, a 5 percent royalty and a 4 percent marketing and reservation fee. Item 7 estimates $264,850 to $1,596,100 to convert a 65-room property.[1] - Q: What percent of revenue does Red Roof take? A: A 5 percent royalty plus a 4 percent marketing and reservation fee on gross room revenues. The 4 percent RediRewards charge on member revenue, booking fees, commissions and technology fees are billed on other bases on top.[1] - Q: I'm buying a Red Roof Inn. What is the transfer fee? A: A $2,500 transfer application fee plus a $15,000 transfer fee due at closing. The buyer signs the then current franchise agreement and the inn must conform to current standards. Red Roof holds a right of first refusal.[1] - Q: How much does it cost to build a new Red Roof Inn? A: The 2026 Item 7 estimates $7,253,500 to $8,899,600 for an 82-room Red Roof Inn, excluding land. Red Roof says a typical inn needs about two acres.[1] - Q: Can I renew a Red Roof Inn franchise? A: Yes, for 10 years, if the owner is not in default, completes training and upgrades, signs the then current agreement and a release, and pays 50 percent of the then current initial franchise fee.[1] - Q: What does it cost to de-flag a Red Roof Inn early? A: After opening, the greater of $100,000 or the average monthly royalty, marketing and RediRewards fees times the lesser of 36 or the months remaining. It is due within five days of termination.[1] - Q: Will these Red Roof Inn fees be the same next year? A: Not necessarily. The FDD is reissued every year, the marketing and RediRewards fees can each rise to 5 percent, and the technology fee can rise by up to 5 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] Red Roof Inn Franchise Disclosure Document (issued April 9, 2026): Item 5, pp. 8-10; Item 6, pp. 10-19; Item 7, pp. 19-37; Item 17, pp. 55-58; Item 19, pp. 58-64. Minnesota CARDS document 35927-202604-09, file number 5824, Clean FDD (Red Roof Franchising, LLC, filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BF0B2419E-0000-C118-A550-C31DCB422DD0%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Sleep Inn franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/sleep-inn Last updated: 2026-10-01 Choice Hotels' Sleep Inn disclosure document, issued April 1, 2026 and amended May 20, 2026, estimates $9,160,125 to $14,367,915 to build an 84-room Sleep Inn and Suites, before real estate and sitework. The affiliation fee for new construction is $300 per room with a $40,000 minimum. The royalty is 5.5 percent and the marketing and reservation fee 3.5 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $300 per room, $40,000 minimum, for new construction. $550 per room, $45,000 minimum, for a transfer or renewal.[1] - Royalty: 5.5 percent of gross room revenues. Marketing and reservation fee: 3.5 percent.[1] - Item 7 prices new construction only, at $109,049 to $171,047 per room. Choice says it cannot estimate a conversion.[1] - Term: 20 years with no renewal provision. A newly built hotel has termination windows on the 10th and 15th anniversaries.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What is different about the Sleep Inn FDD? Sleep Inn is a new construction brand in Choice's 2026 filings: its Item 7 prices an 84-room new building, and the FDD says Choice cannot estimate the investment for an existing hotel.[1] Choice files one disclosure document per brand on a shared template, so most of the fee table matches its other midscale brands. Against the Quality FDD of the same date, three things move. The Sleep Inn royalty is 5.5 percent where Quality's is 5.25 percent. The new-franchise affiliation fee is $300 per room with a $40,000 minimum where Quality's is $500 per room with a $45,000 minimum. The per-room rate inside the liquidated damages formula is $80 where Quality's is $70.[1][3] Two more differences follow from the building. A newly built Sleep Inn has no 5th anniversary termination window, and Item 19 adds a table for hotels built since 2016. A Sleep Inn built as a dual brand with a MainStay Suites or another Choice brand can carry that other brand's royalty and marketing rates (Item 6, p. 40; Item 17, p. 71; Item 19, p. 76).[1] The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs). #### What does Choice charge up front for a Sleep Inn franchise? The 2026 Sleep Inn FDD lists an affiliation fee of $300 per room with a $40,000 minimum for new construction, and $550 per room with a $45,000 minimum for a transfer or renewal.[1] A non-refundable $5,000 application fee is credited toward the affiliation fee. If Choice does not grant the franchise, it refunds the affiliation fee less that $5,000. Choice states that affiliation fees on new Sleep Inn agreements in the 12 months ending December 31, 2025 ranged from $5,000 to $45,000, and that it has reduced the fee for multi-unit owners, larger hotels and owners leaving other chains, without any obligation to do so (Item 5, pp. 25-26).[1] The mandatory Brand in a Box program costs about $15,150 to $30,000 and covers the choiceADVANTAGE property management system license, its hardware and other pre-opening items. Required training runs $3,345 to $5,295 per person before travel. An extension of the construction deadline is $5,000 per three months. A waiver from the approved interior design schemes is $20,000, and a non-prototype building design review is another $20,000, payable whether or not the waiver is granted (Item 5, pp. 26-27).[1] #### What are the ongoing Sleep Inn franchise fees? Choice's 2026 Item 6 lists a 5.5 percent royalty and a 3.5 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] Gross room revenues include sleeping rooms, meeting rooms and banquet rooms, guaranteed no-show revenue, early departure and late checkout fees, and business interruption proceeds. Food and beverage sales and taxes are excluded. The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 28, 40).[1] The Choice Privileges fee is 4.5 to 5.5 percent of room revenue from rewards members. Choice Accelerate is 3 percent of gross room revenue from stays booked through direct online channels. Third-party distribution is $4.00 per consumed reservation, and global distribution system reservations are currently $7.70 each. The mandatory ResConnect program is 3.50 percent of the gross room revenue its team books for the hotel (Item 6, pp. 29-31, 36).[1] The property technology and service fee is $9.65 per room per month, with a $625 minimum and a $925 maximum. The ChoiceMAX pricing software is mandatory at $235 to $360 per month with a $2,500 set-up fee. ChoiceROCS revenue management service is optional at $635 to $1,400 per month (Item 6, pp. 32-33).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to build a Sleep Inn? Choice's 2026 Item 7 estimates $9,160,125 to $14,367,915 for an 84-room Sleep Inn and Suites, which Choice states as $109,049 to $171,047 per room.[1] Construction, excluding soft costs, is the largest line at $7,812,000 to $11,951,000. Furniture, fixtures and equipment run $603,900 to $836,300, opening supplies $196,730 to $302,820, and professional design services $200,000 to $450,000. Working capital before opening is $125,000 to $270,000, and additional funds for the first three months are $50,000 to $75,000 (Item 7, pp. 41-43).[1] The table excludes the cost of buying or leasing real estate. It also excludes sitework, general conditions and general contractor fees, which Choice says may vary widely. For an existing hotel, Choice says it is unable to estimate the initial investment because it depends on the hotel's condition and the upgrades needed (Item 7, p. 43).[1] Financing for a build is covered at [hotel construction loans](/hotel-financing/construction-loans), and conversion work at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is a Sleep Inn franchise agreement, and can I get out early? The Sleep Inn franchise term is 20 years from the opening date, the FDD lists no renewal provision, and termination windows depend on whether the hotel was newly built.[1] For a newly built hotel, the franchisee may terminate on the 10th and 15th anniversaries of the opening date. For a hotel that is not newly built, either party may terminate without cause on the 5th, 10th or 15th anniversary. Choice's own without-cause right runs on the 5th, 10th or 15th anniversary with 12 months' written notice. An owner who takes an incentive waives the 5th anniversary window unless the incentive note is a five-year note. For a replacement agreement on an existing Sleep Inn, Choice may offer a term shorter than 20 years (Item 17, p. 71).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $80 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next penalty-free termination date, capped at 36 months. Before opening, the amount is the room count times 36 months times $80. Reinstatement to the reservation system after a suspension is $5,000 (Item 6, p. 39).[1] #### What happens to the Sleep Inn franchise when I sell the hotel? A buyer of a controlling interest signs Choice's then current franchise agreement and pays a relicensing fee equal to the then current affiliation fee.[1] Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $45,000, whichever is greater, and Choice's consent is needed for any transfer of more than 5 percent. The buyer also pays a $3,000 property improvement plan fee and $995 for relicensing training. A transfer of less than 50 percent carries a $7,500 assumption fee (Item 5, p. 26; Item 6, pp. 34-35; Item 17, p. 72).[1] A lender [comfort letter](/glossary/comfort-letter) is $2,500, plus $500 if needed within one to three days (Item 6, p. 35).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Choice's Item 19 say about Sleep Inn performance? Choice's 2026 Item 19 reports that 388 Sleep Inn hotels in its performance sample averaged 57.0 percent occupancy, a $94.62 average daily rate and $53.94 RevPAR in 2025.[1] There were 402 open Sleep Inn and Sleep Inn and Suites hotels in the United States at December 31, 2025, all franchised. The sample is the 388 that were operating on or before January 1, 2025, excluding hotels that repositioned from another Choice brand during 2025, had at least 30 days of incomplete data, or were interrupted for more than 30 consecutive days. The median RevPAR was $50.99, the range was $19.14 to $135.34, and 168 hotels, or 43.3 percent, met or exceeded the average. Choice notes that one Sleep Inn closed during 2025 after being open less than a year (Item 19, p. 75).[1] A second table covers the 62 sample hotels newly constructed since 2016. They averaged 61.3 percent occupancy, a $106.11 average daily rate and $65.07 RevPAR, with a median RevPAR of $59.58. Across the full sample, Choice reports an average total Choice enterprise contribution of 78.8 percent of gross room revenues and an average Choice Privileges contribution of 48.8 percent. The enterprise figure counts online travel agent bookings made through Choice's negotiated relationships (Item 19, pp. 75-77).[1] Choice states that the figures come from information franchisees provided, and that they do not reflect cost of sales or operating expenses that must be deducted to obtain net income or profit (Item 19, p. 78).[1] This page draws no profit conclusion from them. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Sleep Inn and Sleep Inn and Suites franchise fees, 2026 FDD issued April 1, 2026, as amended May 20, 2026 Fee | Amount | Where in the FDD Affiliation fee, new construction | $300 per room, $40,000 minimum; $5,000 application fee credited toward it[1] | Item 5, p. 25 Affiliation fee, transfer or renewal | $550 per room, $45,000 minimum[1] | Item 5, p. 25 Royalty fee | 5.5% of gross room revenues[1] | Item 6, p. 28 Marketing and reservation fee | 3.5% of gross room revenues[1] | Item 6, p. 28 Choice Privileges rewards program fee | 4.5% to 5.5% of room revenue from rewards members[1] | Item 6, p. 29 Choice Accelerate (direct online bookings) | 3% of gross room revenue from stays booked through direct online channels[1] | Item 6, p. 29 Third-party distribution and GDS | $4.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 30-31 ResConnect program (mandatory) | 3.50% of gross room revenue booked by the ResConnect team[1] | Item 6, p. 36 Property technology and service fee | $9.65 per room per month, $625 minimum, $925 maximum[1] | Item 6, p. 32 Revenue management | ChoiceMAX (mandatory) $235 to $360 per month; ChoiceROCS (optional) $635 to $1,400 per month[1] | Item 6, p. 33 Transfer fee, 50% or more of equity | Then current affiliation fee or $45,000, whichever is greater[1] | Item 6, p. 35 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 34 Liquidated damages, after opening | Greater of $80 per room per month or average monthly gross room revenues times the royalty, times months to the next termination window, up to 36[1] | Item 6, p. 39 Estimated initial investment, new 84-room hotel | $9,160,125 to $14,367,915; $109,049 to $171,047 per room, excluding real estate and sitework[1] | Item 7, p. 43 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an affiliation fee, a PIP or a new build is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Sleep Inn brand fees on assumed room revenue): Hypothetical. Assume an 84-room Sleep Inn earns $1,650,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Affiliation fee at signing: 84 rooms x $300 = $25,200, which is under the minimum, so $40,000.[1] Royalty fee at 5.5 percent: $1,650,000 x 0.055 = $90,750.[1] Marketing and reservation fee at 3.5 percent: $1,650,000 x 0.035 = $57,750.[1] Together: $148,500, or 9.0 percent of room revenue. Property technology and service fee: 84 rooms x $9.65 = $810.60 per month, inside the $625 to $925 band, or $9,727.20 for the year.[1] If $700,000 of that revenue comes from Choice Privileges members, the rewards program fee at 4.5 to 5.5 percent is $31,500 to $38,500.[1] A buyer of the same hotel would pay a transfer fee of 84 rooms x $550 = $46,200, which is over the $45,000 minimum.[1] Choice Accelerate, ResConnect, per-reservation charges, commissions and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Sleep Inn franchise cost? A: Choice's 2026 FDD lists a $300 per room affiliation fee with a $40,000 minimum for new construction, a 5.5 percent royalty and a 3.5 percent marketing and reservation fee. Item 7 estimates $9,160,125 to $14,367,915 to build 84 rooms, before real estate.[1] - Q: How much does it cost per room to build a Sleep Inn? A: Choice's 2026 Item 7 states $109,049 to $171,047 per room for an 84-room hotel. That excludes land, sitework, general conditions and general contractor fees.[1] - Q: Can I convert my existing hotel to a Sleep Inn? A: The 2026 FDD gives no conversion estimate. Choice says it cannot estimate the investment for an existing hotel because it depends on the hotel's condition and the upgrades needed to meet its standards.[1] - Q: What percent of revenue does Choice Hotels take from a Sleep Inn? A: A 5.5 percent royalty plus a 3.5 percent marketing and reservation fee on gross room revenues. Choice Privileges, Choice Accelerate, ResConnect, technology and per-reservation charges are billed on other bases on top.[1] - Q: I'm buying a Sleep Inn. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $45,000, whichever is greater. The transfer rate is $550 per room. Add a $3,000 property improvement plan fee and $995 for relicensing training.[1] - Q: When can I leave a Sleep Inn franchise without damages? A: A newly built Sleep Inn has termination windows on the 10th and 15th anniversaries of opening. A hotel that was not newly built also has the 5th. Twelve months' written notice applies.[1] - Q: Will these Sleep Inn fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] Sleep Inn Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, pp. 25-28; Item 6, pp. 28-41; Item 7, pp. 41-45; Item 17, pp. 70-74; Item 19, pp. 74-78. Minnesota CARDS document 36798-202606-03, file number 1799, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B0026AD9E-0000-CD15-8AE2-0AF2F83210B2%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Quality Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, p. 25; Item 6, pp. 27, 40. Minnesota CARDS document 36789-202606-03, file number 48, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 ### How much does a Spark by Hilton franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/spark-by-hilton Last updated: 2026-10-01 Hilton's 2026 Spark by Hilton Franchise Disclosure Document, issued March 30, 2026, estimates $3,251,531 to $5,906,193 to convert a 100-room hotel, excluding real estate. Spark is offered for conversions only. The franchise application fee is $75,000, the monthly royalty is 5.5 percent of gross rooms revenue, the monthly program fee is 3.5 percent, and Hilton Honors is 2 percent of total eligible guest folio.[1] Key takeaways: - Item 7 total: $3,251,531 to $5,906,193 for a 100-room conversion, which is about $32,500 to $59,100 per room by our arithmetic. The estimate assumes a building in good condition and excludes systems, roof, windows and structure.[1] - Spark is conversion-only. The FDD's fees and cost estimates do not cover new construction or adaptive reuse.[1] - Ongoing: 5.5 percent royalty plus 3.5 percent program fee on gross rooms revenue, and Hilton Honors at 2 percent of total eligible guest folio.[1] - Application fees are $75,000 for a conversion, a change of ownership or a re-licensing. The conversion term is generally 10 to 15 years.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does it cost to convert a hotel to Spark by Hilton? Item 7 of the 2026 Spark FDD estimates $3,251,531 to $5,906,193 for the conversion of a 100-room hotel, excluding real estate.[1] Divided by 100 rooms, that is about $32,500 to $59,100 per room. The division is ours. The FDD does not print a per-room figure.[1] The largest lines are construction, renovation and leasehold improvements at $1,300,000 to $2,800,000 and furniture, fixtures and equipment at $900,000 to $1,200,000. Contingencies are $130,000 to $280,000 and additional funds are $300,000 to $500,000 (pp. 33-34).[1] The cover page adds that up to $203,800 of the total is paid to Hilton or its affiliates.[1] The scope behind the number is narrow. Note 1 to Item 7 (pp. 34-35) describes a standard model: a four-floor, interior-corridor building of 55,000 to 63,000 square feet with 100 guest rooms, in good condition, built to code, with an occupancy permit. The prototype has no kitchens, restaurants or other food service, swimming pools, health facilities or dedicated meeting rooms. The estimate does not include repair or replacement of windows or exterior cladding other than repainting, any mechanical, electrical, lighting, roofing, drainage, HVAC, fire or safety systems, the parking lot, or structural elements.[1] A hotel that needs work on those systems carries costs outside the estimate. Item 7 also excludes real estate costs, market studies, insurance and interest (p. 34).[1] Per-room pricing is defined at [price per key](/glossary/per-key). #### Can I build a new Spark by Hilton? Not under the 2026 FDD. Item 1 states that Hilton currently offers Spark franchises for hotel conversion projects only.[1] Hilton defines a conversion as the renovation of an existing hotel building to bring it into compliance with brand standards, and says it does not include new construction or major remodeling. The fees and cost estimates in the FDD do not apply to new development or to adaptive reuse of a building that was not a hotel (Item 1, p. 6).[1] Item 11 says Hilton generally anticipates conversion projects to take about 6 to 18 months, depending on the condition of the existing hotel, with deadlines set project by project in the PIP (p. 60).[1] #### What are the Spark by Hilton initial fees? A $75,000 franchise application fee, whether the application is for a conversion, a change of ownership or a re-licensing, under Item 5 of the 2026 Spark FDD.[1] Item 5 (pp. 15-17) lists the other initial fees paid to Hilton or its affiliates. The PIP fee is $10,000. The OnQ computer system costs $33,500 to $87,800 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $15,000, and the opening process services fee is $6,000. Hilton's supply affiliate is the required procurement service provider for the Spark brand package, and Item 5 lists its fee at up to 6 percent of the cost of goods ordered.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 17).[1] #### What are the Spark by Hilton royalty and program fees? The monthly royalty fee is 5.5 percent of gross rooms revenue and the monthly program fee is 3.5 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 20) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees and guaranteed no-show revenue (Note 1, p. 29).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 30).[1] Other recurring charges sit on top. Hilton Honors is currently 2 percent of total eligible guest folio, waived for stays where the guest enrolls at the property (p. 24). The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 23).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $1,042 to $2,335 per month (p. 21).[1] These charges apply to different bases, so they do not add into one percentage. #### What does Hilton report about Spark hotel performance? Item 19 of the 2026 Spark FDD reports one measure: a 2025 average RevPAR index of 113.8 and a median of 110.7 across 87 comparable U.S. hotels.[1] Of 208 U.S. Spark hotels at December 31, 2025, 87 were classified as comparable, and all 87 were franchisee-managed. Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results (pp. 80-81).[1] The RevPAR index compares a hotel's revenue per available room with its competitive set, and 100 is a fair share. The range ran from 52.9 to 302.2. Of the 87 hotels, 39, or 44.8 percent, met or exceeded the average. Hilton cites STR and Hilton as the source (pp. 81-82).[1] The Spark Item 19 does not report room rate, occupancy or RevPAR in dollars, and it gives no expenses, no profit and no return on investment. None can be derived from an index. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 82).[1] The index is defined at [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### How long is a Spark franchise agreement, and can I renew it? Hilton's 2026 Spark FDD sets the term for a conversion at generally 10 to 15 years from the opening date, with no right to renew.[1] Item 17 of the 2026 Spark FDD (p. 71) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $75,000 (Item 6, p. 26).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Spark franchise when the hotel is sold? A sale that changes control of a Spark is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Spark FDD (p. 77) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($75,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 26).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Spark before the term ends? Hilton's liquidated damages for a Spark that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Spark FDD (p. 27) sets four cases for a termination by Hilton. Before opening: $10,000 multiplied by the number of approved guest rooms at the hotel. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or $10,000 multiplied by the number of approved guest rooms. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 32) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Spark? Hilton may, in its sole discretion, offer a development incentive on a Spark, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Spark FDD (p. 45) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Spark franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Spark FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Spark Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 53 instances during 2025 (Item 6, p. 30), and in 2025 franchisees paid application fees from $0 to $75,000 for a conversion (Item 5, p. 17).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Spark by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, conversion | $75,000[1] | Item 5, p. 15 Application fee, change of ownership | $75,000[1] | Item 5, p. 16 Application fee, re-licensing | $75,000[1] | Item 5, p. 16 PIP fee | $10,000[1] | Item 5, p. 16 OnQ system: hardware, software, installation | $33,500 to $87,800[1] | Item 5, p. 16 Brand package procurement services | Up to 6% of the cost of goods ordered[1] | Item 5, p. 17 Monthly royalty fee | 5.5% of gross rooms revenue[1] | Item 6, p. 20 Monthly program fee | 3.5% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 20 and 30 Hilton Honors | 2% of total eligible guest folio[1] | Item 6, p. 24 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 23 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,042 to $2,335 per month[1] | Item 6, p. 21 Permitted transfer processing fee | $5,500[1] | Item 6, p. 26 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 26 Liquidated damages, before opening | $10,000 x approved guest rooms[1] | Item 6, p. 27 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, p. 27 Estimated initial investment, 100-room conversion | $3,251,531 to $5,906,193, excluding real estate[1] | Item 7, p. 34 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Spark by Hilton brand fees on assumed rooms revenue): Hypothetical. Assume a Spark by Hilton earns $2,000,000 of gross rooms revenue in a year, and that $800,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 5.5 percent: $2,000,000 x 0.055 = $110,000.[1] Monthly program fee at 3.5 percent: $2,000,000 x 0.035 = $70,000.[1] Hilton Honors at 2 percent of eligible folio: $800,000 x 0.02 = $16,000.[1] OnQ connectivity plus hardware and software maintenance: $1,442 to $2,935 per month, or $17,304 to $35,220 a year.[1] Total of these four lines: $213,304 to $231,220. Hilton Advance fees, third-party reservation charges, travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. Liquidated damages before opening are simpler arithmetic. If Hilton terminated a 100-room Spark after renovation work began but before opening, Item 6 sets the amount at $10,000 x 100 = $1,000,000.[1] FAQ: - Q: What does it cost to convert to Spark by Hilton? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $3,251,531 to $5,906,193 for a 100-room conversion, excluding real estate. The estimate assumes a building in good condition and leaves out mechanical, electrical, roofing, HVAC, fire and life safety, window and structural work.[1] - Q: What are Spark by Hilton franchise fees? A: A $75,000 application fee, a 5.5 percent monthly royalty and a 3.5 percent monthly program fee on gross rooms revenue, Hilton Honors at 2 percent of total eligible guest folio, and a $10,000 PIP fee.[1] - Q: How long does a Spark conversion take? A: Item 11 of the 2026 FDD says Hilton generally anticipates conversion projects to take about 6 to 18 months, depending on the condition of the existing hotel. The franchise agreement and the PIP set the actual deadlines.[1] - Q: How long is a Spark by Hilton franchise agreement? A: Generally 10 to 15 years from the opening date for a conversion. A buyer of an existing Spark generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: Does Hilton publish Spark RevPAR or occupancy? A: Not in the 2026 FDD. Item 19 reports only RevPAR index for 87 comparable hotels: an average of 113.8, a median of 110.7 and a range from 52.9 to 302.2. Hilton states there is no assurance any hotel will achieve those results.[1] - Q: What does it cost to leave Spark early? A: Before opening, $10,000 per approved guest room. In the first two years, the greater of that amount or 60 months of the hotel's average royalty. After that, 60 months of average royalty, or the months remaining in the final 60.[1] - Q: Can I build a new Spark by Hilton? A: No. Item 1 of the 2026 FDD says Hilton currently offers Spark franchises for conversion projects only, and that its fees and cost estimates do not apply to new development or adaptive reuse.[1] Sources: - [1] 2026 Spark by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 1, p. 6; Item 5, pp. 15-19; Item 6, pp. 20-33; Item 7, pp. 33-37; Item 10, pp. 45-46; Item 11, p. 60; Item 17, pp. 71-80; Item 19, pp. 80-82 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Spark.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Super 8 franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/super-8 Last updated: 2026-10-01 Wyndham's Super 8 disclosure document, issued March 31, 2026, estimates $285,156 to $2,626,641 to convert a 100-room hotel the owner already holds, and $5,043,737 to $7,141,542 to build a 65-room Super 8, before land. The initial fee is the greater of $25,000 or $250 per room. The royalty is 5.5 percent and the system assessment fee 3 percent of gross room revenues.[1] Key takeaways: - Initial fee: the greater of $25,000 or $250 per guest room, with a $2,500 application fee credited toward it.[1] - Royalty: 5.5 percent of gross room revenues. System assessment fee: 3 percent.[1] - Wyndham Rewards loyalty charge: 4.25 to 5.5 percent of the amounts on which members earn points.[1] - Term: 20 years, with no renewal right. A buyer pays a relicense fee on the same formula as the initial fee.[1] - Fees change every year. Wyndham's current FDD and the signed franchise agreement govern, not this page. #### What does Wyndham charge up front for a Super 8 franchise? The 2026 Super 8 FDD lists an initial fee equal to the greater of $25,000 or $250 per guest room for a new construction or conversion hotel, with a non-refundable $2,500 application fee credited toward it.[1] The franchisor states that initial fees in 2025 ranged from $12,000 to $25,000, and that it may negotiate the amount and payment terms when business circumstances warrant (Item 5, pp. 24-25).[1] Technology set-up comes next. The SynXis property management system carries a one-time $6,000 set-up and implementation fee. The OPERA alternative runs $11,000 to $22,100 plus interfaces. The Wyndham Gateway internet portal equipment is $1,500. Temporary signage for a conversion that opens before its permanent sign is $1,250, a custom interior design review is up to $6,000, and an extension of the opening deadline is $5,000 (Item 5, pp. 25-27).[1] #### What are the ongoing Super 8 franchise fees? The 2026 Super 8 Item 6 lists a 5.5 percent royalty and a 3 percent system assessment fee, both on gross room revenues and due monthly.[1] Gross room revenues are revenues from guest room rentals, including guaranteed no-show revenue and business interruption proceeds, and excluding food and beverage and sales, occupancy and use taxes. The system assessment fee can change on 30 days' notice to cover the cost of marketing, reservation and other services. The franchisor may also raise any fixed-dollar fee by up to 10 percent a year, cumulatively (Item 6, pp. 27, 37-38).[1] The Wyndham Rewards loyalty program charge is 4.25 to 5.5 percent of the amounts on which members earn points, varying with the hotel's enrollment results. A missed enrollment fee is currently $750 per quarter (Item 6, p. 33).[1] Distribution is charged per booking or as commission. Global distribution, third-party channel and internet booking fees are each $2.08 per reservation. The mandatory digital pay-for-performance commission is currently 7 percent, and can be up to 10 percent, of gross room revenues on reservations that arrive through paid search and similar links. The mandatory Wyndham Connect Plus service is 3.5 percent of gross room revenues on each reservation it books. Agency commissions can reach 20 percent on qualifying reservations (Item 6, pp. 29-32).[1] Property management system support is $734 to $1,050 per month by room count. Revenue management service is optional at Super 8, at 0.75 percent of gross room revenues for the standard level, with a $645 monthly minimum and a $1,395 maximum (Item 6, pp. 32, 34).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert a motel to a Super 8, or build one? The 2026 Super 8 Item 7 estimates $285,156 to $2,626,641 for a 100-room conversion, which the FDD states as $2,852 to $26,266 per room and which assumes the owner already owns the hotel.[1] The width of that range is the building. Facility improvements run from $0, where the exterior, public areas, guest rooms and mechanical systems already meet standards, to $1,097,500 where the hotel needs extensive structural renovation. Furniture, fixtures and equipment run $71,770 to $484,200, signage $20,000 to $80,000, and a conversion contingency is set at 5 percent of facility improvements (Item 7, pp. 43-46).[1] For new construction, the FDD estimates $5,043,737 to $7,141,542 for a 65-room Super 8, or $77,596 to $109,870 per room, excluding the cost of buying or leasing real estate. The FDD says a 65-room hotel needs at least 1.5 acres (Item 7, pp. 39-41).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a Super 8 franchise agreement, and can I renew? The Super 8 term is 20 years, starting the first day of the month after the opening date, and Item 17 states there are no renewal or extension rights.[1] If both sides choose to renew, the franchisee signs the then current franchise agreement, which may have materially different terms, and pays the then current relicense fee, which uses the same formula as the initial fee (Item 17, pp. 71-72).[1] The franchisee's termination rights in Item 17 are limited to casualty and condemnation (Item 17, p. 72).[1] Separately, a footnote to Item 6 describes a current policy that lets an owner terminate without liquidated damages on 60 to 90 days' notice if, among other conditions, the hotel has been in the system at least two years, its occupancy was below 50 percent and at least 10 points under the Smith Travel Research scale tract occupancy for the prior 12 months, its quality and guest scores met set thresholds for two years, and all fees were paid on time (Item 6, pp. 38-39).[1] The FDD calls this a policy the franchisor currently permits, so confirm it is in the agreement you sign. #### What does it cost to leave the Super 8 system early? Super 8 liquidated damages are the greater of $2,000 per guest room or 24 times the average monthly royalties and system assessment fees for the 12 months before termination.[1] If fewer than 24 months remain in the term, the amount is that monthly average times the months remaining. Termination before opening is charged at one half of the formula amount. The room count is the number the franchisor authorized, regardless of later reductions. Payment is due within 10 days. An owner who does not de-identify the hotel afterward owes $2,000 per day. Reconnecting to the reservation system after a suspension for default is currently $4,000 (Item 6, pp. 36-37).[1] #### What happens to the Super 8 franchise when I sell the hotel? The franchisor approves all transfers and qualifies every buyer in its sole discretion, and the buyer pays the application fee and a relicense fee equal to the greater of $25,000 or $250 per room.[1] The buyer signs a new franchise agreement and must improve the hotel to the standards for conversion hotels entering the chain. The seller and its owners sign general releases unless the law restricts them, and the seller may have to repay a development incentive unless the buyer assumes it. The FDD reports that the 2025 relicense fee for each transfer and renewal was $25,000. An assignment to an affiliate of the original franchisee is a flat $5,000, and an assignment to a lender or receiver is $7,500 (Item 5, p. 25; Item 6, p. 27; Item 17, p. 74).[1] A property improvement plan prepared after opening is currently $1,500 per request, a lender comfort letter is $1,000, and taking over an existing property management system without an upgrade is $995 (Item 5, p. 26; Item 6, pp. 28, 36).[1] Wyndham-flagged hotels on the market are listed at [Wyndham hotels for sale](/hotels-for-sale/wyndham), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about Super 8 performance? The 2026 Super 8 Item 19 reports that 579 qualified Super 8 hotels averaged an $80.47 average daily rate, 50.6 percent occupancy and $40.71 RevPAR in 2025.[1] There were 1,344 Super 8 hotels in the United States at December 31, 2025. The 579 qualified hotels are those that opened before January 1, 2025, passed their most recent quality assurance inspection or had not yet had one, and had at least ten guest reviews averaging 3.0 or better out of 5.0. Hotels that left the system during 2025, 60 in all, are excluded. The median RevPAR was $37.68, and 240 of the 579, or 41.5 percent, met or exceeded the average (Item 19, pp. 76-77).[1] The FDD reports an average competitive set RevPAR index of 104.8 percent for the qualified hotels, from Smith Travel Research data the franchisor says it has not audited or verified. For all 1,344 hotels it reports an average central reservation system contribution of 78.2 percent of gross room revenue, of which Wyndham Rewards members account for 55.0 percent. The central reservation figure includes third-party websites (Item 19, pp. 77-78).[1] Item 19 gives rate, occupancy and revenue measures only. It gives no expenses and no profit, and this page draws no profit conclusion from it. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: Super 8 by Wyndham franchise fees, 2026 FDD issued March 31, 2026 Fee | Amount | Where in the FDD Application fee | $2,500, non-refundable, credited toward the initial fee[1] | Item 5, p. 24 Initial fee, new construction or conversion | Greater of $25,000 or $250 per guest room[1] | Item 5, p. 24 Relicense fee, transfer or renewal | Greater of $25,000 or $250 per guest room[1] | Item 5, p. 25; Item 6, p. 27 Royalty | 5.5% of gross room revenues[1] | Item 6, p. 27 System assessment fee (marketing and reservations) | 3% of gross room revenues[1] | Item 6, p. 27 Wyndham Rewards loyalty program charge | 4.25% to 5.5% of amounts on which members earn points[1] | Item 6, p. 33 GDS, third-party channel and internet booking fees | $2.08 per reservation, each[1] | Item 6, pp. 29-30 Digital pay-for-performance commission | Currently 7%, up to 10%, of gross room revenues on qualifying reservations[1] | Item 6, pp. 30-31 Wyndham Connect Plus | 3.5% of gross room revenues on each reservation booked through the service[1] | Item 6, p. 31 Property management system support | $734 to $1,050 per month[1] | Item 6, p. 34 PIP preparation fee, after opening | $1,500 per request[1] | Item 6, p. 28 Liquidated damages | Greater of $2,000 per room or 24 times average monthly royalties and system assessment fees[1] | Item 6, p. 37 Estimated initial investment, 100-room conversion | $285,156 to $2,626,641; $2,852 to $26,266 per room; assumes the hotel is already owned[1] | Item 7, p. 44 Estimated initial investment, new 65-room hotel | $5,043,737 to $7,141,542; $77,596 to $109,870 per room, excluding real estate[1] | Item 7, p. 41 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for a relicense fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of Super 8 brand fees on assumed room revenue): Hypothetical. Assume a 60-room Super 8 earns $1,200,000 of gross room revenues in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Royalty at 5.5 percent: $1,200,000 x 0.055 = $66,000.[1] System assessment fee at 3 percent: $1,200,000 x 0.03 = $36,000.[1] Together: $102,000, or 8.5 percent of room revenue. If Wyndham Rewards members earn points on $400,000 of that revenue, the loyalty program charge at 4.25 to 5.5 percent is $17,000 to $22,000.[1] On the same assumptions, 24 months of average royalties and system assessment fees is $102,000 / 12 x 24 = $204,000. That is more than $2,000 x 60 rooms = $120,000, so $204,000 would be the liquidated damages figure under the Item 6 formula.[1] Per-reservation fees, commissions, technology support and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a Super 8 franchise cost? A: The 2026 FDD lists an initial fee of the greater of $25,000 or $250 per room, a 5.5 percent royalty and a 3 percent system assessment fee. Item 7 estimates $285,156 to $2,626,641 to convert a 100-room hotel the owner already holds.[1] - Q: What percent of revenue does Wyndham take from a Super 8? A: A 5.5 percent royalty plus a 3 percent system assessment fee on gross room revenues. Loyalty charges, booking fees, commissions and technology support are billed on other bases on top.[1] - Q: I'm buying a small Super 8. What is the relicense fee? A: The greater of $25,000 or $250 per room, so $25,000 for any hotel of 100 rooms or fewer, plus the $2,500 application fee. The FDD says each 2025 transfer and renewal paid $25,000.[1] - Q: How long is a Super 8 franchise agreement? A: Twenty years. Item 17 states there are no renewal or extension rights. A renewal, if both sides agree, means signing the then current agreement and paying the relicense fee.[1] - Q: How much does it cost to build a new Super 8? A: The 2026 Item 7 estimates $5,043,737 to $7,141,542 for a 65-room hotel, or $77,596 to $109,870 per room, excluding the cost of buying or leasing real estate.[1] - Q: Does the Super 8 FDD say what a Super 8 earns? A: Item 19 reports 2025 average daily rate, occupancy, RevPAR, RevPAR index and reservation contribution for 579 qualified hotels. It gives no expenses and no profit.[1] - Q: Will these Super 8 fees be the same next year? A: Not necessarily. The FDD is reissued every year, and the franchisor may raise any fixed-dollar fee by up to 10 percent a year. The current FDD and the signed agreement govern.[1] Sources: - [1] Super 8 Franchise Disclosure Document (issued March 31, 2026): Item 5, pp. 24-27; Item 6, pp. 27-39; Item 7, pp. 39-46; Item 17, pp. 71-76; Item 19, pp. 76-79. Wisconsin DFI franchise registration file 640628 (Super 8 Worldwide, Inc., filed with the Wisconsin Department of Financial Institutions, accessed 2026-09-18): https://apps.dfi.wi.gov/apps/FranchiseSearch/details.aspx?id=640628&hash=1250533202&search=external&type=GENERAL - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a SureStay by Best Western franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/surestay Last updated: 2026-10-01 SureStay, Inc.'s disclosure document, issued February 27, 2026, estimates $176,975 to $1,221,975 to convert an existing 60-room hotel to a SureStay by Best Western, and $5,354,975 to $8,265,975 to build one. The initial fee is $35,000 plus $100 per room over 100. The monthly royalty is 4 percent and the monthly sales and marketing fee 4 percent of gross rooms revenue.[1] Key takeaways: - Initial fee: $35,000 plus $100 per guest room over 100, with a separate $2,500 application fee that is not credited toward it.[1] - Royalty: 4 percent of gross rooms revenue. Sales and marketing fee: 4 percent, which SureStay may change at any time.[1] - Term: 15 years, renewing automatically for further 15-year terms unless either side gives 12 months' notice.[1] - Item 19: SureStay makes no financial performance representation.[1] - Fees change every year. The current FDD and the signed franchise agreement govern, not this page. #### Is SureStay a franchise or a Best Western membership? It is a franchise. The 2026 FDD is issued by SureStay, Inc., and it describes Best Western International separately as a nonprofit membership association that licenses the Best Western brands to its members.[1] That distinction drives the paperwork. A SureStay owner signs a franchise agreement with SureStay, Inc. and pays a royalty and a sales and marketing fee as percentages of rooms revenue. Best Western's membership brands are offered under a separate disclosure document, which this site covers at the [Best Western guide](/hotel-franchise-costs/best-western). The SureStay FDD covers two brands, SureStay by Best Western and SureStay Studio by Best Western, and says the typical SureStay has 60 rooms and the typical SureStay Studio 100 (Item 1, pp. 1-2; Item 5, p. 15).[1] Three terms stand out against other franchise documents in this series. The term is 15 years and renews automatically. The conversion timetable is short: the FDD's example gives a converting hotel 90 days after signing to renovate and open. And Item 19 contains no performance figures at all (Item 5, p. 16; Item 17, p. 56; Item 19, p. 65).[1] #### What does SureStay charge up front? The 2026 SureStay FDD lists a non-refundable $35,000 initial fee, plus $100 per guest room over 100, and a separate $2,500 franchise application fee.[1] The application fee is not credited toward any other payment. SureStay states that in its fiscal year ended November 30, 2025 it accepted reduced initial fees ranging from $14,500 to $25,000 and reduced application fees of $0 to $2,000, each the result of arms-length negotiation (Item 5, pp. 15-16).[1] If a Best Western member asks for an impact study when the application arrives, the applicant pays a $4,000 impact study fee, refunded if the application is denied. A deadline extension is $5,000 and a pre-activation re-inspection $2,500 plus a free room night. Technology set-up includes a $1,500 installation fee for the AutoClerk Atlas property management system, about $1,500 for the Best Western two-way interface, $550 for connectivity hardware and $2,100 to $3,500 for the managed security service. Opening photography starts at $1,150 and runs up to $8,000 (Item 5, pp. 16-17).[1] #### What are the ongoing SureStay franchise fees? The 2026 Item 6 lists a 4 percent monthly royalty and a 4 percent monthly sales and marketing fee, both on gross rooms revenue.[1] Gross rooms revenue includes revenue from loyalty point redemptions, breakfast included in the room rate and guaranteed no-show revenue, and excludes taxes collected from guests. SureStay says it may change the sales and marketing fee rate at any time without limitation, and that fees in Item 6 are subject to change (Item 6, pp. 18, 28).[1] The Best Western Rewards fee is 5.5 percent of PRR, as the FDD abbreviates it, at a cost of $0.0055 per point with 10 points issued per revenue dollar. For SureStay Studio it is 2.75 percent, with 5 points per dollar. Global distribution system bookings are $7.90 each, third-party internet bookings $4.60, and partner bookings $1.00 to $2.00. The performance based marketing charge is 10 percent of gross rooms revenue on each reservation received from a digital opportunity (Item 6, pp. 19-20).[1] Property management system support is $3.97 per guest room per month, including $1.45 for the guest management system. The two-way interface is $41 per month and the managed security service $130 per month. On-boarding training is $3,000, the annual quality assessment is $1,000, and the online travel agency marketing fund is $250 a year. Revenue management service is optional at $524 to $1,524 per month depending on the program and room count (Item 6, pp. 18-19, 23-24, 27).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to convert to or build a SureStay? The 2026 Item 7 estimates $176,975 to $1,221,975 to convert an existing 60-room hotel to a SureStay by Best Western.[1] Renovation work runs from $0 to $500,000 and furniture, fixtures and equipment from $0 to $375,000, which is why the range is wide. SureStay says the low end presumes a hotel that was open and operating immediately before converting. New construction of a 60-room SureStay is estimated at $5,354,975 to $8,265,975, with construction work at $4,675,000 to $7,300,000 (Item 7, pp. 29-32, 38).[1] For the 100-room SureStay Studio, the estimates are $243,225 to $1,433,225 for a conversion and $9,230,225 to $13,662,225 for new construction. Each table includes three months of additional funds, which the FDD says does not include debt service or lease costs. The FDD does not state a per-room total, so none is printed here (Item 7, pp. 32-35, 38).[1] Financing for this work is covered at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). The plan itself is defined at [PIP](/glossary/pip). #### How long is a SureStay franchise agreement, and what does leaving cost? The SureStay term is 15 years from opening, or another term SureStay approves, and the agreement renews automatically for successive 15-year terms unless one party gives written notice at least 12 months before the term ends.[1] Item 17 lists termination by the franchisee as not applicable, subject to state law. SureStay may terminate without cause only after a condemnation, or a casualty the owner elects not to repair, and in those cases it releases the owner from liquidated damages if the owner does not run a competitor's hotel at the site within three years (Item 17, pp. 56-57).[1] Liquidated damages after opening are the prior 12 months of sales and marketing fees and royalty fees, divided by 12, multiplied by the lesser of 24 or the months remaining in the term. They are payable if SureStay terminates for cause or the owner terminates without cause. Before opening the figure is $1,500 for each authorized guest room. Opening without authorization costs $1,000 per day (Item 6, p. 26).[1] #### What happens to the SureStay franchise when I sell the hotel? A change of ownership needs SureStay's consent on 60 days' written notice, and the change of ownership transfer fee is the then current initial fee.[1] The buyer must meet SureStay's requirements for new franchisees, submit a change of ownership application, pay the franchise application fee, sign the then current franchise agreement and agree to SureStay's requested upgrades, which may include a PIP fee. The seller signs a termination agreement with a general release and pays all amounts due through closing. A permitted transfer to an affiliate, family member or trust carries a $1,000 processing fee (Item 6, pp. 18-19; Item 17, pp. 61-62).[1] The FDD lets an owner mortgage or pledge the hotel to an acquisition, development or operating lender without notice or consent if the owner is the sole borrower and the loan is not secured by other hotels. A lender [comfort letter](/glossary/comfort-letter) is $500 (Item 6, p. 24; Item 17, p. 62).[1] Best Western-flagged hotels on the market are listed at [Best Western hotels for sale](/hotels-for-sale/best-western), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about SureStay performance? Nothing. The 2026 SureStay Item 19 states: "We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets."[1] The FDD adds that SureStay does not authorize its employees or representatives to make such representations, and that a buyer of an existing hotel may be given that hotel's actual records (Item 19, p. 65).[1] So there is no occupancy, rate or RevPAR figure from the franchisor to quote, and this page prints none. Item 20 does give the system count. Franchised hotels numbered 238 at the end of the 2023 fiscal year, 222 at the end of 2024 and 218 at November 30, 2025, with no company-owned hotels (Item 20, p. 66).[1] A buyer who wants performance data should ask for the subject hotel's own records and its competitive set report. The measures are defined at [RevPAR](/glossary/revpar) and [ADR](/glossary/adr). Table: SureStay by Best Western and SureStay Studio by Best Western franchise fees, 2026 FDD issued February 27, 2026 Fee | Amount | Where in the FDD Franchise application fee | $2,500, non-refundable, not credited toward other payments[1] | Item 5, p. 15 Initial fee | $35,000 plus $100 per guest room over 100[1] | Item 5, p. 15 Monthly royalty fee | 4% of gross rooms revenue[1] | Item 6, p. 18 Monthly sales and marketing fee | 4% of gross rooms revenue; SureStay may change the rate at any time[1] | Item 6, pp. 18, 28 Best Western Rewards fee | 5.5% of PRR (2.75% for SureStay Studio), at $0.0055 per point issued[1] | Item 6, p. 20 Performance based marketing | 10% of gross rooms revenue on each reservation from a digital opportunity[1] | Item 6, p. 20 GDS and third-party internet booking fees | $7.90 per GDS booking; $4.60 per third-party internet booking[1] | Item 6, pp. 19-20 Property management system support | $3.97 per guest room per month, including $1.45 for the guest management system[1] | Item 6, p. 19 On-boarding training | $3,000[1] | Item 6, p. 23 Change of ownership transfer fee | Then current initial fee[1] | Item 6, p. 19 Lender comfort letter processing fee | $500[1] | Item 6, p. 24 Liquidated damages, after opening | Average monthly royalty and sales and marketing fees for the prior 12 months, times the lesser of 24 or the months remaining[1] | Item 6, p. 26 Estimated initial investment, 60-room SureStay conversion | $176,975 to $1,221,975[1] | Item 7, p. 32 Estimated initial investment, new 60-room SureStay | $5,354,975 to $8,265,975[1] | Item 7, p. 30 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for an initial fee, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of SureStay brand fees on assumed rooms revenue): Hypothetical. Assume a 60-room SureStay by Best Western earns $1,000,000 of gross rooms revenue in a year. The revenue figure and the member share below are assumptions for arithmetic. They are not forecasts and they are not figures from the FDD. Monthly royalty fees at 4 percent: $1,000,000 x 0.04 = $40,000.[1] Monthly sales and marketing fees at 4 percent: $1,000,000 x 0.04 = $40,000.[1] Together: $80,000, or 8 percent of rooms revenue. Property management system support: 60 rooms x $3.97 = $238.20 per month, or $2,858.40 for the year. The two-way interface at $41 per month is $492, and the managed security service at $130 per month is $1,560.[1] If Best Western Rewards members earn points on $300,000 of revenue, 10 points per dollar at $0.0055 per point is $16,500.[1] On the same assumptions, liquidated damages with 24 or more months left would be $80,000 / 12 x 24 = $160,000.[1] Booking fees, commissions and the 10 percent performance based marketing charge come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a SureStay by Best Western franchise cost? A: The 2026 FDD lists a $35,000 initial fee plus $100 per room over 100, a $2,500 application fee, a 4 percent royalty and a 4 percent sales and marketing fee. Item 7 estimates $176,975 to $1,221,975 to convert a 60-room hotel.[1] - Q: Is SureStay a franchise or a membership like Best Western? A: A franchise. The franchisor is SureStay, Inc. The FDD describes Best Western International as a nonprofit membership association that offers its membership brands under a separate disclosure document.[1] - Q: What percent of revenue does SureStay take? A: A 4 percent royalty plus a 4 percent sales and marketing fee on gross rooms revenue. Best Western Rewards, booking fees, the 10 percent performance based marketing charge and technology fees are billed on other bases on top.[1] - Q: How fast do I have to convert my hotel to SureStay? A: The 2026 FDD's example timetable is 90 days after signing for a conversion and 2 years for new construction. An extension costs $5,000 if SureStay approves it.[1] - Q: How long is a SureStay franchise agreement? A: Fifteen years from opening, or another approved term. It renews automatically for successive 15-year terms unless either party gives written notice at least 12 months before the term ends.[1] - Q: Does the SureStay FDD say what a SureStay earns? A: No. Item 19 makes no financial performance representation. A buyer of an existing hotel may be given that hotel's actual records.[1] - Q: Will these SureStay fees be the same next year? A: Not necessarily. The FDD says fees are subject to change without limitation, and that the sales and marketing fee rate can change at any time. The current FDD and the signed agreement govern.[1] Sources: - [1] SureStay by Best Western and SureStay Studio by Best Western Franchise Disclosure Document (issued February 27, 2026): Item 1, pp. 1-2; Item 5, pp. 15-17; Item 6, pp. 18-28; Item 7, pp. 29-38; Item 17, pp. 56-65; Item 19, p. 65; Item 20, p. 66. Minnesota CARDS document 35444-202602-05, file number 9264, Clean FDD (SureStay, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7BA012C39C-0000-CD12-A923-AFFA64F628E5%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does a Tapestry Collection franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/tapestry-collection Last updated: 2026-10-01 Hilton's 2026 Tapestry Collection Franchise Disclosure Document, issued March 30, 2026, estimates $2,861,047 to $70,253,147 to open a typical 125-room hotel, excluding real estate. The width of that range comes from construction, which runs from $0 to $45,954,000. The application fee is $100,000, the monthly royalty is 5 percent of gross rooms revenue and the monthly program fee is 4 percent.[1] Key takeaways: - Item 7 total: $2,861,047 to $70,253,147 for 125 rooms, which is about $22,900 to $562,000 per room by our arithmetic. The low end carries $0 for construction, design, furniture and contingencies.[1] - Ongoing: 5 percent royalty plus 4 percent program fee on gross rooms revenue, Hilton Honors at 4 percent of total eligible guest folio, and a 2 percent spa royalty only if the hotel adds an eforea spa.[1] - A buyer of an existing Tapestry pays a $150,000 change of ownership application fee and a $10,000 PIP fee.[1] - The Tapestry FDD makes no financial performance representation. Item 19 contains no room rate, occupancy or RevPAR figures.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Tapestry Collection franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, plus $400 for each guest room or suite over 250, under Item 5 of the 2026 Tapestry FDD.[1] Item 5 (pp. 17-18) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $150,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $51,750 to $136,750 for hardware, software and installation, other start-up fees are $6,500, training program fees run $5,000 to $15,000, and the opening process services fee is $20,000. Pre-opening revenue management support, which Hilton may require when a hotel opens on an expedited schedule of 150 days or less, is $4,059 to $8,880.[1] Two optional programs carry their own initial fees: $25,000 when the owner signs an eforea spa amendment, and a $75,000 development services fee for each Hilton restaurant brand selected.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 19).[1] #### What are the Tapestry Collection royalty and program fees? The monthly royalty fee is 5 percent of gross rooms revenue and the monthly program fee is 4 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 22) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees such as resort fees, and guaranteed no-show revenue (Note 1, p. 33).[1] A monthly spa royalty of 2 percent of gross spa revenue is payable only if an eforea spa amendment is in effect. The Item 6 table lists no royalty on food and beverage revenue.[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 33).[1] Other recurring charges sit on top. Hilton Honors is currently 4 percent of total eligible guest folio, waived for stays where the guest enrolls at the property. The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 26).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $2,105 to $6,499 per month (p. 23).[1] These charges apply to different bases, so they do not add into one percentage. #### Why is the Tapestry Item 7 range so wide? Because the 2026 Tapestry FDD puts construction and leasehold improvements at $0 to $45,954,000 for a 125-room hotel, so the total runs from $2,861,047 to $70,253,147.[1] Item 7 (pp. 36-38) shows $0 at the low end for four lines: construction and leasehold improvements ($0 to $45,954,000), design and engineering fees ($0 to $1,838,160), furniture, fixtures and equipment ($0 to $7,115,625) and contingencies ($0 to $4,595,400). Additional funds are $1,000,000 to $1,400,000, and an eforea spa adds $0 to $4,950,000.[1] Divided by 125 rooms, the total is about $22,900 to $562,000 per room. The division is ours. The FDD does not print a per-room figure.[1] The cover page adds that up to $400,630 of the total is paid to Hilton or its affiliates.[1] The notes to Item 7 say conversion costs vary with the age of the building, code compliance, fire and life safety requirements, the condition of the structure and the state of the furniture and finishes against brand standards, and that a converting owner's furniture costs will most likely be lower than a new hotel's (Notes 6 and 7, pp. 38-39).[1] Item 7 also states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 38).[1] An owner converting an independent hotel gets the real number from Hilton's PIP, not from Item 7. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Tapestry hotel performance? Nothing. Item 19 of the 2026 Tapestry FDD makes no financial performance representation.[1] Hilton writes: "We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets" (Item 19, p. 92).[1] That differs from Hilton's 2026 FDDs for brands such as [Hampton](/hotel-franchise-costs/hampton-inn) and [DoubleTree](/hotel-franchise-costs/doubletree), which report room rate, occupancy, RevPAR and RevPAR index for comparable hotels. Hilton adds that it does not authorize its employees or representatives to make such representations orally or in writing, and that a buyer of an existing hotel may be given that hotel's actual records.[1] An owner weighing a Tapestry conversion has to build the revenue case from the hotel's own history and a market study, not from the FDD. Item 7 notes that Hilton may encourage a converting owner to commission a market study, and that accepting one is not a performance representation by Hilton.[1] #### How long is a Tapestry franchise agreement, and can I renew it? Hilton's 2026 Tapestry FDD sets the term at generally 23 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Tapestry FDD (p. 78) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 28).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Tapestry franchise when the hotel is sold? A sale that changes control of a Tapestry is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Tapestry FDD (p. 86) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($150,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 29).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Tapestry before the term ends? Hilton's liquidated damages for a Tapestry that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Tapestry FDD (p. 29) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 35) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Tapestry hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Tapestry? Hilton may, in its sole discretion, offer a development incentive on a Tapestry, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Tapestry FDD (p. 50) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Tapestry franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Tapestry FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Tapestry Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 28 instances during 2025 (Item 6, p. 33), and in 2025 franchisees paid application fees from $0 to $100,000 for new development or conversion and $75,000 to $150,000 for a change of ownership (Item 5, p. 19).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Tapestry Collection by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000 plus $400 per guest room or suite over 250[1] | Item 5, p. 17 Application fee, change of ownership | $150,000[1] | Item 5, p. 17 Application fee, re-licensing | $100,000[1] | Item 5, p. 17 PIP fee | $10,000[1] | Item 5, p. 17 OnQ system: hardware, software, installation | $51,750 to $136,750[1] | Item 5, p. 17 Opening process services fee | $20,000[1] | Item 5, p. 18 eforea spa initial fee (optional) | $25,000[1] | Item 5, p. 17 Monthly royalty fee | 5% of gross rooms revenue[1] | Item 6, p. 22 Monthly spa royalty fee (only with an eforea spa) | 2% of gross spa revenue[1] | Item 6, p. 22 Monthly program fee | 4% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 22 and 33 Hilton Honors | 4% of total eligible guest folio[1] | Item 6, p. 26 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 26 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $2,105 to $6,499 per month[1] | Item 6, p. 23 Permitted transfer processing fee | $5,500[1] | Item 6, p. 28 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 29 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, p. 30 Estimated initial investment, 125 rooms | $2,861,047 to $70,253,147, excluding real estate[1] | Item 7, p. 38 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Tapestry Collection brand fees on assumed rooms revenue): Hypothetical. Assume a Tapestry Collection hotel earns $8,000,000 of gross rooms revenue in a year, has no eforea spa, and that $3,200,000 of guest folios are eligible Hilton Honors folios. These figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD, which reports no performance figures for Tapestry. Monthly royalty fee at 5 percent: $8,000,000 x 0.05 = $400,000.[1] Monthly program fee at 4 percent: $8,000,000 x 0.04 = $320,000.[1] Hilton Honors at 4 percent of eligible folio: $3,200,000 x 0.04 = $128,000.[1] OnQ connectivity plus hardware and software maintenance: $2,505 to $7,099 per month, or $30,060 to $85,188 a year.[1] Total of these four lines: $878,060 to $933,188. Hilton Advance fees, third-party reservation charges, travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: What does it cost to convert an independent hotel to Tapestry Collection? A: The 2026 FDD lists a $100,000 application fee and a $10,000 PIP fee. Its Item 7 range for a 125-room hotel starts at $2,861,047 with $0 of construction, but the FDD does not price conversions separately. Hilton's PIP sets the actual scope.[1] - Q: What are Tapestry Collection franchise fees? A: Under Hilton's 2026 FDD, issued March 30, 2026: a 5 percent monthly royalty and a 4 percent monthly program fee on gross rooms revenue, Hilton Honors at 4 percent of total eligible guest folio, and a 2 percent spa royalty only with an eforea spa.[1] - Q: Does Hilton publish Tapestry Collection RevPAR or occupancy? A: No. Item 19 of the 2026 Tapestry FDD states that Hilton does not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets.[1] - Q: How long is a Tapestry Collection franchise agreement? A: Generally 23 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: I'm buying an existing Tapestry Collection hotel. What will Hilton charge me? A: A $150,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. In 2025, buyers paid $75,000 to $150,000.[1] - Q: Does Tapestry charge a royalty on restaurant revenue? A: The Item 6 table in the 2026 FDD charges the 5 percent royalty and 4 percent program fee on gross rooms revenue and lists no royalty on food and beverage revenue. A 2 percent spa royalty applies only under an eforea spa amendment.[1] - Q: What does it cost to leave Tapestry Collection early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Sources: - [1] 2026 Tapestry Collection by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 17-21; Item 6, pp. 22-36; Item 7, pp. 36-41; Item 10, pp. 50-51; Item 17, pp. 78-91; Item 19, pp. 91-92 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Tapestry.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a Tru by Hilton franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/tru-by-hilton Last updated: 2026-10-01 Hilton's 2026 Tru by Hilton Franchise Disclosure Document, issued March 30, 2026, estimates $14,258,164 to $20,659,558 to open a newly built 98-room hotel, excluding real estate. The franchise application fee is $100,000, the monthly royalty is 5.5 percent of gross rooms revenue, the monthly program fee is 4 percent, and Hilton Honors is 2 percent of total eligible guest folio.[1] Key takeaways: - Item 7 total: $14,258,164 to $20,659,558 for 98 rooms, which is about $145,500 to $210,800 per room by our arithmetic, before land.[1] - Ongoing: 5.5 percent royalty plus 4 percent program fee on gross rooms revenue, and a Hilton Honors charge of 2 percent of total eligible guest folio.[1] - A buyer of an existing Tru pays a $150,000 change of ownership application fee and a $10,000 PIP fee. In 2025 buyers paid $75,000 to $150,000.[1] - Item 19 covers 243 comparable Tru hotels, all franchisee-managed, out of 311 open in the United States at December 31, 2025.[1] - The FDD is Hilton's document and its fees change every year. Get the current FDD from Hilton before relying on these figures. #### What does a Tru by Hilton franchise cost up front? A $100,000 franchise application fee for a new build or a conversion, under Item 5 of the 2026 Tru FDD.[1] Item 5 (pp. 15-16) lists the other initial fees paid to Hilton or its affiliates. A change of ownership application is $150,000 and a re-licensing application is $100,000. The PIP fee, charged to prepare a property improvement plan for a conversion, change of ownership or re-licensing, is $10,000. The OnQ computer system costs $36,652 to $90,846 for hardware, software and installation, other start-up fees are $5,100, training program fees run $5,000 to $17,500, and the opening process services fee is $6,000. If Hilton's supply affiliate furnishes the hotel, its procurement fee is 4 to 10 percent of project cost.[1] The application fee is refundable, less a $7,500 processing fee, if Hilton denies the application, if the applicant withdraws before approval, or if a change of ownership does not occur (Item 5, Note 1, p. 17).[1] #### What are the Tru by Hilton royalty and program fees? The monthly royalty fee is 5.5 percent of gross rooms revenue and the monthly program fee is 4 percent of gross rooms revenue, both due by the 15th of the following month.[1] Item 6 (p. 20) bases both fees on gross rooms revenue as defined under the Uniform System of Accounts for the Lodging Industry, including loyalty redemption revenue, mandatory guest fees and guaranteed no-show revenue (Note 1, p. 29).[1] Hilton may change the program fee at any time, but the rate will not exceed the current rate plus 1 percent of gross rooms revenue over the term of the agreement (Note 2, p. 30).[1] Other recurring charges sit on top. Hilton Honors is currently 2 percent of total eligible guest folio, waived for stays where the guest enrolls at the property. The Hilton Advance fee is 1.35 percent of eligible digital direct revenue, capped at $30 per stay (p. 23).[1] OnQ connectivity is $400 to $600 per month and hardware and software maintenance is $1,037 to $2,330 per month (p. 20).[1] These charges apply to different bases, so they do not add into one percentage. #### What does the Item 7 estimate cover, and what is it per room? Item 7 of the 2026 Tru FDD totals $14,258,164 to $20,659,558 for a newly built 98-room hotel, excluding real estate.[1] Divided by 98 rooms, that is about $145,500 to $210,800 per room. The division is ours. The FDD does not print a per-room figure.[1] Construction and leasehold improvements are the largest line at $10,237,185 to $14,787,045, and furniture, fixtures and equipment are $1,246,474 to $1,771,305 (pp. 33-34).[1] The cover page adds that up to $234,346 of the total is paid to Hilton or its affiliates.[1] Read the exclusions. Item 7 states in capitals that the figures do not include real estate costs, market studies, insurance or interest, and do not separately identify the cost of improvements under a conversion, re-licensing or change of ownership license (p. 34).[1] A buyer of an existing Tru should expect a PIP scope from Hilton, not an Item 7 number. Per-room pricing is defined at [price per key](/glossary/per-key). #### What does Hilton report about Tru hotel performance? Item 19 of the 2026 Tru FDD reports a 2025 average room rate of $128.20, average occupancy of 71.2 percent and average RevPAR of $91.27 across 243 comparable U.S. hotels.[1] Comparable hotels are those open since January 1 of the previous year, excluding hotels that changed brand or ownership type, had large-scale capital projects, or lack comparable results. Of 311 U.S. Tru hotels at December 31, 2025, 243 were comparable, and all 243 were franchisee-managed (p. 79).[1] Medians were a $125.35 room rate, 71.8 percent occupancy and $89.63 RevPAR. The ranges were $82.68 to $230.46 for room rate, 45.2 to 98.4 percent for occupancy and $42.23 to $164.34 for RevPAR. Of the franchisee-managed hotels, 113, or 46.5 percent, met or exceeded the average RevPAR (pp. 79-80).[1] The average RevPAR index was 135.0 and the median 133.5, with a range from 80.1 to 256.6, where 100 is a fair share of the competitive set. Hilton cites STR and Hilton as the source and excludes 1 hotel with insufficient data (pp. 80-81).[1] Hilton Honors members accounted for an average 76.3 percent of occupied room nights, with a range from 29.2 to 94.0 percent (p. 81).[1] Item 19 reports revenue measures only. It gives no expenses, no profit and no return on investment, and none can be derived from it. Hilton writes: "Some hotels have achieved the results shown above. Your individual results may differ. There is no assurance that your Hotel will achieve the results shown above" (p. 82).[1] The measures are defined at [RevPAR](/glossary/revpar) and [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### How long is a Tru franchise agreement, and can I renew it? Hilton's 2026 Tru FDD sets the term at generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion, with no right to renew.[1] Item 17 of the 2026 Tru FDD (p. 70) states that on a change of ownership the term is generally the remaining term under the existing franchise agreement, or another term Hilton approves.[1] The franchisee does not have the right to renew or extend. If Hilton agrees, in its sole discretion, to re-license the hotel, the owner may be asked to sign a contract with materially different terms and must meet any PIP conditions Hilton sets.[1] The re-licensing application fee is $100,000 (Item 6, p. 25).[1] The franchisee is not authorized to terminate before the term expires. Item 17 treats a unilateral termination without cause as a material breach, and liquidated damages become payable on demand.[1] The contract itself is defined at [franchise agreement](/glossary/franchise-agreement). #### What happens to the Tru franchise when the hotel is sold? A sale that changes control of a Tru is a change of ownership transfer: the seller gives Hilton 60 days' written notice and the buyer applies for a new franchise.[1] Item 17 of the 2026 Tru FDD (p. 75) requires the buyer to meet Hilton's then-current requirements for new franchisees, including credit, a background investigation and operations experience. The buyer submits a change of ownership application, pays the franchise application fee ($150,000), signs the then-current form of franchise agreement and agrees to Hilton's requested upgrades, which may include a PIP fee.[1] The seller must not be in default and must pay all amounts due through closing. If the buyer has SBA financing, buyer and seller must agree to escrow Hilton's estimated fees and disburse them at closing.[1] Permitted transfers are those that do not change control. Transfers of publicly traded equity, and of privately held equity where the transferee holds less than 50 percent afterward, need no notice or consent. Transfers to affiliates, to a family member or trust, or on death need 60 days' written notice, Hilton's consent and a $5,500 processing fee.[1] An owner may mortgage the hotel to a lender that finances its acquisition, development or operation without Hilton's consent if the owner is the sole borrower and the loan is not secured by other hotels or other collateral. A lender [comfort letter](/glossary/comfort-letter) costs $3,500 (Item 6, p. 26).[1] Hilton-family hotels on the market are listed at [Hilton hotels for sale](/hotels-for-sale/hilton). The buyer's checklist is at [What due diligence do I need before buying a hotel?](/buy-a-hotel/due-diligence-checklist). #### What does it cost to leave Tru before the term ends? Hilton's liquidated damages for a Tru that has been open more than two years are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Item 6 of the 2026 Tru FDD (p. 26) sets four cases for a termination by Hilton. Before opening: the system's average monthly royalty fees multiplied by 60. From opening to the second anniversary: the greater of the hotel's average monthly royalty fees multiplied by 60, or the system's average monthly royalty fees multiplied by 60. After the second anniversary and before the final 60 months of the term: the hotel's average monthly royalty fees multiplied by 60. Within the final 60 months: the hotel's average monthly royalty fees multiplied by the number of months remaining.[1] Note 8 to Item 6 (p. 32) defines the hotel's average as the royalty fees due for the 24 months before the month of termination, divided by 24. The system's average is the average monthly royalty per guest room owed by U.S. Tru hotels over the prior 12 full calendar months, multiplied by the hotel's approved guest rooms. Fee discounts, ramps and waivers are excluded from the calculation.[1] Opening without Hilton's written authorization costs $5,000 per day.[1] Item 6 states that the monthly royalty fee and liquidated damages are the only fees in the item that are not subject to change.[1] #### Does Hilton offer key money on a Tru? Hilton may, in its sole discretion, offer a development incentive on a Tru, and the 2026 FDD calls it a contingent liability, not a loan.[1] Item 10 of the 2026 Tru FDD (p. 44) describes an incentive as a financial contribution toward the development or conversion of the hotel, documented by a development incentive note signed with the franchise agreement. It bears no interest and does not have to be repaid unless the franchise terminates before the end of the term or a transfer occurs. The repayable amount falls by an equal share for each year the hotel is open: one-twentieth a year on a 20-year term, in Hilton's example.[1] On a sale, the seller pays the then-current repayable amount unless Hilton permits the buyer to assume the note.[1] The FDD does not publish incentive amounts, and the program can be changed or ended at any time. The term is defined at [key money](/glossary/key-money). #### How do owners finance Tru franchise fees, a PIP or a conversion? Inside the acquisition or construction loan when the costs are part of a purchase or a build, or with a separate renovation loan when they are not. Lenders size the loan to the hotel's income, and no lender type publishes its leverage limits or spreads. As of September 30, 2026, Prime is 7.00 percent, SOFR is 3.90 percent and the SBA 7(a) maximum allowable rate is 10.00 percent.[2] Item 7 of the Tru FDD notes that many lenders will require an environmental assessment report.[1] The loan structures are at [How do I finance converting my hotel to a new brand?](/hotel-financing/brand-conversion-financing) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). The wider trade between a flag and independence is at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent), and the upgrade list itself is defined at [PIP](/glossary/pip). #### Whose numbers are these, and how current are they? Every figure on this page comes from Hilton's 2026 Tru Franchise Disclosure Document, issued March 30, 2026. It is the franchisor's document, not ours.[1] The FDD is written by the franchisor, Hilton Franchise Holding LLC, and a prospective franchisee must receive it at least 14 calendar days before signing a binding agreement or paying anything.[1] Hilton reissues it every year and marks most fees "currently", which means they can change. Hilton also reports that it negotiates. It agreed to modify the monthly royalty fee in 18 instances in 2025 (Item 6, p. 30), and in 2025 franchisees paid application fees from $0 to $100,000 for new development or conversion and $75,000 to $150,000 for a change of ownership (Item 5, p. 17).[1] Get the current FDD from Hilton, and read the franchise agreement attached to it, before you rely on any number here. This page is a neutral fee guide. It does not rank brands or recommend one. The document type is explained at [franchise disclosure document](/glossary/franchise-fdd), and the other brand guides are listed at [How much does a hotel franchise cost?](/hotel-franchise-costs). Table: Tru by Hilton franchise fees, 2026 FDD issued March 30, 2026 (Items 5, 6 and 7) Fee | Amount | Where in the FDD Application fee, new development or conversion | $100,000[1] | Item 5, p. 15 Application fee, change of ownership | $150,000[1] | Item 5, p. 15 Application fee, re-licensing | $100,000[1] | Item 5, p. 15 PIP fee | $10,000[1] | Item 5, p. 15 OnQ system: hardware, software, installation | $36,652 to $90,846[1] | Item 5, p. 16 Monthly royalty fee | 5.5% of gross rooms revenue[1] | Item 6, p. 20 Monthly program fee | 4% of gross rooms revenue. May change, capped at the current rate plus 1%[1] | Item 6, pp. 20 and 30 Hilton Honors | 2% of total eligible guest folio[1] | Item 6, p. 23 Hilton Advance fee | 1.35% of eligible digital direct revenue, up to $30 per stay[1] | Item 6, p. 23 OnQ connectivity, and hardware and software maintenance | $400 to $600 and $1,037 to $2,330 per month[1] | Item 6, p. 20 Room addition fee | $400 per added guest room[1] | Item 6, p. 20 Permitted transfer processing fee | $5,500[1] | Item 6, p. 25 Lender comfort letter | $3,500, and $1,500 for an assignment[1] | Item 6, p. 26 Liquidated damages, after year 2 | Hotel's average monthly royalty fees x 60, or x months remaining in the final 60 months[1] | Item 6, pp. 26-27 Estimated initial investment, 98 rooms | $14,258,164 to $20,659,558, excluding real estate[1] | Item 7, p. 34 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026, SOFR at 3.90% on September 30, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan for franchise fees, a PIP or a conversion is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: one year of Tru by Hilton brand fees on assumed rooms revenue): Hypothetical. Assume a Tru by Hilton earns $3,000,000 of gross rooms revenue in a year, and that $1,200,000 of guest folios are eligible Hilton Honors folios. Both figures are assumptions chosen for round arithmetic. They are not forecasts and they are not from the FDD. Monthly royalty fee at 5.5 percent: $3,000,000 x 0.055 = $165,000.[1] Monthly program fee at 4 percent: $3,000,000 x 0.04 = $120,000.[1] Hilton Honors at 2 percent of eligible folio: $1,200,000 x 0.02 = $24,000.[1] OnQ connectivity plus hardware and software maintenance: $1,437 to $2,930 per month, or $17,244 to $35,160 a year.[1] Total of these four lines: $326,244 to $344,160. Hilton Advance fees, third-party reservation charges, travel planner commissions, training and guest assistance charges are extra and depend on how guests book, so they are left out. The example shows fees only. It says nothing about profit. FAQ: - Q: How much does it cost to build a Tru by Hilton? A: Hilton's 2026 FDD, issued March 30, 2026, estimates $14,258,164 to $20,659,558 for a newly built 98-room Tru, excluding real estate, market studies, insurance and interest. Up to $234,346 of that is paid to Hilton or its affiliates.[1] - Q: What is the Tru by Hilton royalty fee? A: 5.5 percent of gross rooms revenue, paid monthly, plus a 4 percent monthly program fee. Hilton reports it agreed to modify the royalty in 18 instances in 2025, so the rate is sometimes negotiated.[1] - Q: I'm buying an existing Tru by Hilton. What will Hilton charge me? A: A $150,000 change of ownership application fee and a $10,000 PIP fee, under the 2026 FDD. You sign Hilton's then-current franchise agreement and agree to its requested upgrades. In 2025, buyers paid $75,000 to $150,000.[1] - Q: How long does a Tru by Hilton franchise last? A: Generally 22 years from the effective date for new construction and 10 to 20 years from opening for a conversion. A buyer generally takes the remaining term or another term Hilton approves. There is no right to renew.[1] - Q: How much does a Tru by Hilton owner make? A: The FDD does not say. Item 19 reports room rate, occupancy, RevPAR, RevPAR index and Hilton Honors contribution for comparable hotels. It reports no expenses or profit, and Hilton states there is no assurance any hotel will achieve the results shown.[1] - Q: What does it cost to terminate a Tru by Hilton franchise early? A: After the second anniversary of opening, liquidated damages are the hotel's average monthly royalty fees multiplied by 60, or by the months remaining in the final 60 months of the term.[1] Sources: - [1] 2026 Tru by Hilton Franchise Disclosure Document (issued March 30, 2026): cover page; Item 5, pp. 15-19; Item 6, pp. 20-33; Item 7, pp. 33-37; Item 10, pp. 44-45; Item 17, pp. 70-78; Item 19, pp. 78-83 (Hilton Franchise Holding LLC, accessed 2026-10-01): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Tru.pdf - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### How much does a WoodSpring Suites franchise cost in 2026? URL: https://matthewshotelmarkets.com/hotel-franchise-costs/woodspring-suites Last updated: 2026-10-01 Choice Hotels' WoodSpring Suites disclosure document, issued April 1, 2026 and amended May 20, 2026, estimates $8,835,420 to $14,566,908 to build a 122-room WoodSpring Suites, before real estate. The affiliation fee is $50,000 for a prototype of 122 rooms or fewer. The royalty is 6.0 percent and the marketing and reservation fee 2.5 percent of gross room revenues.[1] Key takeaways: - Affiliation fee: $50,000 for a new hotel of 122 rooms or fewer and $60,000 for a transfer or renewal, plus $300 per room over 122.[1] - Royalty: 6.0 percent of gross room revenues. Marketing and reservation fee: 2.5 percent.[1] - Item 7: $8,835,420 to $14,566,908 for 122 rooms, or $72,421 to $119,401 per room, excluding real estate.[1] - Item 19 is unusual: it reports revenue, operating costs and gross operating profit for 176 franchised hotels, not only rate and occupancy.[1] - Fees change every year. Choice's current FDD and the signed franchise agreement govern, not this page. #### What is different about the WoodSpring Suites FDD? WoodSpring Suites is Choice's purpose-built economy extended-stay brand, and its 2026 FDD differs from Choice's transient brands in three places: a flat affiliation fee, a 2.5 percent marketing fee, and an Item 19 that reaches down to gross operating profit.[1] Choice's Quality FDD of the same date charges its affiliation fee per room, sets the marketing and reservation fee at 3.5 percent, and gives both sides a right to terminate on the 5th, 10th or 15th anniversary.[3] The WoodSpring FDD charges a flat $50,000 up to 122 rooms, sets the marketing and reservation fee at 2.5 percent, and lists no anniversary termination windows. Its liquidated damages formula can run to 60 months where Quality's stops at 36 (Item 5, p. 24; Item 6, pp. 27, 36; Item 17, pp. 69-70).[1][3] The WoodSpring Item 6 table lists no Choice Privileges rewards program fee. It does list a Google Hotel Price Ads fee of 12 percent of the gross room revenue those ads generate (Item 6, p. 28).[1] Loans for this segment are covered at [extended-stay hotel financing](/hotel-financing/extended-stay-financing). The shared mechanics are explained once on the [hotel franchise cost hub](/hotel-franchise-costs). #### What does Choice charge up front for a WoodSpring Suites franchise? The 2026 WoodSpring FDD lists a $50,000 affiliation fee for a new hotel on the current 122-room prototype and $60,000 for a transfer or renewal, each plus $300 per room above 122.[1] A non-refundable $5,000 application fee is credited toward the affiliation fee, and once paid the affiliation fee is non-refundable. A developer who signs a master development agreement pays a rights deposit of $50,000 times the number of hotels on the schedule. Choice states that affiliation fees on new WoodSpring agreements in the 12 months ending December 31, 2025 ranged from $0 to $50,000 (Item 5, p. 24).[1] A first-time WoodSpring developer must buy construction advisory services: $20,000 for five site visits, and about $4,000 for each extra visit. The mandatory Brand in a Box program costs about $11,550 to $30,000. Owner immersion training is up to $1,950 per attendee and the general manager certification up to $1,500. An owner who has never run an extended-stay hotel and does not use a management company may have to take a further program at about $2,500 to $7,500. An extension of the construction deadline is $5,000 per three months (Item 5, pp. 25-27).[1] #### What are the ongoing WoodSpring Suites franchise fees? Choice's 2026 Item 6 lists a 6.0 percent royalty and a 2.5 percent marketing and reservation fee, both on the preceding month's gross room revenues.[1] The royalty and liquidated damages are the only fees Choice says are not subject to change (Item 6, pp. 27, 37).[1] Distribution charges sit on other bases. The Google Hotel Price Ads fee is 12 percent of gross room revenue from reservations that program generates, based on the original booked length of stay. Third-party distribution is $3.00 per consumed reservation from directly connected online travel agents, and global distribution system reservations are currently $7.70 each (Item 6, pp. 28-29).[1] The property technology and service fee is $6.10 per room per month, with a $400 minimum and a $560 maximum. Revenue management is optional: ChoiceROCS service is $890 to $1,400 per month and ChoiceMAX software $235 to $360 per month, with a set-up fee of up to $4,500 for hotels that take a system. The optional ResConnect program is $3.00 per call transferred (Item 6, pp. 29-31, 33).[1] These charges apply to different bases, so they cannot be added into one rate. #### How much does it cost to build a WoodSpring Suites? Choice's 2026 Item 7 estimates $8,835,420 to $14,566,908 for a 122-room WoodSpring Suites, which Choice states as $72,421 to $119,401 per room, excluding real estate.[1] Construction, excluding soft costs, is the largest line at $7,720,000 to $12,570,000. Choice says that line leaves out sitework, project management fees, general contractor profit and permits. Furniture, fixtures and equipment, including opening inventory and systems, run $714,920 to $822,158, and the FDD says there is only one approved vendor for those items. Professional design services are $200,000 to $450,000. Additional funds are estimated for six months, at $30,000 to $200,000 (Item 7, pp. 38-40).[1] Choice does not estimate land. It says the 122-room prototype generally needs at least 2 acres (Item 7, p. 40).[1] Financing for a build is covered at [hotel construction loans](/hotel-financing/construction-loans), and work on an existing hotel at [brand conversion financing](/hotel-financing/brand-conversion-financing) and [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). #### How long is a WoodSpring Suites franchise agreement, and what does leaving cost? The WoodSpring term is 20 years after the opening date, the FDD lists no renewal provision, and Item 17 lists no without-cause termination right for either side.[1] Item 17 says the franchisee may terminate on any grounds permitted by law, and marks termination by Choice without cause as not applicable. For a replacement agreement on an existing WoodSpring hotel, Choice may offer a term shorter than 20 years (Item 17, pp. 69-70).[1] If Choice terminates for the franchisee's default after opening, liquidated damages are the greater of $70 per room per month, or the average monthly gross room revenues for the last 12 months times the royalty rate, in each case multiplied by the months until the next date the franchisee could terminate without penalty, capped at 60 months. Before opening, the amount is the room count times 36 months times $70. Reinstatement to the reservation system after a suspension is $5,000 (Item 6, p. 36).[1] #### What happens to the WoodSpring Suites franchise when I sell the hotel? A buyer of a controlling interest must meet Choice's qualifications, sign the then current franchise agreement and pay a relicensing fee equal to the then current affiliation fee.[1] Item 6 sets the transfer fee for 50 percent or more of the equity at the then current affiliation fee or $60,000, whichever is greater. The buyer also pays a $3,000 property improvement plan fee and $995 for relicensing training. A transfer of less than 50 percent carries a $7,500 assumption fee, which Choice says it may waive case by case. The WoodSpring Item 17 lists no right of first refusal (Item 5, pp. 25, 27; Item 6, pp. 32-33; Item 17, p. 71).[1] A lender [comfort letter](/glossary/comfort-letter) is $2,500, plus $500 if needed within one to three days (Item 6, p. 34).[1] Choice-flagged hotels on the market are listed at [Choice Hotels for sale](/hotels-for-sale/choice), and the flag decision is weighed at [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). #### What does Item 19 say about WoodSpring Suites revenue and costs? Choice's 2026 Item 19 reports that 176 franchised WoodSpring hotels averaged 76.8 percent occupancy, a $61.30 average daily rate, $47.01 RevPAR and total revenue of $2,144,155 in 2025, with average gross operating profit of $1,163,271, or 53.3 percent.[1] There were 284 open WoodSpring hotels at December 31, 2025. The table covers the 176 that were open for all of 2025 and gave Choice a complete full-year operating statement. It leaves out hotels that did not, and any hotel that was company-owned at any time in 2025. The median gross operating profit was $1,153,118, the range was $168,344 to $2,354,597, and 85 hotels, or 48 percent, exceeded the average. Guests staying seven nights or more made up 85.4 percent of occupied room nights, and the average stay was 12.2 nights (Item 19, pp. 75-76).[1] The same table lists average rooms department costs of $303,160 and average undistributed operating costs of $672,961, including $171,619 of sales and marketing, the line that the FDD says holds royalty and advertising fees. A second table covers the 102 hotels built since late 2015 on the current prototype, which averaged $51.89 RevPAR and $1,314,833 of gross operating profit. A third covers 74 older former Value Place hotels (Item 19, pp. 76-79).[1] [Gross operating profit](/glossary/gop) is not net income. As the FDD defines it, it is total revenue less departmental and undistributed operating costs. Management fees, property taxes, insurance, reserves and debt service are not among the cost lines the table lists, and all of them come before an owner's cash flow. The figures are franchisee-reported, and Choice states that there is no assurance a buyer will earn as much (Item 19, pp. 78-80).[1] This page draws no conclusion about what any one hotel will earn. The measures are defined at [RevPAR](/glossary/revpar), [ADR](/glossary/adr) and [NOI](/glossary/noi). Table: WoodSpring Suites franchise fees, 2026 FDD issued April 1, 2026, as amended May 20, 2026 Fee | Amount | Where in the FDD Affiliation fee, new hotel | $50,000 for 122 rooms or fewer, plus $300 per room over 122; $5,000 application fee credited toward it[1] | Item 5, p. 24 Affiliation fee, transfer or renewal | $60,000 for 122 rooms or fewer, plus $300 per room over 122[1] | Item 5, p. 24 Royalty fee | 6.0% of gross room revenues[1] | Item 6, p. 27 Marketing and reservation fee | 2.5% of gross room revenues[1] | Item 6, p. 27 Google Hotel Price Ads program fee | 12% of gross room revenue from reservations the program generates[1] | Item 6, p. 28 Third-party distribution and GDS | $3.00 per consumed reservation; GDS currently $7.70 per reservation[1] | Item 6, pp. 28-29 Property technology and service fee | $6.10 per room per month, $400 minimum, $560 maximum[1] | Item 6, p. 29 Revenue management (optional) | ChoiceROCS $890 to $1,400 per month; ChoiceMAX $235 to $360 per month[1] | Item 6, p. 30 Construction advisory services (first WoodSpring build) | $20,000 for five site visits; about $4,000 per extra visit[1] | Item 5, p. 25 Transfer fee, 50% or more of equity | Then current affiliation fee or $60,000, whichever is greater[1] | Item 6, p. 32 Property improvement plan fee on transfer | $3,000[1] | Item 6, p. 33 Liquidated damages, after opening | Greater of $70 per room per month or average monthly gross room revenues times the royalty, times months to the next penalty-free termination date, up to 60[1] | Item 6, p. 36 Estimated initial investment, new 122-room hotel | $8,835,420 to $14,566,908; $72,421 to $119,401 per room, excluding real estate[1] | Item 7, p. 40 Item 19 average gross operating profit, 176 hotels, 2025 | $1,163,271, or 53.3% of total revenue; before management fees, property taxes, insurance and debt service[1] | Item 19, p. 76 First-party data point: Matthews Hotel Markets' October 2026 rate sheet records Prime at 7.00% effective September 17, 2026 and the SBA 7(a) maximum allowable rate at 10.00%, the indexes a loan to build or buy a franchised extended-stay hotel is priced against.[2] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a year of WoodSpring Suites brand fees on assumed room revenue): Hypothetical. Assume a 122-room WoodSpring Suites earns $2,000,000 of gross room revenues in a year. The revenue figure is an assumption for arithmetic. It is not a forecast and it is not a figure from the FDD. Royalty fee at 6.0 percent: $2,000,000 x 0.06 = $120,000.[1] Marketing and reservation fee at 2.5 percent: $2,000,000 x 0.025 = $50,000.[1] Together: $170,000, or 8.5 percent of room revenue. Property technology and service fee: 122 rooms x $6.10 = $744.20 per month, which is over the $560 maximum, so $560 per month, or $6,720 for the year.[1] On the same assumptions, at the 60-month cap, the revenue side of the liquidated damages formula is $2,000,000 / 12 x 0.06 x 60 = $600,000. That is more than $70 x 122 rooms x 60 months = $512,400, so $600,000 would apply.[1] Google Hotel Price Ads fees, per-reservation charges, commissions and training come on top and depend on the hotel's booking channels, so they are not estimated here. FAQ: - Q: How much does a WoodSpring Suites franchise cost? A: Choice's 2026 FDD lists a $50,000 affiliation fee for 122 rooms or fewer, a 6.0 percent royalty and a 2.5 percent marketing and reservation fee. Item 7 estimates $8,835,420 to $14,566,908 to build 122 rooms, before real estate.[1] - Q: How much does it cost per room to build a WoodSpring Suites? A: Choice's 2026 Item 7 states $72,421 to $119,401 per room for the 122-room prototype. That excludes land, and the construction line excludes sitework, contractor profit and permits.[1] - Q: What percent of revenue does Choice take from a WoodSpring Suites? A: A 6.0 percent royalty plus a 2.5 percent marketing and reservation fee on gross room revenues. Technology, Google Hotel Price Ads fees and per-reservation charges are billed on other bases on top.[1] - Q: Does the WoodSpring Suites FDD show profit? A: It shows gross operating profit, which averaged $1,163,271, or 53.3 percent of revenue, for 176 franchised hotels in 2025. That is before management fees, property taxes, insurance, reserves and debt service, so it is not net income.[1] - Q: How much land does a WoodSpring Suites need? A: The 2026 FDD says the 122-room prototype generally requires a minimum of 2 acres. Choice does not estimate the cost of the land.[1] - Q: I'm buying a WoodSpring Suites. What does the relicensing cost? A: For 50 percent or more of the equity, the then current affiliation fee or $60,000, whichever is greater, plus a $3,000 property improvement plan fee and $995 for relicensing training.[1] - Q: Will these WoodSpring Suites fees be the same next year? A: Not necessarily. Choice says all fees except the royalty and liquidated damages are subject to change, and it reissues the FDD every year. The current FDD and the signed agreement govern.[1] Sources: - [1] WoodSpring Suites Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, pp. 24-27; Item 6, pp. 27-38; Item 7, pp. 38-42; Item 17, pp. 69-75; Item 19, pp. 75-80. Minnesota CARDS document 35788-202604-11, file number 8459, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B503B8D9E-0000-C31C-804D-870B9402993E%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 - [2] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [3] Quality Franchise Disclosure Document (issued April 1, 2026, as amended May 20, 2026): Item 5, p. 25; Item 6, pp. 28, 40; Item 17, p. 72. Minnesota CARDS document 36789-202606-03, file number 48, Clean FDD (Choice Hotels International, Inc., filed with the Minnesota Department of Commerce, accessed 2026-09-18): https://cards.web.commerce.state.mn.us/documents/%7B5055B19E-0000-C316-BD49-E91CD982D575%7D/download?documentClass=FRANCHISE_REGISTRATIONS&contentSequence=0 ## How does the hotel business work? ### How does the hotel business work? URL: https://matthewshotelmarkets.com/hotel-industry Last updated: 2026-10-01 A hotel sells room nights, and three parties usually split the work: an owner who holds the real estate and the risk, a brand that licenses its name for a share of rooms revenue, and an operator who runs the building. In 2025 U.S. hotels ran 62.3 percent occupancy at a $160.54 average rate, per CoStar figures reported January 22, 2026.[1] Key takeaways: - Rooms are the business. Apple Hospitality REIT, which owns 217 select-service hotels, reported $1,278.4 million of room revenue in $1,412.4 million of total revenue for 2025, which is 90.5 percent.[2] - The name on the sign rarely owns the building. Hilton owned or leased 46 of its 9,158 properties at December 31, 2025, and Marriott says it owns or leases less than one percent of its system.[5][6] - A brand is paid off the top. Hilton's 2025 Hampton disclosure lists a 6 percent royalty and a 4 percent program fee, both on gross rooms revenue.[7] - U.S. RevPAR was $100.02 in 2025, down 0.3 percent. July 2026 RevPAR was $119.77, up 8.2 percent on the year, helped by the World Cup.[1][4] - Forecasters disagree about 2026. CoStar and Tourism Economics say RevPAR grows 4.4 percent. CBRE says 2.5 percent. We publish both and blend neither.[14][15] #### How do hotels make money? Hotels make money by selling room nights first, then food, drink, meeting space, parking and other services, and what is left after departmental costs, overhead, fees, taxes and insurance is the owner's. The mix depends on the kind of hotel. Apple Hospitality REIT owns 217 select-service hotels, and rooms were 90.5 percent of its 2025 revenue.[2] Host Hotels & Resorts owns luxury and upper-upscale hotels, and rooms were $3,608 million of $6,015 million of hotel revenue in 2025, about 60 percent, with food and beverage at $1,803 million.[3] Both companies publish the expense side too. Host's rooms department cost $906 million against that $3,608 million of revenue, while its food and beverage department cost $1,224 million against $1,803 million.[3] Rooms carry the profit. The industry keeps its books in one format, the Uniform System of Accounts for the Lodging Industry, so one hotel's statement can be compared with another's. The full walk-through, with both REITs' reported margins, is at [How do hotels make money?](/hotel-industry/how-hotels-make-money). #### What are RevPAR, ADR and occupancy? Occupancy is the share of rooms sold, ADR is the average rate paid for a sold room, and RevPAR is the two multiplied together: room revenue per available room. For 2025, CoStar reported U.S. occupancy of 62.3 percent, ADR of $160.54 and RevPAR of $100.02.[1] Multiply 0.623 by $160.54 and you get $100.02. For July 2026 it reported 69.7 percent, $171.74 and $119.77.[4] Those are national averages across every kind of hotel in every kind of market, so they are a poor yardstick for any single property. The useful comparison is a hotel against its own competitive set. Hilton's 2025 Hampton disclosure reports an average RevPAR index of 121.0 for comparable Hampton hotels in 2024, where 100 means a fair share.[7] Definitions, the latest public figures and what a good number means are at [What are RevPAR, ADR and occupancy, and what is a good number?](/hotel-industry/revpar-adr-occupancy). #### Who owns the hotel, and who runs it? Usually three different parties: an owner holds the property, a franchisor licenses the brand, and the owner or a third-party management company operates the hotel. Hilton's 10-K counts 9,158 properties at December 31, 2025. It owned or leased 46, managed 873 and franchised or licensed 8,239.[5] Marriott reports 9,805 properties at year-end 2025, of which 7,644 were franchised, licensed or other, and says it owns or leases less than one percent of its system.[6] The brand companies are fee businesses. The people who own the buildings are mostly private owners, plus a small number of public REITs and institutional funds. How the franchise agreement and the management agreement differ, and what each costs according to public filings, is at [What is the difference between a hotel owner, a franchisor and a management company?](/hotel-industry/owner-franchisor-management-company). The ownership landscape itself is at [Who owns hotels in the United States?](/hotel-industry/who-owns-hotels). #### What do chain scales like upper midscale and upscale mean? Chain scales are the industry's price tiers for branded hotels: luxury, upper upscale, upscale, upper midscale, midscale and economy, with independents counted as their own group. STR has said it assigns chain scales by grouping branded hotels on their average room rates, with all independent hotels in a single separate category.[11] Choice Hotels' fiscal 2025 10-K uses the same six tiers to describe the industry and places Hampton by Hilton and Holiday Inn Express in upper midscale and Courtyard and Hilton Garden Inn in upscale.[10] The tier matters to an owner because lenders, buyers and forecasters all cut their numbers by it. CBRE's midyear 2026 outlook has luxury RevPAR growing 5.2 percent and economy falling 0.6 percent in the same year.[15] The tiers, and how they differ from service labels like select-service, are at [What are hotel chain scales and classes?](/hotel-industry/chain-scales-and-classes). #### How big is the U.S. hotel industry? AHLA forecasts nearly $805 billion of hotel guest spending in 2026 and about 2.2 million people employed directly in hotel operations.[12] Those figures are from AHLA's public State of the Industry release of January 27, 2026, which also reports $85.1 billion of federal, state and local taxes generated in 2025.[12] The Bureau of Labor Statistics counts 1,926,600 employees in the accommodation subsector in August 2026, a preliminary figure, across 78,789 private establishments in the first quarter of 2026. That subsector is hotels and motels plus RV parks, camps and rooming houses.[13] The two employment numbers measure different things, and the page that sets them side by side is [How big is the US hotel industry in 2026?](/hotel-industry/industry-size-2026). #### What is the outlook for hotels? Every public forecast for 2026 was raised during the year, and the forecasters still disagree by about two points of RevPAR growth. CoStar and Tourism Economics started 2026 forecasting RevPAR growth of 0.6 percent and, on August 7, 2026, raised it to 4.4 percent, with 2.1 percent for 2027.[14] CBRE's midyear review has 2.5 percent for 2026 and 2.1 percent for 2027.[15] We set the public forecasts side by side with their dates at [What is the outlook for hotels in 2026 and 2027?](/hotel-industry/outlook-2026-2027). We do not average them into a forecast of our own. #### How does any of this affect what my hotel is worth or what it can borrow? Value and debt are both sized on the hotel's net operating income, so every basic on this page ends up in a cap rate or a coverage test. A buyer capitalizes net operating income. The Matthews Hotel Index for Q1 2026 puts stabilized select-service cap rates at 7.5 to 8.25 percent in Austin, for example.[17] A lender tests the same income against debt service at current rates. As of September 30, 2026, the 10-year Treasury is 5.29 percent and SOFR is 3.90 percent, and no lender type publishes its spread over either.[16] From here, owners usually want one of four pages: [How does hotel financing work, and what does it cost right now?](/hotel-financing), [What is my hotel worth, and who decides?](/hotel-valuation), [What is involved in selling a hotel?](/sell-a-hotel) or [How do I buy a hotel?](/buy-a-hotel). #### Who owns most U.S. hotels? Private owners, many of them family businesses, own most U.S. hotels, and most of those hotels carry a franchise. AAHOA, the owners' association, says its members own 36,807 U.S. hotels, which it puts at 60 percent of the country's hotels, citing a study it commissioned from Oxford Economics.[8] AHLA says 57 percent of U.S. hotels are franchised and projected 36,173 franchised hotels for 2024.[9] Both are trade-association figures and we attribute them that way. Public REITs are visible but small by count: Host owns 76 hotels and Apple Hospitality owns 217.[2][3] Table: The basics of the U.S. hotel business and the public source behind each figure (read September 18, 2026) Question | The short answer | Source and date Where does the revenue come from? | Rooms: 90.5% of revenue at a select-service REIT, about 60% at a luxury and upper-upscale REIT | Apple Hospitality and Host Hotels full-year 2025 results, February 2026[2][3] How full and at what rate? | 62.3% occupancy, $160.54 ADR, $100.02 RevPAR for 2025 | CoStar, reported January 22, 2026[1] Latest month? | 69.7% occupancy, $171.74 ADR, $119.77 RevPAR in July 2026 | CoStar, reported August 26, 2026[4] Does the brand own the hotel? | Rarely. Hilton owned or leased 46 of 9,158 properties | Hilton 10-K, as of December 31, 2025[5] What does a brand charge? | Hampton: 6% royalty plus 4% program fee on gross rooms revenue | Hilton's 2025 Hampton FDD, issued March 30, 2025[7] Who owns the buildings? | AAHOA says its members own 60% of U.S. hotels | AAHOA and Oxford Economics, as published by AAHOA[8] How big is it? | Nearly $805 billion of guest spending forecast for 2026 | AHLA, January 27, 2026[12] Where is it going? | 2026 RevPAR growth: 4.4% per CoStar and Tourism Economics, 2.5% per CBRE | August 7, 2026 and midyear 2026[14][15] First-party data point: The Matthews Hotel Index for Q1 2026 shows how far a single market sits from the national average: Austin at about 70 percent occupancy with RevPAR between $95 and $165 depending on segment, against the 62.3 percent and $100.02 CoStar reported for the whole country in 2025.[17][1] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: a 100-room branded hotel running exactly at the 2025 national average): Hypothetical. No real hotel runs at the national average, which is the point of the exercise. Rooms available: 100 rooms times 365 nights is 36,500 room nights a year. RevPAR: CoStar reported $100.02 for 2025, which is 62.3 percent occupancy times a $160.54 ADR.[1] Rooms revenue is 36,500 times $100.02, or $3,650,730. Brand fees: on Hilton's 2025 Hampton schedule the royalty is 6 percent of gross rooms revenue, $219,044, and the program fee is 4 percent, $146,029.[7] Together that is $365,073 a year before the hotel pays a housekeeper, a utility bill or a lender. What the owner gets in return is the reservation system and the index premium. Hilton reports that comparable Hampton hotels averaged a RevPAR index of 121.0 in 2024, meaning 21 percent more RevPAR than their competitive sets.[7] Whether that trade is a good one for a specific hotel is a market question, and the brand's average is not a promise. FAQ: - Q: Is a Hampton Inn owned by Hilton? A: Almost never. Hilton owned or leased 46 of its 9,158 properties at December 31, 2025, across all brands.[5] Of 1,960 comparable Hampton hotels in Hilton's 2025 disclosure, 1,945 were managed by the franchisee or a non-Hilton management company.[7] - Q: What is the main source of revenue for a hotel? A: Rooms. They were 90.5 percent of 2025 revenue at Apple Hospitality REIT's select-service hotels and about 60 percent at Host Hotels & Resorts' luxury and upper-upscale hotels, where food and beverage was another 30 percent.[2][3] - Q: What was U.S. hotel occupancy in 2025? A: 62.3 percent, down 1.2 percent from 2024, according to CoStar figures reported on January 22, 2026. ADR was $160.54 and RevPAR was $100.02.[1] - Q: Is RevPAR the same as profit? A: No. RevPAR measures room revenue only. AHLA reported in January 2026 that gross operating profit per available room was roughly 90 percent of its 2019 level because operating expenses had risen.[12] Lenders and buyers underwrite income, not RevPAR. - Q: How many people work in U.S. hotels? A: AHLA projects about 2.2 million direct hotel operations jobs in 2026.[12] The Bureau of Labor Statistics counts 1,926,600 employees in the accommodation subsector for August 2026, a preliminary figure.[13] The definitions differ. - Q: Are hotels expected to grow in 2026? A: Yes, by every public forecast we read. CoStar and Tourism Economics forecast RevPAR growth of 4.4 percent as of August 7, 2026, and CBRE's midyear review forecasts 2.5 percent.[14][15] Sources: - [1] Key full-year US hotel metrics fall for first time since 2020 (January 22, 2026): full-year 2025 occupancy, ADR and RevPAR (Hotel Dive, citing CoStar, accessed 2026-09-18): https://www.hoteldive.com/news/hotel-occupancy-revpar-decline-2025/810212/ - [2] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [3] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [4] U.S. Hotels Post Strong July Gains as Occupancy, Rates and RevPAR Rise (August 26, 2026) (Hotel Online, citing CoStar, accessed 2026-09-18): https://www.hotel-online.com/news/us-hotels-post-strong-july-gains-as-occupancy-rates-and-revpar-rise - [5] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [6] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [7] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [8] Oxford Economics Study: the economic impact of AAHOA Member-owned hotels (Asian American Hotel Owners Association (AAHOA), accessed 2026-09-18): https://www.aahoa.com/resources/oxford-study - [9] Franchising: hotel franchising facts (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/issue/franchising - [10] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [11] Luxury chain scale shows pricing disparity (June 19, 2009), which states how STR assigns chain scales (STR, republished by Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/report/4042052/luxury-chain-scale-shows-pricing-disparity-str - [12] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [13] Industries at a Glance: Accommodation, NAICS 721 (data extracted September 18, 2026) (U.S. Bureau of Labor Statistics, accessed 2026-09-18): https://www.bls.gov/iag/tgs/iag721.htm - [14] CoStar, Tourism Economics 'significantly' boost US hotel outlook (August 7, 2026) (Hotel Dive, citing CoStar and Tourism Economics, accessed 2026-09-18): https://www.hoteldive.com/news/costar-tourism-economics-raise-us-hotel-performance-outlook-2026/827318/ - [15] U.S. Real Estate Market Outlook Midyear Review 2026, Hotels (CBRE, accessed 2026-09-18): https://www.cbre.com/insights/books/us-real-estate-market-outlook-midyear-review-2026/hotels - [16] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [17] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Do I have to bring my hotel up to ADA standards when I renovate it? URL: https://matthewshotelmarkets.com/hotel-industry/ada-requirements Last updated: 2026-10-12 For the parts you touch, yes. Any alteration begun after January 26, 1992 must leave the altered portions accessible to the maximum extent feasible, and altering an area that holds a primary function also obliges you to fix the path of travel to it, up to 20 percent of that alteration's cost.[1][2] Everything you do not touch runs on a separate readily achievable duty.[3] Key takeaways: - An inn, hotel or motel is a public accommodation by name in the statute. The only carve-out is a building with five or fewer rooms for rent that the proprietor lives in.[4] - Not all construction is an alteration. Reroofing, painting, wallpapering, asbestos removal and mechanical changes are excluded unless they affect usability, so a soft-goods refresh usually sits outside the rule and moving a bathroom wall sits inside it.[1] - Room counts scale with the work, not the hotel. Where guest rooms are altered, the scoping tables apply to the rooms being altered until the total reaches the new-construction minimum.[5] - Elements you have not altered since March 15, 2012 that already met the 1991 Standards need not be rebuilt to the 2010 Standards. Pools, spas, saunas and exercise equipment are named exclusions from that safe harbor.[3] - One duty is not construction at all. The reservations rule makes you describe accessible features, hold those rooms back, block a booked room out of the system and guarantee it, and the Department of Justice says it draws many complaints a year.[6] #### Does the ADA actually apply to my hotel? Almost certainly, because title III names an inn, hotel or motel first among the private entities it calls public accommodations. 42 U.S.C. 12181(7)(A) names "an inn, hotel, motel, or other place of lodging" as a public accommodation where the operations affect commerce, and the only exception is a building with no more than five rooms for rent that the proprietor occupies as a residence.[4] What coverage means turns on the age of the building and on what you are doing to it, because three duties run at once. New construction first occupied more than 30 months after July 26, 1990 had to be built accessible.[2] Alterations have to be made accessible as they are made.[1] And in an existing facility, barriers have to be removed where removal is readily achievable, which 28 CFR 36.304(a) defines as easily accomplishable and able to be carried out without much difficulty or expense.[3] The third duty is the one owners misread: it is continuing, and it does not lapse because the hotel was legal when it opened. #### Which renovations trigger ADA upgrades, and which do not? Anything that affects or could affect the usability of the building, a test wider than a building permit and narrower than any spend. 28 CFR 36.402(b) defines an alteration as a change that affects or could affect usability, and lists remodeling, renovation, rehabilitation, reconstruction, historic restoration, changes in structural parts, and changes in the plan configuration of walls and full-height partitions.[1] Then it excludes a set: normal maintenance, reroofing, painting or wallpapering, asbestos removal, and changes to mechanical and electrical systems are not alterations unless they affect usability.[1] Read against a brand's [property improvement plan](/glossary/pip), that line falls in a useful place. A soft-goods cycle replacing carpet, case goods, bedding, paint and wallcovering moves no wall and changes nothing a guest reaches, so it usually sits outside 36.402. A guest-bath reconfiguration, a lobby rebuild or a converted breakfast area sits inside it, and each altered element then has to comply.[1] So renovating does not oblige you to bring the whole hotel up to the 2010 Standards, only the part you touched, plus the path of travel below. Note that asbestos removal is outside the ADA definition of an alteration but squarely inside the Clean Air Act work-practice rules, which run on their own thresholds and their own 10 working days' notice: see [asbestos rules for a hotel renovation](/hotel-industry/asbestos-renovation-rules). Where the work is financed, that scope belongs in the loan budget from the start: see [PIP and renovation financing](/hotel-financing/pip-and-renovation-loans). #### How many accessible rooms does my hotel need? Table 224.2 of the 2010 Standards sets the mobility-feature count and Table 224.4 the communication-feature count, both stepped by the number of guest rooms. Section 224.2 requires guest rooms with mobility features complying with section 806.2 in the quantities in Table 224.2, and section 224.4 requires rooms with communication features complying with 806.3 in the quantities in Table 224.4.[5] Both are reproduced below. The mobility table splits its count between rooms with and without roll-in showers, and the first required roll-in shower appears in the 51-to-75 band. In an alteration the count is not taken off the whole hotel. Section 224.1.1 applies section 224 only to the guest rooms being altered or added, until the number reaches the minimum new construction would require, so phase a renovation and the obligation phases with it.[5] Section 224.5 governs where the rooms go: dispersed among the classes of room, with comparable choices of type, bed count and amenities, at least one mobility room also carrying communication features, and no more than 10 percent of the required mobility rooms counting toward the communication minimum.[5] Separately, 28 CFR 36.406(c)(1) lets buildings on a common site under one permit application be combined for scoping where each has 50 or fewer rooms, and counted separately above 50.[7] #### What is the 20 percent path-of-travel rule? Alter an area holding a primary function and you must also make the route to it accessible, but only until that work passes 20 percent of the alteration itself. 28 CFR 36.403(a)(1) attaches the duty to an alteration affecting the usability of or access to an area containing a primary function, and (f)(1) fixes the ceiling: the work is disproportionate once its cost exceeds 20 percent of the cost of the alteration to the primary function area.[2] The path of travel includes the route in, plus the restrooms, telephones and drinking fountains serving the altered area. A primary function is a major activity for which the facility is intended, and the definition expressly excludes mechanical and boiler rooms, storage, employee lounges, janitorial closets, entrances, corridors and restrooms.[2] When the cost is disproportionate you do not walk away. Under 36.403(g) you spend the 20 percent in a published priority order: accessible entrance, then the route to the altered area, then at least one accessible restroom for each sex or a single unisex restroom, then telephones, drinking fountains and parking.[2] Nor can the cap be gamed by slicing the job up: under 36.403(h) a series of smaller alterations that could have been one undertaking is treated as one, and alterations on the same path of travel in the preceding three years are aggregated when the proportion is recomputed.[2] #### What about the parts of the hotel I am not touching? They carry the readily achievable barrier-removal duty, which is lower than the alterations standard but never switched off, and one safe harbor limits how far back it reaches. 28 CFR 36.304 gives 21 examples of readily achievable barrier removal, most of them cheap: ramps, curb cuts, flashing alarm lights, offset hinges, grab bars in toilet stalls, insulated lavatory pipes, removing high-pile low-density carpet. It also sets priorities: access from the sidewalk, parking or transit first, then the areas where goods and services are offered, then restrooms, then everything else.[3] The safe harbor is the part a buyer needs. Under 36.304(d)(2)(i), elements not altered since March 15, 2012 that comply with the corresponding specifications in the 1991 Standards need not be modified to meet the 2010 Standards, so a 1998-vintage hotel built correctly to the 1991 Standards is not automatically non-compliant because a dimension later changed.[3] The exclusions matter as much as the rule: the safe harbor does not reach elements the 1991 Standards never specified, and the regulation names swimming pools, wading pools and spas, saunas and steam rooms, exercise machines and play areas among them.[3] On a hotel that is the pool, the spa and the fitness room, which have to be brought toward the 2010 Standards to the extent readily achievable whether or not you renovate. #### What does the ADA require of my reservations system? Five specific things, none of them construction, and the Department of Justice says failed reservations draw many complaints a year. 28 CFR 36.302(e)(1) applies to reservations made by any means, including by telephone, in person or through a third party, and requires all five of these: policies that let people with disabilities reserve accessible rooms in the same hours and manner as everyone else; accessible features described in enough detail for a guest to judge independently whether the room meets their needs; accessible rooms held back until all other rooms of that type are gone; on request, a specific accessible room reserved and blocked out of every reservation system; and a guarantee that the room reserved is held for that guest.[6] The Department of Justice said in the preamble to the 2010 rule that it receives many complaints each year from people who reserved an accessible room and found on arrival that it was unavailable or not accessible.[6] None of this depends on the building: a hotel that satisfies every scoping table and then lets a channel manager resell its one roll-in-shower room is in the exact failure the rule addresses. The hold-back, block-out and guarantee duties do not apply to units the operator does not own or substantially control, which is the condominium-hotel case.[6] #### What is the exposure, and what should a buyer check before closing? Private plaintiffs get injunctions and fees, the Attorney General can seek six-figure penalties, and some states add per-visit damages. A private title III suit is for injunctive relief and attorney's fees, not damages. Civil penalties are available only in an action by the Attorney General, and the figures sit in the penalty table at 28 CFR 85.5: for penalties assessed after July 3, 2025, a maximum of $118,225 for a first violation and $236,451 for a subsequent one.[8] State law is where money is more often at stake. California Civil Code 52(a) sets statutory damages at no less than $4,000 per offense plus fees, and Civil Code 55.56 assesses them per occasion on which access was denied rather than per violation found, dropping to $1,000 per offense for a small business that corrects everything within 60 days and holds a CASp inspection report.[9][10] The federal offsets are small and fixed. 26 U.S.C. 44 gives an eligible small business a credit of 50 percent of eligible access expenditures above $250 and up to $10,250, a maximum of $5,000, where gross receipts were $1,000,000 or less in the preceding year or there were 30 or fewer full-time employees.[11] 26 U.S.C. 190 caps the barrier-removal deduction at $15,000 a year.[12] For a buyer the questions are documentary, and they belong in the [due diligence list](/buy-a-hotel/due-diligence-checklist): when was each element last altered, which decides whether the safe harbor applies; is there a CASp report, and what is open on it; what does the brand require at change of ownership; and who pays for the open items, which is a price conversation rather than a legal one. No public source publishes a per-key retrofit cost, so the only honest input is a priced scope on your building. The same is true of the other compliance scope a renovation can trigger, the energy and emissions one: [Does my hotel have to report energy use or cut its carbon emissions?](/hotel-industry/energy-benchmarking-and-emissions-limits). Table: Accessible guest rooms required by the 2010 ADA Standards for Accessible Design, from Table 224.2 and Table 224.4 Total guest rooms | Mobility rooms without roll-in showers | Mobility rooms with roll-in showers | Total mobility-feature rooms | Communication-feature rooms 1 to 25 | 1 | 0 | 1 | 2 (from 2 rooms up) 26 to 50 | 2 | 0 | 2 | 4 51 to 75 | 3 | 1 | 4 | 7 76 to 100 | 4 | 1 | 5 | 9 101 to 150 | 5 | 2 | 7 | 12 151 to 200 | 6 | 2 | 8 | 14 201 to 300 | 7 | 3 | 10 | 17 301 to 400 | 8 | 4 | 12 | 20 401 to 500 | 9 | 4 | 13 | 22 501 to 1,000 | 2 percent of total | 1 percent of total | 3 percent of total | 5 percent of total 1,001 and over | 20, plus 1 per 100 or fraction over 1,000 | 10, plus 1 per 100 or fraction over 1,000 | 30, plus 2 per 100 or fraction over 1,000 | 50, plus 3 per 100 over 1,000 First-party data point: Matthews Hotel Markets' October 2026 rate sheet prices the money that pays for this work. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks the spread and maximum loan-to-value on the bridge and construction rows as not yet published, because lenders do not publish them.[13] An accessibility scope is renovation capital, competing with the rest of a PIP budget at those rates. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 96-key select-service hotel renovated in two phases, 14 months apart): This hotel does not exist and the construction costs are assumptions. The scoping counts and the 20 percent arithmetic are not: they follow from the tables and from 28 CFR 36.403, and every figure was recomputed before this page was saved. Phase one renovates 40 of the 96 guest rooms, moving the bathroom walls, and rebuilds the lobby and breakfast area. Primary-function alteration cost: $1,200,000. Under 224.1.1 the scoping applies to the 40 rooms altered, so Table 224.2's 26-to-50 band governs: 2 mobility rooms, neither needing a roll-in shower, and the same band of Table 224.4 calls for 4 communication rooms.[5] The path-of-travel cap is 20 percent of $1,200,000, which is $240,000.[2] Assume the accessible-route scope prices at $305,000: regrading the parking aisle, widening the entry vestibule, rebuilding the restrooms serving the breakfast area. That exceeds the cap, so it is disproportionate, and the owner spends $240,000 in the order 36.403(g)(2) sets.[2] The remaining $65,000 goes unfunded, lawfully. Phase two, 14 months later, renovates the other 56 rooms at a primary-function cost of $900,000. Cumulative rooms altered reach 96, so Table 224.2's 76-to-100 band governs and the hotel owes 5 mobility rooms, one with a roll-in shower; phase one delivered 2, so phase two delivers 3 more including that shower, the first the table requires at all. Communication rooms go from 4 to 9, so 5 more.[5] Dispersion check: 10 percent of 5 mobility rooms is half a room, so no whole mobility room counts toward the 9, while at least one must still carry communication features itself.[5] The cap moves too. Phase two falls inside three years of phase one, so 36.403(h)(2)(i) aggregates: $1,200,000 + $900,000 = $2,100,000, and 20 percent of that is $420,000.[2] The owner has spent $240,000, leaving $180,000, so the $65,000 deferred from phase one now fits. Phasing deferred the obligation rather than shrinking it. Set the two federal offsets against that. On a $305,000 scope the section 44 credit is $5,000 at most and the section 190 deduction $15,000, so $20,000, or 6.6 percent of the spend.[11][12] Useful, not a funding plan. FAQ: - Q: Does a PIP trigger ADA upgrades? A: Only the parts of it that are alterations. 28 CFR 36.402(b) excludes painting, wallpapering and reroofing unless they affect usability, so a soft-goods refresh usually sits outside the rule while a bathroom reconfiguration sits inside it.[1] - Q: How many accessible rooms does a 100-room hotel need? A: Five with mobility features, one of which needs a roll-in shower, and nine with communication features. Both counts come from the 76-to-100 band of Table 224.2 and Table 224.4 of the 2010 Standards.[5] - Q: My hotel was built in 1998 and met the rules then. Am I compliant? A: For elements you have not altered since March 15, 2012 that met the 1991 Standards, yes, under the safe harbor in 28 CFR 36.304(d)(2)(i).[3] Pools, spas, saunas and exercise equipment are excluded from it. - Q: Can a guest sue my hotel for money over an ADA problem? A: Under federal title III they get injunctive relief and attorney's fees, not damages. State law can differ: California Civil Code 52(a) sets a $4,000 minimum per offense, assessed per occasion under 55.56.[9][10] - Q: How much does a hotel ADA retrofit cost per room? A: No public source publishes a figure, and anyone quoting one without surveying your building is guessing. What is published is the ceiling: path-of-travel work stops at 20 percent of the alteration cost.[2] - Q: Can Matthews Hotel Markets survey my hotel for ADA compliance? A: No. We sell hotels and arrange the debt behind them. An accessibility survey is work for a licensed architect or a CASp inspector, and the legal call is your counsel's. Sources: - [1] 28 CFR 36.402: alterations after January 26, 1992, the definition of an alteration, and the maintenance, reroofing, painting, wallpapering, asbestos and mechanical or electrical exclusions (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/cfr/text/28/36.402 - [2] 28 CFR 36.403: alterations and the path of travel, the definition of a primary function area, the 20 percent disproportionality test in (f)(1), the priority order in (g)(2), and the three-year aggregation in (h) (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/cfr/text/28/36.403 - [3] 28 CFR 36.304: removal of barriers where readily achievable, the 21 examples and the priority order, the element-by-element safe harbor in (d)(2)(i), and the elements excluded from it including swimming pools, spas, saunas and exercise equipment (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/cfr/text/28/36.304 - [4] 42 U.S.C. 12181(7)(A): an inn, hotel, motel or other place of lodging is a public accommodation, with the exception for a building of not more than five rooms for rent occupied by the proprietor as a residence (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/uscode/text/42/12181 - [5] 2010 ADA Standards for Accessible Design, sections 224.1.1 (alterations), 224.2 and Table 224.2 (guest rooms with mobility features), 224.3 (beds), 224.4 and Table 224.4 (guest rooms with communication features) and 224.5 (dispersion) (U.S. Department of Justice, accessed 2026-09-30): https://www.ada.gov/law-and-regs/design-standards/2010-stds/ - [6] 28 CFR 36.302(e): reservations made by places of lodging, the five duties in (e)(1) and the exception in (e)(2); the Department of Justice's discussion of failed reservations in its title III regulation (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/cfr/text/28/36.302 - [7] 28 CFR 36.406: standards for new construction and alterations, the compliance dates, and the places-of-lodging rule in (c)(1) on combining buildings of 50 or fewer guest rooms on a common site (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/cfr/text/28/36.406 - [8] 28 CFR 85.5, table 1: Department of Justice civil monetary penalties for a violation of 42 U.S.C. 12188(b)(2)(C), as adjusted for penalties assessed after July 3, 2025 (title 28 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-09-30): https://www.ecfr.gov/current/title-28/section-85.5 - [9] California Civil Code 52(a): liability for each offense up to three times actual damages but in no case less than $4,000, plus attorney's fees (California Legislative Information, accessed 2026-09-30): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=52. - [10] California Civil Code 55.56: statutory damages in a construction-related accessibility claim assessed per occasion of denied access under (f), and the reduction to a minimum of $1,000 per offense under (g)(1) for a defendant that corrects within 60 days and holds a CASp determination (California Legislative Information, accessed 2026-09-30): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=55.56. - [11] 26 U.S.C. 44: the disabled access credit, 50 percent of eligible access expenditures above $250 and not above $10,250, and the eligible small business test of $1,000,000 of gross receipts or 30 full-time employees (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/uscode/text/26/44 - [12] 26 U.S.C. 190: election to treat qualified architectural and transportation barrier removal expenses as a deduction, limited by subsection (c) to $15,000 for any taxable year (Legal Information Institute, Cornell Law School, accessed 2026-09-30): https://www.law.cornell.edu/uscode/text/26/190 - [13] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-09-30): https://matthewshotelmarkets.com/rates ### What are hotel chain scales and classes? URL: https://matthewshotelmarkets.com/hotel-industry/chain-scales-and-classes Last updated: 2026-09-18 Chain scales are price tiers for hotel brands: luxury, upper upscale, upscale, upper midscale, midscale and economy, with independent hotels grouped separately. STR has said it assigns them by grouping branded hotels on average room rates.[1] The tier matters: CBRE's midyear 2026 outlook has luxury RevPAR growing 5.2 percent this year and economy falling 0.6 percent.[5] Key takeaways: - The six tiers, top to bottom: luxury, upper upscale, upscale, upper midscale, midscale, economy. Choice Hotels' fiscal 2025 10-K uses the same six to describe the industry.[3] - The basis is price, not amenities. STR has said it groups branded hotels by average room rates and puts all independents in a separate category.[1] - Class is the version that includes independents: an independent hotel gets a class based on its room rate relative to nearby chain hotels.[2] - Select-service, focused service and full service are service labels, not chain scales. Marriott and Hilton each use their own tier names in their 10-Ks.[4][7] - New supply is concentrated in two tiers. Upper midscale and upscale were 3,507 of the 5,975 projects in the U.S. pipeline at mid-2026, per Lodging Econometrics.[6] #### What are the hotel chain scales? The hotel chain scales are six price tiers for branded hotels, which run luxury, upper upscale, upscale, upper midscale, midscale and economy, plus a separate group for independent hotels. The system belongs to STR, the benchmarking firm that is now part of CoStar. Nearly every lender, appraiser, broker and brand in the United States uses its vocabulary, which is why you will see the tiers in a 10-K, a construction pipeline report and a forecast without anyone stopping to define them. Choice Hotels' fiscal 2025 10-K lays the six tiers out in a table to describe the lodging industry.[3] Lodging Econometrics reports the construction pipeline by the same tiers.[6] The names have changed over time. An STR guide from December 2008 lists seven scale groups: luxury, upper upscale, upscale, midscale with food and beverage, midscale without food and beverage, economy and independent.[2] The two midscale groups have since become upper midscale and midscale, which is the wording in current filings.[3] #### How does STR decide which chain scale a brand belongs to? STR decides a brand's chain scale by price: it has said it determines chain scales by grouping branded hotels based on average room rates.[1] Two things follow from that. First, the scale is about what guests pay, not about what the hotel offers. A brand with no restaurant can sit above a brand with one if it commands a higher rate. Second, the scale attaches to the brand, so every hotel in the brand carries the same scale whether it is the best or the worst in the system. STR has also said that all independent, non-branded hotels are categorized in a single, separate chain scale category.[1] The STR statement we cite is from 2009, and we could not open STR's current methodology page or its current brand list, which sit on CoStar's site. The documents we did read give no rate cutoffs between tiers, so we publish none. #### What is the difference between chain scale and class? Chain scale sorts brands, and class sorts every hotel, including independents, into the same six tiers. STR's guide to its STAR report defines class as an industry categorization that includes chain-affiliated and independent hotels. The class for a chain-affiliated hotel is the same as its chain scale. An independent hotel is assigned a class based on its room rate, relative to that of the chain hotels in its geographic proximity.[2] So a boutique independent that charges what the nearby upper-upscale flags charge is an upper-upscale class hotel, even though its chain scale is simply independent. This matters when you read a benchmarking report, because a hotel is compared against its market class as well as against its own [comp set](/glossary/comp-set). The same STR guide says a competitive set must include at least three hotels other than the subject, with four preferred.[2] #### Is select-service a chain scale? No. Select-service, limited service, focused service, full service and extended stay describe what a hotel offers, while chain scale describes what it charges. The two systems overlap but are not the same, and the brand companies do not use STR's names for their own portfolios. Marriott's 10-K for fiscal 2025 sorts its brands into luxury, premium, select and midscale, and puts Courtyard, Fairfield, Residence Inn, SpringHill Suites and TownePlace Suites in select.[4] Hilton's 10-K describes its brands by positioning: luxury, lifestyle, full service, focused service and all-suites.[7] Hilton's franchise disclosure describes Hampton as offering high quality at moderate prices.[8] On this site, select-service means a rooms-focused branded hotel, which in practice sits in the upscale or upper midscale tier. The investment difference between the service models is covered at [What is the difference between select-service and full-service hotel investment?](/hotel-valuation/select-service-vs-full-service). #### Which hotel brands are in which chain scale? STR's full brand-by-scale list is a licensed product that we do not reproduce, but public 10-K filings give examples for each tier. Choice Hotels' fiscal 2025 10-K gives brand examples for every tier. It places Hampton by Hilton, Holiday Inn Express, Fairfield Inn and its own Comfort Inn in upper midscale. It places Courtyard, Hilton Garden Inn, Hyatt Place and its own Cambria Hotels in upscale, and Super 8, Motel 6, Red Roof Inn and its own Econo Lodge in economy.[3] Those are one franchisor's examples in an SEC filing. They are not STR's current list, and because the tier follows average rate, a brand's tier can change over time. If you need the scale for a specific flag, the franchisor's development team or your STR report will state it. For an underwriting conversation it is usually enough to know the tier and the two on either side of it. #### How are the chain scales performing in 2026? In 2026 the top of the market is growing and the bottom is not, according to every public forecast we read. CBRE's midyear 2026 outlook forecasts national RevPAR growth of 2.5 percent for the year, with luxury at 5.2 percent, midscale at 0.7 percent and economy at minus 0.6 percent.[5] CoStar and Tourism Economics made the same point in February 2026, when they said upper-tier segments were showing signs of demand recovery while select-service and economy hotels faced downward pressure on average daily rates.[9] Company results show the distance between tiers in dollars. For 2025, Choice Hotels reported system RevPAR of $52.85, Apple Hospitality REIT reported $117.95 at its comparable select-service hotels, and Host Hotels & Resorts reported $229.24 at its comparable luxury and upper-upscale hotels.[3][10][11] Definitions of the metric are at [What are RevPAR, ADR and occupancy, and what is a good number?](/hotel-industry/revpar-adr-occupancy), and the forecasts are compared at [What is the outlook for hotels in 2026 and 2027?](/hotel-industry/outlook-2026-2027). #### Which chain scales are getting the most new hotels? Upper midscale and upscale are getting the most new hotels, with 2,225 and 1,282 projects in the U.S. pipeline at the end of the second quarter of 2026, according to Lodging Econometrics.[6] The total pipeline was 5,975 projects with 703,001 rooms, so those two tiers were 59 percent of projects by our arithmetic. Upper midscale alone accounted for 214,027 rooms and upscale for 159,252. Upper upscale stood at 367 projects with 65,021 rooms and luxury at 103 projects with 25,496 rooms, which Lodging Econometrics called record highs for both.[6] The release was dated July 23, 2026. For an owner of an upper midscale or upscale hotel, the pipeline is the competitor that has not opened yet. A new-build flag in your tier, in your submarket, affects both your RevPAR index and what a buyer will assume about it. #### Why does chain scale matter for value and financing? Chain scale matters because buyers and lenders use it as shorthand for how volatile a hotel's income is and how deep the pool of buyers and lenders will be. Cap rates differ by segment within the same city. The Matthews Hotel Index for Q1 2026 shows stabilized select-service cap rates of 7.5 to 8.25 percent in Austin, against 7.0 to 8.0 percent for full-service and 6.5 to 7.75 percent for resort and lifestyle hotels.[12] Lenders sort the same way, though none publishes its terms by tier. For how the tier feeds a price, see [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates) and [How much is my branded select-service hotel worth?](/hotel-valuation/branded-select-service-hotel-value). For the loan, see [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements). Table: The hotel chain scales, how each is defined, and a dated public data point for each Tier | How it is defined | A public data point Luxury | Highest average room rates among branded hotels[1] | CBRE forecasts 2026 RevPAR growth of 5.2%.[5] Pipeline: 103 projects, 25,496 rooms at Q2 2026[6] Upper upscale | Second tier by average room rate[1] | Pipeline: 367 projects, 65,021 rooms at Q2 2026[6] Upscale | Third tier by average room rate[1] | Pipeline: 1,282 projects, 159,252 rooms at Q2 2026[6] Upper midscale | Fourth tier by average room rate[1] | Largest pipeline: 2,225 projects, 214,027 rooms at Q2 2026[6] Midscale | Fifth tier by average room rate[1] | CBRE forecasts 2026 RevPAR growth of 0.7%[5] Economy | Lowest average room rates among branded hotels[1] | CBRE forecasts 2026 RevPAR change of minus 0.6%[5] Independent | All non-branded hotels, grouped separately.[1] Each gets a class from its rate relative to nearby chain hotels[2] | AHLA says 57% of U.S. hotels are franchised, so 43% are not[13] First-party data point: The Matthews Hotel Index for Q1 2026 shows segment changing price inside one city: Austin select-service cap rates of 7.5% to 8.25%, full-service of 7.0% to 8.0%, and resort and lifestyle of 6.5% to 7.75%.[12] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: how an independent hotel ends up with a class): Hypothetical. The hotel, its rate and its neighbors are invented to show the logic. The documents we read give no rate cutoffs, so the dollar figures below are illustration only. A 60-room independent inn in a downtown district runs an average rate of $182 for the year. It has no flag, so its chain scale is independent.[1] Its class depends on the chain hotels near it.[2] Suppose the branded upscale hotels in the same area average $175 and the branded upper midscale hotels average $140. The inn's $182 sits with the upscale group, so its class is upscale. In a benchmarking report it would be compared with upscale class hotels in its market and submarket, as well as with whatever competitive set its management selected, which needs at least three hotels besides the inn itself.[2] Move the same inn to a resort town where upscale flags average $260 and its $182 would place it a tier or two lower. The building did not change. The neighbors did. That is the practical difference between a chain scale, which follows the brand everywhere, and a class, which is local. FAQ: - Q: What chain scale is a Hampton Inn? A: Upper midscale, according to the brand examples in Choice Hotels' fiscal 2025 10-K, which lists Hampton by Hilton alongside Holiday Inn Express, Fairfield Inn and Comfort Inn.[3] STR's own current list is licensed and we do not reproduce it. - Q: What is the difference between upscale and upper upscale? A: Average room rate. Both are STR tiers for branded hotels, and upper upscale is the higher-priced of the two.[1] Choice Hotels' 10-K gives Courtyard and Hilton Garden Inn as upscale examples and Marriott, Hilton, Hyatt and Sheraton as upper upscale examples.[3] - Q: Is chain scale based on amenities or star rating? A: Neither. STR has said it determines chain scales by grouping branded hotels based on average room rates.[1] Star and diamond ratings come from other organizations and measure different things. - Q: What chain scale is an independent hotel? A: Independent is its own chain scale category. For benchmarking, an independent hotel is also assigned a class based on its room rate relative to nearby chain hotels.[1][2] - Q: Which hotel segment is performing best in 2026? A: Luxury, in CBRE's midyear 2026 outlook: RevPAR growth of 5.2 percent against 2.5 percent nationally, with economy at minus 0.6 percent.[5] - Q: Can a brand change chain scales? A: Yes. Because the scale follows a brand's average room rate, a brand's tier can change as its rates change.[1] The tier names themselves changed after 2008, when STR still listed midscale with and without food and beverage.[2] Sources: - [1] Luxury chain scale shows pricing disparity (June 19, 2009), which states how STR assigns chain scales (STR, republished by Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/report/4042052/luxury-chain-scale-shows-pricing-disparity-str - [2] How to use the STAR report (PDF dated December 1, 2008): definitions of class, market scale and competitive set (STR, hosted by HSMAI, accessed 2026-09-18): https://higherlogicdownload.s3.amazonaws.com/HSMAI/1e8cd6e8-21bf-476f-bc30-b600b33c652d/UploadedFiles/7pER55exS7zc1Qx5iSaK_HowTo%20Use%20the%20STAR%20Report%20-%20STR.pdf - [3] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [4] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [5] U.S. Real Estate Market Outlook Midyear Review 2026, Hotels (CBRE, accessed 2026-09-18): https://www.cbre.com/insights/books/us-real-estate-market-outlook-midyear-review-2026/hotels - [6] U.S. hotel construction pipeline, second quarter 2026 (July 23, 2026) (Lodging Econometrics, accessed 2026-09-18): https://lodgingeconometrics.com/us-hotel-construction-pipeline-q2-2026/ - [7] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [8] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [9] 2026 forecast shows modest RevPAR growth amid lingering industry headwinds (February 10, 2026) (Hotel Online, citing STR and Tourism Economics (CoStar Group), accessed 2026-09-18): https://www.hotel-online.com/news/2026-forecast-shows-modest-revpar-growth-amid-lingering-industry-headwinds - [10] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [11] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [12] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [13] Franchising: hotel franchising facts (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/issue/franchising ### How do hotels make money? URL: https://matthewshotelmarkets.com/hotel-industry/how-hotels-make-money Last updated: 2026-10-01 Hotels make money mostly by selling rooms. Apple Hospitality REIT reported on February 23, 2026 that rooms were $1,278.4 million of its $1,412.4 million of 2025 revenue, and that its comparable hotels kept 34.3 percent of revenue as hotel-level EBITDA.[1] Host Hotels & Resorts, with large food and beverage operations, reported a 28.9 percent comparable hotel EBITDA margin.[2] Key takeaways: - Rooms were 90.5 percent of 2025 revenue at Apple Hospitality's 217 select-service hotels and about 60 percent at Host's luxury and upper-upscale hotels. The percentages are our arithmetic on their reported dollars.[1][2] - Rooms carry the profit. Host's rooms department cost $906 million against $3,608 million of revenue. Its food and beverage department cost $1,224 million against $1,803 million.[2] - Hotel statements follow one format, the Uniform System of Accounts for the Lodging Industry. Its 12th Revised Edition took effect January 1, 2026.[3] - Brand and management fees are visible in public filings: Apple Hospitality paid $62.6 million of franchise fees and $47.1 million of management fees in 2025.[1] - Revenue recovered faster than profit. AHLA reported in January 2026 that gross operating profit per available room was roughly 90 percent of its 2019 level.[6] #### Where does a hotel's revenue come from? A hotel's revenue comes from rooms first, then food and beverage, then everything else a guest can be charged for, and the split depends on how much of a building the hotel has besides bedrooms. Two public companies show the two ends of the range. Apple Hospitality REIT owns 217 hotels with 29,583 guest rooms, nearly all of them Hilton and Marriott select-service brands such as Hampton, Hilton Garden Inn, Courtyard and Residence Inn. For 2025 it reported room revenue of $1,278.4 million, food and beverage revenue of $65.7 million and other revenue of $68.3 million, for a total of $1,412.4 million.[1] By our arithmetic that is 90.5 percent rooms, 4.7 percent food and beverage and 4.8 percent other. Host Hotels & Resorts describes itself as one of the largest owners of luxury and upper-upscale hotels, with 76 properties and roughly 41,700 rooms. For 2025 it reported rooms revenue of $3,608 million, food and beverage revenue of $1,803 million and other revenue of $604 million, plus $99 million of condominium sales that have nothing to do with running a hotel.[2] Leaving the condominiums out, rooms were 60.0 percent of hotel revenue, food and beverage 30.0 percent and other 10.0 percent. Host also reports the same idea per room: comparable hotel RevPAR of $229.24 against total RevPAR of $382.83, so each available room produced about $153 a night of revenue that was not room rent.[2] #### Which hotel departments actually make the profit? The rooms department makes most of a hotel's profit, because a sold room costs little to service compared with a meal, which needs a kitchen, a staff and food. Host's 2025 statement of operations puts numbers on it. The rooms department's expenses were $906 million against $3,608 million of rooms revenue, so the department kept about 74.9 percent of its revenue. Food and beverage expenses were $1,224 million against $1,803 million of revenue, so that department kept about 32.1 percent.[2] Those two percentages are our arithmetic on Host's reported figures, and they are departmental margins, before any of the hotel's overhead. This is why select-service hotels exist. A hotel with a breakfast bar and no restaurant gives up a low-margin revenue line and the staff that goes with it. It is also why a full-service hotel is harder to finance on a thin year: a larger share of its revenue comes from departments that keep a third of each dollar. The investment comparison is at [What is the difference between select-service and full-service hotel investment?](/hotel-valuation/select-service-vs-full-service). #### How is a hotel profit and loss statement laid out? A hotel profit and loss statement follows the Uniform System of Accounts for the Lodging Industry, or USALI, which sorts revenue and expense the same way at every hotel so that statements can be compared. USALI is published by Hospitality Financial and Technology Professionals. AHLA's release on the current edition calls it the authoritative standard for lodging financial and operating reporting, and the 12th Revised Edition was released July 11, 2024 with an adoption date of January 1, 2026.[3] The changes in that edition include an Energy, Water and Waste schedule in place of the old Utilities schedule, a section for all-inclusive hotels, new lines for guest loyalty program costs, and new schedules for payroll full-time equivalents and for annual mandatory brand and operator costs.[3] The summary operating statement runs in a fixed order. Operating revenue comes in four categories: rooms, food and beverage, other operated departments, and miscellaneous income. Each department's direct expenses come off to give total departmental income. Then come five undistributed operating expense schedules: administrative and general, information and telecommunications systems, sales and marketing, property operations and maintenance, and energy, water and waste. What remains is gross operating profit. Management fees come next, then non-operating income and expenses such as property taxes, insurance and rent, which leaves EBITDA. An operator's version usually ends at EBITDA less a replacement reserve. An owner's version carries on through interest, depreciation and taxes to net income.[4] A lender or buyer will ask for statements in this format because it lets them compare your hotel's cost lines with others'. The terms are defined at [gross operating profit](/glossary/gop), [NOI](/glossary/noi) and [FF&E reserve](/glossary/ffe-reserve). #### What does a select-service hotel's cost structure look like in a real filing? Apple Hospitality REIT's 2025 results list its hotel expenses line by line, and together they took about two thirds of revenue. Against $1,412.4 million of total revenue, Apple Hospitality reported operating expense of $362.0 million, hotel administrative expense of $125.9 million, sales and marketing of $127.0 million, utilities of $51.4 million, repair and maintenance of $71.3 million, franchise fees of $62.6 million and management fees of $47.1 million. Property taxes, insurance and other came to $89.7 million.[1] The table below shows each as a share of revenue, which is our arithmetic. Two lines deserve a second look. Franchise fees of $62.6 million are 4.9 percent of Apple Hospitality's room revenue. That is lower than a single brand's headline schedule, such as the 6 percent royalty and 4 percent program fee in Hilton's 2025 Hampton disclosure,[5] but the two are not the same measurement. We cannot tell from the release which brand charges sit in the franchise fee line and which sit in other lines, so read 4.9 percent as the size of that line and not as the full cost of the flags. Management fees of $47.1 million are 3.3 percent of total revenue. Host reported management fees of $262 million, about 4.4 percent of its hotel revenue.[2] How those two contracts work is at [What is the difference between a hotel owner, a franchisor and a management company?](/hotel-industry/owner-franchisor-management-company). #### What profit margin do hotel owners actually report? For 2025, Apple Hospitality reported a comparable hotels adjusted hotel EBITDA margin of 34.3 percent and Host reported a comparable hotel EBITDA margin of 28.9 percent.[1][2] Both are hotel-level measures. Apple Hospitality says its adjusted hotel EBITDA leaves out corporate general and administrative expense in order to isolate property-level performance.[1] Each company defines its own measure, so the two margins are close cousins, not the same calculation. Neither margin is what the owner takes home. Both are before interest and principal on the mortgage, before the capital an owner has to keep putting back into rooms and public space, and before income taxes. A select-service hotel that keeps a third of its revenue at the hotel level still has to cover a replacement reserve and debt service out of that third. That is the number a lender tests, and you can run your own at the [hotel DSCR calculator](/tools/dscr-calculator). #### Why has hotel profit lagged hotel revenue? Hotel profit has lagged revenue because operating expenses, labor above all, rose faster than room rates. AHLA's 2026 State of the Industry release, dated January 27, 2026, says rising operating expenses kept gross operating profit per available room at roughly 90 percent of 2019 levels, and that the industry paid nearly $128 billion in wages and benefits in 2025.[6] The REITs show the same pressure in their own words. Apple Hospitality's 34.3 percent margin for 2025 was down 190 basis points from 2024, and Host's 28.9 percent was down 40 basis points.[1][2] A hotel can post record revenue and still be worth less than it was if the cost of producing that revenue grew faster. #### How does hotel income turn into value and loan proceeds? Buyers divide a hotel's net operating income by a cap rate to get value, and lenders divide the same income by debt service to decide how much they will lend. That is why the statement format matters so much: a missing management fee or reserve overstates income, and the buyer or lender will put it back. As of September 30, 2026, the 10-year Treasury is 5.29 percent and the maximum SBA 7(a) rate is 10.00 percent, and lenders do not publish the spreads or coverage floors they apply on top.[7] The method for turning income into a price is at [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel). The financing side starts at [How does hotel financing work, and what does it cost right now?](/hotel-financing), and owners weighing a sale can start at [What is involved in selling a hotel?](/sell-a-hotel). Table: Apple Hospitality REIT, full-year 2025: hotel revenue and expense lines as reported, with each line's share of total revenue (our arithmetic) Line, as the company labels it | 2025, $ millions | Share of total revenue Room revenue | 1,278.4[1] | 90.5% Food and beverage revenue | 65.7[1] | 4.7% Other revenue | 68.3[1] | 4.8% Total revenue | 1,412.4[1] | 100.0% Operating expense | 362.0[1] | 25.6% Hotel administrative expense | 125.9[1] | 8.9% Sales and marketing expense | 127.0[1] | 9.0% Utilities expense | 51.4[1] | 3.6% Repair and maintenance expense | 71.3[1] | 5.0% Franchise fees | 62.6[1] | 4.4% Management fees | 47.1[1] | 3.3% Property taxes, insurance and other | 89.7[1] | 6.4% Comparable hotels adjusted hotel EBITDA margin, as reported | n/a | 34.3%[1] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows what hotel income has to cover: with the 10-year Treasury at 5.29% on September 30, 2026 and the SBA 7(a) maximum at 10.00%, debt service takes a large share of the third of revenue a select-service hotel keeps at the property level.[7] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: scaling a 100-room select-service hotel from one REIT's reported ratios): Hypothetical. The ratios are Apple Hospitality's reported 2025 results, which describe 217 hotels it chose to own, and your hotel will differ. Start with rooms revenue. At the 2025 national RevPAR of $100.02, a 100-room hotel has 36,500 available room nights and rooms revenue of $3,650,730. We use that RevPAR only to have a starting number. Gross up to total revenue. If rooms are 90.5 percent of revenue, as they were for Apple Hospitality,[1] total revenue is $3,650,730 divided by 0.905, or $4,033,956. Food, beverage and other income are the remaining $383,226. Apply the reported margin. At Apple Hospitality's 34.3 percent comparable hotels margin,[1] hotel-level EBITDA is $1,383,647. About $2.65 million went to running the hotel, paying the brand and the manager, and paying property taxes and insurance. What is still to come out of the $1,383,647: a replacement reserve for furniture and equipment, interest and principal on the loan, and income taxes. The first two are what a lender looks at when it sizes a loan. FAQ: - Q: What is a typical hotel profit margin? A: There is no single figure. For 2025, Apple Hospitality REIT reported a 34.3 percent comparable hotels adjusted hotel EBITDA margin on select-service hotels, and Host Hotels & Resorts reported 28.9 percent on luxury and upper-upscale hotels.[1][2] Both are before debt service and capital spending. - Q: Do hotels make money on food and beverage? A: Less than on rooms. Host's 2025 food and beverage department had $1,224 million of expenses against $1,803 million of revenue, keeping about 32 percent. Its rooms department kept about 75 percent.[2] Both percentages are our arithmetic on Host's figures. - Q: What is USALI? A: The Uniform System of Accounts for the Lodging Industry, the standard format for hotel financial statements. It is published by Hospitality Financial and Technology Professionals, and the 12th Revised Edition has an adoption date of January 1, 2026.[3] - Q: What is the difference between GOP and NOI? A: Gross operating profit is revenue less departmental and undistributed operating expenses. Management fees, property taxes, insurance and a replacement reserve still come out below it before you reach the net operating income a buyer or lender underwrites.[4] - Q: How much of a hotel's revenue goes to the brand? A: It depends on the brand and what you count. Hilton's 2025 Hampton disclosure lists a 6 percent royalty and a 4 percent program fee on gross rooms revenue.[5] Apple Hospitality's franchise fee line for 2025 was $62.6 million, 4.9 percent of its room revenue.[1] - Q: Why do lenders want hotel financials in USALI format? A: Because every line means the same thing at every hotel, so a lender can compare your costs with other hotels' and see whether a management fee or reserve is missing. The 12th edition added a schedule for mandatory brand and operator costs for the same reason.[3] Sources: - [1] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [2] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [3] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (July 11, 2024) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [4] USALI P&L structure (Summary Operating Statement): a practical guide (February 23, 2026) (Hospitality Finance Network, accessed 2026-09-18): https://hospitalityfinancenetwork.com/usali-pl-structure-summary-operating-statement-a-practical-guide/ - [5] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [6] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [7] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How big is the US hotel industry in 2026? URL: https://matthewshotelmarkets.com/hotel-industry/industry-size-2026 Last updated: 2026-10-01 AHLA's State of the Industry release of January 27, 2026 forecasts nearly $805 billion of U.S. hotel guest spending in 2026, about 2.2 million direct hotel operations jobs, nearly $131 billion in wages and benefits, and nearly $87 billion in taxes.[1] The Bureau of Labor Statistics counts 1,926,600 accommodation employees in August 2026, a preliminary figure.[2] Key takeaways: - Guest spending: nearly $805 billion forecast for 2026, up 1.7 percent on 2025, per AHLA.[1] - Jobs: AHLA projects about 2.2 million direct hotel operations jobs in 2026. BLS counts 1,926,600 employees in the accommodation subsector for August 2026, preliminary.[1][2] - Taxes: hotels generated $85.1 billion in federal, state and local taxes in 2025, and AHLA projects nearly $87 billion in 2026.[1] - Count: there is no free public hotel census. AAHOA's and AHLA's own figures imply a little over 60,000 hotels, by our arithmetic.[3][4] - Pipeline: 5,975 projects with 703,001 rooms at the end of the second quarter of 2026, per Lodging Econometrics.[5] #### How big is the U.S. hotel industry in dollars? AHLA forecasts nearly $805 billion of hotel guest spending in the United States in 2026, a 1.7 percent increase over 2025.[1] That is the headline figure in AHLA's 2026 State of the Industry release, dated January 27, 2026. It is a measure of what hotel guests spend, and the release does not break it down. It is much larger than what hotels themselves collect. CoStar reported 2025 RevPAR of $100.02, which is $36,507 of room revenue per available room per year.[6] Even at six million rooms, that comes to about $219 billion of room revenue, so most of the $805 billion has to be money guests spend outside the hotel bill. That inference is ours. The worked arithmetic is below. We reuse AHLA's figures from our [hotel financing statistics](/data/hotel-financing-statistics) page, where each carries its source date and the date we last read it. #### How many people work in the U.S. hotel industry? About 2.2 million people work directly in U.S. hotel operations, according to AHLA's projection for 2026, and the Bureau of Labor Statistics counts 1.93 million employees in the accommodation subsector.[1][2] AHLA projects the hotel workforce will grow by more than 30,000 jobs in 2026 to approximately 2.2 million, and says the industry paid nearly $128 billion in wages and benefits in 2025, a figure it expects to approach $131 billion in 2026.[1] The BLS series is narrower in one way and wider in another. It counts payroll employees only, and it covers NAICS 721, accommodation, which is hotels and motels plus RV parks, recreational camps and rooming and boarding houses. On that basis, seasonally adjusted employment was 1,938,200 in May 2026, 1,916,100 in June, 1,918,000 in July and 1,926,600 in August, with the last two months preliminary.[2] Average hourly earnings for all employees were $24.74 in the latest preliminary reading. BLS's 2025 occupation data for the subsector lists 420,800 maids and housekeeping cleaners, 247,700 hotel desk clerks and 38,100 lodging managers.[2] We read the public BLS industry page for NAICS 721 and quote only what it shows for the subsector as a whole. We do not quote a separate figure for hotels and motels, NAICS 7211, because we did not read one. #### How much tax do hotels generate? U.S. hotels generated $85.1 billion in local, state and federal taxes in 2025, up $1.7 billion from 2024, and AHLA projects nearly $87 billion for 2026.[1] The figure combines taxes at every level, which is why it is so large relative to hotel room revenue. Lodging taxes are a line on the guest's bill that the hotel collects and passes through. They never become hotel revenue, but they do raise the total price the guest compares when choosing where to stay. For an owner, the tax that matters to income is property tax, which sits below gross operating profit on the statement. See [How do hotels make money?](/hotel-industry/how-hotels-make-money). #### How many hotels are there in the United States? There is no free public census of U.S. hotels, and the public figures that exist point to a little over 60,000 hotels. AAHOA says its members own 36,807 hotels and that this is 60 percent of U.S. hotels, which implies about 61,300 in total.[3] AHLA says 57 percent of U.S. hotels are franchised and projected 36,173 franchised hotels for 2024, which implies about 63,500.[4] Both totals are our arithmetic on rounded percentages, so treat them as rough. BLS counts 78,789 private establishments in the accommodation subsector in the first quarter of 2026, a preliminary figure, up from 78,152 in the second quarter of 2025.[2] That count is higher because it includes RV parks, camps and rooming houses. The number most of the industry uses comes from STR's census, which is a licensed product and is not reproduced here. Who owns these hotels is covered at [Who owns hotels in the United States?](/hotel-industry/who-owns-hotels). #### How many hotel rooms are there in the United States? No public primary source we could open states a current U.S. room count, and the published pipeline figures imply something between 5.5 and 6.0 million rooms. Lodging Econometrics forecasts that 661 new hotels with 74,820 rooms will open in 2026 and calls that a 1.3 percent growth rate.[5] Dividing 74,820 by 0.013 gives about 5.8 million existing rooms. Because 1.3 percent is rounded, the true base could be anywhere from about 5.5 to 6.0 million. That is our arithmetic and not a figure Lodging Econometrics published. AAHOA separately says its members' hotels, which it puts at 60 percent of all hotels, hold 3.2 million guestrooms.[3] We had one room-night figure on this site before and removed it because we could not find it in AHLA's public release. The note is on the [hotel financing statistics](/data/hotel-financing-statistics) page. The same rule applies here: if the count is not in a public document we read, it does not go on the page. #### How big are the largest hotel brand systems? The largest brand companies each report between about 7,500 and 9,800 hotels in their worldwide systems, nearly all owned by someone else. Marriott reports 9,805 properties with 1,779,936 rooms at year-end 2025.[8] Hilton reports 9,158 properties with 1,351,351 rooms in 143 countries and territories at December 31, 2025.[7] Wyndham reports over 8,300 affiliated hotels with approximately 869,000 rooms in approximately 100 countries.[9] Choice Hotels reports 7,575 hotels with 656,825 rooms.[10] These are global system counts from each company's fiscal 2025 Form 10-K, so they cannot be added up to a U.S. total. The contracts behind them are explained at [What is the difference between a hotel owner, a franchisor and a management company?](/hotel-industry/owner-franchisor-management-company). #### How many hotels are being built? At the end of the second quarter of 2026 the U.S. pipeline held 5,975 projects with 703,001 rooms, of which 1,081 projects with 133,216 rooms were under construction, according to Lodging Econometrics.[5] Another 2,147 projects with 245,871 rooms were scheduled to start within twelve months, and 2,747 projects with 323,914 rooms were in early planning. Conversions, where an existing hotel changes flags, were 1,567 projects with 152,044 rooms, up 15 percent by projects on a year earlier. In the first half of 2026, 277 new hotels with 31,416 rooms opened. Lodging Econometrics forecasts 661 openings with 74,820 rooms for the full year, 738 hotels with 78,909 rooms in 2027, and 832 hotels with 88,321 rooms in 2028, which it puts at growth rates of 1.3, 1.4 and 1.5 percent.[5] Other forecasters count supply differently. CBRE's midyear 2026 outlook projects inventory growth of 0.7 percent a year over the next three years and says construction has declined for 15 consecutive months.[11] We set the forecasts side by side at [What is the outlook for hotels in 2026 and 2027?](/hotel-industry/outlook-2026-2027). #### How much of that capacity is being used? U.S. hotels sold 62.3 percent of their available room nights in 2025, at an average rate of $160.54, according to CoStar.[6] Demand has picked up since. CoStar and Tourism Economics said on August 7, 2026 that the industry sold a record number of room nights in the first half of 2026, 11.4 million more than in the first half of 2025, and that room revenue rose by $5.4 billion.[12] The metrics are defined at [What are RevPAR, ADR and occupancy, and what is a good number?](/hotel-industry/revpar-adr-occupancy). If you are sizing this market because you plan to enter it, the buyer's guide is at [How do I buy a hotel?](/buy-a-hotel), and current borrowing costs are on the rate sheet: the 10-year Treasury was 5.29 percent and SOFR 3.90 percent on September 30, 2026.[13] Table: The size of the U.S. hotel industry: every figure with who published it and when Measure | Figure | Source | Date of source Hotel guest spending, 2026 forecast | Nearly $805 billion, up 1.7% | AHLA[1] | January 27, 2026 Direct hotel operations jobs, 2026 projection | About 2.2 million, up more than 30,000 | AHLA[1] | January 27, 2026 Wages and benefits | Nearly $128 billion in 2025, approaching $131 billion in 2026 | AHLA[1] | January 27, 2026 Taxes generated | $85.1 billion in 2025, nearly $87 billion in 2026 | AHLA[1] | January 27, 2026 Accommodation employment, NAICS 721 | 1,926,600, preliminary, seasonally adjusted | BLS[2] | August 2026 Accommodation establishments, NAICS 721 | 78,789 private establishments, preliminary | BLS[2] | First quarter 2026 Hotels owned by AAHOA members | 36,807, which AAHOA puts at 60% of U.S. hotels | AAHOA, citing Oxford Economics[3] | Undated page, read September 18, 2026 Franchised hotels | 36,173 projected for 2024, 57% of U.S. hotels | AHLA[4] | 2024 figures Construction pipeline | 5,975 projects, 703,001 rooms | Lodging Econometrics[5] | July 23, 2026 Occupancy, ADR, RevPAR, full-year 2025 | 62.3%, $160.54, $100.02 | CoStar, reported by Hotel Dive[6] | January 22, 2026 First-party data point: Matthews Hotel Markets' October 2026 rate sheet prices the debt behind all of this: the 10-year Treasury at 5.29% on September 30, 2026, SOFR at 3.90%, and the 25-year SBA 504 debenture at 6.54%.[13] Source: https://matthewshotelmarkets.com/rates Worked example (Worked arithmetic: why $805 billion of guest spending is not hotel revenue): This uses published figures only. The conclusion is our inference, and it is labeled as one. Step 1. Room revenue per room. CoStar's 2025 RevPAR was $100.02.[6] Times 365 nights, one available room produced $36,507 of room revenue in the year. Step 2. A room count. Lodging Econometrics says 74,820 rooms opening in 2026 is a 1.3 percent growth rate.[5] 74,820 divided by 0.013 is about 5.8 million rooms. Allowing for rounding in the 1.3 percent, call it 5.5 to 6.0 million. Step 3. Multiply. 5.5 million rooms times $36,507 is about $201 billion. 6.0 million rooms times $36,507 is about $219 billion. Step 4. Compare. AHLA's guest spending forecast for 2026 is nearly $805 billion.[1] Room revenue on this arithmetic is roughly a quarter of that. So the AHLA figure is best read as the spending of people who stay in hotels, including what they spend elsewhere on the trip, and not as the revenue of the hotel industry. If you are sizing the market for a business plan or a lender presentation, use the right one and say which it is. FAQ: - Q: How much is the U.S. hotel industry worth? A: There is no single public valuation. AHLA forecasts nearly $805 billion of hotel guest spending for 2026.[1] By our arithmetic on public figures, hotel room revenue is roughly $200 billion to $220 billion a year.[5][6] - Q: How many hotels are in the United States? A: No free public census exists. AAHOA's and AHLA's published figures imply about 61,300 to 63,500 hotels, by our arithmetic.[3][4] BLS counts 78,789 accommodation establishments, a wider category that includes RV parks and rooming houses.[2] - Q: How many hotel rooms are in the United States? A: We found no public primary source that states it. Lodging Econometrics' statement that 74,820 new rooms equals 1.3 percent growth implies roughly 5.5 to 6.0 million existing rooms, by our arithmetic.[5] - Q: How many jobs does the hotel industry support? A: AHLA projects about 2.2 million direct hotel operations jobs in 2026.[1] BLS counted 1,926,600 payroll employees in the accommodation subsector in August 2026, a preliminary figure.[2] - Q: What is the most common job in a hotel? A: Housekeeping. BLS's 2025 occupation data for the accommodation subsector lists 420,800 maids and housekeeping cleaners, followed by 247,700 hotel desk clerks and 143,620 waiters and waitresses.[2] - Q: Is the U.S. hotel industry growing? A: Yes, slowly in rooms and faster in revenue. Lodging Econometrics forecasts 1.3 percent room growth in 2026.[5] CoStar and Tourism Economics reported a record first half for room nights sold, up 11.4 million on 2025.[12] Sources: - [1] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [2] Industries at a Glance: Accommodation, NAICS 721 (data extracted September 18, 2026) (U.S. Bureau of Labor Statistics, accessed 2026-09-18): https://www.bls.gov/iag/tgs/iag721.htm - [3] Oxford Economics Study: the economic impact of AAHOA Member-owned hotels (Asian American Hotel Owners Association (AAHOA), accessed 2026-09-18): https://www.aahoa.com/resources/oxford-study - [4] Franchising: hotel franchising facts (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/issue/franchising - [5] U.S. hotel construction pipeline, second quarter 2026 (July 23, 2026) (Lodging Econometrics, accessed 2026-09-18): https://lodgingeconometrics.com/us-hotel-construction-pipeline-q2-2026/ - [6] Key full-year US hotel metrics fall for first time since 2020 (January 22, 2026): full-year 2025 occupancy, ADR and RevPAR (Hotel Dive, citing CoStar, accessed 2026-09-18): https://www.hoteldive.com/news/hotel-occupancy-revpar-decline-2025/810212/ - [7] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [8] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [9] Wyndham Hotels & Resorts, Inc. Form 10-K for fiscal year 2025, Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1722684/000172268426000007/wh-20251231.htm - [10] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [11] U.S. Real Estate Market Outlook Midyear Review 2026, Hotels (CBRE, accessed 2026-09-18): https://www.cbre.com/insights/books/us-real-estate-market-outlook-midyear-review-2026/hotels - [12] CoStar, Tourism Economics 'significantly' boost US hotel outlook (August 7, 2026) (Hotel Dive, citing CoStar and Tourism Economics, accessed 2026-09-18): https://www.hoteldive.com/news/costar-tourism-economics-raise-us-hotel-performance-outlook-2026/827318/ - [13] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### What is the outlook for hotels in 2026 and 2027? URL: https://matthewshotelmarkets.com/hotel-industry/outlook-2026-2027 Last updated: 2026-10-01 The public forecasts agree on direction and disagree on size. As of August 7, 2026, CoStar and Tourism Economics forecast U.S. RevPAR growth of 4.4 percent for 2026 and 2.1 percent for 2027.[1] CBRE's midyear 2026 review forecasts 2.5 percent and 2.1 percent.[2] PwC's May 2026 edition forecasts 2.9 percent for 2026.[3] We publish them side by side and do not blend them. Key takeaways: - 2026 RevPAR growth: 4.4 percent per CoStar and Tourism Economics (August 7, 2026), 2.9 percent per PwC (May 2026 edition), 2.5 percent per CBRE (midyear 2026).[1][3][2] - 2027 RevPAR growth: 2.1 percent per CoStar and Tourism Economics, and 2.1 percent per CBRE.[1][2] - Every forecaster raised its 2026 number during the year. CoStar and Tourism Economics went from 0.6 percent in February to 2.8 percent in June to 4.4 percent in August.[4][5][1] - The World Cup is in the 2026 base. CoStar's August assumptions put 2027 ADR growth at 1.6 percent, or 2.1 percent excluding the June and July World Cup effect.[6] - Revenue is not profit. STR's president said in August 2026 that expenses will rise faster than inflation in both years.[1] #### What do the public forecasts say about U.S. hotels in 2026? The public forecasts for 2026 range from 2.5 to 4.4 percent RevPAR growth, with the most recent forecast the highest. CoStar and Tourism Economics, in a forecast reported on August 7, 2026, project 2026 RevPAR growth of 4.4 percent, ADR growth of 3.1 percent and occupancy of 63.1 percent.[1] CoStar's published assumptions for the same forecast put demand growth at 1.7 percent.[6] CBRE's midyear 2026 review projects RevPAR growth of 2.5 percent, ADR growth of 1.7 percent and occupancy of 62.8 percent.[2] PwC's Hospitality Directions for May 2026, published June 25, projects RevPAR growth of 2.9 percent.[3] The starting point for all three is the same. CoStar reported 2025 occupancy of 62.3 percent, ADR of $160.54 and RevPAR of $100.02, with RevPAR down 0.3 percent on 2024.[7] We read the CoStar and PwC figures where trade publications carried them, and the source list says so. #### What do the public forecasts say about 2027? For 2027, CoStar and Tourism Economics and CBRE both forecast RevPAR growth of 2.1 percent, about half the pace CoStar expects for 2026. CoStar and Tourism Economics project 2027 occupancy of 63.4 percent and ADR growth of 1.6 percent, with demand growth of 1.1 percent. Their assumptions include U.S. GDP growth of 2.6 percent in 2027 against 2.2 percent in 2026, and inflation of 2.3 percent.[1][6] CBRE projects 2027 occupancy of 63.0 percent and ADR growth of 1.7 percent.[2] The PwC summary we read does not state a 2027 figure, so the table leaves it blank.[3] The two 2.1 percent figures were published weeks apart and rest on different 2026 bases, so they do not describe the same 2027 RevPAR in dollars. Agreement on a growth rate is not agreement on a level. #### Why did every hotel forecast go up during 2026? Every hotel forecast went up during 2026 because actual results kept beating the prior forecast, from the first quarter through the World Cup in June and July. In February 2026, CoStar and Tourism Economics expected RevPAR to grow 0.6 percent, on ADR growth of 1.0 percent and demand growth of 0.4 percent.[4] CBRE started the year at 1.2 percent, and PwC's December 2025 outlook had 0.9 percent.[2][8] Then the data came in. CBRE says first-quarter RevPAR grew 3.8 percent, the best quarter since the first quarter of 2023.[2] By June 2, CoStar and Tourism Economics had moved to 2.8 percent, citing RevPAR up 4 percent in the first four months.[5] July RevPAR was up 8.2 percent on July 2025, to $119.77.[9] On August 7 the forecast went to 4.4 percent. STR's president attributed the beat to stronger leisure and business travel, fueled in part by the World Cup and the America 250 celebrations, and the firms said the industry sold a record number of room nights in the first half, 11.4 million more than a year earlier.[1] The lesson for an owner is about forecasts as much as about hotels: the most cited number in the industry moved by 3.8 points in six months. #### Why do CBRE and CoStar disagree, and which forecast is right? CBRE and CoStar disagree by 1.9 points on 2026 mainly because their forecasts were made at different times, and nobody can know yet which is right. CBRE's 2.5 percent is from its midyear review. CoStar's 4.4 percent was published on August 7, after a July in which 22 of the top 25 markets posted RevPAR growth.[2][1][9] A forecast that predates the World Cup months will be lower than one that includes them. We do not pick a winner and we do not average them. An average of forecasts made on different dates is a number that no one actually forecast. If you are underwriting a purchase or a refinance, the honest approach is to run the income on more than one growth case, say which public forecast each case follows, and see whether the deal survives the lower one. Our [hotel financing statistics](/data/hotel-financing-statistics) page carries these forecasts with their dates for the same reason. #### How much of 2026 is the World Cup? In February 2026, CoStar and Tourism Economics estimated that the World Cup would add 0.4 percent to full-year U.S. RevPAR, mostly through rate.[4] The effect in host cities was much larger than the national figure. In July 2026, New York City, which hosted the final, posted ADR up 24.0 percent to $351.18 and RevPAR up 27.1 percent to $305.74, according to CoStar's monthly release.[9] Events like this raise a problem for the following year, because 2027 will be measured against them. CoStar's August assumptions show the size of it: 2027 ADR growth of 1.6 percent as forecast, or 2.1 percent if the June and July World Cup effect is excluded.[6] For a hotel in a host market, a trailing twelve months that includes June and July 2026 flatters the run rate. A buyer or lender will normalize it, so an owner preparing to sell or refinance should do the same before someone else does. #### Which hotel segments are expected to do best? Luxury is expected to do best and economy worst: CBRE's midyear 2026 review forecasts luxury RevPAR up 5.2 percent, midscale up 0.7 percent and economy down 0.6 percent.[2] CoStar and Tourism Economics described the same split in February 2026, with upper-tier segments showing signs of demand recovery and select-service and economy hotels facing downward pressure on average daily rates.[4] For the owner of a midscale or economy hotel, the national headline overstates what CBRE expects for that hotel's tier. The tiers are explained at [What are hotel chain scales and classes?](/hotel-industry/chain-scales-and-classes). #### Will hotel profits grow as fast as hotel revenue? Probably not, according to the forecasters themselves: STR's president said in August 2026 that expenses will rise faster than inflation in both 2026 and 2027.[1] AHLA's 2026 State of the Industry release, dated January 27, 2026, said rising operating expenses had kept gross operating profit per available room at roughly 90 percent of 2019 levels.[10] A RevPAR forecast is a revenue forecast. Value and loan proceeds are sized on income, so a year of 2 percent RevPAR growth with 4 percent cost growth leaves an owner with less income, not more. How revenue turns into income is at [How do hotels make money?](/hotel-industry/how-hotels-make-money). #### How much new hotel supply is coming? New supply is forecast at between about 0.7 and 1.5 percent a year, depending on who is counting and how. CBRE projects U.S. hotel inventory growth of 0.7 percent a year over the next three years and says construction has declined for 15 consecutive months.[2] CoStar and Tourism Economics had 2026 supply growth at 0.7 percent in February.[4] Lodging Econometrics, which counts openings, forecasts 661 new hotels with 74,820 rooms in 2026, 738 hotels with 78,909 rooms in 2027 and 832 hotels with 88,321 rooms in 2028, which it puts at growth rates of 1.3, 1.4 and 1.5 percent.[11] The Lodging Econometrics release counts new openings and says nothing about hotels that close, which is one reason its rate can be higher than a net inventory figure. Either way, what matters to a single hotel is what opens within a few miles of it. #### What does the outlook mean if I am refinancing or selling? A stronger revenue outlook helps income, but in September 2026 it arrives together with higher borrowing costs, and both go into a price or a loan. The Federal Reserve raised its target range by 25 basis points on September 16, 2026, and as of September 30 the 10-year Treasury is 5.29 percent and SOFR is 3.90 percent.[12][13] Lenders do not publish their spreads or coverage tests, so the only way to know what the outlook is worth to your hotel is a written quote on your own trailing income. Start with [How much hotel debt is maturing in 2026 and 2027?](/hotel-financing/loan-maturities-2026-2027) and [Should I refinance my hotel or sell it instead?](/hotel-financing/refinance-or-sell), or run the [refinance vs sell calculator](/tools/refinance-vs-sell). For pricing, see [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates) and [What is involved in selling a hotel?](/sell-a-hotel). Table: Public U.S. hotel forecasts for 2026 and 2027, side by side, newest first. Not blended. Where a cell says not stated, the summary we read did not give the figure Forecaster | Date | 2026 RevPAR | 2026 occupancy | 2026 ADR | 2027 RevPAR | 2027 occupancy | 2027 ADR CoStar and Tourism Economics[1] | August 7, 2026 | +4.4% | 63.1% | +3.1% | +2.1% | 63.4% | +1.6% CBRE[2] | Midyear 2026 | +2.5% | 62.8% | +1.7% | +2.1% | 63.0% | +1.7% PwC, May 2026 edition[3] | June 25, 2026 | +2.9% | not stated | not stated | not stated | not stated | not stated CoStar and Tourism Economics, earlier[5] | June 2, 2026 | +2.8% | 62.8% | +2% | not stated | not stated | not stated CoStar and Tourism Economics, earlier[4] | February 10, 2026 | +0.6% | not stated | +1.0% | +1.4% | not stated | not stated CBRE, earlier[2] | Start of 2026 | +1.2% | not stated | not stated | not stated | not stated | not stated PwC, earlier[8] | December 2025 edition | +0.9% | not stated | +1.1% | not stated | not stated | not stated Actual, full-year 2025, per CoStar[7] | January 22, 2026 | minus 0.3%, to $100.02 | 62.3% | +0.9% to $160.54 | n/a | n/a | n/a First-party data point: Matthews Hotel Markets' October 2026 rate sheet is the other half of the outlook: the 10-year Treasury at 5.29% on September 30, 2026 and SOFR at 3.90%, up 54 and 22 basis points respectively over September.[13][12] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what the gap between two forecasts is worth at a 100-room hotel): Hypothetical. The hotel is invented, and the flow-through and cap rate are assumptions chosen to show the arithmetic, not predictions. Start: a 100-room hotel with a 2025 RevPAR of $100.00, close to the national figure.[7] Rooms revenue is 100 times 365 times $100.00, or $3,650,000. Case A follows CoStar and Tourism Economics at 4.4 percent.[1] RevPAR becomes $104.40 and rooms revenue $3,810,600. Case B follows CBRE at 2.5 percent.[2] RevPAR becomes $102.50 and rooms revenue $3,741,250. The gap is $69,350 of rooms revenue. Assume half of that gap reaches net operating income, which is $34,675. That share is our assumption for illustration. At an 8.0 percent cap rate, which sits inside the 7.5 to 8.25 percent range the Matthews Hotel Index shows for Austin select-service hotels,[14] $34,675 of income is worth about $433,000 of value. So the choice of forecast moves this hotel's indicated value by roughly $433,000, before anyone has argued about the hotel itself. That is why we show the forecasts side by side and ask which one a given underwriting follows. FAQ: - Q: What is the RevPAR forecast for 2026? A: It depends on the forecaster and the date. CoStar and Tourism Economics: 4.4 percent, as of August 7, 2026.[1] PwC: 2.9 percent in its May 2026 edition.[3] CBRE: 2.5 percent in its midyear 2026 review.[2] - Q: What is the hotel forecast for 2027? A: RevPAR growth of 2.1 percent from both CoStar and Tourism Economics and CBRE, with occupancy of 63.4 percent and 63.0 percent respectively.[1][2] - Q: Did the World Cup help U.S. hotels? A: Yes. July 2026 U.S. RevPAR rose 8.2 percent on the year, and New York City, which hosted the final, posted RevPAR up 27.1 percent.[9] In February, CoStar and Tourism Economics had estimated a 0.4 percent lift to full-year national RevPAR.[4] - Q: Why did hotel forecasts change so much in 2026? A: Results beat expectations. CoStar and Tourism Economics forecast 0.6 percent RevPAR growth in February, 2.8 percent in June and 4.4 percent in August, citing stronger leisure and business travel.[4][5][1] - Q: Does Matthews Hotel Markets publish its own hotel forecast? A: No. We publish other firms' public forecasts with their dates and do not blend them. Our own published data are the rate sheet and the Matthews Hotel Index, which report current conditions.[13][14] - Q: Is 2026 or 2027 a better year to sell a hotel? A: The forecasts cannot answer that for one hotel. They show faster revenue growth in 2026 than 2027.[1] Your price also depends on your own trailing income, your brand's improvement plan and borrowing costs on the day a buyer closes. - Q: Are hotel costs expected to keep rising? A: Yes. STR's president said in August 2026 that expenses will rise faster than inflation in both 2026 and 2027.[1] AHLA reported gross operating profit per available room at roughly 90 percent of 2019 levels in January 2026.[10] Sources: - [1] CoStar, Tourism Economics 'significantly' boost US hotel outlook (August 7, 2026) (Hotel Dive, citing CoStar and Tourism Economics, accessed 2026-09-18): https://www.hoteldive.com/news/costar-tourism-economics-raise-us-hotel-performance-outlook-2026/827318/ - [2] U.S. Real Estate Market Outlook Midyear Review 2026, Hotels (CBRE, accessed 2026-09-18): https://www.cbre.com/insights/books/us-real-estate-market-outlook-midyear-review-2026/hotels - [3] US Hospitality Directions: May 2026 (published June 25, 2026) (Hotel News Resource, republishing PwC, accessed 2026-09-18): https://www.hotelnewsresource.com/article141835.html - [4] 2026 forecast shows modest RevPAR growth amid lingering industry headwinds (February 10, 2026) (Hotel Online, citing STR and Tourism Economics (CoStar Group), accessed 2026-09-18): https://www.hotel-online.com/news/2026-forecast-shows-modest-revpar-growth-amid-lingering-industry-headwinds - [5] CoStar, Tourism Economics upgrade US RevPAR forecast for 2026 (June 2, 2026) (Hotel Dive, citing CoStar and Tourism Economics, accessed 2026-09-18): https://www.hoteldive.com/news/costar-tourism-economics-hotel-revpar-forecast-2026/821683/ - [6] U.S. Hotel Forecast Assumptions, August 2026 (August 11, 2026) (CoStar, republished by Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/news/4133888/us-hotel-forecast-assumptions-august-2026 - [7] Key full-year US hotel metrics fall for first time since 2020 (January 22, 2026): full-year 2025 occupancy, ADR and RevPAR (Hotel Dive, citing CoStar, accessed 2026-09-18): https://www.hoteldive.com/news/hotel-occupancy-revpar-decline-2025/810212/ - [8] US lodging industry to see slow, stable growth in 2026: report (January 9, 2026) (Hotel Dive, citing PwC, accessed 2026-09-18): https://www.hoteldive.com/news/PwC-hospitality-directions-outlook-lodging-2026/809205/ - [9] U.S. Hotels Post Strong July Gains as Occupancy, Rates and RevPAR Rise (August 26, 2026) (Hotel Online, citing CoStar, accessed 2026-09-18): https://www.hotel-online.com/news/us-hotels-post-strong-july-gains-as-occupancy-rates-and-revpar-rise - [10] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [11] U.S. hotel construction pipeline, second quarter 2026 (July 23, 2026) (Lodging Econometrics, accessed 2026-09-18): https://lodgingeconometrics.com/us-hotel-construction-pipeline-q2-2026/ - [12] Hotel financing statistics: every figure with its source and two dates (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/data/hotel-financing-statistics - [13] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [14] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### What is the difference between a hotel owner, a franchisor and a management company? URL: https://matthewshotelmarkets.com/hotel-industry/owner-franchisor-management-company Last updated: 2026-10-01 The owner holds the real estate and takes the profit or loss. The franchisor licenses a brand and its reservation system for a fee on rooms revenue. The management company runs daily operations for a fee on total revenue. At December 31, 2025, Hilton owned or leased 46 of its 9,158 properties, managed 873 and franchised or licensed 8,239.[1] Key takeaways: - Brand companies are fee businesses. Marriott says it owns or leases less than one percent of its 9,805-property system.[2] - A franchise fee is charged on rooms revenue. Hilton's 2025 Hampton disclosure lists a 6 percent royalty plus a 4 percent program fee. Marriott's 10-K says royalties typically range from four to seven percent of room revenues.[3][2] - A management fee has two parts: a base fee that is a percentage of hotel revenue and an incentive fee based on hotel profit.[1][2] - The contracts are long. Hampton's new-construction term is generally 22 years. Marriott's management agreements generally start at 20 to 30 years.[3][2] - Most franchised hotels are not run by the brand. Of 1,960 comparable Hampton hotels, 1,945 were managed by the franchisee or a non-Hilton management company.[3] #### What does the hotel owner do? The hotel owner holds the real estate, signs the loan, signs the franchise and management contracts, funds every renovation, and keeps whatever is left after everyone else is paid. The owner is the only party of the three whose return is not a fee. The franchisor is paid on rooms revenue and the manager is paid mostly on total revenue, so both are paid before the owner in a bad year. The owner also carries the capital obligations. When a brand issues a property improvement plan, the owner pays for it, and when the roof fails, the owner pays for that too. Owners range widely. Wyndham's 10-K says its franchisees run from sole proprietors to institutional investors such as public real estate investment trusts.[4] Who they are in aggregate is covered at [Who owns hotels in the United States?](/hotel-industry/who-owns-hotels). #### What does a hotel franchisor do? A hotel franchisor licenses its brand name, standards and reservation systems to the owner in exchange for fees, and it does not own or operate the hotel. Choice Hotels' fiscal 2025 10-K describes the arrangement in one sentence: franchisors license their brands to a hotel owner, giving the owner the right to use the brand name, logo, operating practices and reservations systems in exchange for a fee and an agreement to operate the hotel in accordance with the franchisor's brand standards.[5] The big brand companies are built on this model. Hilton's 10-K counts 8,239 franchised or licensed properties out of 9,158 at December 31, 2025, which is 90 percent by our arithmetic.[1] Marriott reports 7,644 franchised, licensed and other properties out of 9,805 at year-end 2025.[2] AHLA says 57 percent of all U.S. hotels are franchised.[11] A guest sees one brand. Behind the sign are thousands of separate owners. The glossary entries are at [franchise agreement](/glossary/franchise-agreement) and [franchise disclosure document](/glossary/franchise-fdd). #### How much are hotel franchise fees? Hotel franchise fees are a percentage of rooms revenue, and the two published schedules we read that state both parts, the royalty and the marketing or program fee, add up to between 7 and 10 percent. Hilton's 2025 Hampton franchise disclosure document lists a monthly royalty fee of 6 percent of gross rooms revenue and a monthly program fee of 4 percent of gross rooms revenue. The same document says Hilton may change the program fee, but not by more than one percentage point over the term of the agreement.[3] Marriott's 10-K says its franchise royalties typically range from four to seven percent of room revenues, plus up to four percent of food and beverage revenues for certain brands, along with an application fee and reimbursement for centralized programs and services.[2] Wyndham's 10-K says its direct franchisees generally pay a royalty of approximately 5 percent of gross room revenue and a marketing and reservation fee of 2 to 4 percent.[4] There are one-time fees too. The Hampton application fee is $100,000 for new development or conversion, plus $400 for each guest room over 150, and $200,000 for a change of ownership, with a $10,000 fee to prepare a property improvement plan.[3] The franchise disclosure document for any brand you are considering is the place to read its full schedule, because these fees differ by brand and by year. #### What does a hotel management company do, and how is it paid? A hotel management company runs the hotel day to day on the owner's behalf, and it is paid a base fee on revenue and usually an incentive fee on profit. The manager hires and supervises the staff, sets rates, runs sales and keeps the books. The owner still owns the results. Hilton's 10-K says its management fees generally consist of a base fee based on a percentage of the hotel's monthly gross operating revenue and, when applicable, an incentive fee based on a percentage of the hotel's operating profits.[1] Marriott's 10-K describes the same two parts: a base management fee that is a percentage of hotel revenues and an incentive management fee based on hotel profits.[2] Neither filing states the percentages, and third-party management companies do not publish theirs. What is public is what owners paid. Apple Hospitality REIT reported management fees of $47.1 million on total revenue of $1,412.4 million for 2025, which is 3.3 percent by our arithmetic.[6] Host Hotels & Resorts reported management fees of $262 million on $6,015 million of hotel revenue, about 4.4 percent.[7] Those are blended figures across many contracts, base and incentive fees together, so treat them as evidence of scale and not as a quote. #### How long do hotel franchise and management agreements last? Hotel franchise agreements commonly run 10 to 25 years and brand management agreements commonly start at 20 to 30 years, according to the brands' own filings. Hilton's Hampton disclosure sets the franchise term for new construction at generally 22 years from the effective date, and for a conversion at generally 10 to 20 years from opening. A buyer on a change of ownership generally gets the remaining term or another term Hilton approves.[3] Marriott says its franchise agreements are generally for 10 to 25 years and its management agreements are generally for initial periods of 20 to 30 years with renewal options of 10 or more years.[2] Hilton gives 20 to 30 years as the typical initial term of its management contracts.[1] Wyndham says 10 to 20 years for franchise agreements, and Choice says 10 to 30.[4][5] These terms outlast most loans and most ownership periods, so they are part of what a buyer is buying. A short remaining term, or a brand-managed hotel that cannot be delivered free of its manager, changes the buyer pool. See [Should I sell my hotel before the franchise agreement expires?](/sell-a-hotel/franchise-agreement-expiration). #### Can I manage my own franchised hotel? Yes, if the brand approves you, because the franchisor decides who is qualified to operate a hotel under its flag. Hilton's Hampton disclosure says the hotel must be operated either by the franchisee or by a third-party management company Hilton has approved. To manage it yourself you need Hilton's prior written approval and must complete its training program, and if Hilton decides at any time that you are not qualified it may require you to retain an acceptable management company.[3] In practice most Hampton owners use their own company or a third party and not the brand: of the 1,960 comparable Hampton hotels in the 2025 disclosure, 15 were company-managed and 1,945 were franchisee-managed, a category that covers the franchisee itself or a non-Hilton management company.[3] First-time buyers usually meet this requirement by hiring an approved manager, which is covered at [How do I buy my first hotel with no hotel experience?](/buy-a-hotel/first-hotel-no-experience). #### Why do hotel REITs always hire a separate manager? Hotel REITs hire a separate manager because the tax code requires it: a REIT may lease a hotel to its own taxable subsidiary only if an eligible independent contractor operates the property. Section 856(d) of the Internal Revenue Code treats rent from a qualified lodging facility leased to a taxable REIT subsidiary as good REIT income if the property is operated on the subsidiary's behalf by an eligible independent contractor. That contractor must be actively engaged in the business of operating lodging facilities for parties unrelated to the REIT. A lodging facility is a hotel, motel or other establishment where more than half the dwelling units are used on a transient basis.[8] That is why a REIT's statement shows management fees as a line, as Apple Hospitality's and Host's do.[6][7] #### What does this structure mean when I finance or sell a hotel? When you finance or sell a hotel, the franchise and management agreements are underwritten alongside the real estate, because they decide who can run the hotel and what comes off the top. A lender reads the fees as fixed charges ahead of its debt service and wants to know the flag will stay if it has to take the property, which is what a [comfort letter](/glossary/comfort-letter) addresses. As of September 30, 2026, the 10-year Treasury is 5.29 percent and SOFR is 3.90 percent, and lenders do not publish the spreads or coverage tests they apply, so the agreements in your file are part of what earns a better quote.[10] USALI's 12th edition, effective January 1, 2026, added a schedule that gathers annual mandatory brand and operator costs in one place, which makes this easier for a lender or buyer to see.[9] A buyer does not inherit your franchise. It applies for its own and takes on the brand's improvement plan. Start at [How does hotel financing work, and what does it cost right now?](/hotel-financing), [What is involved in selling a hotel?](/sell-a-hotel) or [Should I buy a branded or independent hotel?](/buy-a-hotel/branded-vs-independent). Table: Hotel owner, franchisor and management company: what each does and what the public documents say about pay and term Question | Owner | Franchisor (the brand) | Management company What it holds | The real estate, the loan and the risk | The name, standards, loyalty program and reservation system[5] | A contract to operate the hotel for the owner How it is paid | What is left after expenses, fees, reserves and debt service | Hampton: 6% royalty plus 4% program fee on gross rooms revenue.[3] Marriott: royalties typically 4% to 7% of room revenues.[2] Wyndham: about 5% plus 2% to 4%[4] | Base fee on hotel revenue plus an incentive fee on profit.[1][2] Percentages are not published What owners reported paying in 2025 | n/a | Apple Hospitality: $62.6 million of franchise fees, 4.9% of room revenue[6] | Apple Hospitality: $47.1 million, 3.3% of revenue.[6] Host: $262 million, about 4.4% of hotel revenue[7] Initial term | As long as it holds the property | Hampton: generally 22 years new-build, 10 to 20 on conversion.[3] Marriott: generally 10 to 25.[2] Wyndham: 10 to 20.[4] Choice: 10 to 30[5] | Marriott: generally 20 to 30 years plus renewals.[2] Hilton: typically 20 to 30[1] Share of the brand's system | Hilton owned or leased 46 of 9,158 properties[1] | Hilton franchised or licensed 8,239 of 9,158[1] | Hilton managed 873 of 9,158[1] First-party data point: Matthews Hotel Markets' October 2026 rate sheet records that no lender type publishes its spread, coverage floor or loan-to-value ceiling, so the fees above are some of the few hard numbers in a hotel loan file: they come off revenue before debt service priced over a 10-year Treasury of 5.29% on September 30, 2026.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what the brand and the manager take from a 120-room franchised hotel): Hypothetical. The hotel is invented. The fee rates are the published Hampton schedule and one REIT's reported average, and your contracts will differ. The hotel: rooms revenue of $5,000,000 and total revenue of $5,400,000. Royalty: 6 percent of gross rooms revenue is $300,000.[3] Program fee: 4 percent of gross rooms revenue is $200,000.[3] Management fee: we use 3.3 percent of total revenue, the share Apple Hospitality REIT's management fees came to in 2025,[6] which gives $178,200. A real contract would state a base percentage and an incentive formula. Total: $678,200 a year, or 12.6 percent of total revenue, paid before property taxes, insurance, a replacement reserve or the mortgage. The question for the owner is whether the flag and the operator earn that back. One public data point: Hilton reports that comparable Hampton hotels averaged a RevPAR index of 121.0 in 2024, meaning 21 percent more RevPAR than their competitive sets.[3] That is an average across the brand and says nothing certain about a single hotel. FAQ: - Q: Does Marriott or Hilton own its hotels? A: Rarely. Hilton owned or leased 46 of 9,158 properties at December 31, 2025.[1] Marriott says it owns or leases less than one percent of its system.[2] The rest are franchised, licensed or managed for other owners. - Q: What is the difference between a franchise agreement and a management agreement? A: A franchise agreement licenses the brand and systems and is paid on rooms revenue. A management agreement hands over daily operations and is paid a base fee on revenue plus an incentive fee on profit.[1][2] A hotel can have both, with different companies. - Q: How much does a hotel management company charge? A: Management companies do not publish their fees. Public owners report what they paid: Apple Hospitality REIT's 2025 management fees were 3.3 percent of its revenue and Host Hotels & Resorts' were about 4.4 percent, by our arithmetic on their reported figures.[6][7] - Q: Who employs the staff at a franchised hotel? A: Not the franchisor. Hilton's Hampton disclosure calls the franchisee an independent employer and says Hilton will not direct or supervise the personnel of the franchisee or its management company.[3] - Q: Can a brand also manage my hotel? A: Yes. Hilton managed 873 properties at December 31, 2025, and Marriott had 2,017 company-operated properties at year-end 2025.[1][2] - Q: Does the franchise transfer when I sell my hotel? A: No. Under the Hampton agreement the buyer applies for a change of ownership and pays a $200,000 application fee, and generally receives the remaining term or another term Hilton approves.[3] - Q: What is an independent hotel? A: A hotel with no franchise. The owner keeps the royalty and program fees and takes on its own marketing, distribution and standards. AHLA says 57 percent of U.S. hotels are franchised, which leaves 43 percent that are not.[11] Sources: - [1] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [2] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [4] Wyndham Hotels & Resorts, Inc. Form 10-K for fiscal year 2025, Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1722684/000172268426000007/wh-20251231.htm - [5] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [6] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [7] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [8] 26 U.S.C. Section 856(d)(8) and (d)(9): qualified lodging facilities and eligible independent contractors (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/856 - [9] HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (July 11, 2024) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [11] Franchising: hotel franchising facts (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/issue/franchising ### What are RevPAR, ADR and occupancy, and what is a good number? URL: https://matthewshotelmarkets.com/hotel-industry/revpar-adr-occupancy Last updated: 2026-10-01 Occupancy is rooms sold divided by rooms available. ADR is room revenue divided by rooms sold. RevPAR is room revenue divided by rooms available, which equals occupancy times ADR. For 2025, CoStar reported U.S. occupancy of 62.3 percent, ADR of $160.54 and RevPAR of $100.02, in figures published January 22, 2026.[1] A good number is one that beats your competitive set. Key takeaways: - RevPAR is occupancy times ADR. For 2025: 62.3 percent times $160.54 is $100.02.[1] - The latest monthly figures we read are for July 2026: 69.7 percent occupancy, $171.74 ADR and $119.77 RevPAR, up 2.3, 5.7 and 8.2 percent on the year.[2] - National averages mix every kind of hotel. In 2025 Choice Hotels' system reported RevPAR of $52.85 and Host Hotels & Resorts' comparable hotels reported $229.24.[4][5] - Good means above your competitive set. An index of 100 is a fair share. Hilton reports that comparable Hampton hotels averaged a RevPAR index of 121.0 in 2024.[3] - RevPAR is revenue, not profit. AHLA reported in January 2026 that gross operating profit per available room was roughly 90 percent of 2019 levels.[8] #### What is hotel occupancy? Hotel occupancy is the number of rooms sold divided by the number of rooms available over the same period, written as a percentage. A 100-room hotel that sells 70 rooms tonight ran 70 percent occupancy. Over a year the same hotel has 36,500 room nights to sell. CoStar reported U.S. occupancy of 62.3 percent for 2025, down 1.2 percent from 2024, the first full-year decline since 2020.[1] The monthly figure swings with the season: for July 2026 CoStar reported 69.7 percent.[2] That swing is why a single month tells you little. Compare the same month a year earlier, or use a trailing twelve months. #### What is ADR? ADR, the average daily rate, is room revenue divided by the number of rooms sold, so it is the average price actually paid for an occupied room. ADR counts only sold rooms. An empty room does not pull it down, which is why ADR on its own can flatter a hotel that prices itself out of demand. U.S. ADR was $160.54 for 2025, up 0.9 percent, and $171.74 for July 2026, up 5.7 percent on July 2025.[1][2] CoStar's July release put the largest rate gain among the top 25 markets in New York City, which hosted the World Cup final: ADR up 24.0 percent to $351.18.[2] The glossary entry is at [ADR](/glossary/adr). #### What is RevPAR, and how do I calculate it? RevPAR, revenue per available room, is room revenue divided by rooms available, and it gives the same answer as occupancy multiplied by ADR. Choice Hotels' fiscal 2025 10-K describes RevPAR as the key industry standard for measuring hotel operating performance and defines it as the percentage of occupied rooms multiplied by the average daily room rate realized.[4] Check it against the national figures: 0.623 times $160.54 is $100.02, the 2025 U.S. RevPAR CoStar reported, down 0.3 percent on 2024.[1] RevPAR is the most quoted of the three because it cannot be gamed from one side. Cutting rate to fill rooms raises occupancy and lowers ADR, and RevPAR shows whether the trade was worth it. RevPAR counts room revenue only. Hotels with restaurants and meeting space also report total RevPAR, which counts every department. Host Hotels & Resorts reported comparable hotel RevPAR of $229.24 and total RevPAR of $382.83 for 2025.[5] The glossary entry is at [RevPAR](/glossary/revpar). #### What are the latest national occupancy, ADR and RevPAR figures? The latest full year is 2025, at 62.3 percent, $160.54 and $100.02, and the latest month we read is July 2026, at 69.7 percent, $171.74 and $119.77.[1][2] Both sets are CoStar's, from its STR benchmarking business. We read the full-year figures in Hotel Dive's report of January 22, 2026 and the July figures in Hotel Online's report of August 26, 2026, not on CoStar's own site, and we cite what we read.[1][2] In July, 22 of the top 25 markets posted RevPAR growth.[2] For the year ahead, CoStar and Tourism Economics forecast occupancy of 63.1 percent for 2026 and 63.4 percent for 2027, as of August 7, 2026.[7] The competing forecasts are set side by side at [What is the outlook for hotels in 2026 and 2027?](/hotel-industry/outlook-2026-2027). These are the figures the firms made public. Market, submarket and comp-set data are sold by subscription and are not republished here. #### What is a good RevPAR or occupancy for a hotel? A good RevPAR or occupancy is one that beats the hotels you compete with, because the absolute number is set mostly by segment and market and only partly by how well the hotel is run. Public filings show how wide the range is. For 2025, Choice Hotels reported system occupancy of 55.6 percent, ADR of $95.05 and RevPAR of $52.85 across its franchise system.[4] Apple Hospitality REIT reported 74.1 percent, $159.09 and $117.95 at its comparable select-service hotels.[6] Host Hotels & Resorts reported 70.0 percent, $327.54 and $229.24 at its comparable luxury and upper-upscale hotels.[5] None of those is good or bad. Each is a different business. The spread inside one brand is just as wide. Hilton's 2025 Hampton disclosure reports average occupancy of 71.7 percent for comparable Hampton hotels in 2024, with individual hotels ranging from 30.5 percent to 96.6 percent, and average room rates for Hampton Inn hotels ranging from $77.60 to $315.97.[3] A Hampton at 65 percent can be the best hotel in its market and one at 75 percent can be the worst in its market. That is why the question a buyer or lender asks is how the hotel ranks against its [comp set](/glossary/comp-set). #### What are MPI, ARI and RGI? MPI, ARI and RGI are index numbers that divide a hotel's occupancy, ADR and RevPAR by the same figure for its competitive set and multiply by 100, so that 100 means a fair share. Hilton's Hampton disclosure writes the formula out: hotel RevPAR divided by comp set RevPAR, times 100, equals RevPAR index, and an index above 100 means the hotel is taking more than its fair share.[3] The market penetration index does the same with occupancy and the average rate index does the same with ADR. Hilton reports that comparable Hampton hotels averaged an occupancy index of 109.8 and a RevPAR index of 121.0 in 2024.[3] Read those as the brand's own averages for the hotels it counts as comparable. They are not a promise for any one property. Index numbers are what make a hotel's performance portable. A RevPAR of $95 means nothing to a buyer who does not know the market. A RevPAR index of 110 tells that buyer the hotel outsells its neighbors by ten percent, and the first thing the buyer will check is which hotels are in the set. More at [MPI, ARI and RGI](/glossary/mpi-ari-rgi). #### Why is RevPAR not the same as profit? RevPAR is not profit because it measures room revenue before any cost, and costs have grown faster than room revenue since 2019. AHLA's 2026 State of the Industry release, dated January 27, 2026, says rising operating expenses kept gross operating profit per available room at roughly 90 percent of 2019 levels.[8] Two hotels with the same RevPAR can have very different income if one pays more for labor, carries a restaurant, or sits under a heavier property tax bill. How revenue becomes income is covered at [How do hotels make money?](/hotel-industry/how-hotels-make-money). #### How do buyers and lenders use these numbers? Buyers and lenders use RevPAR and index trends to judge whether a hotel's income will hold, and then they value and size the loan on the income itself. A rising RevPAR index supports the case that income is durable. A falling one raises the question of whether the hotel needs capital, a new manager or a different flag. The income is then capitalized to reach a value, which is covered at [What is my hotel worth, and who decides?](/hotel-valuation) and [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel). On the debt side, the same income is tested against debt service at current rates, which starts at [What do lenders require for a hotel loan?](/hotel-financing/loan-requirements). Market-level ranges for the 14 markets we cover are in the Matthews Hotel Index.[9] Table: Occupancy, ADR and RevPAR from six public sources: the same three metrics describe very different hotels Who and what | Occupancy | ADR | RevPAR | Period All U.S. hotels, per CoStar[1] | 62.3% | $160.54 | $100.02 | Full year 2025 All U.S. hotels, per CoStar[2] | 69.7% | $171.74 | $119.77 | July 2026 Choice Hotels system[4] | 55.6% | $95.05 | $52.85 | Full year 2025 Apple Hospitality REIT, comparable hotels[6] | 74.1% | $159.09 | $117.95 | Full year 2025 Host Hotels & Resorts, comparable hotels[5] | 70.0% | $327.54 | $229.24 | Full year 2025 Comparable Hampton hotels, per Hilton[3] | 71.7% | $145.82 (Hampton Inn), $152.19 (Hampton Inn & Suites) | Not stated. RevPAR index averaged 121.0 | Full year 2024 First-party data point: The Matthews Hotel Index for Q1 2026 shows how much the market sets the number: Dallas at about 68 percent occupancy with RevPAR of $90 to $130, and Charleston at about 73 percent with RevPAR of $125 to $220, depending on segment.[9] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Hypothetical: one month at an 80-room hotel, and its three index numbers): Hypothetical. The hotel and its competitive set are made up to show the arithmetic. Rooms available: 80 rooms times 30 nights is 2,400. Rooms sold: 1,704. Occupancy is 1,704 divided by 2,400, or 71.0 percent. Room revenue: $230,040. ADR is $230,040 divided by 1,704, or $135.00. RevPAR: $230,040 divided by 2,400 is $95.85. Check it the other way: 0.71 times $135.00 is $95.85. Now the competitive set, which ran 68.0 percent occupancy at a $128.00 ADR, for a RevPAR of $87.04. MPI is 71.0 divided by 68.0, times 100, or 104.4. ARI is $135.00 divided by $128.00, times 100, or 105.5. RGI is $95.85 divided by $87.04, times 100, or 110.1. The hotel's $95.85 is below the 2025 national RevPAR of $100.02,[1] and it is still a strong hotel, because it takes 10 percent more than its fair share of the market it actually competes in. FAQ: - Q: What is a good occupancy rate for a hotel? A: One above your competitive set's. The U.S. average was 62.3 percent in 2025.[1] Comparable Hampton hotels averaged 71.7 percent in 2024, with individual hotels between 30.5 and 96.6 percent.[3] - Q: What is the average RevPAR in the United States? A: $100.02 for full-year 2025, down 0.3 percent, according to CoStar figures reported January 22, 2026.[1] For July 2026 it was $119.77, up 8.2 percent on July 2025.[2] - Q: How do you calculate RevPAR? A: Divide room revenue by rooms available, or multiply occupancy by ADR. A hotel at 71 percent occupancy and a $135 ADR has a RevPAR of $95.85. - Q: Is a higher ADR always better? A: No. ADR counts only sold rooms, so a hotel can raise ADR by pricing away demand. RevPAR shows the net effect. A rate increase that costs more in occupancy than it earns in rate lowers RevPAR. - Q: What is a good RevPAR index? A: Above 100, which means more than a fair share of your competitive set's RevPAR. Hilton reports an average of 121.0 for comparable Hampton hotels in 2024.[3] Always ask which hotels are in the set. - Q: Where can I get RevPAR data for my market? A: Hotel-level and comp-set data come from a paid STR report. National figures appear in CoStar's public monthly releases.[2] Our Matthews Hotel Index publishes ranges for 14 markets.[9] - Q: Does RevPAR include food and beverage revenue? A: No. RevPAR is room revenue only. Total RevPAR counts all departments. Host Hotels & Resorts reported comparable RevPAR of $229.24 and total RevPAR of $382.83 for 2025.[5] Sources: - [1] Key full-year US hotel metrics fall for first time since 2020 (January 22, 2026): full-year 2025 occupancy, ADR and RevPAR (Hotel Dive, citing CoStar, accessed 2026-09-18): https://www.hoteldive.com/news/hotel-occupancy-revpar-decline-2025/810212/ - [2] U.S. Hotels Post Strong July Gains as Occupancy, Rates and RevPAR Rise (August 26, 2026) (Hotel Online, citing CoStar, accessed 2026-09-18): https://www.hotel-online.com/news/us-hotels-post-strong-july-gains-as-occupancy-rates-and-revpar-rise - [3] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [4] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [5] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [6] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [7] CoStar, Tourism Economics 'significantly' boost US hotel outlook (August 7, 2026) (Hotel Dive, citing CoStar and Tourism Economics, accessed 2026-09-18): https://www.hoteldive.com/news/costar-tourism-economics-raise-us-hotel-performance-outlook-2026/827318/ - [8] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [9] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### Who owns hotels in the United States? URL: https://matthewshotelmarkets.com/hotel-industry/who-owns-hotels Last updated: 2026-10-01 Mostly private owners, not the brands on the signs. AAHOA says its members own 36,807 U.S. hotels, 60 percent of the total, citing a study it commissioned from Oxford Economics.[1] AHLA says 57 percent of U.S. hotels are franchised.[3] Hilton owned or leased 46 of its 9,158 properties at December 31, 2025, and public REITs own hundreds of hotels, not tens of thousands.[5] Key takeaways: - AAHOA's figure, attributed to AAHOA: members own 36,807 hotels with 3.2 million guestrooms, which it puts at 60 percent of U.S. hotels.[1] - AHLA's figure, attributed to AHLA: 57 percent of U.S. hotels are franchised, with 36,173 franchised hotels projected for 2024.[3] - The brands own almost nothing. Hilton owned or leased 46 of 9,158 properties, and Marriott says it owns or leases less than one percent of its system.[5][6] - Public REITs are large by value and small by count. Host owns 76 properties and Apple Hospitality owns 217 hotels.[7][8] - Private equity was 34 percent of U.S. hotel transactions in the first quarter of 2026, according to JLL.[11] #### Who owns most of the hotels in the United States? Private owners, many of them family businesses that hold a handful of franchised hotels, own most of the hotels in the United States by count. No government agency publishes a register of hotel owners, so the picture has to be assembled from the bodies that speak for each group, and each of them has a reason to make its group look large. We attribute every figure below to whoever published it. The shape is consistent across all of them. The brand companies own very few hotels. Public REITs and institutional funds own the biggest and most expensive hotels, which is a small share of the count. The rest, including most of the select-service and economy hotels along American highways and in secondary markets, belongs to private owners. Wyndham's 10-K describes its franchisees as ranging from sole proprietors to institutional investors such as public real estate investment trusts.[10] #### What share of U.S. hotels do AAHOA members own? AAHOA says its members own 60 percent of U.S. hotels, a figure that comes from a study AAHOA commissioned from Oxford Economics. AAHOA is the Asian American Hotel Owners Association. Its published summary of the Oxford Economics study, as it read on September 18, 2026, says members own 36,807 hotels in the United States with 3.2 million guestrooms, that those hotels are 60 percent of U.S. hotels, that 1 million employees work at member-owned hotels and earn over $51 billion a year, and that the hotels contribute $371.4 billion to U.S. GDP.[1] The page does not carry a date. When AAHOA first announced the study on August 5, 2021, the figures were 34,260 hotels, 3.1 million guestrooms and the same 60 percent, for an association of nearly 20,000 members.[2] Two cautions. It is a trade association's figure about its own members, produced by a firm it hired, and we have not seen the underlying census. And it is a share of hotels, not of rooms or of value. By our arithmetic, 3.2 million rooms across 36,807 hotels is an average of about 87 rooms a hotel, which tells you the membership is weighted to smaller select-service and economy properties. #### How many U.S. hotels are franchised? AHLA says 57 percent of U.S. hotels are franchised and projected 36,173 franchised hotels for 2024, a 34 percent increase over the prior decade.[3] In a statement on July 21, 2026, AHLA's chief executive put the share at nearly 60 percent and said franchised hotels support more than 2.8 million jobs.[4] Franchised does not mean owned by the brand. It means the opposite: an independent owner has licensed the name. A franchised Hampton or Holiday Inn Express belongs to a local owner or an investment group that pays the brand a fee on rooms revenue. The contracts are explained at [What is the difference between a hotel owner, a franchisor and a management company?](/hotel-industry/owner-franchisor-management-company). The AAHOA and AHLA figures overlap heavily, since most AAHOA members own franchised hotels. They are two views of the same fact: most U.S. hotels are branded, and most branded hotels are owned by private businesses. #### Do Marriott, Hilton and the other brands own their hotels? No. Marriott, Hilton and the other large brand companies own almost none of the hotels that carry their names. Hilton's 10-K for fiscal 2025 counts 9,158 properties with 1,351,351 rooms at December 31, 2025. Of those, 46 properties with 15,287 rooms were owned or leased, 873 were managed for other owners and 8,239 were franchised or licensed.[5] Marriott's 10-K counts 9,805 properties with 1,779,936 rooms at year-end 2025 and says the company owns or leases very few of them, less than one percent of its system.[6] In Hilton's 2025 Hampton disclosure, 1,945 of 1,960 comparable Hampton hotels in the U.S. were managed by the franchisee or a non-Hilton management company.[9] This is a deliberate business model. A fee on someone else's rooms revenue needs little capital and keeps coming in a downturn, while owning the building ties up capital and carries the losses. #### How much of the hotel industry do REITs own? Public hotel REITs own a small number of hotels that are large and valuable, so their share of rooms and value is far bigger than their share of the hotel count. Host Hotels & Resorts, which calls itself the largest lodging REIT, owns 71 properties in the United States and five abroad with about 41,700 rooms.[7] Apple Hospitality REIT owns 217 hotels with 29,583 guest rooms across 37 states and the District of Columbia.[8] By our arithmetic that is about 549 rooms per Host property and 136 per Apple Hospitality hotel, against about 87 for the average AAHOA member hotel.[1] Together the two REITs own 293 hotels. AAHOA's count for its members is 36,807. REITs also operate under a rule private owners do not face. The Internal Revenue Code lets a REIT lease a hotel to its own taxable subsidiary only if an eligible independent contractor operates the property, so a REIT always pays a separate manager.[12] #### Who is buying hotels right now? Private equity accounted for 34 percent of U.S. hotel transactions in the first quarter of 2026, according to JLL. It is the one buyer-type share in the public summary we read.[11] JLL counted $5.6 billion of U.S. hotel transaction volume in that quarter across 227 transactions, up 14.4 percent by dollars and 35 percent by count on a year earlier, and still 47 percent below the 2022 peak.[11] Single-asset trades were $5.4 billion of the total.[11] Transaction data of this kind captures the larger deals best. The sale of a 70-room highway hotel from one private owner to another is the most common hotel trade in the country and the least likely to appear in a national league table. If you are on either side of one, start at [What is involved in selling a hotel?](/sell-a-hotel) or [How do I buy a hotel?](/buy-a-hotel). #### How many hotels are there in the United States? There is no single free, public count of U.S. hotels, and the public figures that exist imply a total somewhere above 60,000. AAHOA's 36,807 hotels at 60 percent implies about 61,300 hotels in total.[1] AHLA's 36,173 franchised hotels at 57 percent implies about 63,500.[3] Both are our arithmetic on the associations' own figures. The Bureau of Labor Statistics counts 78,789 private establishments in the accommodation subsector in the first quarter of 2026, a preliminary figure, but that subsector also includes RV parks, recreational camps and rooming houses.[13] The count most of the industry uses is STR's census, which is a licensed product, so we do not reproduce it. The size of the industry in dollars and jobs is at [How big is the US hotel industry in 2026?](/hotel-industry/industry-size-2026). #### Why does it matter who owns hotels? Who owns a hotel matters because the owner type decides how a hotel is financed, how it is sold and who the likely buyer is. A private owner with a few hotels typically borrows from banks and SBA lenders and sells to a buyer like itself. As of September 2026 the maximum SBA 7(a) rate is 10.00 percent and the 25-year SBA 504 debenture priced at 6.54 percent.[14] An institutional owner borrows in the CMBS, life company and debt fund markets and sells through a marketed process to funds and REITs. Lender types are compared at [Who are the biggest hotel lenders, and which type fits my deal?](/hotel-financing/hotel-lenders-by-type), and the financing overview is at [How does hotel financing work, and what does it cost right now?](/hotel-financing). What a given hotel is worth to each kind of buyer is covered at [What is my hotel worth, and who decides?](/hotel-valuation). Table: Who owns U.S. hotels: each public claim, who makes it, and its date Claim | Figure | Who says so | Date Hotels owned by AAHOA members | 36,807 hotels, 3.2 million guestrooms, 60% of U.S. hotels | AAHOA, citing Oxford Economics[1] | Undated page, read September 18, 2026 The same study when first announced | 34,260 hotels, 3.1 million guestrooms, 60% of U.S. hotels | AAHOA, citing Oxford Economics[2] | August 5, 2021 Share of U.S. hotels that are franchised | 57%, with 36,173 franchised hotels projected for 2024 | AHLA[3] | 2024 figures Hotels Hilton owns or leases | 46 of 9,158 properties | Hilton 10-K[5] | December 31, 2025 Hotels Marriott owns or leases | Less than 1% of 9,805 properties | Marriott 10-K[6] | Year-end 2025 Host Hotels & Resorts | 76 properties, about 41,700 rooms | Host results release[7] | February 18, 2026 Apple Hospitality REIT | 217 hotels, 29,583 rooms, 37 states and D.C. | Apple Hospitality results release[8] | February 23, 2026 Private equity share of hotel transactions | 34% in Q1 2026 | JLL, reported by Hotel Dive[11] | May 14, 2026 Accommodation establishments, NAICS 721 | 78,789 private establishments, preliminary | Bureau of Labor Statistics[13] | First quarter 2026 First-party data point: The Matthews Hotel Index for Q1 2026 prices the segment most private owners hold: stabilized select-service cap rates of 7.5% to 8.25% in Austin, against 7.0% to 8.0% for full-service hotels in the same market.[15] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (Worked arithmetic: what the association figures imply, and what they do not): This uses published figures only. Nothing here is hypothetical, and nothing here is a census. AAHOA: 36,807 member-owned hotels is said to be 60 percent of U.S. hotels.[1] 36,807 divided by 0.60 is 61,345. So AAHOA's own numbers imply about 61,300 hotels in the country. AHLA: 36,173 franchised hotels is said to be 57 percent of U.S. hotels.[3] 36,173 divided by 0.57 is 63,461. So AHLA's numbers imply about 63,500. The two totals are within 4 percent of each other, which is some comfort that both associations are working from a similar base. Both percentages are rounded, so neither total is precise. Rooms per hotel: AAHOA's 3.2 million rooms over 36,807 hotels is about 87 rooms.[1] Apple Hospitality's 29,583 rooms over 217 hotels is about 136.[8] Host's roughly 41,700 rooms over 76 properties is about 549.[7] What this does not tell you: the share of rooms or of value that any group owns. A 60 percent share of hotels, at 87 rooms each, is a smaller share of rooms and a much smaller share of value. FAQ: - Q: Is AAHOA's 60 percent figure reliable? A: It is a trade association's figure about its own members, from a study it commissioned from Oxford Economics, and the underlying census is not public.[1] It has been stable: AAHOA gave the same 60 percent when it first announced the study on August 5, 2021.[2] - Q: Does Hilton own Hampton Inn hotels? A: Hilton owns the brand, not the buildings. It owned or leased 46 properties across all its brands at December 31, 2025.[5] In its 2025 disclosure, 1,945 of 1,960 comparable Hampton hotels were managed by the franchisee or a non-Hilton manager.[9] - Q: What is the largest hotel owner in the United States? A: Host Hotels & Resorts describes itself as the largest lodging REIT, with 76 properties and about 41,700 rooms.[7] By hotel count, Apple Hospitality REIT is larger with 217 hotels.[8] We do not publish a ranking of private owners, because no public source supports one. - Q: How many hotels are franchised? A: AHLA says 57 percent of U.S. hotels are franchised and projected 36,173 franchised hotels for 2024.[3] In July 2026 its chief executive described the share as nearly 60 percent.[4] - Q: How many hotels are there in the U.S.? A: No free public census exists. AAHOA's and AHLA's own figures imply roughly 61,300 to 63,500 hotels, by our arithmetic.[1][3] The Bureau of Labor Statistics counts 78,789 accommodation establishments, which includes RV parks and rooming houses.[13] - Q: Why do REITs own so few hotels? A: REITs buy large, high-value hotels. Host averages about 549 rooms a property, by our arithmetic.[7] A REIT must also lease each hotel to a taxable subsidiary and hire an eligible independent contractor to run it.[12] Sources: - [1] Oxford Economics Study: the economic impact of AAHOA Member-owned hotels (Asian American Hotel Owners Association (AAHOA), accessed 2026-09-18): https://www.aahoa.com/resources/oxford-study - [2] New AAHOA/Oxford Economics Study Details Extent of AAHOA Members' Economic Impact and Industry Influence (August 5, 2021) (AAHOA, republished by Hospitality Net, accessed 2026-09-18): https://www.hospitalitynet.org/news/4105842/new-aahoaoxford-economics-study-details-extent-of-aahoa-members-economic-impact-and-industry-influence - [3] Franchising: hotel franchising facts (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/issue/franchising - [4] AHLA Statement on House Committee Passage of American Franchise Act (July 21, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-statement-house-committee-passage-american-franchise-act - [5] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [6] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [7] Host Hotels & Resorts, Inc. Reports Results for 2025 (February 18, 2026), consolidated statements of operations and comparable hotel results (Host Hotels & Resorts, Inc., via GlobeNewswire, accessed 2026-09-18): https://www.globenewswire.com/news-release/2026/02/18/3240651/0/en/host-hotels-resorts-inc-reports-results-for-2025.html - [8] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [9] 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6, 15, 17 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - [10] Wyndham Hotels & Resorts, Inc. Form 10-K for fiscal year 2025, Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1722684/000172268426000007/wh-20251231.htm - [11] Luxury trades drove US hotel transaction uptick in Q1: JLL (May 14, 2026) (Hotel Dive, citing JLL, accessed 2026-09-18): https://www.hoteldive.com/news/luxury-trades-drove-us-hotel-transaction-uptick-q1-jll/820221/ - [12] 26 U.S.C. Section 856(d)(8) and (d)(9): qualified lodging facilities and eligible independent contractors (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/856 - [13] Industries at a Glance: Accommodation, NAICS 721 (data extracted September 18, 2026) (U.S. Bureau of Labor Statistics, accessed 2026-09-18): https://www.bls.gov/iag/tgs/iag721.htm - [14] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [15] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 ### How do hotel management agreements work, and what do they cost? URL: https://matthewshotelmarkets.com/hotel-industry/hotel-management-agreements Last updated: 2026-10-01 A hotel management agreement hands daily operations to an operator that is paid a base fee on revenue and usually an incentive fee on profit. In its 10-K filed February 25, 2026, Host Hotels & Resorts says base fees are generally 2 to 3 percent of gross revenues and incentive fees generally 10 to 20 percent of operating profit after an owner's priority return.[1] Key takeaways: - Published base fee ranges for fiscal 2025: Host generally 2 to 3 percent of gross revenues, Pebblebrook 1 to 4 percent, RLJ 1.5 to 3.5 percent, and Apple Hospitality 2.5 to 3.5 percent under its variable-fee contracts.[1][3][4][2] - The incentive fee is a share of profit above a hurdle. Host and Pebblebrook both describe 10 to 20 percent of profit after the owner's priority return. Chatham's is 10 percent above a threshold and capped at 1 percent of gross hotel revenues.[1][3][5] - Brand-managed contracts are long. Host's run 10 to 50 years at the start. Third-party contracts are short: Apple Hospitality's variable-fee agreements average one to two years.[1][2] - Termination on sale is negotiated, not automatic. Pebblebrook reports termination fees from zero up to three times annual base and incentive fees. Chatham can end its contracts on a sale with no fee and six months' notice.[3][5] - What owners paid in 2025, by our arithmetic on reported dollars: between 2.2 and 4.4 percent of revenue across the six REITs on this page.[1][2][3][4][5][6] #### What does a hotel management agreement actually cover? A hotel management agreement gives the operator control of daily operations, including staff, room rates, sales and the books, while the owner keeps the real estate, funds the hotel and takes the profit or loss. Host Hotels & Resorts describes the split in its fiscal 2025 10-K. The managers have sole responsibility and exclusive authority for day-to-day operation, including establishing room rates, securing reservations, procuring supplies and promoting the hotels, and the managers employ all managerial and other employees. Host, as owner, provides working capital, funds the cost of fixed asset supplies such as linen and china, and must provide funds when cash at the hotel is insufficient.[1] Pebblebrook Hotel Trust is blunter about the limits of ownership. It tells investors it does not have the authority to require a hotel to be operated in a particular manner or to govern any particular aspect of daily operations, such as setting room rates, and that it can seek redress only if a manager violates the contract.[3] A management agreement is a different contract from a franchise agreement. The franchise licenses the brand. The management agreement runs the building. One hotel can have both, with two different companies. The roles are laid out at [What is the difference between a hotel owner, a franchisor and a management company?](/hotel-industry/owner-franchisor-management-company). #### How much is the base management fee? The base management fee is a percentage of the hotel's revenue, and the ranges public owners disclosed for fiscal 2025 sit between 1 and 4 percent. Host says its brand managers typically receive a base management fee that in most instances is a percentage, generally 2 to 3 percent, of annual gross revenues.[1] Pebblebrook says its agreements generally provide for base fees between 1 percent and 4 percent of the hotel's revenues, or a fixed amount.[3] RLJ Lodging Trust says each management company receives a base fee between 1.5 percent and 3.5 percent of hotel revenues. RLJ adds a second range that is easy to misread: agreements that include the benefits of a franchise agreement carry a base fee between 1.0 percent and 7.0 percent, because a brand that manages the hotel folds the franchise charge into the management fee.[4] The base is not always total revenue. Chatham Lodging Trust says its base management fees are calculated as a percentage of the hotel's gross room revenue.[5] Summit Hotel Properties says its base fee is generally a percentage of total lodging property revenues, and that in some cases there are also monthly fees for accounting and shared services based on the number of guestrooms.[6] Apple Hospitality likewise says its management fees generally include accounting fees and other fees for centralized services.[2] When you compare two proposals, compare the base and the add-ons together. No third-party management company publishes its fee schedule. These ranges are what six public owners chose to disclose, and a single-hotel owner should not assume the same terms are on offer. #### How does the incentive management fee work? The incentive management fee pays the operator a share of the hotel's profit, but only after the owner has first received a stated return on its investment. Host describes the incentive fee as typically a percentage, generally 10 to 20 percent, of operating profit after the owner has received a priority return on its investment in the hotel.[1] Pebblebrook gives a similar figure: generally 10 to 20 percent of net operating income above a specified return on project costs, or above set income thresholds, and it notes that some of its incentive fees are subject to a limit.[3] Chatham's formula is 10 percent of the hotel's net operating income less fixed costs, base management fees and a specified return threshold, capped at 1 percent of gross hotel revenues.[5] The owner's priority return is the number to negotiate. Host explains that when it puts more money into a hotel, many of its agreements treat that funding as an increase to its investment, which raises the owner's priority and reduces the profit available for incentive fees.[1] In plain terms, the hurdle should move up when the owner writes a check for a renovation. In practice the incentive fee is often small. Chatham paid $9.9 million of management, revenue management and accounting fees in 2025, and only $0.1 million of that was incentive fees.[5] Host reported that base fees rose $6 million and incentive fees rose $2 million within total management fees of $262 million.[1] #### Is there a fee structure other than base plus incentive? Yes. Apple Hospitality REIT uses a single variable fee for most of its hotels, which moves within a band according to how the hotel performs. Apple Hospitality says that as of December 31, 2025, approximately 81 percent of its 217 hotels operated under a variable management fee agreement with an average initial term of approximately one to two years. Under that structure the fee earned for each hotel is generally within a range of 2.5 percent to 3.5 percent of gross revenues, and the performance measures are based on financial and quality metrics. The company says it believes this aligns the manager's incentives better than a base-plus-incentive structure, which it describes as more common throughout the industry.[2] The short term matters as much as the fee. Apple Hospitality used 16 management companies at year-end and says it moved nine hotels to different managers during 2025.[2] An owner with a one-year contract can replace an operator without paying to do it. #### How long do hotel management agreements last? Brand-managed agreements commonly run for decades, while agreements with independent third-party managers are far shorter, sometimes month to month. Host says the initial term of its management and operating agreements with brand owners ranges from 10 to 50 years, with renewal terms typically exercisable at the option of the manager, and that certain agreements condition renewal on meeting economic performance criteria. It says its agreements with independent managers typically have shorter initial terms, no renewal rights and more flexible termination rights.[1] The select-service REITs show the short end. Apple Hospitality says its management agreements generally provide for initial terms of one to 30 years.[2] Summit says the remaining terms of its agreements range from month-to-month to eight years.[6] Chatham's agreements with its manager have an initial term of five years and renew automatically for two five-year periods unless the manager gives notice.[5] Pebblebrook says remaining terms are up to eight years without renewals and up to 27 years with them.[3] #### Can I terminate the management agreement when I sell the hotel? Only if the contract says so, because the right to terminate on a sale is negotiated when the agreement is signed. Host states the default for a brand-managed hotel: it is generally limited in its ability to sell unless the buyer assumes the management agreement and meets other conditions, including that the buyer is not a competitor of the manager. Host has negotiated special termination rights at certain hotels, and it explains why: brand affiliation may increase a hotel's value, but the ability to sell a property unencumbered by a management agreement can also increase the value for prospective purchasers.[1] The other REITs disclose what leaving costs. Pebblebrook says the majority of its agreements are terminable at will, some require a termination fee, some are terminable on a sale, and termination fees range from zero to up to three times the annual base and incentive management fees.[3] RLJ says certain agreements let it terminate on a sale or for any reason on payment of a stipulated fee, and that if a manager terminates because of an owner default it may recover 2.5 times the prior fiscal year's base and incentive fees as liquidated damages.[4] Chatham can terminate on the sale of any hotel for no fee with six months' advance notice.[5] Summit recorded a termination fee of approximately $0.9 million in 2025 for moving hotels between managers.[6] Most agreements also have a performance test. Host says its rights typically arise when the manager fails both a threshold return on the owner's investment and a RevPAR test against competing hotels over two consecutive years, and that the manager can usually cure by paying the shortfall.[1] How an encumbered hotel changes the buyer pool is covered at [What do buyers look for when buying a hotel?](/sell-a-hotel/what-buyers-look-for). #### What approval rights does the owner keep? The owner typically keeps approval over the annual budget, capital spending and major contracts, and sometimes over the hiring of the hotel's senior staff. Host says it has certain approval rights over budgets, capital expenditures, significant leases and contractual commitments. Its managers prepare an annual budget for furniture, fixtures and equipment and routine repairs, subject to Host's review and approval, and a specified percentage of gross revenues, typically 4 to 5 percent, is deposited into a reserve account in the owner's name to pay for it.[1] Pebblebrook says it keeps approval rights over capital investments as part of the annual budget process, and that under certain agreements it approves the hiring of key executive management at the hotel.[3] A franchised hotel has a third party at the table. Hilton's 2026 Hampton franchise disclosure document says the hotel must be operated by the franchisee or by a management company Hilton has approved, and that Hilton may refuse a manager it considers inexperienced or unqualified.[7] A first-time owner usually satisfies the brand by hiring an approved manager, which is covered at [How do I buy my first hotel with no hotel experience?](/buy-a-hotel/first-hotel-no-experience). Read the agreement with a hospitality attorney before you sign it. This page explains public filings and is not legal advice. #### Why do lenders and buyers care about my management agreement? Lenders and buyers care because the management fee comes off the top of the income they are valuing, and because the contract decides whether a new owner can bring its own operator. The Uniform System of Accounts for the Lodging Industry puts management fees on their own schedule, base and incentive, below gross operating profit and above non-operating expenses such as property taxes and insurance.[9] A buyer or lender who sees a statement with no management fee will add one back before capitalizing the income, which is why an owner-operated hotel's broker opinion of value usually shows a lower income figure than the owner's own statement. The method is at [Walk me through the math on valuing a select-service hotel](/hotel-valuation/how-to-value-a-hotel). Public REITs cannot avoid the fee. The tax code lets a REIT lease a hotel to its taxable subsidiary only if an eligible independent contractor operates it, so every hotel REIT pays an outside manager.[8] A private owner has the choice, but the debt market does not give credit for it. As of September 30, 2026, the 10-year Treasury is 5.29 percent and SOFR is 3.90 percent, and lenders do not publish the spreads or coverage tests they apply on top.[10] Financing starts at [How does hotel financing work, and what does it cost right now?](/hotel-financing), and a sale starts at [What is involved in selling a hotel?](/sell-a-hotel). Table: Hotel management agreement terms as six public hotel owners disclosed them in fiscal 2025 Form 10-K filings (read September 18, 2026). Fees as a share of revenue are our arithmetic. Owner (hotels) | Base fee as disclosed | Incentive fee as disclosed | Term as disclosed | Termination as disclosed | 2025 management fees, and share of total revenue Host Hotels & Resorts (76) | Generally 2% to 3% of annual gross revenues[1] | Generally 10% to 20% of operating profit after the owner's priority return[1] | Initial 10 to 50 years with brand managers[1] | Sale generally requires the buyer to assume the agreement. Negotiated special rights at certain hotels[1] | $262 million, about 4.4% of hotel revenue[1] Apple Hospitality REIT (217) | Variable fee generally 2.5% to 3.5% of gross revenues at about 81% of hotels[2] | At the remaining hotels, a percentage of operating profit above a priority return[2] | Initial one to 30 years. Variable-fee contracts average one to two years[2] | Performance failure, default, on sale of the property, or without cause[2] | $47.1 million, 3.3%[2] Pebblebrook Hotel Trust | Generally 1% to 4% of hotel revenues, or a fixed amount[3] | Generally 10% to 20% of net operating income above a return hurdle. Some are capped[3] | Up to eight years remaining, up to 27 with renewals[3] | Majority at will. Fees from zero to three times annual base and incentive fees[3] | $39.8 million, 2.7%[3] RLJ Lodging Trust (93) | 1.5% to 3.5% of hotel revenues. 1.0% to 7.0% where the fee includes franchise benefits[4] | A percentage of net operating income after a priority return[4] | Not stated as a single range | Performance tests. Some on sale or for any reason for a stipulated fee[4] | $39.0 million, 2.9%[4] Chatham Lodging Trust (33) | A percentage of gross room revenue. Percentage not stated[5] | 10% of net operating income above a threshold, capped at 1% of gross hotel revenues[5] | Five years, then two automatic five-year renewals[5] | On sale with no fee and six months' notice. For cause on performance[5] | $9.9 million including revenue management and accounting fees, 3.4%[5] Summit Hotel Properties | Generally a percentage of total revenues. Percentage not stated[6] | Hotel-level EBITDA above a required investment return[6] | Month-to-month to eight years remaining[6] | Recorded a $0.9 million termination fee in 2025 on manager transitions[6] | $15.8 million, 2.2%[6] First-party data point: Matthews Hotel Markets' October 2026 rate sheet records the 10-year Treasury at 5.29% and SOFR at 3.90% on September 30, 2026, and records that no lender type publishes its coverage floor, so a management fee of 2 to 4 percent of revenue is one of the few fixed numbers a lender can underwrite ahead of debt service.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a base fee and an incentive fee on a 150-room hotel, using percentages inside the ranges Host disclosed): Hypothetical. The hotel, its revenue and the owner's investment are invented. The percentages are chosen from inside the ranges Host Hotels & Resorts disclosed, and a real contract will define every term differently. The hotel: $12,000,000 of total revenue and $3,600,000 of operating profit before management fees. The owner has $30,000,000 invested. Base fee: 3 percent of gross revenues, the top of Host's disclosed 2 to 3 percent range,[1] is $360,000. It is owed whether or not the hotel makes money. Owner's priority: suppose the contract sets the owner's priority return at 10 percent of its investment, which is $3,000,000. That 10 percent is our assumption for the example. No filing on this page states the priority percentage. Profit available for the incentive fee: $3,600,000 less the $360,000 base fee is $3,240,000. Less the $3,000,000 owner's priority, $240,000 remains. Incentive fee: 15 percent, the middle of Host's disclosed 10 to 20 percent range,[1] is $36,000. Total: $396,000, or 3.3 percent of revenue. The incentive fee is a tenth of the base fee here, which is consistent with what Chatham reported for 2025: $0.1 million of incentive fees inside $9.9 million of total fees.[5] Now put $2,000,000 into a renovation. If the contract adds owner funding to the investment base, as Host says many of its agreements do,[1] the priority rises to $3,200,000 and the incentive fee falls to $6,000 until profit grows. If the contract does not say that, the operator shares in the lift from money it did not put up. FAQ: - Q: What is a typical hotel management fee? A: There is no published industry schedule. In fiscal 2025 10-K filings, Host disclosed base fees of generally 2 to 3 percent of gross revenues, Pebblebrook 1 to 4 percent, RLJ 1.5 to 3.5 percent and Apple Hospitality 2.5 to 3.5 percent under variable-fee contracts.[1][3][4][2] - Q: What is an incentive management fee? A: A share of hotel profit paid to the operator after the owner receives a priority return. Host and Pebblebrook both describe it as generally 10 to 20 percent of profit above that hurdle.[1][3] Chatham caps its version at 1 percent of gross hotel revenues.[5] - Q: What is an owner's priority return? A: The return on the owner's investment that must be met before any incentive fee is paid. Host says added owner funding often increases the investment base, which raises the priority and reduces the profit available for incentive fees.[1] - Q: Can I fire my hotel management company? A: It depends on the contract. Pebblebrook says most of its agreements are terminable at will, with fees from zero to three times annual fees.[3] Host's brand-managed agreements typically allow termination only on a two-year performance failure that the manager can cure by paying the shortfall.[1] - Q: Does a management agreement transfer to the buyer when I sell? A: Under many brand-managed contracts, yes: Host says a sale generally requires the buyer to assume the agreement.[1] Other contracts end on a sale. Chatham's terminate with no fee on six months' notice.[5] Check the sale clause before you list. - Q: How long is a hotel management contract? A: Host's brand-managed agreements start at 10 to 50 years, with renewals at the manager's option.[1] Third-party contracts are shorter: Apple Hospitality's variable-fee agreements average one to two years, and Summit's remaining terms run from month-to-month to eight years.[2][6] - Q: Is the management fee charged on rooms revenue or total revenue? A: Either. Host, Pebblebrook, RLJ and Summit describe base fees on gross or total hotel revenues.[1][3][4][6] Chatham's base fee is a percentage of gross room revenue.[5] Franchise fees, by contrast, are usually charged on rooms revenue. - Q: Do I have to hire a management company for a franchised hotel? A: No, but the brand must approve whoever operates it. Hilton's 2026 Hampton disclosure says the hotel must be operated by the franchisee or an approved management company, and Hilton may refuse an operator it considers unqualified.[7] Sources: - [1] Host Hotels & Resorts, Inc. Form 10-K for fiscal year 2025 (filed February 25, 2026): Item 1, management agreements; Item 7, results of operations and comparable hotel data (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1070750/000107075026000054/hst-20251231.htm - [2] Apple Hospitality REIT, Inc. Form 10-K for fiscal year 2025 (filed February 23, 2026): Item 1, hotel operating agreements; Item 7, results of operations; note on management and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1418121/000119312526064008/aple-20251231.htm - [3] Pebblebrook Hotel Trust Form 10-K for fiscal year 2025 (filed February 25, 2026): Item 2, management agreements; commitments note (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1474098/000147409826000015/peb-20251231.htm - [4] RLJ Lodging Trust Form 10-K for fiscal year 2025 (filed February 27, 2026): Our Hotel Properties, management agreements and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1511337/000151133726000007/rlj-20251231.htm - [5] Chatham Lodging Trust Form 10-K for fiscal year 2025 (filed February 27, 2026): hotel management agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1476045/000143774926006103/cldt20251231_10k.htm - [6] Summit Hotel Properties, Inc. Form 10-K for fiscal year 2025 (filed February 25, 2026): management agreements note and consolidated statements of operations (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1497645/000149764526000015/inn-20251231.htm - [7] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): Items 6, 7, 15 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [8] 26 U.S.C. Section 856(d)(8) and (d)(9): qualified lodging facilities and eligible independent contractors (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/856 - [9] USALI P&L structure (Summary Operating Statement): a practical guide (February 23, 2026) (Hospitality Finance Network, accessed 2026-09-18): https://hospitalityfinancenetwork.com/usali-pl-structure-summary-operating-statement-a-practical-guide/ - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### What does it cost to operate a hotel? URL: https://matthewshotelmarkets.com/hotel-industry/hotel-operating-costs Last updated: 2026-10-07 Running a hotel took 66 to 71 cents of every revenue dollar at two public owners in 2025, before debt service, by our arithmetic. Apple Hospitality REIT reported hotel operating expense of 60.0 percent of revenue plus 6.4 percent for property taxes, insurance and other.[2] Host Hotels & Resorts' 10-K, filed February 25, 2026, says wages and benefits are about 58 percent of departmental and support expenses.[1] Key takeaways: - Labor is the largest cost. Host says wages and benefits were about 67 percent of its 2025 rooms expenses, 69 percent of food and beverage expenses and 42 percent of other departmental and support expenses.[1] - Hotel pay, per the Bureau of Labor Statistics: average hourly earnings of $24.74 for all accommodation employees in July 2026, a preliminary figure, and a 2025 median of $16.78 an hour for maids and housekeeping cleaners.[3] - Brand fees come off rooms revenue. Hilton's 2026 Hampton disclosure lists a 6 percent royalty and a 4 percent program fee. RLJ Lodging Trust reports royalties of 2 to 6 percent plus 1.0 to 4.3 percent for marketing and reservations.[6][7] - Property taxes and insurance do not fall when occupancy falls. Apple Hospitality's line for them rose from 5.9 percent of revenue in 2024 to 6.4 percent in 2025.[2] - Costs have outrun rates. AHLA reported on January 27, 2026 that the industry paid nearly $128 billion in wages and benefits in 2025 and that gross operating profit per available room was roughly 90 percent of its 2019 level.[4] #### What are the main categories of hotel operating costs? Hotel operating costs fall into four groups under the Uniform System of Accounts for the Lodging Industry: departmental expenses, undistributed operating expenses, management fees, and non-operating expenses such as property taxes and insurance. Departmental expenses belong to a revenue department: rooms, food and beverage, and other operated departments. Undistributed operating expenses serve the whole building and sit on five schedules: administrative and general, information and telecommunications systems, sales and marketing, property operations and maintenance, and energy, water and waste. Management fees, base and incentive, have their own schedule. Rent, property and other taxes, and insurance are non-operating expenses. Operators often show a final line of EBITDA less a replacement reserve.[5] Public owners compress those schedules into fewer lines. Host reports rooms, food and beverage, other departmental and support expenses, management fees and other property-level expenses.[1] Apple Hospitality reports operating, hotel administrative, sales and marketing, utilities, repair and maintenance, franchise fees and management fees, then property taxes, insurance and other.[2] The line-by-line Apple Hospitality table is at [How do hotels make money?](/hotel-industry/how-hotels-make-money). This page is about what drives the lines. #### Which hotel costs rise and fall with occupancy, and which do not? Rooms and food and beverage costs move with occupancy and sales, while property taxes, insurance, much of the salaried payroll and debt service stay the same whether the hotel is full or empty. Host's 10-K lays out the split. Rooms expenses are affected mainly by occupancy, which drives housekeeping, reservation systems, room supplies, laundry and front desk costs. Food and beverage expenses correlate closely with food and beverage revenues. Other property-level expenses, which Host defines as primarily real and personal property taxes, ground rent, equipment rent and property insurance, are relatively inflexible and do not necessarily change with revenues.[1] Both companies warn investors about what that means in a downturn. Host says debt-service payments, property taxes, insurance, utilities and employee wages and benefits are relatively inflexible, and that in a significant decrease in demand its managers may not be able to reduce the size of hotel work forces.[1] Apple Hospitality says certain personnel costs, interest expense, ground leases, property taxes, insurance and utilities are relatively fixed and generally do not decrease when hotel revenues decrease.[2] That is operating leverage in the plain sense: a 10 percent drop in revenue takes more than 10 percent out of profit. It is also why lenders stress-test a hotel's income, which you can do yourself with the [hotel DSCR calculator](/tools/dscr-calculator). In a handful of cities the energy line carries a legal duty as well as a bill, and a penalty for missing it: [Does my hotel have to report energy use or cut its carbon emissions?](/hotel-industry/energy-benchmarking-and-emissions-limits). #### How much of a hotel's cost is labor? Labor is the largest hotel operating cost, and Host Hotels & Resorts puts wages and benefits at approximately 58 percent of its rooms, food and beverage, and other departmental and support expenses. Host notes that wage and benefit costs are spread among several line items, which is why no single payroll line appears on its statement. By department, wages and benefits were approximately 67 percent of its 2025 rooms expenses, 69 percent of food and beverage expenses and 42 percent of other departmental and support expenses. Those expenses rose approximately 5 percent per available room in 2025, which Host attributes primarily to an overall increase in general wage rates and benefits.[1] Apple Hospitality does not publish a labor percentage. It says its 2025 increase in hotel operating expense was primarily driven by increased labor costs, utility costs and repair and maintenance costs, that it continues to feel upward pressure on total payroll costs, that the rate of wage growth has slowed, and that its management companies have made progress in reducing their use of contract labor.[2] At the industry level, AHLA's State of the Industry release of January 27, 2026 says hotels paid nearly $128 billion in wages and benefits in 2025 and projects the figure will approach $131 billion in 2026.[4] No public source we read gives a national labor cost per occupied room, so this page does not print one. #### What do hotel employees earn, according to the Bureau of Labor Statistics? The Bureau of Labor Statistics reports average hourly earnings of $24.74 for all employees in accommodation, NAICS 721, for July 2026, a preliminary figure, and $21.94 for production and nonsupervisory employees.[3] The same page reports average weekly hours of 31.1 for all accommodation employees in July 2026, also preliminary. Accommodation covers hotels and motels plus RV parks, camps and rooming houses.[3] By occupation, the 2025 Occupational Employment and Wage Statistics figures for the industry are in the table below. Maids and housekeeping cleaners are the largest occupation, with 420,800 jobs at a median of $16.78 an hour. Hotel, motel and resort desk clerks number 247,700 at a median of $16.82. Lodging managers number 38,100 at a median of $32.27 an hour, or $67,110 a year.[3] These are wages, not the cost of an employee. Payroll taxes, workers' compensation, health coverage and paid time off sit on top, and the Bureau's industry page does not state that load for accommodation. National medians also hide the local market: a housekeeper's wage in a resort town and in a small interstate market are different numbers, and a buyer should underwrite the local one. In a few California cities the floor is not a market question at all, because the city sets a hotel-only minimum wage by ordinance. Those rates and what each step does to value are at [What is the hotel worker minimum wage, and what does it do to my hotel's value?](/hotel-industry/hotel-worker-minimum-wage). #### How much do franchise and management fees add to operating costs? Franchise fees are charged on rooms revenue and management fees mostly on total revenue, and together they took 7.6 to 7.7 percent of total revenue in 2025 at two REITs that report the two lines separately, by our arithmetic. Hilton's 2026 Hampton franchise disclosure document, issued March 30, 2026, lists a monthly royalty of 6 percent of gross rooms revenue and a monthly program fee of 4 percent.[6] RLJ Lodging Trust, which owns 93 hotels under many flags, reports a range: royalties between 2.0 and 6.0 percent of room revenue, plus 1.0 to 4.3 percent of room revenue for marketing, central reservation systems and other franchisor costs, and for certain hotels 1.5 to 3.0 percent of food and beverage revenue.[7] In dollars, RLJ incurred $63.8 million of franchise fees and $39.0 million of management fees in 2025 against $1,349.9 million of total revenue, which is 4.7 percent and 2.9 percent by our arithmetic.[7] Apple Hospitality incurred $62.6 million of franchise royalty fees and $47.1 million of management fees against $1,412.4 million, which is 4.4 percent and 3.3 percent.[2] Brand charges such as loyalty program and reservation fees can also sit in other lines, so treat those shares as the size of the named line, not the full cost of a flag. Brand-by-brand schedules are at [How much does a hotel franchise cost?](/hotel-franchise-costs), and management contracts are at [How do hotel management agreements work, and what do they cost?](/hotel-industry/hotel-management-agreements). #### Are property taxes and insurance fixed costs for a hotel? Yes. Property taxes and insurance are fixed charges that are set by an assessor and an insurance market, not by how many rooms the hotel sold. Apple Hospitality's property taxes, insurance and other expense was $89.7 million in 2025, or 6.4 percent of total revenue, up from $84.4 million and 5.9 percent in 2024. The company attributes the increase primarily to higher property taxes in certain markets and higher liability insurance premiums, partially offset by lower property insurance premiums, and says it will continue to pursue tax assessment appeals in certain jurisdictions.[2] Host's other property-level expenses, which include property taxes, insurance, ground rent and equipment rent, were $426 million in 2025, about 7.1 percent of its hotel revenue by our arithmetic.[1] Insurance is the less predictable of the two. Host says certain costs, such as wages, benefits and insurance, may exceed the rate of inflation in any given period, and that its property policies carry per-occurrence limits and sub-limits that apply across every hotel hit by the same storm.[1] A sale can also prompt a reassessment, depending on the state, so a buyer should underwrite the taxes it expects to pay and not only the taxes the seller paid. How an assessment is challenged is explained at [How do I appeal my hotel's property tax assessment?](/hotel-valuation/property-tax-appeal). #### What is left after operating costs, and what still has to come out of it? About a third of revenue was left at the select-service REITs' hotels in 2025, and a replacement reserve, debt service and income taxes still come out of that third. Apple Hospitality's comparable hotels adjusted hotel EBITDA margin was 34.3 percent for 2025.[10] Summit Hotel Properties, another select-service owner, reported a pro forma hotel EBITDA margin of 33.4 percent for 2025, down from 35.7 percent in 2024.[8] Host, with large food and beverage operations, reported a comparable hotel EBITDA margin of 28.9 percent, down 40 basis points, and said operational improvements were offset by the increase in wages expense.[1] The replacement reserve is the next deduction. Host says a specified percentage of gross revenues, typically 4 to 5 percent, is deposited into a reserve account for furniture, fixtures and equipment.[1] Apple Hospitality says its restricted cash includes reserves for furniture, fixtures and equipment of up to 5 percent of property revenue at certain hotels, as required by management or mortgage agreements.[2] See [FF&E reserve](/glossary/ffe-reserve). Debt service comes after that. As of September 30, 2026, the 10-year Treasury is 5.29 percent and the maximum SBA 7(a) rate is 10.00 percent, and lenders do not publish their spreads or coverage floors.[9] The income that remains is what a buyer capitalizes, which is covered at [What is my hotel worth, and who decides?](/hotel-valuation). Owners comparing a refinance with a sale can start at [How does hotel financing work, and what does it cost right now?](/hotel-financing) or [What is involved in selling a hotel?](/sell-a-hotel). Table: Two views of hotel operating cost. Top: Host Hotels & Resorts' 2025 property-level expenses, with the wage share Host disclosed and each line's share of hotel revenue (our arithmetic on $6,015 million of rooms, food and beverage and other revenue). Bottom: Bureau of Labor Statistics wages for accommodation, NAICS 721. Line or occupation | Reported figure | Second measure | Source Host: rooms expense | $906 million | 15.1% of hotel revenue. Wages and benefits about 67% of the line | Host 10-K, fiscal 2025[1] Host: food and beverage expense | $1,224 million | 20.3% of hotel revenue. Wages and benefits about 69% of the line | Host 10-K, fiscal 2025[1] Host: other departmental and support expenses | $1,466 million | 24.4% of hotel revenue. Wages and benefits about 42% of the line | Host 10-K, fiscal 2025[1] Host: management fees | $262 million | 4.4% of hotel revenue | Host 10-K, fiscal 2025[1] Host: other property-level expenses (property taxes, insurance, ground and equipment rent) | $426 million | 7.1% of hotel revenue | Host 10-K, fiscal 2025[1] Host: total of the five lines, before depreciation | $4,284 million (our sum) | 71.2% of hotel revenue | Host 10-K, fiscal 2025[1] Apple Hospitality: hotel operating expense | $847.3 million | 60.0% of total revenue, as reported | Apple Hospitality 10-K, fiscal 2025[2] Apple Hospitality: property taxes, insurance and other | $89.7 million | 6.4% of total revenue, as reported | Apple Hospitality 10-K, fiscal 2025[2] All accommodation employees | $24.74 average hourly earnings, July 2026 (preliminary) | 31.1 average weekly hours | BLS Current Employment Statistics[3] Production and nonsupervisory employees | $21.94 average hourly earnings, July 2026 (preliminary) | 30.3 average weekly hours | BLS Current Employment Statistics[3] Maids and housekeeping cleaners | $16.78 median hourly wage, 2025 | 420,800 jobs in accommodation | BLS Occupational Employment and Wage Statistics[3] Hotel, motel and resort desk clerks | $16.82 median hourly wage, 2025 | 247,700 jobs in accommodation | BLS Occupational Employment and Wage Statistics[3] Lodging managers | $32.27 median hourly wage, 2025 ($67,110 a year) | 38,100 jobs in accommodation | BLS Occupational Employment and Wage Statistics[3] First-party data point: Matthews Hotel Markets' October 2026 rate sheet puts the cost that comes after operating costs in context: the 10-year Treasury at 5.29% and the SBA 7(a) maximum at 10.00% on September 30, 2026, against a hotel-level margin of roughly a third of revenue at the select-service REITs.[9][10][8] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what a one-dollar wage increase costs a 100-room hotel, using BLS hours and an assumed staffing level): Hypothetical. The staffing level is our assumption for the arithmetic, not a published benchmark, and your hotel's will differ. The hours and wage are Bureau of Labor Statistics figures for accommodation. Staff: assume 25 hourly employees. Hours: the Bureau reports average weekly hours of 31.1 for accommodation employees in July 2026, preliminary.[3] Twenty-five employees times 31.1 hours times 52 weeks is 40,430 paid hours a year. Wage base: at the Bureau's $24.74 average hourly earnings for all accommodation employees,[3] those hours cost $1,000,238 a year before payroll taxes and benefits. A one-dollar raise: 40,430 hours times $1.00 is $40,430 a year, again before payroll taxes and benefits. What that does to value: a buyer who capitalizes income at 8 percent, a rate we chose for round arithmetic, would pay $505,375 less for the same hotel, because $40,430 divided by 0.08 is $505,375. You can change the rate at the [hotel cap rate calculator](/tools/cap-rate-calculator). What that does to debt: $40,430 less income is $40,430 less available for debt service every year. Lenders do not publish their coverage floors,[9] but whatever the floor is, the loan it supports shrinks with the income. The point of the exercise is the multiplier. Host reported that its wage-driven expenses rose about 5 percent per available room in 2025.[1] A cost increase that small on the statement becomes a six-figure change in price. FAQ: - Q: What is the biggest expense in running a hotel? A: Labor. Host Hotels & Resorts says wages and benefits are approximately 58 percent of its rooms, food and beverage, and other departmental and support expenses, and about 67 percent of rooms expenses alone.[1] - Q: What percentage of hotel revenue goes to operating expenses? A: It varies by hotel type. For 2025, Apple Hospitality reported hotel operating expense of 60.0 percent of revenue plus 6.4 percent for property taxes, insurance and other.[2] Host's property-level expenses before depreciation were about 71 percent of hotel revenue by our arithmetic.[1] - Q: How much do hotel housekeepers make? A: The Bureau of Labor Statistics reports a 2025 median of $16.78 an hour, or $34,900 a year, for maids and housekeeping cleaners in accommodation, with 420,800 jobs in the industry.[3] Local wages differ widely from the national median. - Q: What is the average hourly wage in the hotel industry? A: Average hourly earnings for all employees in accommodation were $24.74 in July 2026, a preliminary figure, and $21.94 for production and nonsupervisory employees, according to the Bureau of Labor Statistics.[3] - Q: Are hotel franchise fees an operating expense? A: Yes. They are paid monthly out of revenue. Hilton's 2026 Hampton disclosure lists a 6 percent royalty and a 4 percent program fee on gross rooms revenue.[6] RLJ Lodging Trust's franchise fees were $63.8 million in 2025, 4.7 percent of its total revenue by our arithmetic.[7] - Q: Why are my hotel's costs rising faster than my revenue? A: You are not alone. AHLA reported in January 2026 that rising operating expenses kept gross operating profit per available room at roughly 90 percent of 2019 levels.[4] Summit Hotel Properties' hotel EBITDA margin fell from 35.7 percent in 2024 to 33.4 percent in 2025.[8] - Q: How much should a hotel set aside for FF&E? A: Host says its management agreements typically require 4 to 5 percent of gross revenues to be deposited in a reserve for furniture, fixtures and equipment.[1] Apple Hospitality reports reserves of up to 5 percent of property revenue at certain hotels.[2] - Q: Do hotel operating costs include the mortgage? A: No. Operating costs stop above debt service. Interest and principal are paid from what is left after operating costs, fees, property taxes, insurance and a replacement reserve, which is why lenders test that remaining income against the loan payment.[5][9] Sources: - [1] Host Hotels & Resorts, Inc. Form 10-K for fiscal year 2025 (filed February 25, 2026): Item 1, management agreements; Item 7, results of operations and comparable hotel data (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1070750/000107075026000054/hst-20251231.htm - [2] Apple Hospitality REIT, Inc. Form 10-K for fiscal year 2025 (filed February 23, 2026): Item 1, hotel operating agreements; Item 7, results of operations; note on management and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1418121/000119312526064008/aple-20251231.htm - [3] Industries at a Glance: Accommodation, NAICS 721 (data extracted September 18, 2026) (U.S. Bureau of Labor Statistics, accessed 2026-09-18): https://www.bls.gov/iag/tgs/iag721.htm - [4] AHLA releases 2026 State of the Industry (January 27, 2026) (American Hotel & Lodging Association, accessed 2026-09-18): https://www.ahla.com/news/ahla-releases-2026-state-industry - [5] USALI P&L structure (Summary Operating Statement): a practical guide (February 23, 2026) (Hospitality Finance Network, accessed 2026-09-18): https://hospitalityfinancenetwork.com/usali-pl-structure-summary-operating-statement-a-practical-guide/ - [6] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): Items 6, 7, 15 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [7] RLJ Lodging Trust Form 10-K for fiscal year 2025 (filed February 27, 2026): Our Hotel Properties, management agreements and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1511337/000151133726000007/rlj-20251231.htm - [8] Summit Hotel Properties Reports Fourth Quarter and Full Year 2025 Results (February 25, 2026), Exhibit 99.1 to Form 8-K (Summit Hotel Properties, Inc., via SEC EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1497645/000149764526000017/exhibit99112-31x2025.htm - [9] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [10] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx ### What is an extended-stay hotel, and why do investors like them? URL: https://matthewshotelmarkets.com/hotel-industry/extended-stay-hotels Last updated: 2026-10-01 An extended-stay hotel is built for guests who stay a week or more: every room has a kitchen, and housekeeping is weekly, not daily. Hilton counts a stay of 5 or more consecutive nights as extended. Its Home2 Suites disclosure, issued March 30, 2026, reports 78.0 percent occupancy for 2025, against 71.0 percent for Hampton.[1][3] Key takeaways: - Hilton defines an extended-stay traveler as a guest who stays 5 or more consecutive nights. Those stays were about 42 percent of Home2 Suites room nights and about 48 percent of Homewood Suites room nights in 2025.[1][2] - Occupancy is the headline. Comparable hotels averaged 78.0 percent at Home2 Suites and 78.9 percent at Homewood Suites in 2025, against 71.0 percent at Hampton.[1][2][3] - High occupancy does not mean high RevPAR. Choice Hotels' extended-stay brands ran 69.1 percent occupancy in 2025 at a $66.10 average rate, for RevPAR of $45.67, below the $54.50 of its midscale and upper midscale brands.[4] - Developers are building them. HVS said on July 13, 2026 that extended-stay products were the most represented category in its development cost survey, led by Home2 Suites.[9] - HVS put the median cost to build limited-service and midscale extended-stay hotels at $170,000 to $197,000 per room, and upscale extended-stay at around $265,000.[9] #### What makes a hotel an extended-stay hotel? An extended-stay hotel is designed around guests who stay for many nights in a row, so every room has a kitchen, the building has guest laundry, and services such as housekeeping run on a weekly cycle. Hilton's 2026 Home2 Suites franchise disclosure document defines the customer: an extended-stay traveler is a guest who stays 5 or more consecutive nights in the same hotel, and the hotels offer studio rooms and one-bedroom suites, each with kitchen facilities.[1] Choice Hotels' fiscal 2025 10-K describes the same product at lower price points. Every WoodSpring Suites room includes a kitchen, with 24/7 laundry facilities and bi-weekly housekeeping. Everhome Suites and MainStay Suites offer fully equipped kitchens and weekly housekeeping.[4] Marriott groups its versions as longer stay brands, which it says offer amenities suggestive of the comforts of home.[6] An extended-stay hotel is still a hotel. It rents by the night, takes reservations through a brand's system and sells to one-night guests when it has rooms. That distinction matters for financing, because the Small Business Administration and local tax authorities both draw lines by length of stay. Those rules are covered at [How is extended-stay hotel financing different?](/hotel-financing/extended-stay-financing). #### What are the extended-stay hotel brands, and how do the tiers differ? Extended-stay brands run from economy to upscale, and the large brand companies each field one in nearly every tier. At the higher-priced end, Hilton's 10-K counts 559 Homewood Suites properties with 64,243 rooms at December 31, 2025, and names Residence Inn, Hyatt House, Staybridge Suites and Element as its competitors. Home2 Suites, which carries a lower average rate, had 865 properties with 95,347 rooms and competes with TownePlace Suites, Hyatt Studios and Candlewood Suites. Hilton's newest entry, LivSmart Studios, had 2 properties open.[5] Marriott reported 937 Residence Inn properties, 571 TownePlace Suites, 122 Element hotels and 4 StudioRes properties at year-end 2025.[6] Hyatt describes Hyatt House as apartment-style suites with fully equipped kitchens and Hyatt Studios as an upper-midscale extended-stay brand.[8] In the economy and midscale tiers, Choice Hotels had 284 WoodSpring Suites, 143 MainStay Suites, 115 Suburban Studios and 25 Everhome Suites in its U.S. system at December 31, 2025. WoodSpring grew by 28 hotels in the year and Everhome by 18. Choice lists Extended Stay America, MyPlace, Studio 6, ECHO Suites and LivAway as WoodSpring's principal competitors.[4] Wyndham's 10-K counts 18 ECHO Suites, 107 Hawthorn and 11 WaterWalk properties, and says 17 percent of its development pipeline is in the extended-stay segment.[7] The tiers differ in rate far more than in occupancy. Hilton's Homewood Suites averaged a $160.14 room rate in 2025.[2] Choice's four extended-stay brands together averaged $66.10.[4] #### Do extended-stay hotels run higher occupancy than other hotels? Yes, in every brand disclosure we read: Hilton's two extended-stay brands ran about seven to eight points above Hampton in 2025, and Choice's extended-stay brands ran 14 points above its midscale brands. Hilton's 2026 franchise disclosure documents, all issued March 30, 2026, report 2025 results for comparable U.S. hotels. Home2 Suites averaged 78.0 percent occupancy across 561 comparable hotels and Homewood Suites averaged 78.9 percent across 417. Hampton averaged 71.0 percent across 1,893.[1][2][3] The extended-stay guest explains the gap. Home2 Suites had about 7.1 million extended-stay nights in 2025, about 42 percent of all consumed room nights, with an average extended stay of 11.9 nights. Homewood Suites had about 6.6 million, about 48 percent, with an average of 13.1 nights.[1][2] A guest who books 12 nights fills weekends and shoulder nights that a business-transient hotel has to resell every day. Choice reports the same pattern in a lower tier. Its extended-stay brands ran 69.1 percent occupancy in 2025, against 54.9 percent for its midscale and upper midscale brands and 46.7 percent for economy.[4] These are brand averages of hotels that met each franchisor's definition of comparable. Hilton reports that Home2 Suites' share of rooms occupied by extended stays ranged from 7 percent to 87 percent across its comparable hotels,[1] so an individual hotel can look nothing like the average. RevPAR, ADR and occupancy are defined at [What are RevPAR, ADR and occupancy, and what is a good number?](/hotel-industry/revpar-adr-occupancy). #### Does higher occupancy mean an extended-stay hotel earns more? Not necessarily, because extended-stay hotels trade rate for occupancy, and in the economy tier the rate discount is larger than the occupancy gain. Choice's 2025 figures show it. Its extended-stay brands produced RevPAR of $45.67 on 69.1 percent occupancy and a $66.10 average rate. Its midscale and upper midscale brands produced $54.50 on 54.9 percent occupancy and a $99.21 rate.[4] The extended-stay hotels were fuller and still took in less room revenue per available room. In Hilton's system the comparison runs the other way. Multiplying the disclosed average rate by the disclosed average occupancy, which is our arithmetic and only an approximation of RevPAR, gives about $113 for Home2 Suites and about $126 for Homewood Suites, against about $106 for Hampton.[1][2][3] What matters to an owner is profit, not RevPAR, and this is where the public record stops. The argument for extended-stay is that a room cleaned weekly costs less to service than a room cleaned daily, and the brands do disclose the housekeeping schedules.[4] No franchise disclosure document or 10-K we read states an operating margin, a labor cost per room or a staffing count for an extended-stay brand, so this page does not publish one. Ask a seller for the trailing twelve-month statement and compare the rooms department's cost per occupied room with a transient hotel's. The cost lines are explained at [What does it cost to operate a hotel?](/hotel-industry/hotel-operating-costs). #### Why are developers and investors building extended-stay hotels? Developers are building extended-stay hotels because the brands disclose high occupancy, the buildings are comparatively cheap per room, and the brand companies are all pushing new prototypes. HVS's U.S. Hotel Development Cost Survey 2026, published July 13, 2026, says extended-stay products were again the most represented of all categories in its sample of construction budgets, led by Home2 Suites, with TownePlace Suites, Residence Inn and WoodSpring Suites among the most active brands and a meaningful number of Hyatt Studios and Hyatt House projects. Limited-service and extended-stay projects together were more than half of the sample.[9] Cost is part of it. HVS reports median development costs of $170,000 to $197,000 per room for limited-service and midscale extended-stay hotels, around $200,000 for select-service and around $265,000 for upscale extended-stay, against $467,000 for full-service.[9] Hilton's 2026 disclosure for LivSmart Studios estimates $16,299,093 to $24,047,210 for a 121-room hotel, excluding real estate, which is about $134,700 to $198,700 per room by our arithmetic.[10] Home2 Suites' estimate is $18,075,688 to $26,550,592 for 107 suites, about $168,900 to $248,100 per suite.[1] More brands and budgets are at [How much does it cost to build a hotel in 2026?](/hotel-industry/cost-to-build-a-hotel). Buyers of existing hotels are looking too. JLL's first-quarter 2026 report, as Hotel Dive summarized it on May 14, 2026, says investors are zeroing in on luxury assets as well as premium select-service and extended-stay hotels.[11] #### What do extended-stay brands charge in franchise fees? Extended-stay franchise fees are a percentage of gross rooms revenue, like any hotel franchise, and Hilton's two brands price them differently. Hilton's 2026 Home2 Suites disclosure lists a monthly royalty of 6 percent of gross rooms revenue and a monthly program fee of 3.5 percent.[1] Its Homewood Suites disclosure lists a royalty for new development or conversion of 3.5 percent in the first year of operation, 4.5 percent in the second and 5.5 percent for the rest of the term, a flat 5.5 percent on a change of ownership, and a program fee of 2.5 percent.[2] Hampton, for comparison, is 6 percent plus 4 percent.[3] Hilton says it may change the program fee, within limits the documents describe. A buyer of an existing extended-stay hotel pays the change-of-ownership schedule, not the new-development ramp. Full brand pages with application fees and improvement plan fees are at [How much does a Home2 Suites franchise cost in 2026?](/hotel-franchise-costs/home2-suites) and [How much does a Homewood Suites franchise cost in 2026?](/hotel-franchise-costs/homewood-suites). #### What are the risks specific to extended-stay hotels? The risks specific to extended-stay hotels are new supply, dependence on a few local demand sources, and rules that treat long stays differently from hotel stays. Supply comes first. The same cost advantage that attracts you attracts the developer across the street, and HVS's sample shows where new projects are concentrated.[9] Choice added 28 WoodSpring Suites and 18 Everhome Suites in a single year.[4] Before buying, check what is under construction in the submarket. Demand is the second. Long stays come from a short list of sources. Hilton's LivSmart Studios disclosure says franchisees typically solicit travel planners for those who need lodging for extended stays, such as relocation consultants and corporate and government project planners.[10] A hotel whose extended-stay share is 87 percent, the top of Home2 Suites' disclosed range, lives and dies by those accounts. One at 7 percent is an ordinary transient hotel with kitchens.[1] The third is regulatory. A stay long enough can change how occupancy tax applies and whether the property still qualifies for an SBA loan, both covered at [How is extended-stay hotel financing different?](/hotel-financing/extended-stay-financing). Tax and landlord-tenant questions are for your attorney and accountant. Financing follows the same tests as any hotel. As of September 30, 2026, the 10-year Treasury is 5.29 percent and the maximum SBA 7(a) rate is 10.00 percent, and lenders do not publish coverage floors or spreads.[12] Buyers can start at [How do I buy a hotel?](/buy-a-hotel), owners weighing a sale at [What is involved in selling a hotel?](/sell-a-hotel), and anyone pricing one at [What is my hotel worth, and who decides?](/hotel-valuation). Table: Extended-stay brands against a transient benchmark: 2025 results as each franchisor disclosed them. Hilton figures are averages for comparable U.S. hotels from franchise disclosure documents issued March 30, 2026. Choice figures are for its U.S. franchised hotels from its fiscal 2025 10-K. Per-room build cost is our arithmetic on the Item 7 total. Brand or group | Tier or competitors, as disclosed | 2025 occupancy | 2025 average rate | Extended stays (5+ nights) as a share of room nights | Royalty and program fee | Item 7 estimate to build, excluding real estate Homewood Suites by Hilton | Competes with Residence Inn, Hyatt House and Staybridge Suites[5] | 78.9%[2] | $160.14[2] | About 48%, average stay 13.1 nights[2] | 3.5% rising to 5.5%, plus 2.5%[2] | $23,757,245 to $34,728,465 for 131 suites, about $181,400 to $265,100 per suite[2] Home2 Suites by Hilton | Competes with TownePlace Suites, Hyatt Studios and Candlewood Suites[5] | 78.0%[1] | $144.47[1] | About 42%, average stay 11.9 nights[1] | 6% plus 3.5%[1] | $18,075,688 to $26,550,592 for 107 suites, about $168,900 to $248,100 per suite[1] LivSmart Studios by Hilton | Midscale extended-stay[10] | Not reported here: 2 hotels open at year-end[5] | Not reported here | Not reported here | See the disclosure document[10] | $16,299,093 to $24,047,210 for 121 rooms, about $134,700 to $198,700 per room[10] Hampton by Hilton (transient benchmark) | Competes with Courtyard, Fairfield and Holiday Inn Express[5] | 71.0%[3] | $149.08[3] | Not an extended-stay brand | 6% plus 4%[3] | $17,043,739 to $24,732,532 for 89 rooms, about $191,500 to $277,900 per room[3] Choice extended-stay brands (WoodSpring, MainStay, Suburban, Everhome) | Economy and midscale extended-stay[4] | 69.1%[4] | $66.10[4] | Not disclosed | Not read in this run | Not read in this run Choice midscale and upper midscale brands (transient benchmark) | Midscale and upper midscale[4] | 54.9%[4] | $99.21[4] | Not extended-stay brands | Not read in this run | Not read in this run First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows the debt cost an extended-stay project has to clear: the SBA 7(a) maximum at 10.00% and the 504 debenture rate at 6.54%, with the 10-year Treasury at 5.29% on September 30, 2026, and no lender type publishing its coverage floor.[12] Source: https://matthewshotelmarkets.com/rates Worked example (How to read Item 19 of an extended-stay franchise disclosure document, using Hilton's 2026 Home2 Suites filing): This is a reading guide with real figures, not a projection for any hotel. Step 1, find the sample. Item 19 of the Home2 Suites document says 731 Home2 Suites hotels were operating in the U.S. at December 31, 2025, and 561 were comparable hotels, meaning open at least a full calendar year without a change of ownership, a large capital project or a business interruption. Of the 561, 559 were managed by the franchisee or its management company.[1] The averages describe those 561, not the newest 170. Step 2, read rate and occupancy together. The average room rate was $144.47 and the median $140.77, with a range from $80.04 to $263.67. Average occupancy was 78.0 percent and the median 79.1 percent.[1] A median close to the average tells you the average is not being pulled by a few outliers. Step 3, check how many hotels beat the average. Only 226 of 559 franchisee-managed hotels, 40.4 percent, met or exceeded the average room rate, while 315, or 56.4 percent, met or exceeded average occupancy.[1] More than half of owners get the occupancy. Fewer get the rate. Step 4, read the extended-stay tables, which transient brands do not have. Extended stays were about 42 percent of consumed room nights. The average share of available rooms occupied by extended stays was 33.3 percent, with a range of 7 to 87 percent, and the average extended stay lasted 11.9 nights.[1] Step 5, read the index. The average RevPAR index was 125.1, meaning comparable Home2 Suites hotels earned about 25 percent more RevPAR than the competitive sets they chose.[1] Hampton's was 120.8.[3] Step 6, note what is missing. Item 19 reports revenue measures only. It says nothing about expenses, profit or what an owner earned, so the occupancy advantage is a starting point for underwriting and not a conclusion. FAQ: - Q: How long is an extended stay at a hotel? A: Hilton counts a completed stay of 5 or more consecutive nights as an extended stay. By that measure the average extended stay in 2025 was 11.9 nights at Home2 Suites and 13.1 nights at Homewood Suites.[1][2] - Q: What is the difference between Home2 Suites and Homewood Suites? A: Both are Hilton extended-stay brands with kitchens in every suite. Homewood is the higher-priced one: a $160.14 average rate in 2025 against $144.47 at Home2, and Hilton's build estimate is $23.8 to $34.7 million for 131 suites against $18.1 to $26.6 million for 107.[1][2] - Q: Are extended-stay hotels a good investment? A: The brands disclose higher occupancy: 78.0 percent at Home2 Suites against 71.0 percent at Hampton in 2025.[1][3] They do not disclose profit. Choice's extended-stay brands had lower RevPAR than its midscale brands, so the answer depends on the tier, the market and the price.[4] - Q: Which extended-stay brands are economy priced? A: Choice Hotels places WoodSpring Suites and Suburban Studios in the economy extended-stay category and lists Extended Stay America, MyPlace, Studio 6, ECHO Suites, LivAway and InTown Suites among their competitors.[4] ECHO Suites is Wyndham's brand, with 18 open at year-end 2025.[7] - Q: How much does it cost to build an extended-stay hotel? A: HVS's 2026 survey, published July 13, 2026, reports a median of $170,000 to $197,000 per room for limited-service and midscale extended-stay hotels and around $265,000 for upscale extended-stay.[9] Hilton estimates $18.1 to $26.6 million for a 107-suite Home2 Suites, excluding land.[1] - Q: Do extended-stay hotels clean rooms every day? A: Usually not. Choice Hotels' 10-K describes bi-weekly housekeeping at WoodSpring Suites and Suburban Studios and weekly housekeeping at Everhome Suites and MainStay Suites.[4] Less frequent cleaning is the core of the lower-cost operating model. - Q: How many Home2 Suites and Residence Inn hotels are there? A: Hilton counted 865 Home2 Suites properties with 95,347 rooms at December 31, 2025.[5] Marriott counted 937 Residence Inn properties with 115,333 rooms at year-end 2025, 889 of them in the U.S. and Canada.[6] - Q: Can I get an SBA loan for an extended-stay hotel? A: It can qualify, subject to SBA's test of how much revenue comes from short stays. The rule, its source and how lenders apply it are on our extended-stay financing page. The current SBA 7(a) maximum rate is 10.00 percent as of September 17, 2026.[12] Sources: - [1] 2026 Home2 Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Items 1, 6, 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf - [2] 2026 Homewood Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Items 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Homewood.pdf - [3] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): Items 6, 7, 15 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [4] Choice Hotels International, Inc. Form 10-K for fiscal year 2025, Item 1, Business: The Lodging Industry (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1046311/000104631126000008/chh-20251231.htm - [5] Hilton Worldwide Holdings Inc. Form 10-K for fiscal year 2025 (filed February 11, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1585689/000158568926000007/hlt-20251231.htm - [6] Marriott International, Inc. Form 10-K for fiscal year 2025 (filed February 10, 2026), Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1048286/000104828626000007/mar-20251231.htm - [7] Wyndham Hotels & Resorts, Inc. Form 10-K for fiscal year 2025, Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1722684/000172268426000007/wh-20251231.htm - [8] Hyatt Hotels Corporation Form 10-K for fiscal year 2025 (filed February 13, 2026), Item 1, Business: brand descriptions (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1468174/000146817426000007/h-20251231.htm - [9] HVS U.S. Hotel Development Cost Survey 2026 (July 13, 2026) (HVS, accessed 2026-09-18): https://www.hvs.com/article/10509-hvs-us-hotel-development-cost-survey-2026 - [10] 2026 LivSmart Studios by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 7 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-LivSmart-Studios.pdf - [11] Luxury trades drove US hotel transaction uptick in Q1: JLL (May 14, 2026) (Hotel Dive, citing JLL, accessed 2026-09-18): https://www.hoteldive.com/news/luxury-trades-drove-us-hotel-transaction-uptick-q1-jll/820221/ - [12] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How much does it cost to build a hotel in 2026? URL: https://matthewshotelmarkets.com/hotel-industry/cost-to-build-a-hotel Last updated: 2026-10-01 HVS's U.S. Hotel Development Cost Survey, published July 13, 2026, puts the median cost to develop a hotel at $213,000 per room across all the budgets it collected: $170,000 to $197,000 for limited-service and midscale extended-stay hotels, about $200,000 for select-service, $467,000 for full-service and more than $1,600,000 for luxury.[1] Key takeaways: - The HVS figures come from actual construction budgets for projects proposed or under construction during 2025. HVS says they should not be relied on to determine the cost of a specific project.[1] - Hilton's 2026 Hampton disclosure, issued March 30, 2026, estimates $17,043,739 to $24,732,532 for an 89-room Hampton Inn, excluding real estate. That is about $191,500 to $277,900 per room by our arithmetic.[2] - A conversion costs a fraction of a new build. Hilton estimates $3,251,531 to $5,906,193 to convert a 100-room hotel to Spark by Hilton.[7] - Construction costs are still rising. HVS cites the Turner Building Cost Index up 4.1 percent in 2025 and 4.8 percent over the trailing twelve months in 2026.[1] - Fewer hotels are being started than the pipeline suggests. Census put private lodging construction at a $23.3 billion annual rate in July 2026, down 9.9 percent from a year earlier.[9] #### What does it cost per room to build a hotel in 2026? The median cost to develop a hotel was $213,000 per room in HVS's 2026 survey, with a range from about $170,000 for limited-service hotels to more than $1,600,000 for luxury.[1] HVS has tracked development costs for more than four decades from the budgets it sees on its consulting assignments. The 2026 survey reports per-room costs from projects proposed or under construction during the 2025 calendar year, in six product categories. Limited-service and midscale extended-stay hotels showed median per-room costs in the $170,000 to $197,000 range. Upscale extended-stay was around $265,000 and select-service around $200,000. Full-service hotels had a median of $467,000 per room, and luxury hotels more than $1,600,000.[1] HVS attaches three cautions. First, the overall median fell slightly from its 2025 survey, and HVS says that is because limited-service and extended-stay projects were more than half of this year's sample, not because building became cheaper. Second, the survey is not meant for measuring year-to-year change. Third, development costs depend on factors unique to each project and location, so the report should not be relied on to determine the cost of an actual project or for valuation.[1] We repeat the figures as HVS published them. They are not our estimates, and Matthews Hotel Markets does not develop hotels. #### What does a brand say it costs to build one of its hotels? A franchisor has to estimate your initial investment in Item 7 of its franchise disclosure document, and Hilton's 2026 documents put a new select-service or extended-stay hotel at roughly $14 million to $37 million before land. Item 7 is a table of every cost from the application fee to opening day, each with a low and a high. Hilton's 2026 documents, all issued March 30, 2026, give these totals: $14,258,164 to $20,659,558 for a 98-room Tru by Hilton, $17,043,739 to $24,732,532 for an 89-room Hampton Inn, $19,964,850 to $29,121,080 for a 113-room Hampton Inn & Suites, $18,075,688 to $26,550,592 for a 107-suite Home2 Suites, $16,299,093 to $24,047,210 for a 121-room LivSmart Studios, $23,757,245 to $34,728,465 for a 131-suite Homewood Suites, and $25,499,320 to $37,352,033 for a 134-room Hilton Garden Inn.[5][2][3][8][4][6] Divide by the room count and the range is about $134,700 per room at the low end of LivSmart Studios to about $278,700 at the high end of Hilton Garden Inn. That division is our arithmetic, not Hilton's. Hilton does not publish a per-room figure, and its prototype sizes differ, which is why the table below shows both. These per-room results fall in the same general range as HVS's medians for similar product types, though the two sources are not built the same way.[1] The other brands' Item 7 tables are summarized on our brand pages, starting from [How much does a hotel franchise cost?](/hotel-franchise-costs). #### What is left out of a brand's Item 7 estimate? Hilton's Item 7 totals leave out the land, and they also exclude market studies, insurance and interest. Every Hilton table carries the same note in capitals: the figures do not include real estate costs, market studies, insurance or interest.[2] The Hampton document explains that the estimates do not include the cost of real property because of wide variations among geographic areas and sites, that they do not take into account local requirements such as earthquake requirements or impact fees, and that building construction costs vary greatly from region to region depending on material and labor costs.[2] Interest is a large omission at current rates. A construction loan accrues interest for the whole build, and as of September 17, 2026 the prime rate is 7.00 percent and SOFR is 3.90 percent, with no lender publishing its construction spread.[11] A budget built from Item 7 needs land, carry and a lender's required reserves added before it is a real budget. How construction debt is sized is covered at [How do I finance hotel construction in 2026?](/hotel-financing/construction-loans). Item 7 does include a contingency. Hampton's is $1,247,837 to $1,802,432, which equals 10 percent of the construction line in both columns by our arithmetic. The document defines contingencies as unanticipated construction cost overruns and other unanticipated expenses.[2] #### Where does the money go in a hotel construction budget? Most of a hotel construction budget goes to the building itself, with furniture, fixtures and equipment a distant second. In Hilton's Hampton Inn estimate, construction and leasehold improvements are $12,478,374 to $18,024,318 of the $17,043,739 to $24,732,532 total, which is about 73 percent at both ends by our arithmetic. Furniture, fixtures and equipment are $1,254,480 to $1,782,681, about 7 percent. The franchise application fee, the item people ask about first, is a rounding error next to either.[2] The Home2 Suites table has the same shape with more furniture, as you would expect from rooms with kitchens: $12,800,000 to $18,555,000 of construction, $1,910,000 to $2,770,000 of furniture, fixtures and equipment, $512,000 to $742,200 of design and engineering fees, $192,000 to $278,325 of permits and licenses, and $400,000 to $800,000 of additional funds for the opening period.[3] HVS sorts development budgets into six categories of its own and publishes per-room amounts by category in the full survey. The category exhibit in the public article is an image, so we do not transcribe it here. Read it at the source.[1] #### Is it cheaper to convert or buy an existing hotel than to build one? Yes, by the published numbers: Hilton estimates a 100-room conversion to Spark by Hilton at $3,251,531 to $5,906,193, about $32,500 to $59,100 per room by our arithmetic, against about $134,700 or more per room for the least expensive new-build prototype we read.[7][8] The Spark estimate covers renovating an existing hotel to the brand's standard and excludes the cost of buying the hotel.[7] Add a purchase price and the comparison becomes the one investors actually make: price per room for an existing hotel against cost per room to build. Public filings give real prices. Apple Hospitality REIT bought the 126-room Homewood Suites Tampa-Brandon in June 2025 for $18.8 million, approximately $149,000 per key as the company states it, and the newly constructed 260-room Motto by Hilton Nashville Downtown in December 2025 for approximately $98.2 million, or $378,000 per key. The same release shows it selling older hotels for far less: the 76-room Homewood Suites Chattanooga for approximately $8.3 million, which is about $109,000 per key by our arithmetic.[13] JLL's first-quarter 2026 report, as Hotel Dive summarized it on May 14, 2026, says both full-service and select-service assets continue to trade at discounts to replacement cost.[12] That gap is why so few projects start in some markets, and why an existing hotel's value is partly set by what it would cost to build a competitor next door. Per-room pricing is covered at [What is my hotel worth per key?](/hotel-valuation/revpar-multiples-and-per-key), and the buying process at [How do I buy a hotel?](/buy-a-hotel). An older hotel usually comes with a brand improvement plan, covered at [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). #### Are hotel construction costs still rising? Yes. The two construction cost indexes HVS cites both rose more than 4 percent in 2025 and were rising at least as fast in 2026. HVS reports that the Turner Building Cost Index rose 8.0 percent in 2022 and 6.0 percent in 2023, slowed to 3.9 percent in 2024, and then rose 4.1 percent in 2025 and 4.8 percent over the trailing twelve months in 2026. Rider Levett Bucknall's index rose 4.4 percent for both periods. HVS names tariff policy as the primary catalyst, with duties on imported metals driving the steepest material cost increases, and adds that the typical hotel development process can last three to five years, so a budget should be adjusted for inflation over that timeline.[1] A cost figure therefore has a shelf life. An estimate dated March 2026 for a hotel that opens in 2029 is a starting point. #### How many hotels are actually being built? Lodging Econometrics counted 1,081 hotel projects with 133,216 rooms under construction in the United States at the end of the second quarter of 2026, inside a total pipeline of 5,975 projects.[10] Most of the pipeline is not under construction. Lodging Econometrics' release of July 23, 2026 counts 2,147 projects scheduled to start in the next 12 months and 2,747 in early planning. Upper midscale and upscale brands lead, with 2,225 and 1,282 projects. It forecasts 661 new hotels with 74,820 rooms opening in 2026, a 1.3 percent growth rate, and 738 in 2027.[10] Spending tells a more cautious story. The Census Bureau's construction spending release of September 1, 2026 puts private lodging construction at a seasonally adjusted annual rate of $23,325 million in July 2026, down 9.9 percent from July 2025.[9] HVS says new supply grew 0.7 percent in 2025 against an average of 1.4 percent in the years immediately before 2020, and blames construction costs and the cost of debt.[1] For an owner of an existing hotel, slow supply growth is good news. It is one reason buyers pay attention to replacement cost. If you own a hotel and want to know what it would sell for against today's build costs, start at [What is my hotel worth, and who decides?](/hotel-valuation) or [What is involved in selling a hotel?](/sell-a-hotel). Table: Published 2026 estimates of what it costs to build or convert a hotel. HVS figures are medians from its survey of 2025 construction budgets, published July 13, 2026. Hilton figures are Item 7 totals from franchise disclosure documents issued March 30, 2026, and exclude real estate, market studies, insurance and interest. Per-room figures in the Hilton rows are our arithmetic. Source and product | Size in the estimate | Published total | Per room | What it excludes HVS: limited-service and midscale extended-stay | Survey median | n/a | $170,000 to $197,000[1] | See HVS's category definitions HVS: select-service | Survey median | n/a | About $200,000[1] | See HVS's category definitions HVS: upscale extended-stay | Survey median | n/a | About $265,000[1] | See HVS's category definitions HVS: full-service | Survey median | n/a | $467,000[1] | See HVS's category definitions HVS: luxury | Survey median | n/a | More than $1,600,000[1] | See HVS's category definitions HVS: all surveyed properties | Survey median | n/a | $213,000[1] | See HVS's category definitions Hilton: Tru by Hilton, new build | 98 rooms | $14,258,164 to $20,659,558[5] | About $145,500 to $210,800 | Real estate, market study, insurance, interest Hilton: LivSmart Studios, new build | 121 rooms | $16,299,093 to $24,047,210[8] | About $134,700 to $198,700 | Real estate, market study, insurance, interest Hilton: Hampton Inn, new build | 89 rooms | $17,043,739 to $24,732,532[2] | About $191,500 to $277,900 | Real estate, market study, insurance, interest Hilton: Hampton Inn & Suites, new build | 113 rooms | $19,964,850 to $29,121,080[2] | About $176,700 to $257,700 | Real estate, market study, insurance, interest Hilton: Home2 Suites, new build | 107 suites | $18,075,688 to $26,550,592[3] | About $168,900 to $248,100 | Real estate, market study, insurance, interest Hilton: Homewood Suites, new build | 131 suites | $23,757,245 to $34,728,465[4] | About $181,400 to $265,100 | Real estate, market study, insurance, interest Hilton: Hilton Garden Inn, new build | 134 rooms | $25,499,320 to $37,352,033[6] | About $190,300 to $278,700 | Real estate, market study, insurance, interest Hilton: Spark by Hilton, conversion of an existing hotel | 100 rooms | $3,251,531 to $5,906,193[7] | About $32,500 to $59,100 | The purchase of the hotel, plus the items above First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows what a construction budget has to carry that Item 7 leaves out: the prime rate at 7.00% and SOFR at 3.90% on September 30, 2026, the two benchmarks construction loans float over, with no lender publishing its spread.[11] Source: https://matthewshotelmarkets.com/rates Worked example (How to read an Item 7 table, using Hilton's 2026 Hampton franchise disclosure document): This walk-through uses the real figures for an 89-room Hampton Inn. It is a reading guide, not a budget for your site. Step 1, find the prototype. The table header says Hampton Inn, 89 rooms. A second table covers a 113-room Hampton Inn & Suites with 81 rooms and 32 studio suites.[2] If your site fits 105 rooms, neither table is your hotel. Step 2, read the big line. Construction and leasehold improvements: $12,478,374 to $18,024,318. The high end is 44 percent above the low end by our arithmetic, and the document says construction costs vary greatly from region to region.[2] The spread is the message. Step 3, add the furnishings. Furniture, fixtures and equipment: $1,254,480 to $1,782,681.[2] Step 4, check the contingency. $1,247,837 to $1,802,432, which works out to 10 percent of the construction line.[2] If your contractor's bid already uses the contingency, you do not have one. Step 5, read the total and the capitals under it. $17,043,739 to $24,732,532, and the figures do not include real estate costs, market studies, insurance or interest.[2] Step 6, do the division yourself. $17,043,739 divided by 89 rooms is about $191,500 per room. $24,732,532 divided by 89 is about $277,900. Those are our arithmetic. HVS's median for limited-service hotels, which includes this kind of product, falls in its $170,000 to $197,000 range.[1] Step 7, add what is missing. Land, a market study, builder's risk insurance, and interest on the construction loan at a floating rate over a 7.00 percent prime or a 3.90 percent SOFR as of September 30, 2026.[11] Only then compare the total with what existing hotels in the market sell for per room. If building costs more than buying, the market is telling you something. FAQ: - Q: How much does it cost to build a 100-room hotel? A: At HVS's 2026 medians, about $17 million to $20 million for a limited-service or midscale extended-stay hotel and about $47 million for a full-service hotel. That is our multiplication of HVS's per-room medians, published July 13, 2026, by 100 rooms.[1] Every site differs. - Q: How much does it cost to build a Hampton Inn? A: Hilton's 2026 franchise disclosure document, issued March 30, 2026, estimates $17,043,739 to $24,732,532 for an 89-room Hampton Inn and $19,964,850 to $29,121,080 for a 113-room Hampton Inn & Suites, excluding real estate, market studies, insurance and interest.[2] - Q: Does the cost to build a hotel include the land? A: Not in a franchise disclosure document. Hilton's Item 7 tables exclude real estate because land costs vary so widely by location.[2] Ask any other source whether its per-room figure includes land before you compare. - Q: What is the cheapest hotel brand to build? A: Among the seven Hilton documents we read, Tru by Hilton has the lowest new-build total, $14,258,164 to $20,659,558 for 98 rooms, and LivSmart Studios has the lowest per-room figure by our arithmetic, about $134,700 to $198,700.[5][8] A conversion costs far less than either.[7] - Q: How much does it cost to convert a hotel to a new brand? A: Hilton estimates $3,251,531 to $5,906,193 to convert a 100-room hotel to Spark by Hilton, not counting the purchase of the hotel.[7] Conversion cost depends on the age and condition of the building, so a brand's improvement plan for your specific hotel is the real number. - Q: Is it cheaper to buy a hotel than to build one? A: Often, per room. JLL's first-quarter 2026 report, as Hotel Dive summarized it, says full-service and select-service hotels continue to trade at discounts to replacement cost.[12] Apple Hospitality sold a 76-room Homewood Suites in 2025 for about $109,000 per key by our arithmetic.[13] - Q: How long does it take to develop a hotel? A: HVS says the typical hotel development process can last three to five years from concept to opening, and recommends adjusting any cost estimate for inflation over that period.[1] - Q: Does Matthews Hotel Markets build hotels? A: No. We arrange hotel financing, including construction loans, sell hotels, and represent buyers. The cost figures on this page are published estimates from HVS and from Hilton's franchise disclosure documents, with their dates, and none of them is ours.[1][2] Sources: - [1] HVS U.S. Hotel Development Cost Survey 2026 (July 13, 2026) (HVS, accessed 2026-09-18): https://www.hvs.com/article/10509-hvs-us-hotel-development-cost-survey-2026 - [2] 2026 Hampton Franchise Disclosure Document (issued March 30, 2026): Items 6, 7, 15 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Hampton.pdf - [3] 2026 Home2 Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Items 1, 6, 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Home2.pdf - [4] 2026 Homewood Suites by Hilton Franchise Disclosure Document (issued March 30, 2026): Items 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Homewood.pdf - [5] 2026 Tru by Hilton Franchise Disclosure Document (issued March 30, 2026): Items 7 and 19 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Tru.pdf - [6] 2026 Hilton Garden Inn Franchise Disclosure Document (issued March 30, 2026): Item 7 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-HGI.pdf - [7] 2026 Spark by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 7, 100-room conversion (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-Spark.pdf - [8] 2026 LivSmart Studios by Hilton Franchise Disclosure Document (issued March 30, 2026): Item 7 (Hilton Franchise Holding LLC, accessed 2026-09-18): https://hmd-wp.go-vip.net/wp-content/uploads/2026/03/2026-US-FDD-LivSmart-Studios.pdf - [9] Monthly Construction Spending, July 2026 (release CB26-140, September 1, 2026), Table 1: lodging (U.S. Census Bureau, accessed 2026-09-18): https://www.census.gov/construction/c30/pdf/release.pdf - [10] U.S. hotel construction pipeline, second quarter 2026 (July 23, 2026) (Lodging Econometrics, accessed 2026-09-18): https://lodgingeconometrics.com/us-hotel-construction-pipeline-q2-2026/ - [11] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [12] Luxury trades drove US hotel transaction uptick in Q1: JLL (May 14, 2026) (Hotel Dive, citing JLL, accessed 2026-09-18): https://www.hoteldive.com/news/luxury-trades-drove-us-hotel-transaction-uptick-q1-jll/820221/ - [13] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx ### Who buys hotels in the United States? URL: https://matthewshotelmarkets.com/hotel-industry/who-buys-hotels Last updated: 2026-10-01 Five kinds of buyer: owner-operators, private equity funds, REITs, family offices and wealthy individuals, and 1031 exchange buyers. JLL reported on January 30, 2026 that U.S. hotel transaction volume rose 17.5 percent to $24 billion in 2025, and its first-quarter 2026 report put private equity at 34 percent of transactions.[1][2] Key takeaways: - U.S. hotel transaction volume was $24 billion in 2025, up 17.5 percent, and $5.6 billion in the first quarter of 2026, up 14.4 percent, across 227 transactions, according to JLL.[1][2] - Private equity made up 34 percent of first-quarter 2026 transactions. JLL also said high-net-worth individuals and foreign capital became increasingly active in 2025.[2][1] - Public REITs have been net sellers of smaller hotels. Apple Hospitality sold seven hotels for about $73.3 million in 2025 and bought two. Summit Hotel Properties has sold 13 hotels for about $200 million since 2023.[4][5] - Owner-operators dominate the small end. SBA approved 686 7(a) loans and 365 504 loans to hotels and motels in fiscal 2025, with a median 7(a) loan of about $2.7 million.[6] - Large single-asset deals are a minority of the market by count: LW Hospitality Advisors counted 107 sales above $10 million in the second quarter of 2026, averaging roughly $35.3 million.[3] #### What kinds of buyers purchase hotels? Hotel buyers fall into five groups: owner-operators, private equity funds, public and private REITs, family offices and high-net-worth individuals, and 1031 exchange buyers, who can belong to any of the first four. The groups overlap, but they behave differently enough that a seller should know which one is across the table. Wyndham's fiscal 2025 10-K describes the spread among its own franchisees: more than 6,200 of them, ranging from sole proprietors to institutional investors such as public real estate investment trusts.[8] JLL's 2025 U.S. Hotel Investment Trends release, dated January 30, 2026, describes the mix at the institutional end. It attributes the year's growth to strong private equity activity and strengthening debt markets, and says high-net-worth individuals and foreign capital became increasingly active participants while private equity continued to be active.[1] Its first-quarter 2026 report, as Hotel Dive summarized it on May 14, 2026, put private equity at 34 percent of the quarter's transactions.[2] That is the only buyer-type share in the public summaries we read, and it covers one quarter. Who holds hotels today, as opposed to who is buying, is covered at [Who owns hotels in the United States?](/hotel-industry/who-owns-hotels). #### Who buys small and mid-size hotels? Owner-operators buy most small and mid-size hotels: individuals, families and small partnerships who run the hotel themselves or through their own management company. The best public window on this buyer is the Small Business Administration's loan data, because SBA loans go to operating businesses. Our tracker of SBA's public loan file shows 686 7(a) loans to hotels and motels in fiscal 2025 for about $1.9 billion, with a median loan of $2,681,500, plus 365 504 loans for about $990 million of SBA-backed debentures. The data is as of June 30, 2026. SBA loans finance purchases, construction and refinancing, so not every one is an acquisition.[6] The full tables are at [SBA loans to hotels: who lends, how much, and where](/data/sba-hotel-lending). The hotels public REITs sell show who is on the other side at this size. Apple Hospitality REIT's 2025 dispositions included a 76-room Homewood Suites in Chattanooga for approximately $8.3 million, a 130-room SpringHill Suites near Indianapolis for $12.7 million, and a Hampton Inn & Suites and Homewood Suites pair in Cedar Rapids for $16.1 million.[4] Summit Hotel Properties sold the 122-room Hilton Garden Inn in Longview, Texas for $12.3 million in February 2026.[5] Neither company names its buyers. Hotels of that size and price are the ones a regional owner-operator can finance with a bank or SBA loan, which is covered at [What is the difference between an SBA 7(a) loan and an SBA 504 loan for a hotel?](/hotel-financing/sba-7a-vs-504) and [How much money do I need to buy a hotel?](/buy-a-hotel/how-much-money-do-you-need). #### What do private equity funds buy? Private equity funds buy larger hotels and portfolios where they can change something, such as the manager, the brand, the capital structure or the building, and sell within a fund's life. JLL's first-quarter 2026 report credits private equity with 34 percent of transactions in a quarter when volume rose 14.4 percent to $5.6 billion, with 227 transactions in total and five single assets trading above $100 million. JLL predicted that private equity would be back on the offense in 2026, and said investors were zeroing in on luxury assets as well as premium select-service and extended-stay hotels.[2] LW Hospitality Advisors' second-quarter 2026 survey, published August 5, 2026, gives a named example: Blackstone acquired the 821-room Hyatt Regency San Francisco from Sunstone Hotel Investors, a public REIT, for $279 million, or $340,000 per unit.[3] In that trade a private fund bought from a public company. A fund's minimum investment size generally rules out a single 80-room hotel. The same hotels grouped into a portfolio can attract a fund, which is one reason a portfolio can draw a different buyer from the same hotels sold one at a time. #### Are REITs buying or selling hotels? In the filings we read, the select-service REITs sold more hotels than they bought in 2025, and they sold their smaller, older, lower-RevPAR hotels. Apple Hospitality REIT acquired two hotels in 2025 for a combined purchase price of approximately $117.0 million and sold seven for approximately $73.3 million. What it bought was newer and larger: the newly constructed 260-room Motto by Hilton Nashville Downtown for approximately $98.2 million, or $378,000 per key, and the 126-room Homewood Suites Tampa-Brandon for $18.8 million. It also spent approximately $58.3 million buying back its own shares.[4] Summit Hotel Properties is explicit about why it sells. It says it has sold 13 hotels since 2023 for a combined price of about $200 million at a blended capitalization rate of approximately 4.6 percent, inclusive of an estimated $59.9 million of foregone capital needs, and that the sold hotels' RevPAR of $86 was about 30 percent below the rest of its portfolio.[5] In plain terms, Summit sold hotels that needed renovation money it preferred not to spend, to buyers willing to spend it. A REIT must distribute at least 90 percent of its taxable income to shareholders, so it cannot fund acquisitions from retained earnings the way a private owner can.[9] When a REIT's shares trade cheaply, buying back stock can beat buying hotels. LW Hospitality Advisors notes another REIT, Ashford Hospitality Trust, made seven major hotel sales in the second quarter of 2026 to pay down debt.[3] How to read these filings is at [How do hotel REITs work, and what do their filings tell a private owner?](/hotel-industry/how-hotel-reits-work). #### Do family offices, wealthy individuals and foreign buyers purchase hotels? Yes. JLL said high-net-worth individuals and foreign capital became increasingly active hotel buyers in 2025.[1] JLL ties that interest to what it calls hotels' discount to replacement cost and favorable yields compared with other property sectors.[1] LW Hospitality Advisors' second-quarter 2026 survey shows how varied this group is. Bass Pro Shops bought the 254-key Cheeca Lodge & Spa in Islamorada, Florida from Northwood Investors for nearly $306 million, and Meliá Hotels International bought the 313-key New York hotel it had operated under a lease since 2016 for $203 million.[3] Neither is a fund or a REIT. One is a retailer with a store nearby and the other is an operator buying its own building. Buyers like these often have no fund clock and no quarterly earnings call, so they can hold longer and sometimes pay more for a hotel they want. They are also hard to find, because they do not publish acquisition criteria. No public source we read measures their share of the market, so we do not state one. #### How do 1031 exchange buyers fit in? A 1031 exchange buyer is any owner who has sold investment real estate and must identify a replacement within 45 days and close within 180 days to defer the gain. Section 1031 of the Internal Revenue Code provides that no gain or loss is recognized when real property held for business or investment is exchanged for like-kind real property, and it sets the two deadlines: replacement property must be identified within 45 days after the sale and received within 180 days.[7] The seller of an apartment building or a shopping center can exchange into a hotel's real estate. Public companies use it too. Apple Hospitality says it used part of the proceeds from selling its Indianapolis-area SpringHill Suites to complete a 1031 exchange into the Homewood Suites Tampa-Brandon, deferring approximately $2.4 million of taxable gain, and did the same with its Clovis, California hotels and the Nashville acquisition, deferring approximately $4.0 million.[4] For a seller, an exchange buyer is attractive because the deadline is real: a buyer with 45 days to identify and a tax bill waiting has a reason to close. The rules, including how furniture and equipment are treated, are at [Can I use a 1031 exchange to buy or sell a hotel?](/hotel-financing/1031-exchange-hotels). This page is not tax advice, and an exchange needs a qualified intermediary and your own tax adviser. Matthews Hotel Markets represents buyers, including 1031 buyers looking for a hotel inside their deadline. #### How much hotel transaction volume is there? JLL counted $24 billion of U.S. hotel transaction volume in 2025, up 17.5 percent from 2024, and $5.6 billion in the first quarter of 2026.[1][2] JLL's 2025 release lists the largest markets: New York at $3.7 billion across 29 trades, Phoenix at $1.5 billion across 22 and Washington, D.C. at $1.2 billion across 22, with urban markets at 43 percent of volume.[1] Its first-quarter 2026 figure of $5.6 billion was still 47 percent below the cyclical peak in 2022.[2] LW Hospitality Advisors counts a narrower set, single-asset sales above $10 million. Its second-quarter 2026 survey found 107 such sales totaling approximately $3.8 billion and 17,300 rooms, an average of roughly $35.3 million per deal and $218,000 per room. The first quarter had 110 sales totaling approximately $4.6 billion at roughly $263,000 per room. Against the first half of 2025, the first half of 2026 showed 26 percent more transactions and 38 percent more dollar volume. California, Florida and New York accounted for 41 percent of second-quarter trades and 50 percent of dollars.[3] Both series leave out most of the market by count. A $6 million sale of a 70-room hotel does not appear in a survey with a $10 million floor. That is the part of the market where owner-operators and SBA lenders are most active.[6] #### Which buyer is right for my hotel, and how do I reach them? The right buyer for a hotel depends on its size, its brand, its capital needs and its debt, and the way to find out is to put the hotel in front of more than one type of buyer. An owner-operator with an SBA lender will pay for stable income it can finance. A fund will pay for a problem it knows how to fix. An exchange buyer will pay for certainty of closing. A hotel facing a large improvement plan may be worth more to a buyer who renovates for a living than to the current owner, which is the trade Summit describes in its own sales.[5] Financing sets the ceiling for all of them. As of September 30, 2026, the 10-year Treasury is 5.29 percent, SOFR is 3.90 percent and the maximum SBA 7(a) rate is 10.00 percent, and no lender publishes its coverage floor or spread.[10] What each buyer type checks is at [What do buyers look for when buying a hotel?](/sell-a-hotel/what-buyers-look-for). The choice between a quiet sale and a marketed one is at [Should I sell my hotel off-market or list it publicly?](/sell-a-hotel/off-market-vs-marketed). Buyers can start at [How do I buy a hotel?](/buy-a-hotel), and sellers at [What is involved in selling a hotel?](/sell-a-hotel). Table: Hotel buyer types in the United States: what each buys, and the public data point behind the description (sources read September 18, 2026) Buyer type | What it typically buys | How it pays | Public data point | Source and date Owner-operators | Single hotels, often franchised | Bank and SBA loans plus personal or partnership equity | 686 SBA 7(a) loans and 365 504 loans to hotels and motels in fiscal 2025. Median 7(a) loan $2,681,500 | SBA public loan data as of June 30, 2026, via our tracker[6] Private equity funds | Larger hotels and portfolios with something to change | Fund equity with bank, CMBS or debt fund loans | 34% of U.S. hotel transactions in Q1 2026. Blackstone bought the 821-room Hyatt Regency San Francisco for $279 million | JLL via Hotel Dive, May 14, 2026.[2] LW Hospitality Advisors, August 5, 2026[3] Public REITs | Newer, larger, higher-RevPAR hotels. Net sellers of older ones in 2025 | Cash, credit facilities and share issuance when the stock price allows | Apple Hospitality bought 2 hotels for about $117.0 million and sold 7 for about $73.3 million in 2025 | Apple Hospitality results release, February 23, 2026[4] Family offices, high-net-worth and foreign buyers | Often resorts, city hotels and hotels with a personal or strategic fit | Often more equity and longer holds | JLL: increasingly active in 2025. Bass Pro Shops bought Cheeca Lodge & Spa for nearly $306 million | JLL, January 30, 2026.[1] LW Hospitality Advisors, August 5, 2026[3] 1031 exchange buyers | Any hotel real estate that fits a 45-day identification window | Sale proceeds held by a qualified intermediary, plus new debt | Apple Hospitality deferred about $2.4 million and $4.0 million of gains through two 2025 exchanges | 26 U.S.C. 1031.[7] Apple Hospitality, February 23, 2026[4] First-party data point: Matthews Hotel Markets' October 2026 rate sheet shows the borrowing costs every buyer type on this page is underwriting: the 10-year Treasury at 5.29%, SOFR at 3.90% and the SBA 7(a) maximum at 10.00% on September 30, 2026, with no lender type publishing its spread.[10] Source: https://matthewshotelmarkets.com/rates Worked example (How to read a REIT's disposition disclosure for what buyers paid, using Summit Hotel Properties' February 25, 2026 results release): This walk-through uses real figures from a release filed with the SEC. The per-key figure is our arithmetic. Step 1, find the sale. Summit reports that in February 2026 it completed the sale of the 122-guestroom Hilton Garden Inn Longview, Texas, owned in its joint venture with GIC, for $12.3 million.[5] Step 2, compute the price per key. $12,300,000 divided by 122 rooms is about $100,800 per key. Step 3, read the cap rate and how it was calculated. Summit says the price represented a 6.7 percent capitalization rate based on estimated net operating income for the twelve months ended December 31, 2025, after consideration of approximately $2.6 million of foregone near-term required capital expenditures.[5] That last clause matters. We read it to mean Summit counts the renovation the buyer now has to pay for alongside the price, so the cap rate on the $12.3 million alone would be higher. Step 4, back into the income. On that reading, 6.7 percent of $14.9 million, which is the $12.3 million price plus the $2.6 million of capital needs, is about $1.0 million of net operating income. That is our arithmetic and our reading of Summit's method, not a number Summit reports. Step 5, read the quality signal. Summit says the hotel's 2025 RevPAR was $88, about 28 percent below its portfolio.[5] A buyer paid roughly $100,800 a key for an older, below-average hotel that needs about $2.6 million of work. Step 6, compare. Its October 2025 sales of two Courtyards for $39.0 million were at a blended 4.3 percent on the same basis, with approximately $10.2 million of foregone capital needs.[5] The more renovation a hotel needs, the more the stated cap rate depends on how the renovation is counted. When you see a hotel cap rate quoted anywhere, ask which income and which price it uses. The definitions are at [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates). FAQ: - Q: Who would buy my small hotel? A: Most likely an owner-operator using a bank or SBA loan. SBA approved 686 7(a) loans to hotels and motels in fiscal 2025, with a median of about $2.7 million.[6] Hotels of 76 to 130 rooms that REITs sold in 2025 went for roughly $8 million to $13 million.[4] - Q: How much of the hotel market is private equity? A: JLL put private equity at 34 percent of U.S. hotel transactions in the first quarter of 2026, as Hotel Dive reported on May 14, 2026.[2] We have not found a public full-year breakdown of buyers by type, so we do not publish one. - Q: Are hotel REITs buying hotels in 2026? A: Selectively. Apple Hospitality bought two hotels and sold seven in 2025, and has two forward purchases under contract.[4] Summit has been a net seller since 2023.[5] Ashford Hospitality Trust made seven major sales in the second quarter of 2026 to reduce debt.[3] - Q: What was U.S. hotel transaction volume in 2025? A: $24 billion, up 17.5 percent from 2024, according to JLL's release of January 30, 2026. New York led with $3.7 billion, followed by Phoenix at $1.5 billion and Washington, D.C. at $1.2 billion.[1] - Q: What is the average price per room for a hotel sale? A: For single-asset sales above $10 million, LW Hospitality Advisors reported roughly $218,000 per room in the second quarter of 2026 and roughly $263,000 in the first.[3] Smaller hotels trade for far less: Apple Hospitality's 2025 sales work out to about $94,000 per key by our arithmetic.[4] - Q: Can I buy a hotel with 1031 exchange money? A: Yes, for the real property. Section 1031 requires you to identify replacement property within 45 days of your sale and close within 180 days.[7] Apple Hospitality completed two such exchanges in 2025.[4] Use a qualified intermediary and your own tax adviser. - Q: Do foreign investors buy U.S. hotels? A: Yes. JLL said foreign capital became an increasingly active participant in 2025.[1] In the second quarter of 2026, Spain-based Meliá Hotels International bought the 313-key New York hotel it had been leasing for $203 million, according to LW Hospitality Advisors.[3] - Q: Does Matthews Hotel Markets represent hotel buyers? A: Yes. Matthews Hotel Markets represents buyers, including 1031 exchange buyers, sells hotels from $2 million through marketed and off-market processes, and arranges acquisition financing from $5 million. Current benchmark rates are on our rate sheet.[10] Sources: - [1] Hotel investment momentum builds as U.S. market posts $24 billion in 2025 transaction volume (January 30, 2026) (JLL, accessed 2026-09-18): https://www.jll.com/en-us/newsroom/jll-releases-2025-us-hotel-investment-trends-report - [2] Luxury trades drove US hotel transaction uptick in Q1: JLL (May 14, 2026) (Hotel Dive, citing JLL, accessed 2026-09-18): https://www.hoteldive.com/news/luxury-trades-drove-us-hotel-transaction-uptick-q1-jll/820221/ - [3] LW Hospitality Advisors Q2/Midyear 2026 Major U.S. Hotel Sales Survey and Lodging Sector Overview (August 5, 2026) (LW Hospitality Advisors, republished by Hotel Online, accessed 2026-09-18): https://www.hotel-online.com/news/lw-hospitality-advisors-lwha-q2midyear-2026-major-us-hotel-sales-survey-lodging-sector-overview - [4] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [5] Summit Hotel Properties Reports Fourth Quarter and Full Year 2025 Results (February 25, 2026), Exhibit 99.1 to Form 8-K (Summit Hotel Properties, Inc., via SEC EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1497645/000149764526000017/exhibit99112-31x2025.htm - [6] SBA loans to hotels: 7(a) and 504 approvals for NAICS 721110, built from SBA's public FOIA data as of June 30, 2026 (Matthews Hotel Markets (first-party tracker of SBA public data), accessed 2026-09-18): https://matthewshotelmarkets.com/data/sba-hotel-lending - [7] 26 U.S.C. Section 1031: exchange of real property held for productive use or investment (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/1031 - [8] Wyndham Hotels & Resorts, Inc. Form 10-K for fiscal year 2025, Item 1, Business (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1722684/000172268426000007/wh-20251231.htm - [9] Apple Hospitality REIT, Inc. Form 10-K for fiscal year 2025 (filed February 23, 2026): Item 1, hotel operating agreements; Item 7, results of operations; note on management and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1418121/000119312526064008/aple-20251231.htm - [10] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates ### How do hotel REITs work, and what do their filings tell a private owner? URL: https://matthewshotelmarkets.com/hotel-industry/how-hotel-reits-work Last updated: 2026-10-01 A hotel REIT owns hotels, leases them to its own taxable subsidiary, hires outside managers and pays out at least 90 percent of its taxable income. Its filings are free benchmarks. Apple Hospitality REIT's 10-K, filed February 23, 2026, reports 2025 occupancy of 74.1 percent, a $159.09 average rate and RevPAR of $117.95 across its comparable hotels.[2] Key takeaways: - The structure is set by the tax code. A REIT may lease a hotel to its taxable subsidiary only if an eligible independent contractor operates it, which is why every hotel REIT pays a management company.[1] - Filings are free on the SEC's EDGAR system: search by company name or ticker, or search the full text of more than 20 years of filings.[6] - Margins to compare with: comparable hotel EBITDA margins of 34.3 percent at Apple Hospitality, 33.4 percent at Summit and 28.9 percent at Host for 2025.[3][5][4] - Cap rates do appear in filings. Summit said it sold a 122-room Hilton Garden Inn in February 2026 at a 6.7 percent capitalization rate after counting about $2.6 million of foregone capital needs.[5] - Capital spending is disclosed too. Apple Hospitality invested approximately $88 million in its 217 hotels in 2025, about $2,975 per room by our arithmetic.[3] #### How is a hotel REIT structured? A hotel REIT owns the real estate, leases each hotel to a taxable subsidiary it owns, and that subsidiary hires an independent management company to run the hotel. The structure exists because of what the tax code lets a real estate investment trust earn. Section 856 of the Internal Revenue Code requires that at least 75 percent of a REIT's gross income come from real estate sources such as rents, and at least 75 percent of its assets be real estate, cash and government securities. Running a hotel is an operating business, not rent. The code solves this by letting a REIT lease a qualified lodging facility to its taxable REIT subsidiary and treat the rent as good income, but only if an eligible independent contractor operates the hotel.[1] Apple Hospitality REIT's 10-K shows the structure in practice. The company leases all of its 217 hotels to a wholly owned taxable REIT subsidiary under master hotel lease agreements. The subsidiary is subject to federal and state income taxes. Each hotel is run by one of 16 management companies, none affiliated with the company.[2] The payoff is at the REIT level. Apple Hospitality says it is generally not subject to federal corporate income tax on the taxable income it distributes, and that it must distribute at least 90 percent of its REIT taxable income each year. It paid approximately $240.4 million of distributions in 2025.[2] The management side of the structure is covered at [How do hotel management agreements work, and what do they cost?](/hotel-industry/hotel-management-agreements). #### How do I find a hotel REIT's filings on EDGAR? Go to the SEC's Search Filings page, type the company's name or ticker symbol, and open its most recent Form 10-K, the annual report. The SEC describes EDGAR as free public access to millions of documents filed by publicly traded companies. Its Search Filings page offers a company search by name or ticker, a full text search that finds keywords and phrases in more than 20 years of filings with filters for date, company and filing category, and tutorials on locating filings.[6] Three forms matter. The 10-K is the annual report, filed in February for calendar-year companies: Apple Hospitality filed on February 23, 2026, Host Hotels & Resorts and Summit Hotel Properties on February 25, 2026, and RLJ Lodging Trust on February 27, 2026.[2][4][7] The 10-Q is the quarterly version. The 8-K carries the quarterly results release as an exhibit, and that release is often more useful than the 10-K for operating statistics. Summit's fourth-quarter 2025 release, Exhibit 99.1 to an 8-K dated February 25, 2026, is where its cap rates appear.[5] Full text search is the shortcut. Searching a phrase such as capitalization rate or base management fee across lodging companies' filings takes you straight to the paragraphs this page quotes. #### Where in a 10-K are RevPAR, ADR and occupancy? RevPAR, ADR and occupancy are in Item 7 of the 10-K, Management's Discussion and Analysis, usually in the first few pages under results of operations. Apple Hospitality's Item 7 reports that its comparable hotels achieved combined average occupancy of 74.1 percent in 2025 against 75.3 percent in 2024, ADR of $159.09 against $159.31, and RevPAR of $117.95 against $119.92. It defines the terms in the same paragraph: ADR is room revenue divided by rooms sold, and RevPAR is occupancy multiplied by ADR.[2] It also explains the decline, citing weather, reduced government travel, macroeconomic uncertainty, the absence of the leap day and the sale of seven hotels. That commentary, market by market, is free research on what moved select-service demand. Host's Item 7 reports comparable hotel RevPAR of $229.24, up 3.8 percent, and comparable hotel Total RevPAR of $382.83, up 4.2 percent. Host defines Total RevPAR as rooms, food and beverage and other revenues divided by available room nights.[4] Summit reports same-store RevPAR of $121.73 for 2025, down 1.8 percent, on 73.7 percent occupancy and a $165.22 ADR.[5] For scale, HVS's July 13, 2026 survey cites CoStar's national figures for 2025: 62.3 percent occupancy and a $160.54 ADR, which multiplies to RevPAR of about $100.[8] REIT portfolios run well above the national average, which is the first caution in using them as a benchmark. Definitions are at [What are RevPAR, ADR and occupancy, and what is a good number?](/hotel-industry/revpar-adr-occupancy). #### What margins do hotel REITs report, and how should a private owner compare? For 2025, Apple Hospitality reported a comparable hotels adjusted hotel EBITDA margin of 34.3 percent, Summit a pro forma hotel EBITDA margin of 33.4 percent, and Host a comparable hotel EBITDA margin of 28.9 percent.[3][5][4] All three fell from 2024: Apple Hospitality's by 190 basis points, Summit's from 35.7 percent, and Host's by 40 basis points from 29.3 percent.[3][5][4] Host blames the increase in wages expense and lower insurance gains. It says wages and benefits are approximately 58 percent of its departmental and support expenses.[4] Three adjustments make the comparison fair. First, these are non-GAAP, hotel-level measures that each company defines for itself, and they leave out corporate overhead. Second, they are before any reserve for replacing furniture and equipment, and before debt service. Third, a REIT's hotels carry a full management fee and full brand fees. An owner-operator who pays no management fee should add one before comparing. Apple Hospitality's management fees were $47.1 million in 2025, 3.3 percent of its revenue by our arithmetic, and its franchise royalty fees were $62.6 million.[2] If your select-service hotel's margin is far below a third after those adjustments, the filings tell you which lines to look at: Apple Hospitality reports hotel operating expense at 60.0 percent of revenue and property taxes, insurance and other at 6.4 percent.[2] The cost side is at [What does it cost to operate a hotel?](/hotel-industry/hotel-operating-costs). #### Do REIT filings disclose cap rates? Sometimes. A 10-K rarely states a cap rate, but results releases do when a company wants to show investors what it sold a hotel for. None of the six fiscal 2025 10-Ks we searched states the capitalization rate of a purchase or sale. The phrase appears only in accounting language about impairment testing. Summit's results release of February 25, 2026 does state them. It sold the 122-guestroom Hilton Garden Inn Longview, Texas for $12.3 million at a 6.7 percent capitalization rate on trailing net operating income, after consideration of approximately $2.6 million of foregone near-term capital expenditures. It sold two Courtyards in October 2025 for $39.0 million at a blended 4.3 percent after approximately $10.2 million of foregone capital needs. Since 2023 it has sold 13 hotels for about $200 million at a blended rate of approximately 4.6 percent, inclusive of an estimated $59.9 million of foregone capital needs.[5] Read the method before you borrow the number. Summit's rates count the renovation the buyer inherits, as we read its wording, so they describe what Summit gave up and not the yield the buyer earned on the price alone. A private seller quoting a 4.6 percent cap rate from this release to a buyer would be misreading it. Prices per key are disclosed more often. Apple Hospitality states that it bought the 126-room Homewood Suites Tampa-Brandon for $18.8 million, approximately $149,000 per key, and the new 260-room Motto by Hilton Nashville Downtown for approximately $98.2 million, or $378,000 per key.[3] Our own market ranges are in the [Matthews Hotel Index, Q1 2026](/research/mhi/q1-2026), and the method is at [What is a good cap rate for a hotel in 2026?](/hotel-valuation/hotel-cap-rates). #### How much do hotel REITs spend on capital improvements? Apple Hospitality invested approximately $88 million in capital expenditures in 2025 across 217 hotels, and Host spent approximately $644 million across 76.[3][4] Apple Hospitality expects to invest $80 million to $90 million in 2026, including comprehensive renovations at approximately 21 hotels.[3] Against 29,583 guest rooms, $88 million is about $2,975 per room, and against $1,412.4 million of revenue it is about 6.2 percent. Both are our arithmetic. Twenty-one of 217 hotels is roughly one in ten. If that pace held, each hotel would see a comprehensive renovation about once a decade, which is our inference and not the company's statement. Host breaks its spending down: of approximately $644 million in 2025, $282 million was return-on-investment projects, $287 million was renewal and replacement, and $75 million was hurricane and other restoration.[4] Renewal and replacement alone is about $6,900 per room on approximately 41,700 rooms and about 4.7 percent of total revenues, again by our arithmetic. Host's management agreements typically require 4 to 5 percent of gross revenues to be deposited in a furniture, fixtures and equipment reserve.[4] The lesson for a private owner is that the reserve is real money. A buyer or lender will deduct one whether or not you have been funding it. See [FF&E reserve](/glossary/ffe-reserve) and [How do I finance a hotel PIP or renovation?](/hotel-financing/pip-and-renovation-loans). #### What else in a REIT 10-K is useful to a private hotel owner? A lodging REIT's 10-K also discloses management and franchise fee terms, debt terms, ground leases and the risks management worries about, all of which a private owner can use as a checklist. Fee terms are in Item 1 or Item 2. RLJ Lodging Trust discloses base management fees of 1.5 to 3.5 percent of hotel revenues and franchise royalties of 2.0 to 6.0 percent of room revenue plus 1.0 to 4.3 percent for marketing and reservations.[7] Host discloses base fees of generally 2 to 3 percent and incentive fees of generally 10 to 20 percent of profit above the owner's priority.[4] Risk factors, Item 1A, read like an owner's worry list: Host and Apple Hospitality both warn that wages, property taxes, insurance and utilities are relatively fixed and do not fall with revenue.[4][2] The notes to the financial statements list ground leases and their remaining terms. Apple Hospitality had 14 hotels on ground leases with 13 to 93 years remaining.[2] Two limits. A REIT borrows mostly at the corporate level with unsecured notes and credit facilities, so its interest cost says little about a mortgage on one hotel. As of September 30, 2026, the 10-year Treasury is 5.29 percent and SOFR is 3.90 percent, and lenders do not publish the spreads they add for a single-asset hotel loan.[9] And nothing here is advice to buy or sell a REIT's shares. We read these filings for what they say about hotels. For your own hotel, start at [What is my hotel worth, and who decides?](/hotel-valuation), [How does hotel financing work, and what does it cost right now?](/hotel-financing) or [What is involved in selling a hotel?](/sell-a-hotel). Table: What three lodging REITs' fiscal 2025 filings disclose, and where to find each item (read September 18, 2026). Per-room and percent-of-revenue capital spending figures are our arithmetic. Item | Apple Hospitality REIT (select-service) | Summit Hotel Properties (select-service, upscale) | Host Hotels & Resorts (luxury and upper-upscale) | Where it is in the filing Portfolio | 217 hotels, 29,583 guest rooms[3] | 94 assets, 14,226 guestrooms as of February 25, 2026[5] | 76 hotels, approximately 41,700 rooms[4] | 10-K Item 1 and Item 2, or the release's first page 2025 occupancy | 74.1%[2] | 73.7%, same store[5] | Reported by market in the 10-K | 10-K Item 7, or the results release 2025 ADR | $159.09[2] | $165.22, same store[5] | Reported by market in the 10-K | 10-K Item 7, or the results release 2025 RevPAR | $117.95, down 1.6%[2] | $121.73, down 1.8%, same store[5] | $229.24, up 3.8%. Total RevPAR $382.83[4] | 10-K Item 7, or the results release 2025 hotel EBITDA margin | 34.3%, comparable hotels adjusted[3] | 33.4%, pro forma[5] | 28.9%, comparable hotels[4] | Non-GAAP tables in the release or Item 7 2025 capital expenditures | Approximately $88 million, about $2,975 per room and 6.2% of revenue[3] | Not read in this run | Approximately $644 million, of which $287 million renewal and replacement[4] | Release, or Item 7 liquidity section Cap rates on sales | Not stated. Prices per key are[3] | 6.7%, 4.3% and a 4.6% blend since 2023, each after foregone capital needs[5] | Not stated | Results release, transactions section Management fee terms | Variable fee generally 2.5% to 3.5% of gross revenues at about 81% of hotels[2] | Base fee generally a percentage of total revenues, plus an incentive fee on hotel-level EBITDA above a return hurdle[11] | Base generally 2% to 3%, incentive generally 10% to 20% of profit above the owner's priority[4] | 10-K Item 1 or Item 2, and the notes First-party data point: The Matthews Hotel Index for Q1 2026 publishes cap rate and RevPAR ranges by market and segment, which is the local view a national REIT filing cannot give: Apple Hospitality's 74.1 percent occupancy and $117.95 RevPAR describe 217 hotels in 84 markets, not yours.[10][2][3] Source: https://matthewshotelmarkets.com/research/mhi/q1-2026 Worked example (How to read Apple Hospitality REIT's fiscal 2025 10-K in six steps, as the owner of a select-service hotel): This walk-through uses the real filing. Figures marked as arithmetic are ours. Step 1, open the filing. On the SEC's Search Filings page, search Apple Hospitality REIT and open the 10-K filed February 23, 2026.[6][2] Step 2, Item 1, Business. Read how the hotels are managed. Approximately 81 percent operate under a variable management fee generally within 2.5 to 3.5 percent of gross revenues, with an average initial term of one to two years, and the agreements are terminable on sale of the property.[2] If your contract is longer or costlier, you now have a public reference point. Step 3, Item 7, revenues. Comparable hotels: 74.1 percent occupancy, $159.09 ADR, $117.95 RevPAR, down 1.6 percent.[2] Put your own three numbers beside them, then remember these are 217 hotels the company chose to own. Step 4, Item 7, expenses. Hotel operating expense was $847.3 million, 60.0 percent of revenue, up from 58.5 percent. Property taxes, insurance and other was $89.7 million, 6.4 percent, up from 5.9 percent.[2] Together that is 66.4 percent by our arithmetic. Compute the same two percentages from your own statement, adding a management fee if you do not pay one. Step 5, the results release of the same date. It gives the margin, 34.3 percent, the capital spending, approximately $88 million, and every purchase and sale with its price.[3] Seven sales totaling approximately $73.3 million across 779 rooms is about $94,000 per key by our arithmetic. Two purchases averaged far more, because one was a new 260-room downtown hotel. Step 6, the notes. Management fees of $47.1 million and franchise royalty fees of $62.6 million are stated to the dollar, as are the ground leases.[2] What you cannot get from the filing is a value for your hotel. That takes your trailing twelve months, your market and your capital needs. You can rough it out with the [hotel value estimator](/tools/hotel-value-estimator), and a broker opinion of value from us is free. FAQ: - Q: What is a hotel REIT? A: A real estate investment trust that owns hotels. To keep its tax status it must earn at least 75 percent of its gross income from real estate sources, so it leases its hotels to a taxable subsidiary and hires independent managers to run them.[1] - Q: Why can't a hotel REIT manage its own hotels? A: Because the tax code treats rent from its taxable subsidiary as qualifying income only if an eligible independent contractor operates the hotel.[1] Apple Hospitality, for example, uses 16 outside management companies for its 217 hotels.[2] - Q: Where can I find hotel cap rates for free? A: In some REIT results releases on EDGAR. Summit Hotel Properties' release of February 25, 2026 states 6.7 percent on one 2026 sale and 4.3 percent on two 2025 sales, each after counting the buyer's near-term capital needs.[5] Read the method before using the number. - Q: How much do hotel REITs pay out in dividends? A: A REIT must generally distribute at least 90 percent of its REIT taxable income each year. Apple Hospitality paid $1.01 per common share in 2025, approximately $240.4 million in total.[2] This page is not investment advice. - Q: What is the difference between a 10-K, a 10-Q and an 8-K? A: The 10-K is the annual report, the 10-Q the quarterly report, and the 8-K reports events, including the quarterly results release as an exhibit. All are free through the SEC's EDGAR company search and full text search.[6] - Q: How much do hotel REITs spend on renovations? A: Apple Hospitality invested approximately $88 million in 2025, about $2,975 per room by our arithmetic, and plans comprehensive renovations at approximately 21 of its 217 hotels in 2026.[3] Host spent approximately $287 million on renewal and replacement.[4] - Q: Are REIT hotel margins a fair benchmark for my hotel? A: A useful one, with adjustments. The 34.3 percent and 33.4 percent margins at Apple Hospitality and Summit are hotel-level, before reserves and debt service, and include full management and brand fees.[3][5] Their hotels also run about 74 percent occupancy.[2][5] - Q: Do hotel REITs buy hotels from private owners? A: Yes, selectively. Apple Hospitality bought two hotels in 2025 for approximately $117.0 million, both newer Hilton-branded properties, and sold seven older ones.[3] More on who buys what is on our page about hotel buyers. Sources: - [1] 26 U.S.C. Section 856(d)(8) and (d)(9): qualified lodging facilities and eligible independent contractors (Legal Information Institute, Cornell Law School, accessed 2026-09-18): https://www.law.cornell.edu/uscode/text/26/856 - [2] Apple Hospitality REIT, Inc. Form 10-K for fiscal year 2025 (filed February 23, 2026): Item 1, hotel operating agreements; Item 7, results of operations; note on management and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1418121/000119312526064008/aple-20251231.htm - [3] Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2025 (February 23, 2026) (Apple Hospitality REIT, Inc., accessed 2026-09-18): https://ir.applehospitalityreit.com/News/news-details/2026/Apple-Hospitality-REIT-Reports-Results-of-Operations-for-Fourth-Quarter-and-Full-Year-2025/default.aspx - [4] Host Hotels & Resorts, Inc. Form 10-K for fiscal year 2025 (filed February 25, 2026): Item 1, management agreements; Item 7, results of operations and comparable hotel data (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1070750/000107075026000054/hst-20251231.htm - [5] Summit Hotel Properties Reports Fourth Quarter and Full Year 2025 Results (February 25, 2026), Exhibit 99.1 to Form 8-K (Summit Hotel Properties, Inc., via SEC EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1497645/000149764526000017/exhibit99112-31x2025.htm - [6] Search Filings: EDGAR company search, full text search and tutorials (U.S. Securities and Exchange Commission, accessed 2026-09-18): https://www.sec.gov/search-filings - [7] RLJ Lodging Trust Form 10-K for fiscal year 2025 (filed February 27, 2026): Our Hotel Properties, management agreements and franchise agreements (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1511337/000151133726000007/rlj-20251231.htm - [8] HVS U.S. Hotel Development Cost Survey 2026 (July 13, 2026) (HVS, accessed 2026-09-18): https://www.hvs.com/article/10509-hvs-us-hotel-development-cost-survey-2026 - [9] Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets, accessed 2026-09-18): https://matthewshotelmarkets.com/rates - [10] Matthews Hotel Index, Q1 2026 (Matthews Hotel Markets (first-party), accessed 2026-09-18): https://matthewshotelmarkets.com/research/mhi/q1-2026 - [11] Summit Hotel Properties, Inc. Form 10-K for fiscal year 2025 (filed February 25, 2026): management agreements note and consolidated statements of operations (U.S. Securities and Exchange Commission, EDGAR, accessed 2026-09-18): https://www.sec.gov/Archives/edgar/data/1497645/000149764526000015/inn-20251231.htm ### Can my hotel still charge a resort fee? URL: https://matthewshotelmarkets.com/hotel-industry/resort-fees Last updated: 2026-10-01 Yes. The Federal Trade Commission's fee rule, effective May 12, 2025, does not ban resort fees or cap them.[1][2] It requires that every price you advertise show the total price, including each mandatory fee, more prominently than any other figure.[1] Government taxes may sit outside that total, but you must disclose them before the guest consents.[1] Key takeaways: - The rule bans hiding a fee, not charging one. Nothing in 16 CFR part 464 caps a resort fee or forbids it; 464.2 governs how the price is shown.[1] - Short-term lodging is one of only two things the rule covers, and it is named: a hotel, motel, inn, short-term rental or other place of lodging.[1] - The test is whether the guest must pay it to stay. A mandatory ancillary charge belongs in the total price; a genuinely optional one may sit outside it.[1] - The ceiling is $53,088 for each violation under 15 U.S.C. 45(m)(1)(A), and each day a failure continues is a separate violation.[4][5] The Commission confirmed on September 15, 2026 that the amount is unchanged for 2026.[6] - State law is not displaced and can be stricter. California puts taxes inside the total before the guest reserves, and adds a $10,000 per-violation penalty.[1][3] #### Does the FTC fee rule apply to my hotel? Yes. Short-term lodging is one of only two categories the rule reaches, and the rule names it. Part 464 applies to a "covered good or service", defined as live-event tickets or short-term lodging, "including temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging".[1] There is no size threshold and no single-property carve-out. It reaches every channel you sell through. A "business" under 464.1 is any entity offering goods or services, "including, but not limited to, online, in mobile applications, and in physical locations", and 464.2(a) attaches to any offer, display or advertisement of a price.[1] Your booking engine, your rates on travel sites, a printed rack rate and a phone quote are all offers of a price.[2] #### Are resort fees still legal? Yes. Part 464 is a disclosure rule, and it does not prohibit any particular fee or set its amount. The rule has two prohibitions and neither touches the fee itself. Section 464.2 makes it unfair and deceptive to advertise a price without clearly and conspicuously disclosing the total price, and requires that total to be the most prominent figure shown. Section 464.3 bars misrepresenting a fee, naming "the nature, purpose, amount, or refundability" of it.[1] A $35 mandatory amenity fee, accurately described and inside the advertised total, breaks neither. The history explains the choice of disclosure over prohibition. After a 2012 workshop on drip pricing, FTC staff sent warning letters to hotels and online travel agents that were not adequately disclosing resort fees. The agency calls the practice partitioned pricing: hotels "might separately list the room rate and 'resort fee' but never add them up and quote an all-inclusive total price". In 2017 its Bureau of Economics concluded that "[u]nless the total price is disclosed up front, separating resort fees from the room rate is unlikely to result in benefits that offset the likely harm to consumers".[2] So the fee survives. Quoting the room rate alone and adding the fee later does not. #### What exactly has to be in the price I advertise? The total price, which the rule defines as the maximum total of everything a guest must pay, including any mandatory ancillary good or service. Section 464.1 defines total price as "the maximum total of all fees or charges a consumer must pay for any good(s) or service(s) and any mandatory ancillary good or service", then allows three exclusions: government charges, shipping charges, and fees for any optional ancillary good or service.[1] For a hotel, shipping is irrelevant; the live questions are the first and third. Two display rules sit on top. Under 464.2(b) the total price must be more prominent than any other pricing information, except that the final amount of payment may be as prominent or more so. Under 464.2(c), before the guest consents, you must disclose the nature, purpose and amount of any charge left out of the total, what it pays for, and the final amount of payment.[1] A compliant display therefore has a shape. The all-in nightly figure including the mandatory fee is the headline, and the tax may sit outside it but cannot surprise anyone at checkout. The rule's "clear and conspicuous" definition is strict here: a disclosure in an interactive medium must be "unavoidable", and nothing else may contradict it.[1] #### Which charges count as mandatory, and which are optional? If the guest cannot stay without paying it, it is mandatory and belongs in the total price. The rule gives no list, so the test runs off its definitions. An ancillary good or service is any additional good or service offered in the same transaction, and only a mandatory one is pulled into total price.[1] A resort, amenity or destination fee, a mandatory housekeeping charge or a compulsory service charge is a condition of the stay, so it goes in. Parking the guest may decline, a pet fee, a spa treatment and paid early check-in may stay out of the headline. Labeling does not decide it. If every arriving guest is charged the fee, calling it optional in the terms will not make it optional under 464.1, and misdescribing its nature or purpose is a separate violation under 464.3. Refundability is named there too, so a fee presented as refundable that is not is actionable however the total is displayed.[1] #### Do state laws add anything? Yes, and part 464 expressly leaves the stricter ones standing. Section 464.4 says the rule does not supersede state law on unfair or deceptive fees except to the extent of an inconsistency, then defines away most of the conflict: a state rule is not inconsistent if it protects a consumer more than the federal rule does.[1] Part 464 is a floor, not a shield. California has two layers. Civil Code 1770(a)(29) makes it an unlawful deceptive practice to advertise a price that excludes any mandatory fee other than government taxes and fees on the transaction and shipping.[7] The lodging-specific layer, Business and Professions Code 17568.6, came from AB 537 and became operative on July 1, 2024. It goes past the federal rule where it counts: (a)(1) bars advertising a room rate that excludes any fee required to stay, and (a)(2) separately requires every government tax and fee on the stay to be in the total price "before the consumer reserves the stay".[3] The details matter if you operate there. "Short-term lodging" covers any hotel, motel, bed and breakfast inn or other transient lodging, plus short-term rentals booked through a platform. Subdivision (c) treats state tourism and business improvement district assessments as government fees on the stay, which is not an obvious call. Subdivision (d) reaches advertising before the public in California or from it, and (e) sets a penalty of up to $10,000 per violation, enforceable by a city attorney, district attorney, county counsel or the Attorney General.[3] #### What is the exposure if the disclosure is wrong? Up to $53,088 for each violation, and a continuing failure is counted by the day. The authority is 15 U.S.C. 45(m)(1)(A), which lets the Commission seek a penalty from anyone who violates a rule with "actual knowledge or knowledge fairly implied on the basis of objective circumstances" that the act is unfair or deceptive and prohibited by the rule.[4] The statute names $10,000 per violation, but the figure is inflation-adjusted: 16 CFR 1.98(d) puts the maximum at $53,088.[5] That figure is current, not stale. On September 15, 2026 the Commission published a notice stating that because the Office of Management and Budget could not produce the October 2025 cost-of-living multiplier, its penalty amounts stay unchanged during 2026 and the 2025 levels continue to apply.[6] What drives exposure is time. Under 45(m)(1)(C), each day of a continuing failure to comply with a rule is a separate violation.[4] A rate display left wrong for a month is not one violation. California's $10,000 sits on top, and 17568.6(f) says its duties are cumulative with other law.[3] None of this predicts what an agency would seek. It is the published ceiling, the knowable part. #### Does a mandatory fee help or hurt what my hotel is worth? The revenue counts, but it does not appear where buyers look first, and a non-compliant disclosure turns into a diligence item. Average daily rate and revenue per available room are rooms-only measures, so a mandatory fee lifts neither. It lands in total revenue and from there in net operating income, which is what a buyer capitalizes and a lender sizes debt against. Two hotels with the same RevPAR can carry different NOI if one charges a mandatory fee and the other does not. That makes the fee an underwriting question, not a footnote. A buyer will ask whether it is collected on every occupied night or waived for loyalty members and negotiated accounts, whether it survives a brand conversion, and whether today's display would withstand a complaint. A fee a buyer or lender discounts is NOI they will not pay for. The scale of the disclosure question is published even though the fee revenue is not. In the economic analysis supporting the rule, the Commission put U.S. and foreign lodging bookings at about 683.9 million a year and estimated the rule would save U.S. consumers 27.2 to 39.6 million hours a year, worth $702.1 million to $1.02 billion.[2] How much the industry collects in mandatory fees, and what share of hotels charge one, is published nowhere, so this page prints neither. Table: What belongs in the advertised price: the federal fee rule and California compared, October 2026 Charge | In the federal total price? | In California's advertised room rate? | Source Mandatory resort, amenity or destination fee | Yes | Yes | 16 CFR 464.1, 464.2(a); Bus. & Prof. Code 17568.6(a)(1) Mandatory housekeeping or service charge | Yes | Yes | 16 CFR 464.1; Bus. & Prof. Code 17568.6(a)(1) Occupancy or sales tax | No, excluded as a government charge, but disclosed before the guest consents | Yes, in the total price before the guest reserves | 16 CFR 464.1, 464.2(c); Bus. & Prof. Code 17568.6(a)(2) State tourism or business improvement district assessment | Not named in part 464 | Treated as a government fee on the stay | Bus. & Prof. Code 17568.6(c) Optional parking, pet or spa charge | No, excluded as an optional ancillary service | No, because it is not required to stay | 16 CFR 464.1 Mandatory fee on a group or event booking | Yes; the FTC Act carries no limit on which consumers can be injured | Yes, where the stay is advertised to the public | 90 FR 2066; Bus. & Prof. Code 17568.6(a)(1) First-party data point: Matthews Hotel Markets' October 2026 rate sheet is where that fee revenue turns into borrowing capacity. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks the debt service coverage and loan-to-value cells as not yet published, because lenders do not publish them.[8] A fee a lender declines to underwrite buys no loan at any of those rates. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 140-key resort charging a $35 mandatory nightly fee): This hotel does not exist. The 140 keys, the $249 room rate, the $35 fee, the 70 percent occupancy, the 15 percent occupancy tax and the 30-day window are assumptions. The rules applied to them are not, and every figure was recomputed before this page was saved. The fee is a condition of the stay, so it is a mandatory ancillary charge and belongs in the total price: $249 + $35 = $284.[1] That $284 must appear more prominently than any other pricing information, the $249 included. The fee is 12.3 percent of it. A government charge may sit outside total price, so the federal headline stays $284, but the tax and the final amount of payment must be disclosed before the guest consents.[1] At an assumed 15 percent of $284 that is $42.60, and the final amount is $326.60. California differs here: 17568.6(a)(2) puts the taxes inside the total before the guest reserves, so the figure shown before booking is $326.60.[3] The revenue is real. 140 keys at 70 percent occupancy over 365 nights is 35,770 occupied room nights, and at $35 each the fee produces $1,251,950 a year, landing in total revenue and NOI, not ADR or RevPAR. Set the exposure beside it. Suppose the display omits the fee for 30 days. Under 45(m)(1)(C) each day is a separate violation, so the published ceiling is 30 x $53,088 = $1,592,640.[4][5] That is $340,690 more than a full year of the fee revenue, and California's $10,000 per violation sits on top.[3] The ceiling forecasts no enforcement outcome, but it is larger than the line it threatens. FAQ: - Q: Are resort fees illegal now? A: No. 16 CFR part 464 governs how a price is displayed, not whether a fee may be charged. A mandatory fee is lawful if the advertised total includes it and that total is the most prominent figure shown.[1] - Q: Do I have to include taxes in my advertised room rate? A: Not under the federal rule, which excludes government charges from total price. You must still disclose their nature, purpose and amount, and the final amount of payment, before the guest consents.[1] California puts them inside the total before the guest reserves.[3] - Q: What is the penalty for a hidden resort fee? A: Up to $53,088 for each violation under 15 U.S.C. 45(m)(1)(A) as adjusted by 16 CFR 1.98(d), and each day a failure continues counts separately.[4][5] The Commission confirmed on September 15, 2026 that the figure is unchanged for 2026.[6] - Q: Does the rule cover third-party travel sites as well as my own site? A: Yes. Part 464 defines a business to include entities offering services online, in mobile applications and in physical locations, and 464.2(a) attaches to any offer, display or advertisement of a price.[1] - Q: Does the fee rule apply to group and event bookings? A: Nothing in part 464 carves them out. Answering a comment about franchised hotels advertising event spaces, the Commission said the FTC Act carries no limit on which consumers can be injured, and has long applied it where the harmed consumers are businesses.[2] - Q: Do resort fees show up in ADR and RevPAR? A: Generally no. Both are rooms-only metrics, so a mandatory fee lands in total revenue and net operating income instead. That is why two hotels with the same RevPAR can carry different NOI, and why buyers underwrite the fee separately. - Q: Can Matthews Hotel Markets review my fee disclosures? A: No. We sell hotels and arrange the debt behind them. Fee-disclosure compliance is work for your counsel. What we do is value the fee revenue and flag the line when a buyer's diligence reaches it. Sources: - [1] 16 CFR part 464, Rule on Unfair or Deceptive Fees: the definitions of covered good or service, total price, ancillary good or service, government charges, business and clear and conspicuous in 464.1; hidden fees prohibited and the prominence and pre-consent disclosure rules in 464.2; misleading fees prohibited in 464.3; and the relation to state laws in 464.4 (title 16 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-01): https://www.ecfr.gov/current/title-16/part-464 - [2] Trade Regulation Rule on Unfair or Deceptive Fees, final rule, 90 FR 2066 (January 10, 2025), effective May 12, 2025: the 2012 warning letters to hotels and online travel agents and the partitioned-pricing description, the 2017 Bureau of Economics finding on separating resort fees from posted room rates, the Commission's response on business-to-business transactions and event space, and the lodging booking and time-savings estimates at p. 2148 (Federal Trade Commission, via the Federal Register, accessed 2026-10-01): https://www.federalregister.gov/documents/2025/01/10/2024-30293/trade-regulation-rule-on-unfair-or-deceptive-fees - [3] California Business and Professions Code 17568.6, added by AB 537 (Berman, chaptered October 13, 2023) and operative July 1, 2024: the room-rate rule in (a)(1), the government taxes and fees in the total price before reservation in (a)(2), the definition of short-term lodging in (b), tourism and business improvement district assessments treated as government fees in (c), the reach of the section in (d), the $10,000 per-violation penalty and enforcing authorities in (e), and the cumulative-duties clause in (f) (California Legislative Information, accessed 2026-10-01): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC§ionNum=17568.6. - [4] 15 U.S.C. 45(m)(1)(A) and (m)(1)(C): civil penalties for violating a rule with actual knowledge or knowledge fairly implied on the basis of objective circumstances, and the treatment of each day of a continuing failure to comply as a separate violation (Legal Information Institute, Cornell Law School, accessed 2026-10-01): https://www.law.cornell.edu/uscode/text/15/45 - [5] 16 CFR 1.98(d): the adjusted maximum civil penalty under section 5(m)(1)(A) of the FTC Act, $53,088, applying to penalties assessed after January 17, 2025 (title 16 issue of September 28, 2026) (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-01): https://www.ecfr.gov/current/title-16/section-1.98 - [6] Civil Penalty Inflation Adjustments, 91 FR 58446 (September 15, 2026): FTC civil penalty amounts remain unchanged during 2026 and the 2025 levels continue to apply, because OMB was unable to produce the October 2025 cost-of-living adjustment multiplier (Federal Trade Commission, via the Federal Register, accessed 2026-10-01): https://www.federalregister.gov/documents/2026/09/15/2026-18853/civil-penalty-inflation-adjustments - [7] California Civil Code 1770(a)(29): advertising, displaying or offering a price that does not include all mandatory fees or charges, other than government taxes and fees on the transaction and shipping, is an unlawful deceptive practice (California Legislative Information, accessed 2026-10-01): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=1770. - [8] Hotel financing rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-01): https://matthewshotelmarkets.com/rates ### What is the hotel worker minimum wage, and what does it do to my hotel's value? URL: https://matthewshotelmarkets.com/hotel-industry/hotel-worker-minimum-wage Last updated: 2026-10-07 In the City of Los Angeles it is $25.00 an hour in cash plus $4.25 an hour toward health care, or $29.25 all in cash, for hotels with 60 or more guest rooms, effective July 1, 2026.[1] Long Beach pays $26.50 at 100 rooms and up.[6] Santa Monica matches Los Angeles by ordinance.[5] Key takeaways: - The rate is set by city, not by state, and applies to hotels alone. Los Angeles asks a hotel for $29.25 an hour all in where it asks every other employer for $18.42.[1][4] - Coverage turns on guest rooms: 60 in Los Angeles, 50 inside its Airport Hospitality Enhancement Zone, 100 in Long Beach, 50 in Oakland.[3][7][8] - The schedule is not fixed. Los Angeles amended its own on May 26, 2026, replacing a $30.00 rate for July 2028 with $28.50.[4] - The duty runs with the hotel, so a buyer takes the next scheduled step with the keys.[3][7] A clear waiver in a union contract is the one exception.[3][7] #### Which cities set a separate minimum wage for hotel workers? A handful of California cities do, and each sets a hotel-only rate well above what the same city asks of every other employer. This is local law. California's statewide minimum wage is $16.90 an hour for any employer with no higher industry or local rate, effective January 1, 2026.[9] The hotel ordinances sit on top of it. Four publish a current rate we read at the city itself. Los Angeles requires $25.00 an hour in cash plus $4.25 toward health care from July 1, 2026.[1] Long Beach requires $26.50 from the same date under Measure RW, which its voters adopted on March 5, 2024.[6][7] Santa Monica sets no number of its own: Municipal Code 4.63.015(b)(2) matches its hotel wage to the Los Angeles rate, so $25.00.[5] Oakland, under Measure Z, requires $18.85 with employer health benefits and $25.14 without.[8] The gap is the point: the Los Angeles all-in floor of $29.25 runs 58.8 percent above the $18.42 the city asks of everyone else.[1][4] West Hollywood, Glendale and Emeryville set hotel rates too, but their city websites answered no reader available in this run, so no figure for them is printed. #### Does the Los Angeles ordinance apply to my hotel? If the building has 60 or more guest rooms inside the city limits, yes, and the room count is the only test that matters. The Office of Wage Standards defines a covered hotel as any residential structure with 60 or more guest rooms, suites or dwelling units rentable for 30 consecutive calendar days or less.[3] There is no revenue test and no brand or franchise carve-out. A 62-room limited-service hotel is covered; a 58-room one is not. Two extensions widen it. A hotel inside the Airport Hospitality Enhancement Zone is covered at 50 rooms, and that zone is the Gateway to LA Property Business Improvement District boundary under Ordinance 177211, so it is a map question.[3] Coverage also reaches any contracted, leased or sublet premises operated in conjunction with the hotel's purpose, which takes in the restaurant you lease out and the contractor whose housekeepers work your floors.[3] Home sharing under LAMC 12.22.A.32 is carved out.[3] #### How much is the Los Angeles rate, and what comes next? It is $25.00 an hour in cash plus a $4.25 hourly health benefit payment today, rising to $25.50 plus $6.00 on July 1, 2027. The health benefit payment is the part owners miss. Under LAMC 186.04 a covered employer must pay $4.25 an hour toward health care for the worker and dependents from July 1, 2026. An employer providing none pays it as additional wages, and one whose rate falls short pays the difference, so the city's own arithmetic is $25.00 plus $4.25, or $29.25 an hour. It is not owed on overtime hours.[2] The published ladder runs four more years: $25.00 from July 1, 2026, $25.50 from 2027, $28.50 from 2028 and $29.00 from 2029.[2] The wage chart carries the matching health benefit payments, $4.25 then $6.00, and marks the July 2028 payment pending, because from then it equals the payment for an airport service employee under Los Angeles Administrative Code 10.37.3(a).[1] That ladder is newer than it looks. On May 26, 2026 the City Council approved Ordinance 188944 under Council File 25-1466, changing every increase from July 1, 2027 on.[4] The rules published three weeks earlier still print the old ladder of $27.50 for 2027 and $30.00 for 2028.[3] Those two numbers are dead. A package quoting $30.00 for 2028 is reading a document the city replaced. #### What do these ordinances require besides the hourly rate? Paid and unpaid time off, the full pass-through of service charges, a bar on crediting tips toward the wage, and in Oakland a cap on the floor space one room cleaner may be assigned in a day. Los Angeles adds at least 96 compensated hours off a year for a full-time worker plus 80 uncompensated, carrying to a cap of at least 192 hours, above which the excess is cashed out every 30 days.[2][3] Service charges are not the hotel's money. LAMC 186.03 sends every one of them to the workers who performed the service, and Long Beach reaches any separately designated amount however labeled, a healthcare surcharge or hotel worker protection fee included, with none going to supervisors or managers.[2][3][7] Neither city lets other pay count toward the floor: Los Angeles bars offsetting the wage with gratuities, service charges or bonuses, citing California Labor Code 351.[3] Oakland regulates the work. Under OMC 5.93.030 a room cleaner may not be required to clean more than 4,000 square feet in an eight-hour workday without double the regular rate for every hour that day, cut by 500 square feet per checkout room beyond six.[8] Statewide, and with no room threshold, Title 8 section 3345 has required every hotel, motel, resort and bed and breakfast inn to keep a written housekeeping injury prevention program since July 1, 2018.[10] #### What does an increase do to NOI and to what my hotel is worth? It takes the increase out of net operating income every year, and a buyer capitalizes that loss, so the hit to value is a multiple of the hit to payroll. A dollar an hour across a covered payroll leaves NOI, and value is NOI divided by a cap rate. At an 8 percent cap rate, a round number we chose rather than a quote, every recurring dollar of cost removes $12.50 of value. That is why the health benefit payment matters more than its size suggests. Los Angeles added $4.25 an hour on July 1, 2026 to a cash wage that rose $2.50 the same day, so the combined step is $6.75 an hour against the rate in force from September 8, 2025, with another $2.25 due in July 2027.[1][2][3] How much a hotel absorbs depends on what it already paid: one at the floor takes the whole step, one already at $25.00 with a health plan worth $3.00 an hour owes only the $1.25 shortfall. What no public source gives you is the staffing. The Bureau of Labor Statistics reports a 2025 median of $16.78 an hour for the 420,800 maids and housekeeping cleaners in accommodation.[11] That shows the $29.25 Los Angeles floor running 74.3 percent above what the median housekeeper earned in 2025, and says nothing about how many covered hours your hotel runs.[1][11] That comes off your own payroll register. Test the effect with the [hotel DSCR calculator](/tools/dscr-calculator) and the [hotel cap rate calculator](/tools/cap-rate-calculator). #### What should a buyer or a seller check before closing? Whether the hotel is covered, whether a union contract waives the ordinance, and whether four years of payroll records hold up. Coverage first, because it is binary and public. Count the guest rooms against the city threshold and, in Los Angeles, check the Gateway to LA district boundary near the airport.[3] A hotel that crosses the threshold through an addition crosses into the ordinance with it, and a sale resets nothing: each ordinance binds whoever owns, controls or operates the hotel, so the duty attaches to the buyer at closing at the step the schedule has reached.[3][7] Someone buying in Los Angeles in 2026 is buying the 2027 and 2028 increases too. Then read the labor agreement. Los Angeles allows the collective bargaining exemption at LAMC 186.08, and Long Beach allows a waiver only where it is explicit, in clear and unambiguous terms.[3][7] A union hotel can be cheaper to run than the statute suggests, or dearer, and the only way to know is to read the contract and its expiry. It belongs on the list at [What do buyers look for in a hotel?](/sell-a-hotel/what-buyers-look-for), next to [what happens to the staff](/sell-a-hotel/employees-when-you-sell). Last, the exposure the file creates. Los Angeles requires four years of payroll records under LAMC 188.03.B, and a worker must give written notice to cure and 30 days before suing.[3] Long Beach has no cure step, and a worker who wins is awarded attorney's fees.[7] Oakland adds $50 per person for each day a violation continued, capped at $1,000.[8] An unresolved wage claim is a holdback at closing, so find it in diligence. #### Can these rates change again before I sell? Yes, by three different routes, and a buyer should know which one applies to the hotel in front of them. Amendment: Los Angeles changed its ladder by ordinance on May 26, 2026, after the rate was already law, and nothing stops it again.[4] Indexation: once the published Los Angeles ladder runs out, the Office of Wage Standards sets the change each January off the Los Angeles area price index for urban wage earners, announces it February 1 and applies it July 1.[3] Oakland runs the same cycle to January 1.[8] An indexed rate does not stop rising because a hotel's revenue did. A voter lock: Measure RW bars any increase to Long Beach hotel wages before June 1, 2029, then requires a two-thirds council vote, a five-year gap and a labor market analysis.[7] Its published steps, $28.00 in 2027 and $29.50 in 2028, are the most predictable of the three.[7] Table: Hotel-specific minimum wage by city, read at each city's own publication, October 2026 City | Covered hotels | Hourly floor now | Next published step | Source Los Angeles | 60 or more guest rooms; 50 inside the Airport Hospitality Enhancement Zone | $25.00 cash plus $4.25 toward health care, or $29.25 all in cash, from July 1, 2026 | $25.50 plus $6.00 on July 1, 2027; $28.50 on July 1, 2028 | LAMC 186.01.C, 186.02.A, 186.04[1][2][3] Long Beach | 100 or more guest rooms | $26.50 from July 1, 2026 | $28.00 on July 1, 2027; $29.50 on July 1, 2028 | LBMC 5.48.020.A, Measure RW[6][7] Santa Monica | All hotels apart from youth hostels | $25.00, matched by ordinance to the Los Angeles hotel rate | Moves whenever Los Angeles moves | SMMC 4.63.015(b)(2)[5] Oakland | 50 or more guest rooms or suites | $18.85 with health benefits, $25.14 without, from January 1, 2026 | Price index adjustment each January 1 | OMC 5.93.040, Measure Z[8] Los Angeles, every other employer | Any employer in the city | $18.42 from July 1, 2026 | Price index adjustment each July 1 | LAMC 187.02[4] California, statewide floor | Any employer with no higher local or industry rate | $16.90 from January 1, 2026 | Annual inflation adjustment, capped at 3.5 percent | Labor Commissioner's Office[9] First-party data point: Matthews Hotel Markets' October 2026 rate sheet is where lost income becomes lost borrowing capacity. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks the coverage and loan-to-value cells as not yet published, because lenders do not publish them.[12] Whatever the floor is, a payroll increase shrinks the loan it supports. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 150-key Los Angeles hotel crossing the July 1, 2026 step): This hotel does not exist. The 150 keys, the 45 covered hourly workers, the 2,080 hours each, the absence of overtime and the 8 percent cap rate are assumptions, and yours will differ. The wage rates are published, and every figure was recomputed before this page was saved. Covered hours: 45 workers times 2,080 hours is 93,600 paid hours a year. The step: the floor was $22.50 an hour in cash from September 8, 2025, with no health benefit payment. From July 1, 2026 it is $25.00 plus $4.25, or $29.25 all in, a difference of $6.75 an hour.[1][2][3] Scenario A, a hotel paying at the floor: 93,600 hours times $6.75 is $631,800 a year, which is $4,212 per key. At an 8 percent cap rate, $631,800 divided by 0.08 is $7,897,500 of value, or $52,650 per key. Scenario B, a hotel already above it: suppose it paid $25.00 in cash and provided health benefits worth $3.00 an hour. Only the $1.25 shortfall is new. 93,600 times $1.25 is $117,000 a year, $780 per key, and $1,462,500 of value. The next step is published. On July 1, 2027 the cash wage goes to $25.50 and the health benefit payment to $6.00, a combined $31.50 and another $2.25 an hour: $210,600 a year on these hours, and $2,632,500 of value. July 1, 2028 adds $3.00 of cash wage, $280,800 a year.[1] The spread between the scenarios is the underwriting question. Two 150-key hotels on the same street with the same RevPAR can be $514,800 a year apart in cost and $6,435,000 apart in value, purely on what each already paid. Neither figure is visible from outside, which is why a buyer asks for the payroll register. FAQ: - Q: What is the hotel worker minimum wage in Los Angeles right now? A: $25.00 an hour in cash plus $4.25 toward health care, effective July 1, 2026, for hotels with 60 or more guest rooms. A worker with no employer-provided health benefits is paid $29.25 an hour in cash.[1][2] - Q: Is the Los Angeles hotel wage going to $30.00 in 2028? A: No. That came from a schedule the city replaced. Ordinance 188944, approved May 26, 2026, reset the ladder, and the current chart shows $28.50 for July 1, 2028 and $29.00 for July 1, 2029.[1][2][4] - Q: Does the ordinance apply to a 55-room hotel? A: Not in Los Angeles, unless it sits inside the Airport Hospitality Enhancement Zone, where the threshold is 50 rooms. The citywide threshold is 60 guest rooms rentable for 30 consecutive days or less.[3] - Q: Can I count tips or a service charge toward the hotel minimum wage? A: No. The Los Angeles rules bar offsetting the wage with gratuities, service charge distributions or bonuses, citing California Labor Code 351, and Long Beach says the same.[3][7] Service charges go to the workers who performed the service. - Q: Does a buyer inherit the hotel wage ordinance when I sell? A: Yes. Each ordinance binds whoever owns, controls or operates the hotel, so the duty attaches at closing at whatever step the published schedule has reached.[3][7] The buyer is also buying the increases already scheduled. - Q: Can Matthews Hotel Markets handle my wage and hour compliance? A: No. We sell hotels and arrange the debt behind them, and compliance is work for your employment counsel. What we do is underwrite what the published schedule does to net operating income and say so in the offering material. Sources: - [1] Citywide Hotel Worker Minimum Wage Rate chart, revision 05/27/2026: $25.00 cash and $4.25 health benefit for July 1, 2026 to June 30, 2027, $25.50 and $6.00 for July 1, 2027 to June 30, 2028, and $28.50 with the health benefit pending calculation for July 1, 2028 to June 30, 2029; the LAMC 186.01.C coverage test of 60 or more guest rooms, or 50 within the Airport Hospitality Enhancement Zone; the LAMC 186.04 rule that an employer who provides no health benefits pays the amount as additional wages; and the peg of the 2028 health benefit to Los Angeles Administrative Code 10.37.3(a) (Office of Wage Standards, Bureau of Contract Administration, City of Los Angeles, accessed 2026-10-07): https://wagesla.lacity.gov/sites/g/files/wph1941/files/2026-06/2026%20CHMWO%20Wage%20Chart%20wHB%20Rev05-27-26.pdf - [2] Citywide Hotel Worker Minimum Wage Ordinance, Notice to Hotel Workers, revision 05/26/2026: the wage schedule at $25.00 for July 1, 2026, $25.50 for 2027, $28.50 for 2028 and $29.00 for 2029; the $4.25 health benefit payment and the $29.25 all-cash alternative; health benefits not required on overtime hours and the LAMC 186.10.C waiver; 96 compensated and 80 uncompensated hours off a year with the 192-hour carry-over cap and the 30-day cash-out; and the LAMC 186.03 service charge pass-through (Office of Wage Standards, Bureau of Contract Administration, City of Los Angeles, accessed 2026-10-07): https://wagesla.lacity.gov/sites/g/files/wph1941/files/2026-06/2026%20CHMWO%20Notice%20Rev%2005-26-26%20-%20English%20ADA_0.pdf - [3] Rules and Regulations Implementing the Citywide Hotel Worker Minimum Wage Ordinance, Version 2, May 1, 2026: the hotel employer and covered hotel definitions, the 60-room and 30-consecutive-day test, the Airport Hospitality Enhancement Zone as the Gateway to LA Property Business Improvement District under Ordinance 177211, the short-term rental exclusion under LAMC 12.22.A.32, the bar on offsetting the wage with gratuities, service charges or bonuses under California Labor Code 351, the collective bargaining exemption at LAMC 186.08, four-year record retention under LAMC 188.03.B, the 30-day Notice to Cure, and the February 1 Consumer Price Index announcement cycle. Its Regulation #7 wage table predates the May 26, 2026 amendment and is superseded (Office of Wage Standards, Bureau of Contract Administration, City of Los Angeles, accessed 2026-10-07): https://wagesla.lacity.gov/sites/g/files/wph1941/files/2026-05/CHMWO%20Rules%20&%20Regulations%20%20Ver%202%20Final%2004-30-2026.pdf - [4] Office of Wage Standards homepage: the May 26, 2026 approval of Ordinance 188944 under Council File 25-1466, amending LAMC Sections 186.02.A and 186.04 and changing the July 1, 2026 health benefit payment and every scheduled wage increase from July 1, 2027, with the April 1, 2026 memo withdrawn; and the citywide Minimum Wage Ordinance rate of $18.42 effective July 1, 2026, adjusted each July 1 by the Los Angeles area Consumer Price Index for urban wage earners and clerical workers (Office of Wage Standards, Bureau of Contract Administration, City of Los Angeles, accessed 2026-10-07): https://wagesla.lacity.gov/ - [5] Santa Monica minimum wage page: the hotel worker rate of $25.00 an hour from July 1, 2026, the coverage of all hotels apart from youth hostels and of businesses that contract, lease or sublet on hotel property, and Santa Monica Municipal Code 4.63.015(b)(2), under which the city's hotel worker minimum wage matches the rate set for hotel workers in the City of Los Angeles (City of Santa Monica, accessed 2026-10-07): https://www.santamonica.gov/minimum-wage - [6] Notice of Annual Adjustment, Hotel Worker Hourly Rate $26.50 effective July 1, 2026: the March 5, 2024 adoption of Measure RW by Long Beach voters, the 2012 Measure N that preceded it, and the written notification and payroll adjustment duty under Long Beach Municipal Code 5.48.020 (City Clerk, City of Long Beach, accessed 2026-10-07): https://www.longbeach.gov/globalassets/city-clerk/media-library/documents/public-notices/public-notices/measure-rw-bulletin-effective-july-1-2026 - [7] Measure RW, the Long Beach initiative ordinance at Municipal Code 5.48.020: the wage ladder of $23.00 in 2024, $25.00 in 2025, $26.50 in 2026, $28.00 in 2027 and $29.50 in 2028; the April 1 bulletin and the bar on crediting service charges, commissions, bonuses, tips or gratuities against the rate; the service charge pass-through and its definition reaching a healthcare surcharge, benefits surcharge, hotel worker protection fee or housekeeping fee, with no payment to supervisors or managers; five compensated sick days accruing at five-twelfths of a day a month with a year-end cash-out; the collective bargaining waiver in clear and unambiguous terms; the private right of action with reasonable attorney's fees; the 100-guest-room definition of a hotel reaching contracted, leased and sublet premises; and the two-thirds council amendment power with no wage increase before June 1, 2029 (City Clerk, City of Long Beach, accessed 2026-10-07): https://www.longbeach.gov/globalassets/city-clerk/media-library/documents/elections/2024/ballot-measures/measure-rw-ordinance - [8] Oakland Hotel Worker's Minimum Wage Rate and Humane Workload Requirements, official notice poster set for 2026: $18.85 an hour with health benefits or $25.14 without from January 1, 2026, with health benefits defined as $6.29 an hour toward health care; the 50-guest-room threshold and the five-hours-a-week-for-four-weeks test under Oakland Municipal Code 5.93.040; the January 1 Consumer Price Index adjustment on the San Francisco, Oakland and San Jose index; the $50 per person per day penalty capped at $1,000 under OMC 5.93.060; and the OMC 5.93.030 workload limits, 4,000 square feet in an eight-hour day, prorated for shorter shifts and reduced by 500 square feet per checkout room beyond six, plus the written consent required past 10 hours in a workday (Department of Workplace and Employment Standards, City of Oakland, accessed 2026-10-07): https://www.oaklandca.gov/files/assets/city/v/1/workplace-employment-standards/documents/download-posters/posters-2026/hotel_measure_z_english_poster_set_2026.pdf - [9] Minimum Wage Frequently Asked Questions: the California minimum wage of $16.90 an hour for all employers not otherwise covered by a higher industry or local minimum wage, effective January 1, 2026, and the annual inflation adjustment capped at 3.5 percent (Labor Commissioner's Office, California Department of Industrial Relations, accessed 2026-10-07): https://www.dir.ca.gov/dlse/faq_minimumwage.htm - [10] Cal. Code Regs. tit. 8, section 3345, Hotel Housekeeping Musculoskeletal Injury Prevention: the application to hotels, motels, resorts and bed and breakfast inns, the written prevention program, the worksite hazard evaluation within three months and annual review, and the training duty on establishment, on hire and annually, effective July 1, 2018 (Division of Occupational Safety and Health, California Department of Industrial Relations, accessed 2026-10-07): https://www.dir.ca.gov/title8/3345.html - [11] Accommodation, NAICS 721, industry at a glance: average hourly earnings of $24.74 for all employees in July 2026, preliminary, and the 2025 occupational employment and wage statistics showing 420,800 maids and housekeeping cleaners at a $16.78 median hourly wage and 247,700 hotel, motel and resort desk clerks at $16.82 (U.S. Bureau of Labor Statistics, accessed 2026-10-07): https://www.bls.gov/iag/tgs/iag721.htm - [12] Matthews Hotel Markets hotel debt rate sheet, October 2026 edition: the 10-year Treasury at 5.29% and Prime at 7.00% as of September 30, 2026, with the debt service coverage and loan-to-value cells marked not yet published (Matthews Hotel Markets, accessed 2026-10-07): https://matthewshotelmarkets.com/rates ### Does my hotel have to report energy use or cut its carbon emissions? URL: https://matthewshotelmarkets.com/hotel-industry/energy-benchmarking-and-emissions-limits Last updated: 2026-10-12 Only in certain cities and states, and it turns on floor area. A New York City hotel over 25,000 square feet files a benchmarking report and an emissions report every May 1, and may not exceed 0.00987 tCO2e per square foot through 2029.[1][2][3] Washington covers hotel floor area above 50,000 square feet, first compliance date June 1, 2026.[4][5] Key takeaways: - Two duties get confused. Benchmarking reports what the hotel used; a performance standard holds it below a limit. New York City, Boston and Washington do both; California requires only the report.[3][5][7][8] - New York City's limit for a hotel tightens by 61 percent at the end of 2029, from 0.00987 to 0.003850668 tCO2e per square foot, and to 0.002640017 for 2035 through 2039.[2] - The rule is stricter than the statute: for 2030 through 2034 it sets a hotel at 0.003850668 where the Administrative Code's occupancy group R-1 says 0.00526.[1][2] - The paperwork penalty is the larger one. Exceeding the limit costs $268 a ton; filing the emissions report late costs $0.50 per square foot a month, or $45,000 a month on 90,000 square feet.[1][2] The duty follows the building, so a buyer takes the next step with the keys.[2] #### Does my hotel have to report its energy use? If the hotel sits in a city or state with a benchmarking law and clears that law's floor-area threshold, yes, and the report is due on a fixed calendar date every year. Benchmarking is the lighter of the two duties: the owner puts twelve months of whole-building energy and water data into the Environmental Protection Agency's ENERGY STAR Portfolio Manager and releases it to the government. The tool is free, and the EPA says nearly 25 percent of United States commercial building space already benchmarks in it.[9] Four calendars matter to hotel owners. New York City's Local Law 84 of 2009, as amended by Local Law 133 of 2016, takes the report by May 1, with fallback quarterly deadlines of August 1, November 1 and February 1.[3] Boston takes the prior year's energy and water use by May 15, with third-party verification in the first reporting year and each later verification year.[7] California's Energy Commission takes a report from owners of large commercial and multifamily buildings by June 1, carrying a benchmarking reference number since 2023.[8] Washington asks a tier 2 building, 20,000 to 50,000 square feet, for an energy management plan and benchmarking by July 1, 2027 and every five years after.[6] New York City then turns the report into a letter at the front door. Under Local Law 33 of 2018 as amended by Local Law 95 of 2019 the ENERGY STAR score becomes a grade, A at 85 or above, B at 70, C at 55, D below 55, F for a building that did not submit and N for an exempt one, posted near each public entrance within 30 days after October 1.[3] Failing to display it costs $1,250, and the city publishes every grade building by building.[3] No other asset class shows the paying customer its energy performance at the point of sale. #### Which hotels have to cut emissions, not just report them? A covered building in New York City or Boston has to hold annual emissions under a limit, and a Washington tier 1 building has to hit an energy use intensity target or show it is working toward one. New York City's test is floor area as the Department of Finance records it. A covered building exceeds 25,000 gross square feet, or is two or more buildings on one tax lot that together exceed 50,000, or two or more condominium buildings under the same board of managers that together exceed 50,000.[1] None of the seven exceptions reaches a hotel, so the only question is the square footage.[1] Boston covers any non-residential building of 20,000 square feet or more, with emissions standards beginning in either 2025 or 2030 and running to net zero by 2050.[7] Washington names hotels in the statute itself: a tier 1 covered building is one where nonresidential, hotel, motel and dormitory floor area together exceed 50,000 gross square feet, excluding the parking garage.[4] Targets come from ANSI/ASHRAE/IES Standard 100-2018, and the statute requires each to be no greater than the average energy use intensity for that occupancy type, so about half of existing hotels start above it by construction.[5] #### What is New York City's emissions limit for a hotel, and when does it tighten? A hotel gets 0.00987 metric tons of carbon dioxide equivalent per square foot a year through 2029, then 0.003850668 for 2030 through 2034, 0.002640017 for 2035 through 2039 and 0.001465772 for 2040 through 2049.[2] Those four numbers come from the Department of Buildings rule, not the statute, and the difference is the most expensive detail on this page. Local Law 97 set the limit by building code occupancy group, and transient lodging is group R-1 at 0.00987 for 2024 through 2029 and 0.00526 for 2030 through 2034.[1] The rule instead assigns a factor to each ENERGY STAR Portfolio Manager property type, and for "Hotel" the 2030 through 2034 factor is 0.003850668, about 27 percent below the statutory figure.[2] An owner reading only the Administrative Code would budget for the wrong limit. The occupancy-group alternative ran only for reporting years 2024 and 2025, and the types "Other" and "Mixed Use" may not be used at all.[2] How emissions are counted matters as much as the limit. For 2024 through 2029 the statute counts grid electricity at 0.000288962 tCO2e per kilowatt hour, natural gas at 0.00005311 per kBtu and district steam at 0.00004493 per kBtu.[1] For 2030 through 2034 the rule halves the electricity coefficient to 0.000145 and leaves gas unchanged.[2] The city is pricing a grid it expects to be cleaner, which makes gas the binding constraint. The report is due every May 1, certified by a registered design professional.[1] #### What happens if I miss a deadline or exceed the limit? Exceeding the New York City limit costs $268 for every metric ton over it, and filing the emissions report late costs $0.50 per square foot for each month it is late, for up to twelve months.[1][2] Read those two rates together. On a 90,000 square foot hotel the late-filing penalty is $45,000 a month and up to $540,000 over twelve months, more than nineteen times what the same hotel would owe for a realistic overage.[1][2] A compliant report filed within 60 days escapes it, and an owner who misses the date despite good faith efforts can seek an extension from 30 days before to 60 days after May 1.[1][2] A knowing false statement is a misdemeanor carrying up to $500,000.[1] Missing the separate benchmarking report draws $500, rising to $2,000 in a year.[3] Washington's penalty is built the other way around: up to $5,000 plus a continuing amount capped at $1 per year per gross square foot, so a 90,000 square foot hotel faces $90,000 a year on top of the $5,000.[5] A tier 2 building faces up to 30 cents per square foot, $12,000 on a 40,000 square foot hotel.[6] Neither tier may pass the penalty to a tenant that cooperated.[5][6] New York City leaves room to negotiate in the first compliance period: a penalty of zero where a hurricane, flood or fire prevented compliance, mitigation for documented good faith efforts, and a mediated resolution with the Department setting out a compliance plan instead of an enforcement proceeding.[2] #### What does this do to my hotel's value and my loan? A recurring penalty is a permanent reduction in net operating income, so it comes off value at a multiple. Value is net operating income divided by a cap rate, so a penalty that repeats costs a multiple of itself. At an 8 percent cap rate, a round number we chose rather than a quote, every recurring dollar removes $12.50 of value, which makes a $27,266 annual penalty $340,825 of value. The retrofit side is harder to price, and this page prints no number for it. No public source publishes what a hotel pays per key to cut gas use, and no lender publishes what it will advance against compliance work, so a typical figure would be a guess. What is published is the cost of the money: Commercial Property Assessed Clean Energy financing exists for this work in many states, at [C-PACE financing for hotels](/hotel-financing/c-pace-financing), and a renovation loan is the other route, at [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). Timing is what an owner controls. The cheapest compliance replaces a system at the end of its useful life, which is why Washington's conditional compliance route lets an owner phase measures and never requires early replacement.[5] A boiler due in 2029 in a New York City hotel is a decision about 2030, not 2026, and it should be scoped with the brand's renovation list, at [PIP and hotel value](/hotel-valuation/pip-and-hotel-value). #### What should a buyer or a seller check before closing? The covered buildings list, the filing history, the letter grade, the Portfolio Manager account and, in Washington, which of the three compliance dates the square footage lands on. Coverage first, because it is public and binary. New York City publishes a covered buildings list by borough, block and lot, and the compliance notification also appears on the hotel's own property tax bill.[3] Boston publishes a list too.[7] If the hotel is on it, the duty exists whatever the seller believes. Then the file: the last three benchmarking submissions, the last emissions report with its certification, the current letter grade, and any notice of violation or mediated resolution. A mediated resolution transfers to a subsequent owner that consents, and so does the consequence of breaching it, so read the plan before taking it.[2] Unfiled years are the real risk, because that penalty accrues monthly and the seller's exposure becomes the building's. The Portfolio Manager account is a document, not an afterthought, and twelve months of data with the utility feeds connected is worth asking for alongside the T-12. It belongs on the list at [What documents do I need to sell a hotel?](/sell-a-hotel/documents-needed). In Washington, check the square footage against the three tier 1 dates: a hotel of 90,001 square feet owed compliance on June 1, 2027, and one of 90,000 does not owe it until June 1, 2028.[5] Table: Energy reporting and emissions duties reaching hotels, read at each government's publication, October 2026 Jurisdiction | Hotels covered | What it requires | Deadline | Published penalty New York City, benchmarking | Over 25,000 gross square feet | Annual energy and water use in ENERGY STAR Portfolio Manager, plus a letter grade at each public entrance | May 1 each year; label within 30 days after October 1 | $500 per violation, up to $2,000 a year; $1,250 for not displaying the label[3] New York City, emissions limit | Over 25,000 gross square feet, or 50,000 across a tax lot | Hold emissions under the factor for property type Hotel: 0.00987 tCO2e per square foot to 2029, then 0.003850668, 0.002640017 and 0.001465772 | Certified report every May 1 | $268 per metric ton over the limit; $0.50 per square foot a month for a late report, up to 12 months[1][2] Washington, tier 1 | Hotel, motel, nonresidential and dormitory area over 50,000 gross square feet, less parking | Meet an ASHRAE 100-2018 energy use intensity target, or qualify for conditional compliance with an audit and a plan | June 1, 2026 above 220,000 sq ft; June 1, 2027 from 90,001; June 1, 2028 from 50,001 | Up to $5,000 plus up to $1 per square foot a year while the violation continues[4][5] Washington, tier 2 | 20,000 to 50,000 gross square feet | Energy management plan, operations and maintenance plan, and benchmarking | July 1, 2027, then every five years | Up to 30 cents per square foot[6] Boston | Non-residential buildings of 20,000 square feet or more | Report energy and water use, verify it through a third party, meet an annual emissions standard | May 15 each year; emissions standards from 2025 or 2030 | Not read at the publisher in this run; alternative compliance payments are one route to compliance[7] California | Large commercial and multifamily buildings | Report energy use to the California Energy Commission with the building's reference number | June 1 each year | Not read at the publisher in this run[8] First-party data point: Matthews Hotel Markets' October 2026 rate sheet is where a compliance retrofit becomes a financing question. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks every coverage and loan-to-value cell as not yet published, because lenders do not publish them.[13] No lender publishes a policy on emissions-compliance capital either. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 150-key, 90,000 square foot New York City hotel against the Local Law 97 ladder): This hotel does not exist. The 90,000 square feet, the 150 keys and the 8 percent cap rate are assumptions. The energy intensities are national hotel figures from the 2018 Commercial Buildings Energy Consumption Survey, and a hotel with a pool, a laundry or a full kitchen will sit above them. Every figure was recomputed before this page was saved. Energy, at CBECS hotel intensity: 13.0 kWh per square foot is 1,170,000 kWh a year, and 34.4 cubic feet of gas per square foot is 3,096,000 cubic feet.[10][11] At the EIA's 1,032 Btu per cubic foot for gas consumed in New York, that gas is 3,195,072 kBtu.[12] Emissions for 2024 through 2029: 1,170,000 kWh times 0.000288962 is 338.1 tCO2e, and 3,195,072 kBtu times 0.00005311 is 169.7, for 507.8 tCO2e.[1] The limit for 2024 through 2029: 90,000 square feet times 0.00987 is 888.3 tCO2e.[2] The hotel is at 57.2 percent of its limit, with 380.5 tons of headroom, and owes nothing. Now 2030 through 2034. Electricity is counted at 0.000145, so the same 1,170,000 kWh is 169.7 tCO2e; gas is unchanged at 169.7; the total is 339.3.[2] The limit is 90,000 times 0.003850668, or 346.6 tons.[2] The hotel clears it by 7.2 tons, 2.1 percent. Solving for the gas it can burn at that electricity coefficient gives 35.9 cubic feet per square foot, against the 34.4 it uses. That is the whole margin. Then 2035 through 2039, limit 237.6 tons.[2] At the same energy, the hotel is 101.7 tons over, which is $27,266 a year at $268 a ton, and $340,825 of value at an 8 percent cap rate, or $2,272 per key. To clear it instead, gas has to fall to 13.8 cubic feet per square foot, a cut of about 60 percent. The filing penalty dwarfs all of it. Miss the May 1 emissions report and the exposure is 90,000 times $0.50, or $45,000 a month and up to $540,000 over twelve months: $3,600 per key for paperwork, and 19.8 times the 2035 overage penalty.[1][2] FAQ: - Q: Does Local Law 97 apply to my hotel? A: If the building exceeds 25,000 gross square feet as the Department of Finance records it, yes. Two or more buildings on one tax lot totalling more than 50,000 square feet are also covered. None of the article's exceptions covers a hotel.[1] - Q: What is the Local Law 97 limit for a hotel? A: 0.00987 metric tons of carbon dioxide equivalent per square foot a year for 2024 through 2029, then 0.003850668 for 2030 through 2034, 0.002640017 for 2035 through 2039, and 0.001465772 for 2040 through 2049.[2] - Q: Is the fine for being over the limit or for not filing? A: Both, and the filing fine is usually larger. Exceeding the limit costs $268 a metric ton. A late emissions report costs $0.50 per square foot a month for up to twelve months, which is $45,000 a month on 90,000 square feet.[1][2] - Q: Does my hotel have to post an energy grade at the entrance? A: In New York City, yes. The grade and ENERGY STAR score go near each public entrance within 30 days after October 1. Failure to display costs $1,250, and a building that did not benchmark is graded F.[3] - Q: Which states require hotels to meet an energy performance standard? A: Washington names hotels and motels in its statute: tier 1 covers hotel floor area above 50,000 square feet, with compliance dates of June 1 in 2026, 2027 or 2028 by size.[4][5] - Q: Can Matthews Hotel Markets get my hotel into compliance? A: No. That is work for an energy engineer and a registered design professional. What we do is price the published limits into the offering material and arrange the debt, including C-PACE, behind the capital the work needs. Sources: - [1] Local Law 97 of 2019, Administrative Code Article 320: the covered building test of more than 25,000 gross square feet, two or more buildings on a tax lot over 50,000, and condominium buildings under one board over 50,000, with the seven exceptions; the occupancy group R-1 intensity limits of 0.00987 tCO2e/sf for 2024-2029 and 0.00526 for 2030-2034; the greenhouse gas coefficients of 0.000288962 tCO2e per kWh of grid electricity, 0.00005311 per kBtu of natural gas and 0.00004493 per kBtu of district steam for 2024-2029; the report certified by a registered design professional due by May 1, 2025 and every May 1 after; the civil penalty at 28-320.6 of $268 multiplied by the tons over the limit; the late-filing penalty at 28-320.6.2 of gross floor area times $0.50 a month within the 12 months after the deadline, with no penalty for a compliant report filed within 60 days; and the $500,000 false statement penalty (New York City Council, accessed 2026-10-08): https://www.nyc.gov/assets/buildings/local_laws/ll97of2019.pdf - [2] 1 RCNY 103-14, Requirements for Reporting Annual Greenhouse Gas Emissions for Covered Buildings: the emissions factors for the ENERGY STAR Portfolio Manager property type Hotel of 0.00987 tCO2e/sf for 2024-2029, 0.003850668 for 2030-2034, 0.002640017 for 2035-2039 and 0.001465772 for 2040-2049; the rule that property type is determined by the registered design professional and that Other and Mixed Use may not be assigned; the occupancy-group alternative limited to reporting years 2024 and 2025; the 2030-2034 coefficients of 0.000145 tCO2e per kWh for utility electricity, 0.00005311 per kBtu for natural gas and 0.0000432 per kBtu for district steam, with the optional time-of-use election; the subdivision (g) late-filing penalty and its extension window of 30 days before to 60 days after May 1; the subdivision (h) penalty of $268 per ton over the limit; and the subdivision (i) mitigating factors, including a penalty of zero for an unforeseeable event, mitigation for good faith efforts, and a mediated resolution that may be transferred to a consenting subsequent owner (New York City Department of Buildings, accessed 2026-10-08): https://www.nyc.gov/assets/buildings/rules/1_RCNY_103-14.pdf - [3] Benchmarking and Energy Efficiency Rating: the Local Law 84 of 2009 benchmarking duty as amended by Local Law 133 of 2016, submitted through ENERGY STAR Portfolio Manager by May 1 each year with quarterly fallback deadlines of August 1, November 1 and February 1; the $500 penalty for missing May 1 and up to $2,000 a year for continued failure; the Local Law 33 of 2018 and Local Law 95 of 2019 grades, A at 85 or above, B at 70 or above, C at 55 or above, D below 55, F for a building that did not submit and N for an exempt building; the label published in the DOB NOW public portal each October 1 and displayed near each public entrance within 30 days; the $1,250 penalty for failing to display it; the annual Local Law 33 data disclosure files; and the covered buildings list and property tax bill compliance notification (New York City Department of Buildings, accessed 2026-10-08): https://www.nyc.gov/site/buildings/codes/benchmarking.page - [4] RCW 19.27A.200, state energy performance standard definitions: a tier 1 covered building is one where the sum of nonresidential, hotel, motel and dormitory floor area exceeds 50,000 gross square feet excluding the parking garage; a tier 2 covered building is one where that sum exceeds 20,000 but not 50,000 gross square feet; and energy use intensity means net annual energy divided by gross floor area excluding parking, in thousand British thermal units per square foot per year (Washington State Legislature, accessed 2026-10-08): https://app.leg.wa.gov/RCW/default.aspx?cite=19.27A.200 - [5] RCW 19.27A.210, state energy performance standard: the Department of Commerce standard built on ANSI/ASHRAE/IES Standard 100-2018 with energy use intensity targets that may be no greater than the average energy use intensity for the occupancy type; the conditional compliance route requiring an investment grade audit, a life-cycle cost analysis, a savings-to-investment ratio of at least 1.0 and no requirement to replace equipment before the end of its useful life, with an exemption for historic buildings; the tier 1 reporting schedule of June 1, 2026 above 220,000 gross square feet, June 1, 2027 from 90,001 to 220,000 and June 1, 2028 from 50,001 to 90,000; the extension window of six months either side of the compliance date, valid two years; the administrative penalty of not more than $5,000 plus a continuing amount not exceeding a daily amount equal to $1 per year per gross square foot; and the bar on passing penalties to cooperating tenants (Washington State Legislature, accessed 2026-10-08): https://app.leg.wa.gov/RCW/default.aspx?cite=19.27A.210 - [6] RCW 19.27A.250, state energy management and benchmarking requirement: the tier 2 duties limited to energy management planning, operations and maintenance planning and energy use analysis through benchmarking; the administrative penalty not to exceed 30 cents per square foot for failing to document compliance, with no pass-through to cooperating tenants; the July 1, 2027 reporting date and the five-year cycle after it; and the direction to adopt tier 2 performance standards by December 31, 2030, with rules that may not take effect before the end of the 2031 regular legislative session (Washington State Legislature, accessed 2026-10-08): https://app.leg.wa.gov/RCW/default.aspx?cite=19.27A.250 - [7] Building Emissions Reduction and Disclosure, page last updated October 5, 2026: coverage of residential buildings with 15 or more units, non-residential buildings of 20,000 square feet or larger and any tax parcel whose buildings sum to that; the duty to report total energy and water use for the prior calendar year by May 15 each year; third-party verification in the first reporting year and each verification year after; annual emissions standards by building use type beginning in either 2025 or 2030 and reaching net zero by 2050; the covered buildings list; and compliance through emissions reduction, renewable energy or alternative compliance payments (City of Boston, accessed 2026-10-12): https://www.boston.gov/departments/environment/berdo - [8] Building Energy Benchmarking Program: the AB 802 requirement that owners of large commercial and multifamily buildings report energy use to the California Energy Commission by June 1 annually, the benchmarking reference number required on every report since 2023, and the Commission's statement that it charges no fee to submit a report (California Energy Commission, accessed 2026-10-08): https://www.energy.ca.gov/programs-and-topics/programs/building-energy-benchmarking-program - [9] Benchmark Your Building With Portfolio Manager: benchmarking defined as measuring and comparing a building's energy against similar buildings, past consumption or a reference level; Portfolio Manager as the tool used for that comparison and as the national benchmarking tool in Canada; and the statement that nearly 25 percent of United States commercial building space is actively benchmarking in it (ENERGY STAR, U.S. Environmental Protection Agency, accessed 2026-10-08): https://www.energystar.gov/buildings/benchmark - [10] Commercial Buildings Energy Consumption Survey 2018, Table C22, electricity consumption totals and conditional intensities by building activity subcategories, released December 2022: hotels, 66,000 buildings and 3,551 million square feet, electricity intensity of 13.0 kWh per square foot with a median building-level intensity of 12.8 (U.S. Energy Information Administration, accessed 2026-10-08): https://www.eia.gov/consumption/commercial/data/2018/ce/pdf/c22.pdf - [11] Commercial Buildings Energy Consumption Survey 2018, Table C32, natural gas consumption totals and conditional intensities by building activity subcategories, released December 2022: hotels, natural gas intensity of 34.4 cubic feet per square foot with a median building-level intensity of 21.1 (U.S. Energy Information Administration, accessed 2026-10-08): https://www.eia.gov/consumption/commercial/data/2018/ce/pdf/c32.pdf - [12] Heat Content of Natural Gas Consumed, Btu per cubic foot, annual: 1,032 for New York and 1,036 for the United States in 2025 (U.S. Energy Information Administration, accessed 2026-10-08): https://www.eia.gov/dnav/ng/ng_cons_heat_a_EPG0_VGTH_btucf_a.htm - [13] Matthews Hotel Markets hotel debt rate sheet, October 2026 edition: the 10-year Treasury at 5.29% and Prime at 7.00% as of September 30, 2026, with the debt service coverage and loan-to-value cells marked not yet published (Matthews Hotel Markets, accessed 2026-10-08): https://matthewshotelmarkets.com/rates ### Does my hotel need sprinklers to take federal government business? URL: https://matthewshotelmarkets.com/hotel-industry/fire-safety-and-federal-travel Last updated: 2026-10-19 Only if it is four stories or more. The Hotel and Motel Fire Safety Act of 1990 requires hard-wired smoke alarms in every guest room and sprinklers in every guest room above three stories.[1] Properties that meet it register on FEMA's national master list, which held 55,428 hotels and motels when read on October 15, 2026.[2] Key takeaways: - Two requirements, not one: a hard-wired smoke alarm in every guest room at any height, and sprinklers in every guest room once the building is four stories or more.[1] - Each federal agency must book at least 90 percent of its commercial-lodging room nights in listed properties, so an unlisted hotel competes for a 10 percent remainder.[3] - GSA's per diem lodging studies are limited to listed properties, so an unlisted hotel's rates never enter the survey that sets its market's cap.[3] - Listing is voluntary and no fee is published. An owner applies online and USFA assigns a FEMA ID that does not expire.[4] - Of 21,678 listed hotels at four stories or more, 21,593 record a sprinkler system, 99.6 percent. Of the 33,750 at three stories or lower, where no sprinkler is required, 16,368 record one anyway.[2] #### What does the Hotel and Motel Fire Safety Act require? Two things: a hard-wired, single-station smoke detector in each guest room, and an automatic sprinkler system in each guest room in any property more than three stories tall.[1] 15 U.S.C. 2225(a)(1) ties the smoke detector to National Fire Protection Association Standard 74 or any successor, at any height. Paragraph (a)(2) ties the sprinkler system to NFPA Standard 13 or 13-R, whichever is appropriate, and exempts places three stories or lower.[1] Subsection (b) carries exactly two exceptions, both narrower than they look. A system installed before October 25, 1992 is accepted if it complied with the standard the authority having jurisdiction had in effect at the time and that standard required a sprinkler head in each guest sleeping area. Where another standard prevents compliance with NFPA 13 or 13-R, the property is exempt from that specific provision only, not the rest.[1] #### What happens if my hotel is not on the list? Three things, and only the first is obvious: agencies must put at least 90 percent of their room nights elsewhere, the property is left out of the survey that sets its market's per diem cap, and no federally funded meeting can be held there.[3][5] 5 U.S.C. 5707a(a)(1) requires each agency to ensure that not less than 90 percent of the commercial-lodging room nights for its employees in a state, for a fiscal year, are booked in approved places of public accommodation. Paragraph (a)(2) makes each agency write explicit procedures to hit that percentage, and (a)(3) treats an agency as compliant where its travel runs through travel management processes designed to find approved lodging.[3] The second consequence is the one owners miss. Subsection (b) limits the studies conducted to set lodging per diem rates to approved places, and subsection (c) bars GSA from listing a non-approved property in any lodging directory.[3] GSA says the same in its own words: in setting federal lodging per diem rates it is required by law to use only properties certified as fire safe.[6] An unlisted hotel does not merely lose bookings. Its rates never enter the survey that sets the market ceiling. The instruction reaches the traveler through the Federal Travel Regulation: 41 CFR 301-11.6(b) says employees should always stay in a fire safe facility, meaning one that meets the Act, and paragraph (c) gives first consideration to government lodging agreement programs such as FedRooms. That text is current, from FTR Case 2025-05, published December 8, 2025.[7] Third, 15 U.S.C. 2225a bars federal funds from sponsoring or funding a meeting, convention, conference or training seminar conducted in a property that does not meet the guidelines, or that otherwise uses its rooms, facilities or services. The sponsoring agency head may waive that only on a determination that it is necessary in the public interest for that event.[5] #### How much is the federal lodging business worth? The rate is published and the volume is not: for travel on or after October 1, 2026 the standard CONUS lodging cap is $113 a night, with 295 locations priced separately.[8] GSA Per Diem Bulletin FTR 27-01, dated August 18, 2026, sets the rates for travel on or after October 1, 2026 through September 30, 2027. The standard lodging rate rose from $110 to $113, the standard meals and incidental expenses rate stayed at $68, and 295 locations receive non-standard rates.[8] The lodging figure caps reimbursement rather than setting a price, so a listed hotel in a standard CONUS market competes at or below $113 a night. What no public source publishes is volume. GSA publishes the caps, not how many federal room nights land in a market or at a property. An owner sizing this has to ask the agencies, bases and installations that drive the demand what they book, then run the arithmetic below on that number. Why a concentrated demand segment is underwritten more carefully than a diffuse one is covered at [what buyers look for](/sell-a-hotel/what-buyers-look-for). #### How many hotels are on the list, and how many have sprinklers? On October 15, 2026 the published file carried 57,822 properties, of which 55,428 were coded as hotels or motels.[2] FEMA's U.S. Fire Administration publishes the whole list as a downloadable file, which is how the table above was built: 8,454,269 bytes on October 15, 2026, one row per property, carrying the FEMA ID, address, story count, property type and any recorded sprinkler system. The 55,428 hotels and motels sit alongside 1,771 apartment or condominium properties, 307 bed and breakfasts, 263 short-term rentals, 27 campus properties and 25 military ones, across 57 states and territories. Texas leads with 5,325 hotels and motels, then California with 4,643, Florida with 4,011, Georgia with 2,334 and New York with 2,149.[2] The sprinkler column tracks the statute closely, which is the useful part. Of the 21,678 listed hotels at four stories or more, 21,593 record a sprinkler system, 99.6 percent, which is what a requirement that bites at that height should look like. Of the 33,750 at three stories or lower, where the Act requires none, 16,368 record one anyway, 48.5 percent. The 85 high-rise rows with no system recorded are 0.39 percent of that group, and the file does not explain them: the statute's two exceptions are a pre-1992 system and a standards conflict,[1] and the data does not say which, if either, applies. Read the file as a registration record, not an inspection database. Four hotel rows report zero stories and the highest story count is 240, a typing error rather than a building. A blank sprinkler field means the list records no system, not that a building has none. How many US hotels are left off is harder to say than it looks: there is no free public census, and the public figures point to a little over 60,000, worked through at [how big the US hotel industry is](/hotel-industry/industry-size-2026). #### How do I get my hotel on the list? Registration is voluntary: an owner completes the online application, verifies by email, and USFA assigns a FEMA ID that does not expire.[4] The sequence USFA publishes is short. Complete the online application, then follow the instructions in the verification email. Expect that you may have to grant access to a fire inspector or provide a copy of the certificate of occupancy. Once the property is determined to meet the requirements, USFA assigns a FEMA ID and adds it to the list, and that ID does not expire. Only properties in the United States or its territories qualify.[4] The state is in the loop by statute, which is why a correction usually runs through a state office rather than a federal one. 15 U.S.C. 2224(a) makes each state, through its governor or the governor's designee, responsible for submitting and periodically updating its list of complying properties, and subsection (b) makes FEMA responsible for compiling the national master list, publishing it in the Federal Register and distributing it to every federal agency.[9] USFA publishes the state contacts alongside the list.[4] What USFA does not publish is how long this takes. No document on the site states a turnaround for a registration or a correction, so this page does not put a number on one. #### Does being on the federal list mean my hotel meets local fire code? No. The Act is a floor for federal travel eligibility, and its own text says it does not limit any state or local fire rule.[1] 15 U.S.C. 2225(c) provides that the section shall not be construed to limit the power of any state or political subdivision to implement or enforce any law, rule, regulation or standard concerning fire prevention and control. The Act defines the governmental authority having jurisdiction as the entity with authority to approve fire safety systems in a specified locality, and leaves the substance to it rather than setting a national retrofit rule.[1] In practice the federal requirement is the easier of the two tests in many places. A local code or a state retrofit ordinance can require sprinklers in a three-story hotel the Act exempts, or a standpipe, an alarm upgrade or central-station monitoring the Act never mentions. The two questions are separate: a hotel can sit on the list and still be out of compliance locally, and it can be compliant locally and still be off the list because nobody registered it. None of this is legal or engineering advice: read your jurisdiction's adopted code with a licensed fire protection engineer. #### What does this mean when I sell or finance the hotel? It is a check anyone can run in under a minute, so it belongs in the seller's file before a buyer finds it. The list is public, searchable by name and address, and downloadable in one click, so a buyer, lender or franchisor can confirm a property's status without asking. Two things follow. First, if a hotel is marketed on a story that includes government, contractor or military demand, the listing is part of the evidence for it. An unlisted property with a federal demand narrative is a gap a buyer will price, and the fix costs an application rather than a renovation. The documents a buyer asks for are collected at [what documents I need to sell a hotel](/sell-a-hotel/documents-needed), and the sequence at [the hotel due diligence checklist](/buy-a-hotel/due-diligence-checklist). Second, if the property is four stories or more with no sprinkler system, that is capital expenditure competing with the rest of a renovation budget, and no public source publishes what a sprinkler retrofit costs per room on an occupied hotel. The number has to come from a contractor's bid on that building, financed as covered at [PIP and renovation loans](/hotel-financing/pip-and-renovation-loans). Table: The Hotel-Motel National Master List, read October 15, 2026. Sprinklers are required only above three stories, so a blank low-rise row is expected. Group on the list | Properties | Record a sprinkler system | Share All property types | 57,822 | 39,126 | 67.7% Hotels and motels | 55,428 | 37,961 | 68.5% Hotels and motels, 4 stories or more | 21,678 | 21,593 | 99.6% Hotels and motels, 3 stories or lower | 33,750 | 16,368 | 48.5% Apartment, bed and breakfast, short-term rental, campus, military | 2,394 | 1,165 | 48.7% First-party data point: Matthews Hotel Markets' October 2026 rate sheet is where a sprinkler scope becomes a financing question. As of September 30, 2026 it shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent, and marks every coverage and loan-to-value cell as not yet published, because lenders do not publish them.[10] Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: what the listing is worth on a 120-key, 5-story hotel): Hypothetical, and the volume is an assumption rather than a published figure. A 120-key hotel, five stories, in a standard CONUS market, so the FY2027 lodging cap is $113 a night.[8] At 120 keys it sells 43,800 room nights a year and fills 30,660 at an assumed 70 percent occupancy. Assume federal travelers take 3,000 of those nights, 9.8 percent of the occupied nights. At the $113 cap they bill $339,000 of rooms revenue. Now apply the rule. Each agency must book at least 90 percent of its commercial-lodging room nights in listed properties,[3] so at most 10 percent can go to an unlisted hotel. Unlisted, the planning number is not $339,000 but a ceiling of $33,900, and only if an agency spends its whole 10 percent allowance here. The difference, $305,100 of rooms revenue a year, is what the listing is worth at this assumed volume, against an online application with no published fee.[4] Two effects sit outside that $305,100. Per diem lodging studies are limited to listed properties, so this hotel's rates never enter the survey that sets its market's cap, and GSA may not list it in any lodging directory.[3] And a federally funded meeting or training seminar cannot be held there unless an agency head waives the prohibition as necessary in the public interest.[5] At five stories, sprinklers in each guest room are required of it, not optional.[1] FAQ: - Q: Does my hotel need sprinklers? A: Under the federal Act, only if it is four stories or more: it requires a sprinkler system in each guest room except in properties three stories or lower.[1] Your local fire code is a separate test and can be stricter.[1] - Q: What is the Hotel and Motel Fire Safety Act of 1990? A: A federal law setting two guidelines, hard-wired smoke alarms in every guest room and sprinklers above three stories, and tying federal travel and conference spending to a FEMA list of the properties that meet them.[1][3][5] - Q: How do I get my hotel on the FEMA list? A: Complete USFA's online application and verify by email. You may have to grant a fire inspector access or provide a certificate of occupancy. USFA then assigns a FEMA ID, which does not expire. No fee is published.[4] - Q: Can federal employees stay at a hotel that is not on the list? A: Rarely. Each agency must book at least 90 percent of its commercial-lodging room nights in listed properties,[3] and the Federal Travel Regulation tells employees to stay in a fire safe facility.[7] - Q: How many hotels are on the national master list? A: 55,428 hotels and motels on October 15, 2026, inside 57,822 properties of every type, read out of the file USFA publishes.[2] Texas leads with 5,325 and California follows with 4,643. - Q: Can a federally funded conference be held at an unlisted hotel? A: No federal funds may sponsor or fund a meeting, convention, conference or training seminar at a property that does not meet the guidelines, unless the head of the funding agency waives it as necessary in the public interest.[5] - Q: Do short-term rentals and bed and breakfasts qualify? A: Yes. The published file carries 263 short-term rentals and 307 bed and breakfasts alongside the hotels, plus apartment, campus and military properties.[2] The Travel Regulation treats short-term rentals as nonconventional lodging.[7] Sources: - [1] 15 U.S.C. 2225: the smoke detector requirement in (a)(1) and the sprinkler requirement in (a)(2) with its three-stories-or-lower exemption, the two exceptions in (b) including the October 25, 1992 date, the savings clause for state and local law in (c), and the definitions in (d) (Legal Information Institute, Cornell Law School, accessed 2026-10-15): https://www.law.cornell.edu/uscode/text/15/2225 - [2] Hotel-Motel National Master List, complete listings export (CSV, 8,454,269 bytes as downloaded): row counts by property type, story count and recorded sprinkler system (U.S. Fire Administration, Federal Emergency Management Agency, accessed 2026-10-15): https://apps.usfa.fema.gov/hotel/ - [3] 5 U.S.C. 5707a: the 90 percent agency booking requirement in (a)(1), the agency procedures in (a)(2) and (a)(3), the limit of per diem lodging studies to approved places in (b), the bar on listing non-approved properties in any GSA directory in (c), and the definition of an approved place of public accommodation in (f)(2) (Legal Information Institute, Cornell Law School, accessed 2026-10-15): https://www.law.cornell.edu/uscode/text/5/5707a - [4] Hotel-Motel National Master List: what the list is, the registration sequence, the fire inspection or certificate of occupancy, the FEMA ID that does not expire, the United States and territories eligibility limit, and the state contacts (U.S. Fire Administration, Federal Emergency Management Agency, accessed 2026-10-15): https://apps.usfa.fema.gov/hotel/faq - [5] 15 U.S.C. 2225a: the bar on federal funding of a meeting, convention, conference or training seminar at a non-certified place of public accommodation, the agency-head waiver in (b), and the notice requirements in (c) (Legal Information Institute, Cornell Law School, accessed 2026-10-15): https://www.law.cornell.edu/uscode/text/15/2225a - [6] Fire safe hotels: GSA is required by law to use only properties certified as fire safe in setting federal lodging per diem rates (page last updated July 22, 2024) (U.S. General Services Administration, accessed 2026-10-19): https://www.gsa.gov/travel/plan-a-trip/per-diem-rates/fire-safe-hotels - [7] 41 CFR 301-11.6: lodging selection, the fire safe facility instruction in (b) with its cross-reference to 5 U.S.C. 5707a, and the FedRooms first-consideration rule in (c); plus 301-11.7(a)(4) on nonconventional lodging. Part source note: FTR Case 2025-05, 90 FR 56893, December 8, 2025 (Electronic Code of Federal Regulations, National Archives, accessed 2026-10-15): https://www.ecfr.gov/current/title-41/subtitle-F/chapter-301/subchapter-B/part-301-11/subpart-A/section-301-11.6 - [8] GSA Per Diem Bulletin FTR 27-01 (dated August 18, 2026): the FY2027 standard CONUS lodging rate of $113, up from $110, the standard M&IE rate of $68, and the 295 non-standard locations, for travel on or after October 1, 2026 through September 30, 2027 (U.S. General Services Administration, accessed 2026-10-15): https://www.gsa.gov/policy-regulations/regulations/federal-travel-regulation/ftr-and-related-files/gsa-per-diem-bulletin-ftr-2701 - [9] 15 U.S.C. 2224: each state submits and periodically updates its list of complying properties through the governor or the governor's designee, and FEMA compiles, publishes, distributes and updates the national master list (Legal Information Institute, Cornell Law School, accessed 2026-10-15): https://www.law.cornell.edu/uscode/text/15/2224 - [10] Matthews Hotel Markets rate sheet, October 2026 edition (Matthews Hotel Markets (first-party), accessed 2026-10-15): https://matthewshotelmarkets.com/rates ### Do asbestos rules apply to my hotel renovation? URL: https://matthewshotelmarkets.com/hotel-industry/asbestos-renovation-rules Last updated: 2026-10-19 Yes, and the first duty has no size threshold. 40 CFR 61.145(a) requires a thorough inspection of the work area before any hotel renovation begins, whatever the hotel's age.[1] Written notice and the federal work practices start once regulated material reaches 260 linear feet on pipes or 160 square feet elsewhere.[1] On October 19, 2026 the Clean Air Act maximum is $124,426 a day.[2] Key takeaways: - The inspection in 40 CFR 61.145(a) carries no minimum quantity and no construction-date cutoff. The thresholds decide whether you file a notice, not whether you look.[1] - Three numbers set the notice: 260 linear feet of regulated material on pipes, 160 square feet on other components, or 35 cubic feet where the area could not be measured first.[1] - Taking out a load-supporting member makes the job a demolition, and a demolition below the thresholds still owes a notice 10 working days out.[1][3] - OSHA puts the determination on the building owner, not the contractor, and presumes pipe and surfacing material in buildings built no later than 1980 to be asbestos-containing until tested.[4] #### What does the federal rule make me do before work starts? Inspect the affected area for asbestos, including the nonfriable kinds, before the renovation begins. 40 CFR 61.145(a) opens with a duty that sits in front of every threshold in the section: prior to the commencement of the demolition or renovation, thoroughly inspect the affected facility, or the part of it where the work will occur, for the presence of asbestos, including Category I and Category II nonfriable asbestos-containing material.[1] There is no square-footage floor on that sentence and no construction-date cutoff. The quantities that follow decide which duties attach, not whether the inspection happens. A hotel is always inside the rule. 40 CFR 61.141 defines a facility as any institutional, commercial, public, industrial or residential structure, installation or building, and the only carve-out is a residential building with four or fewer dwelling units.[3] The duty is narrower than asbestos in general. The section regulates RACM, which 61.141 defines as friable asbestos material, Category I nonfriable material that has become friable or that will be sanded, ground, cut or abraded, and Category II nonfriable material with a high probability of being crumbled, pulverized or reduced to powder.[3] Category I is a short list by name: packings, gaskets, resilient floor covering and asphalt roofing products, each above 1 percent asbestos.[3] #### At what point do I have to file the 10 working days' notice? Once the combined RACM reaches 260 linear feet on pipes, 160 square feet on other facility components, or 35 cubic feet off components. Those three figures appear twice in 61.145, once for a demolition and once for a renovation; the metric originals are 80 linear meters, 15 square meters and 1 cubic meter.[1] Reach any one and the full set of notification duties and work practices applies. The notice is written, goes out at least 10 working days before stripping, removal or any other activity that would disturb the material, and is updated whenever the affected amount changes by at least 20 percent.[1] Two mechanics catch owners who assume a small job is a small job. For planned renovations made up of individual nonscheduled operations, which is what a maintenance program on failing pipe insulation is, 61.145(a)(4)(iii) says to predict the combined additive amount for the calendar year from January 1 through December 31, so twenty small repairs can cross 260 linear feet when no single one comes close. For an emergency, the amount is estimated from the sudden unexpected event that made the work necessary.[1] The notice goes to the Administrator, which means two addresses. 40 CFR 61.04(a) sends part 61 submissions in duplicate to the EPA Regional Office, and (b) says that where the standard has been delegated the same information also goes to the State agency, unless the Administrator permits the State filing alone.[5] Most states hold the delegation, so start with the state or local air district, which may run its own form, fee and threshold. #### Is a PIP a renovation or a demolition? It is a renovation until somebody takes out a load-supporting member, and then it is a demolition with a notice of its own. 40 CFR 61.141 draws the line at structure. Renovation means altering a facility or one or more facility components in any way, including stripping RACM from a component, and operations in which load-supporting structural members are wrecked or taken out are demolitions.[3] A soft-goods cycle and a bathroom gut are renovations. Opening a corridor by removing a bearing wall is a demolition. The difference shows up below the thresholds. A renovation under 260 linear feet and 160 square feet owes no notice and no work practices, only the inspection. A demolition under the same thresholds still owes one: 61.145(a)(2) requires the filing 10 working days before demolition begins, even where the answer is that there is no asbestos at all.[1] So the one hotel job that always produces a filing is the one with no asbestos and a wall coming out. Where the thresholds are met, the sequence is fixed. Remove all RACM before any activity begins that would break it up, dislodge it, or cut off access to it for later removal.[1] Four exceptions are listed, and the useful one for a hotel is Category I nonfriable material that is not friable and not in poor condition, which the rule defines as a binding losing integrity through peeling, cracking or crumbling.[1][3] Material that does come out has to be adequately wet and kept wet until it is contained, and at least one trained on-site representative has to be present whenever it is handled, with refresher training every two years.[1] Paying for the scope is a separate question, covered at [PIP and renovation financing](/hotel-financing/pip-and-renovation-loans). #### What does OSHA require of me as the building owner? Determine what is there before work begins, tell everyone who will be exposed, and use an accredited inspector if you want to rebut the presumption. 29 CFR 1926.1101 is the worker-protection half, and it does not treat the owner as a bystander. Paragraph (k)(1)(i) says employers and building owners shall identify thermal system insulation and sprayed or troweled-on surfacing materials as asbestos-containing unless a rebuttal says otherwise, and that asphalt and vinyl flooring installed no later than 1980 must be treated the same way until verified.[4] The presumption has a name, PACM: insulation and surfacing material in buildings constructed no later than 1980.[4] Paragraph (k)(2) puts the duty plainly. Before work begins the owner determines the presence, location and quantity of asbestos-containing material or PACM, and notifies the employers bidding the work, their own employees, other employers on site and tenants.[4] The standard sorts the work into four classes, from Class I removal of insulation and surfacing material down to Class IV cleanup, and Class I crosses into full containment well below the Clean Air Act threshold: more than 25 linear or 10 square feet brings critical barriers or a verified equivalent, supervised by a competent person.[4] The limits are 0.1 fiber per cubic centimeter as an eight-hour average and 1.0 over 30 minutes.[4] Two duties run back to the owner: within 10 days of finishing, the contractor reports what material is left and the monitoring results, and anyone who finds material mid-job has 24 hours to say so.[4] Rebutting the presumption takes a credential, not an opinion. 15 U.S.C. 2646(a) bars anyone from inspecting a public or commercial building for asbestos-containing material unless accredited, and 15 U.S.C. 2642(10) defines that term as any building that is not a school, excluding apartment buildings under 10 units, which puts every hotel inside it.[6][7] The rebuttal needs an inspection meeting the schools rule, or bulk samples taken by an accredited inspector or a certified industrial hygienist and analyzed by a laboratory in a recognized proficiency program.[4] No agency publishes what a survey, an abatement project or a clearance test costs, or how long an air district takes to process a notice. Get both in writing before the schedule is set. #### What happens to the waste, and what do I have to keep? The hotel is the waste generator, so the shipment records and the two follow-up clocks belong to the owner. 40 CFR 61.150 requires asbestos-containing waste material to go, as soon as practical, to a disposal site run under 61.154 or to an EPA-approved conversion site, with the exception of Category I nonfriable material that is not RACM.[8] The generator keeps a waste shipment record naming the administering agency, the quantity in cubic yards, the disposal site, the date, the transporter and a shipping certification.[8] Two clocks then run, and both are the generator's. If the signed copy has not come back from the disposal site within 35 days of the date the initial transporter took the waste, contact the transporter or the site. If it still has not come back at 45 days, report that in writing to the local, State or EPA Regional office, with a copy of the record and a cover letter explaining what you did to find the shipment. Every record is kept at least two years.[8] OSHA's records follow the building. 29 CFR 1926.1101(n)(6) says the written records of the notifications about the identification, location and quantity of asbestos-containing material and PACM shall be maintained by the building owner for the duration of ownership and shall be transferred to successive owners.[4] That turns a survey into a transaction document: a buyer's counsel asking for the asbestos file is asking for something the seller is required to have, and the absence of it is a finding. It belongs beside the reports in [the due diligence checklist](/buy-a-hotel/due-diligence-checklist) and the environmental work in [contamination liability](/buy-a-hotel/environmental-liability). #### What does getting this wrong cost, and does my state add more? Up to $124,426 a day under the Clean Air Act, $16,550 per serious job-safety violation, and in California a registration that starts at 100 square feet. 40 CFR 19.4 Table 1 carries EPA's inflation-adjusted figures. For Clean Air Act section 113(b) the maximum is $124,426 a day, in the latest column of the table as it reads on October 19, 2026. The administrative route at 113(d)(1) runs $59,114 with a $472,901 ceiling and field citations under 113(d)(3) reach $11,823, all last adjusted at 90 FR 1377 on January 8, 2025.[2] On the labor side, 29 CFR 1903.15(d) sets the maximums for penalties proposed after January 15, 2025: $16,550 for a serious or other-than-serious violation, $16,550 a day for a failure to correct, and not less than $11,823 and not more than $165,514 for a willful or repeated one, last adjusted at 90 FR 1861 on January 10, 2025.[9] The general contractor does not absorb this: it is deemed to exercise general supervisory authority over asbestos work and must ascertain whether the asbestos contractor is complying.[4] Because the standard is delegated, the state program is the one that reviews the notice, and it may be stricter.[5] California is the clearest example. Title 8 of the California Code of Regulations, section 341.6, requires an employer to register with the Division of Occupational Safety and Health before beginning asbestos-related work involving 100 square feet or more of surface area of asbestos-containing material, computed across all areas at one worksite, for a term of one year.[10] Two differences matter. The quantity is 100 square feet against the federal 160, and the material is any manufactured construction material above 1/10th of 1 percent asbestos by weight, ten times stricter than the federal more-than-1-percent test.[10][3] Material that is not asbestos-containing for the Clean Air Act can be in California, so check the state and the air district before pricing an abatement scope. Table: Federal and California asbestos triggers on a hotel renovation, read October 19, 2026 Trigger | Threshold | What it sets off | Source Pre-work inspection | None. Any demolition or renovation, any hotel age | Thorough inspection of the affected area for asbestos, including Category I and II nonfriable material | 40 CFR 61.145(a) Clean Air Act notice and work practices, renovation | 260 linear feet of RACM on pipes, or 160 square feet on other components, or 35 cubic feet off components | Written notice at least 10 working days out, plus the remove-first, wetting and trained-representative duties | 40 CFR 61.145(a)(4), (b), (c) Clean Air Act notice, demolition below the thresholds | Any demolition, including one with no asbestos | Notice 10 working days before demolition begins, under a reduced list of contents | 40 CFR 61.145(a)(2) Notice update | Affected asbestos amount changes by at least 20 percent | Revised notice to the same agencies | 40 CFR 61.145(b)(2) Calendar-year aggregation | Combined additive total of nonscheduled operations, January 1 to December 31 | A year of small pipe repairs counted as one job against the thresholds | 40 CFR 61.145(a)(4)(iii) OSHA presumption | Buildings constructed no later than 1980 | Pipe insulation and surfacing material treated as asbestos-containing until rebutted by an accredited inspector or CIH | 29 CFR 1926.1101(k)(1)(i), (k)(5)(ii) OSHA Class I containment | More than 25 linear or 10 square feet of insulation or surfacing material | Critical barriers or a verified equivalent, supervised by a competent person | 29 CFR 1926.1101(g)(4) Waste shipment follow-up | 35 days to inquire, 45 days to report in writing, 2 years to retain | Generator duties that stay with the hotel after the contractor leaves | 40 CFR 61.150(d) California registration | 100 square feet or more of material above 1/10th of 1 percent asbestos | Cal/OSHA registration before work starts, valid one year | 8 CCR 341.6 First-party data point: A survey finding moves a renovation budget, and the budget is debt. Matthews Hotel Markets' October 2026 rate sheet shows the 10-year Treasury at 5.29 percent and Prime at 7.00 percent as of September 30, 2026, and marks every spread, debt service coverage floor and loan-to-value cell as not yet published, because no lender publishes them. There is also no published lender rule requiring an asbestos survey in file before a renovation draw, so ask yours. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 110-key, 1974 hotel taking a full-service PIP): Hypothetical. The per-key budget, the occupancy and the average daily rate are assumptions, not published figures. The survey finds two things. Guest bathrooms hold resilient floor tile: 45 square feet a bath across 110 keys is 4,950 square feet, 30.9 times the 160 square foot threshold. But resilient floor covering is Category I nonfriable material, and Category I is RACM only once it has become friable or is sanded, ground, cut or abraded.[3] Lifted intact and kept wet it does not count; specify a chipping hammer and all 4,950 square feet do. The corridor and riser chases hold 290 linear feet of friable pipe insulation, 30 feet past the 260 linear foot line, so the full notification and work-practice set applies.[1] The notice drives the schedule. Postmark Friday, October 16, 2026 and the ten working days are October 19 to 23 and October 26 to 30, so stripping starts Monday, November 2, 2026, 17 calendar days after the postmark. Counting the postmark day itself would make it 14; 17 is the number to budget. Mid-job, another 70 linear feet turns up behind a riser panel, a 24.1 percent increase on 290 feet, so the notice is revised and the total becomes 360 linear feet.[1] Now price the two outcomes. At an assumed $26,000 a key the work is $2,860,000. Learning the duty after the contractor mobilizes, with 24 rooms already out of service, costs 408 room nights over the 17 days; at an assumed 71 percent occupancy and an assumed $142 average daily rate that is $41,135 of displaced rooms revenue, plus $7,047 of carry for 17 days at the 5.29 percent 10-year Treasury the October 2026 rate sheet prints, so $48,182, or $438 a key. Stripping six working days with no notice on file instead exposes the owner to $124,426 a day, $746,556, which is 26.1 percent of the budget and 15.5 times the cost of filing on time.[2] The ten working days are the cheap path. FAQ: - Q: My hotel was built in 1998. Do I still have to inspect? A: Yes. 40 CFR 61.145(a) sets no construction-date cutoff.[1] The only asbestos product bans in the rule cover friable insulating materials and spray-on application, so gaskets, mastics, roofing and resilient flooring were never banned.[11][12] - Q: We are only replacing carpet, paint and case goods. Does the rule reach that? A: The inspection duty does, because it attaches to any renovation.[1] If nothing regulated is disturbed, no notice is owed. Pulling carpet that sits on 1970s mastic or tile is a different job, and that is what the inspection is for. - Q: Who files the notice, me or my contractor? A: Either can. 40 CFR 61.141 defines the owner or operator to include anyone who owns, leases, operates, controls or supervises the facility or the operation.[3] The duty is joint, so confirm in writing who filed and keep the copy. - Q: Do the 10 working days include weekends and holidays? A: Weekends do not count. Holidays do, if they fall Monday through Friday, under the definition of working day in 40 CFR 61.141.[3] Ten working days is 14 calendar days at the fastest, and longer if the agency counts only full days after the postmark. - Q: What if we find asbestos after the job starts? A: Whoever finds it has 24 hours to tell the building owner and the other employers on site.[4] If the amount changes by 20 percent or more, the Clean Air Act notice is revised.[1] - Q: Does the survey transfer when I sell the hotel? A: Yes. 29 CFR 1926.1101(n)(6) requires the owner's records of asbestos and PACM notifications to be kept for the duration of ownership and transferred to successive owners.[4] A buyer asking for the file is asking for a required document. Sources: - [1] 40 CFR 61.145, standard for demolition and renovation: the pre-work inspection, the 260 linear foot, 160 square foot and 35 cubic foot thresholds, the 10 working days' notice, the 20 percent update rule and the work practices (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.145 - [2] 40 CFR 19.4, Table 1: civil monetary penalty inflation adjustments, including Clean Air Act sections 113(b), 113(d)(1) and 113(d)(3) (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/19.4 - [3] 40 CFR 61.141, definitions: facility, demolition, renovation, RACM, Category I and Category II nonfriable ACM, resilient floor covering, in poor condition, owner or operator, and working day (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.141 - [4] 29 CFR 1926.1101, asbestos in construction: exposure limits, work classes, PACM and the 1980 date, the building owner's determination and notification duties, Class I containment, and the records that transfer to successive owners (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/29/1926.1101 - [5] 40 CFR 61.04, address: submissions in duplicate to the EPA Regional Office, and also to the State agency where the standard is delegated (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.04 - [6] 15 U.S.C. 2646, asbestos contractor and inspector accreditation, including the 1990 extension to public and commercial buildings (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/uscode/text/15/2646 - [7] 15 U.S.C. 2642(10), definition of a public and commercial building (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/uscode/text/15/2642 - [8] 40 CFR 61.150, standard for waste disposal: the disposal site, the waste shipment record, and the 35-day, 45-day and 2-year duties (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.150 - [9] 29 CFR 1903.15(d), adjusted civil monetary penalties for penalties proposed after January 15, 2025 (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/29/1903.15 - [10] 8 CCR 341.6, registration for asbestos-related work: the 100 square foot trigger, the 1/10th of 1 percent definition and the one-year term (California Department of Industrial Relations, accessed 2026-10-19): https://www.dir.ca.gov/title8/341_6.html - [11] 40 CFR 61.148, standard for insulating materials (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.148 - [12] 40 CFR 61.146, standard for spraying (Legal Information Institute, Cornell Law School, accessed 2026-10-19): https://www.law.cornell.edu/cfr/text/40/61.146 ### Does Kari's Law apply to my hotel's phone system? URL: https://matthewshotelmarkets.com/hotel-industry/karis-law-911-requirements Last updated: 2026-10-20 Only if the system was installed after February 16, 2020. 47 CFR 9.15(c) limits the rule to a multi-line telephone system manufactured, imported, first sold or leased, or installed after that date.[1] An older system may run to the end of its useful life.[2] Replace it and three duties attach: direct 911 dialing, on-site notification, and dispatchable location.[3] Key takeaways: - The install date decides it. An existing system may run to end of life, and the FCC declined to require any disclosure about its limits.[1][2] - Replacing the phone system is what brings a hotel inside the rule, so the cost belongs in the renovation budget.[2] - A guest-room handset is an on-premises fixed telephone, so it has owed the street address plus the room number since January 6, 2021.[3][4] - 47 CFR 9.17(a)(2) presumes the manager responsible, and the FCC said a passive owner who writes compliance into the vendor agreement should not face liability.[5][2] - The ceiling is $25,132 a day and $188,491 for one failure to act, and a hotel gets a citation and usually 30 days first.[6] #### Which hotel phone systems does the rule actually reach? Only one manufactured, imported, offered for first sale or lease, first sold or leased, or installed after February 16, 2020. The Kari's Law Act of 2017 became law as Public Law 115-127 on February 16, 2018 and is codified at 47 U.S.C. 623.[7] Its effective-date provision applies it to a multi-line telephone system manufactured, imported, offered for first sale or lease, first sold or leased, or installed after the date two years after enactment, which is February 16, 2020.[7] The FCC wrote that date into its rules twice. 47 CFR 9.15 applies subpart F to anyone in the business of manufacturing, importing, selling or leasing these systems, anyone in the business of installing, managing or operating one, and any system crossing one of those five events after February 16, 2020.[1] 47 CFR 9.17(b) names the same compliance date for the whole subpart.[5] The covered term is wide. 47 CFR 9.3 defines a multi-line telephone system as common control units, telephone sets, control hardware and software and adjunct systems, including network and premises based systems such as Centrex and VoIP, as well as PBX, hybrid and key telephone systems.[4] 47 U.S.C. 1471, the definition the statute borrows, says the same.[8] A cloud-hosted service counts, and so does the switch in the back office. That makes the install date the whole question, and the answer favours an older hotel. The FCC said enterprises have the flexibility to retain an existing system until the end of its useful life should they choose to do so, and it declined to require operators of legacy systems to disclose what those systems cannot do.[2] A 2016 switch that still routes 911 through a trunk-access 9 is not a violation. Replacing it is what starts the clock, which is why this belongs in a [property improvement plan budget](/hotel-financing/pip-and-renovation-loans) rather than arriving as a surprise. #### What does the rule require once it applies? Direct 911 dialing, a notification somebody will actually see, and a location precise enough to find the room. Direct dialing comes first. 47 CFR 9.16(b)(1) bars installing, managing or operating one of these systems unless a user may directly initiate a call to 911 from any station equipped with dialing facilities, without dialing any additional digit, code, prefix, or post-fix, including a trunk-access code such as the digit 9, whether or not that digit is required for other calls.[3] The same duty binds manufacturers, importers, sellers and lessors at 9.16(a)(1).[3] Requiring a 9 for an outside line stays legal for every call that is not 911. Notification comes second, and it is conditional. 9.16(b)(2) requires the system to be configured to notify a central location at the facility or another person or organization regardless of location, if the system can do that without an improvement to its hardware or software.[3] Three tests follow: contemporaneous with the call where technically feasible, no delay to the call, and sent somewhere a person is likely to see or hear it.[3] 47 CFR 9.3 sets the content at three items, the fact that a 911 call has been made, a valid callback number, and the location the system sends to the answering point, with the last two excused only where providing them is technically infeasible.[4] The FCC addressed the hotel case directly: a hotel that does not give each guest room a direct inward dial line may put the number of a central location, such as the front desk, in the notification, and may add more, for example the room's occupancy status.[2] Location comes third, on its own timetable, and it traces to section 506 of RAY BAUM's Act rather than to Kari's Law.[2] 9.3 defines dispatchable location as the validated street address plus additional information such as suite, apartment or similar information necessary to identify the caller.[4] 9.16(b)(3) sets three deadlines, all of them past: an on-premises fixed telephone owes automated dispatchable location no later than January 6, 2021, and on-premises non-fixed devices and off-premises devices owe it by January 6, 2022 where technically feasible, and otherwise a manual update or, respectively, alternative or enhanced location information.[3] A guest-room handset sits within the property under one administrative authority, which is what 9.3 means by on-premises, so on a system installed after February 16, 2020 the room number has been owed since January 6, 2021.[3][4] #### Who carries the liability, the owner, the management company or the phone vendor? The rule presumes the person who manages the system, and a hotel that genuinely hands that job to a vendor and writes compliance into the contract is not that person. 47 CFR 9.17(a)(2) is short: where a system does not comply with 9.16(b), the person engaged in the business of managing it is presumed responsible for the noncompliance.[5] 47 CFR 9.3 says who that is. Managing means controlling and overseeing implementation of the system after installation, including how lines are distributed, assigning and reassigning telephone numbers, and ongoing network configuration. Installing means configuring the system or getting it ready to operate, which expressly includes establishing the dialing pattern for emergency calls. Operating means day-to-day operations.[4] The duty follows whoever touches the dial plan. The hotel question was argued in the docket and answered. The American Hotel and Lodging Association asked the FCC to find that a hotel is not an installer, manager or operator absent compelling evidence to the contrary. The FCC declined, then said something more useful: an enterprise owner has an obligation to hold third-party service providers responsible for complying, and a passive owner generally should not face liability if the owner contracts with a responsible third party and includes compliance requirements in its agreement with that provider.[2] The protection is the clause, not the job title, which puts it in the same drafting conversation as the rest of a [hotel management agreement](/hotel-industry/hotel-management-agreements). Two limits sit on top of that. The FCC said the question turns on a party's conduct, and that contractual arrangements may be relevant but are not determinative: an entity that performs a manager's functions in breach of a contract saying it will not can still be a person engaged in the business of managing the system.[2] And where a violation results from the owner's own failure to perform its tasks, which the FCC described as updating end-user location information and selecting the notification destination, the owner is responsible.[2] #### What does getting it wrong cost? Up to $25,132 a day with a $188,491 ceiling on a single failure to act, and for a hotel only after a citation. 47 U.S.C. 623(e) and 47 CFR 9.17(a)(1) route enforcement through title V of the Communications Act, with section 501 applying only so far as it provides for a fine.[7][5] A hotel is not a broadcast licensee, a common carrier or a covered manufacturer, so the figure comes from the catch-all. 47 CFR 1.80(b)(10) caps a forfeiture at $25,132 for each violation or each day of a continuing violation, and at $188,491 for any single act or failure to act; the inflation table at 1.80(b)(12)(ii) prints the same two figures against 47 U.S.C. 503(b)(2)(D), the maxima after the 2025 annual adjustment.[6] They move yearly: 1.80(b)(12) ties them to the October consumer price index, with the Office of Management and Budget issuing guidance no later than December 15.[6] A ceiling is not a price list. Tables 1 and 2 to 1.80(b)(11) publish base amounts for named violations, from emergency alert equipment that is not operational to a failure to maintain required records, and neither carries a line for a 911 or multi-line telephone system violation.[6] What is published instead is Table 3's adjustment criteria: an intentional violation, substantial harm and a repeated or continuous violation push the number up, while a minor violation, good faith or voluntary disclosure and a history of overall compliance push it down.[6] Nothing published says what the FCC would assess against a hotel. Timing helps an owner twice. 1.80(d) says no forfeiture may be imposed on a person who holds no Commission license, permit, certificate or other authorization until that person is sent a citation reciting the violation charged, is given a reasonable opportunity, usually 30 days, to request a personal interview, and then engages in conduct of the type described in the citation.[6] A hotel is that person. 1.80(c)(5) bars a penalty where the violation occurred more than one year before the notice.[6] Anyone may still complain about a 9.16 violation under 47 CFR 1.711 through 1.737.[5] None of this touches what a 911 call that did not connect costs in a lawsuit, which is state law the FCC does not set. #### What should a buyer, a seller or a lender ask? One question, in two parts: when was the phone system installed, and what happens when somebody dials 911 from a guest room? The first part is documentary and cheap. The install date lives on a vendor invoice, in the last renovation scope, or on the furniture, fixtures and equipment schedule, and it is dispositive: before February 16, 2020 the system is outside subpart F, after it the system is inside.[1] Put the invoice in the data room with [the documents a hotel sale needs](/sell-a-hotel/documents-needed), and ask for it alongside the other service contracts in [diligence](/buy-a-hotel/due-diligence-checklist). The second part takes a test call, arranged with the local answering point rather than dialed cold. Confirm it connects without a 9, watch the notification arrive where somebody is sitting, and confirm what the answering point received. A system that dials through but delivers only the main trunk number is compliant on 9.16(b)(1) and short on 9.16(b)(3).[3] The money side is ordinary capital expenditure. A phone system is furniture, fixtures and equipment, so it is funded from the reserve or inside renovation debt, not from an operating line, and a brand standard may call for a newer system than the rule does. That is a franchise agreement question, and no franchisor publishes its telephone specification. State law can add to the federal floor: 9.17(c) preserves the authority of state commissions and other state or local agencies over emergency communications so long as it is not inconsistent with subpart F, and the FCC noted that the direct-dialing statute enacted in Texas requires a sticker on or next to a non-compliant device explaining how to reach 911.[5][2] Check the state before assuming the federal answer is the whole answer. Table: Kari's Law and dispatchable-location duties on a hotel phone system, read October 20, 2026 Duty | What it requires | When it applies | Source Coverage | A multi-line telephone system manufactured, imported, offered for first sale or lease, first sold or leased, or installed after February 16, 2020 | February 16, 2020. An earlier system may run to end of life | 47 CFR 9.15(c), 9.17(b) Direct 911 dialing | A call to 911 from any station with dialing facilities, with no additional digit, code, prefix or post-fix, including a trunk-access 9 | On any covered system | 47 CFR 9.16(a)(1), (b)(1) On-site notification | Notice to a central location at the hotel or to another person or organization, where the system can do it without a hardware or software improvement | On any covered system | 47 CFR 9.16(b)(2) Notification content | The fact a 911 call was made, a valid callback number, and the location sent to the answering point. A hotel without direct inward dial per room may give the front desk number | On any covered system | 47 CFR 9.3 Notification timing and placement | Contemporaneous with the call where technically feasible, no delay to the call, and sent where someone is likely to see or hear it | On any covered system | 47 CFR 9.16(b)(2)(i) to (iii) Dispatchable location, guest-room and other fixed phones | Automated dispatchable location: the validated street address plus the room or suite | No later than January 6, 2021 | 47 CFR 9.16(b)(3)(i) Dispatchable location, on-premises non-fixed devices | Automated where technically feasible, otherwise end-user manual update or alternative location information | No later than January 6, 2022 | 47 CFR 9.16(b)(3)(ii) Dispatchable location, off-premises devices | Automatic where technically feasible, otherwise manual update or enhanced location information, which may be coordinate-based | No later than January 6, 2022 | 47 CFR 9.16(b)(3)(iii) Who is presumed liable | The person engaged in the business of managing the system, rebuttable by showing compliance | On any failure of 9.16(b) | 47 CFR 9.17(a)(2) Maximum forfeiture | $25,132 per violation or per day of a continuing violation, and $188,491 for a single act or failure to act | Amounts after the 2025 annual inflation adjustment | 47 CFR 1.80(b)(10), (b)(12)(ii) Citation first | No forfeiture on a person holding no FCC authorization until a citation issues, usually 30 days pass, and the conduct continues | Always, for a hotel | 47 CFR 1.80(d) Limitation period | No penalty where the violation occurred more than one year before the notice | Always, outside the listed exceptions | 47 CFR 1.80(c)(5) First-party data point: Matthews Hotel Markets' October 2026 rate sheet prices the debt a renovation runs on: as of September 30, 2026 the 10-year Treasury is 5.29 percent and Prime is 7.00 percent, and every spread, coverage floor and loan-to-value cell is marked not yet published, because no lender publishes them. No lender publishes a telephone condition either, so ask yours whether a 911 configuration test is a draw condition. Source: https://matthewshotelmarkets.com/rates Worked example (Hypothetical: a 120-key select-service hotel replacing a 2016 phone system in a renovation): Hypothetical. The per-station price, the software cost and the per-key renovation budget are assumptions, not published figures. No vendor publishes them. The switch went in during March 2016, so it sits outside subpart F, and the FCC said such a system may run to the end of its useful life.[1][2] The brand's renovation scope replaces it, and the day the new system is installed all three duties attach.[1] Size the work. 120 guest rooms plus 14 back-of-house stations is 134 stations. At an assumed $310 a station, hardware and configuration is $41,540. Add an assumed $9,000 for the notification and location software and the line is $50,540, which is $421 a key across 120 keys. Against an assumed $18,000 a key renovation, $2,160,000 in total, the 911 work is 2.3 percent of the budget. Now price the alternative. Suppose the new system goes in configured the old way, with a 9 in front of 911, and nobody tests it. 47 CFR 1.80(b)(10) caps the forfeiture at $25,132 for each day of a continuing violation and at $188,491 for a single failure to act.[6] Seven days reaches $175,924 and an eighth would reach $201,056, so the ceiling binds on day eight. $188,491 is 3.7 times the $50,540 the work would have cost, 8.7 percent of the whole renovation budget, and $1,571 a key. That figure is unlikely, and that is no reason to skip the test: 1.80(d) requires a citation and usually 30 days before any forfeiture of a non-licensee, and 1.80(c)(5) bars a penalty for a violation more than a year old.[6] The exposure nobody publishes is the one that is not capped: what a 911 call that failed to connect costs in a lawsuit. FAQ: - Q: Our phone system is from 2015. Do we have to replace it? A: No. 47 CFR 9.15(c) reaches systems installed after February 16, 2020, and the FCC said an enterprise may keep an existing system until the end of its useful life.[1][2] Replacing it brings the new system inside the rule. - Q: Does the 911 notification have to go to the front desk? A: Not specifically. 47 CFR 9.16(b)(2) requires notice to a central location at the facility or to another person or organization regardless of location, sent where someone is likely to see or hear it.[3] A front desk or security office is the usual choice. - Q: Our guest rooms have no direct dial numbers. What callback number goes in the notification? A: The FCC said a hotel that does not give each room a direct inward dial line may use the number of a central location, such as the front desk.[2] 47 CFR 9.3 excuses the callback number only where providing one is technically infeasible.[4] - Q: A vendor runs our phone system. Are we still exposed? A: 47 CFR 9.17(a)(2) presumes the manager responsible.[5] The FCC said a passive owner who contracts with a responsible third party and puts compliance requirements in the agreement should not face liability, but it refused to exempt hotels as a class.[2] - Q: What counts as dispatchable location in a hotel? A: The validated street address plus the information needed to find the caller, such as a room number.[4] A guest-room handset is an on-premises fixed telephone, which has owed automated dispatchable location since January 6, 2021.[3] - Q: Can the FCC fine us without warning? A: Not on a first look. A hotel holds no FCC authorization, so 47 CFR 1.80(d) requires a citation and usually 30 days to request an interview before any forfeiture, and then only if the conduct continues.[6] - Q: Does state law add anything? A: It can. 47 CFR 9.17(c) preserves state and local authority over emergency communications.[5] The FCC noted that the Texas statute requires a sticker on or next to a non-compliant device explaining how to reach 911.[2] Sources: - [1] 47 CFR 9.15, applicability of subpart F: the three covered classes of person and any system manufactured, imported, offered for first sale or lease, first sold or leased, or installed after February 16, 2020 (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/cfr/text/47/9.15 - [2] Implementing Kari's Law and RAY BAUM'S Act, Report and Order, 84 FR 66716: paragraph 90 on a passive owner and the hotel association's request, paragraph 93 on contracts, paragraph 95 on the owner's own tasks, paragraph 291 on retaining a system to end of life, and the front-desk callback number example (Federal Communications Commission, via the U.S. Government Publishing Office, accessed 2026-10-20): https://www.govinfo.gov/content/pkg/FR-2019-12-05/html/2019-20137.htm - [3] 47 CFR 9.16, direct 911 dialing, notification, and dispatchable location: the trunk-access clause, the three notification tests, and the January 6, 2021 and January 6, 2022 location deadlines (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/cfr/text/47/9.16 - [4] 47 CFR 9.3, definitions: multi-line telephone system, dispatchable location, MLTS notification and its three content items, on-premises, and the persons engaged in installing, managing and operating an MLTS (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/cfr/text/47/9.3 - [5] 47 CFR 9.17, enforcement, compliance date and state law: the title V route, the presumption against the system's manager, the complaint procedure, and the February 16, 2020 compliance date (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/cfr/text/47/9.17 - [6] 47 CFR 1.80, forfeiture proceedings: the catch-all ceiling in (b)(10), the 47 U.S.C. 503(b)(2)(D) line in the inflation table, the base amounts and adjustment criteria in Tables 1 to 3, the one-year limitation, and the citation-first rule for non-licensees (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/cfr/text/47/1.80 - [7] 47 U.S.C. 623, configuration of multi-line telephone systems for direct dialing of 911: the Kari's Law Act of 2017, Public Law 115-127, and its two-year effective-date provision (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/uscode/text/47/623 - [8] 47 U.S.C. 1471, definitions, including the multi-line telephone system definition the statute borrows (Legal Information Institute, Cornell Law School, accessed 2026-10-20): https://www.law.cornell.edu/uscode/text/47/1471 ## Calculators ### What is my hotel worth? A hotel value estimator that gives a screening range URL: https://matthewshotelmarkets.com/tools/hotel-value-estimator Last updated: 2026-09-18 A first-pass hotel value is NOI divided by a cap rate band, less any PIP still to fund. The Matthews Hotel Index for Q1 2026, published April 15, 2026, puts select-service hotels at 7.50% to 8.75% across its 14 markets.[1] On $1,050,000 of NOI with a $1,100,000 PIP, that is $10,900,000 to $12,900,000. Matthews Hotel Markets calls that a screening range, not a valuation. Formula: noiUsed = noi, or revenue x noiMargin / 100 when noi is 0 band = Matthews Hotel Index band for your segment and market (all-markets band when the market has none for the segment) valueLow = noiUsed / (bandHigh / 100) - pip valueHigh = noiUsed / (bandLow / 100) - pip perKeyLow = valueLow / keys perKeyHigh = valueHigh / keys Worked example (Pre-computed worked example (server-rendered): hypothetical 78-key select-service hotel): Hypothetical hotel, using the estimator's own default inputs so the example and the live tool agree. The hotel, its NOI and its PIP are invented. The cap rate band is not: it is the Q1 2026 Matthews Hotel Index.[1] Inputs: 78 keys. NOI $1,050,000. Segment select-service. Market left on all 14 markets. PIP still to fund $1,100,000. Band. Select-service across all 14 markets: 7.50% to 8.75%. Low end. $1,050,000 / 0.0875 = $12,000,000. Less the $1,100,000 PIP = $10,900,000, or $139,744 per key. High end. $1,050,000 / 0.0750 = $14,000,000. Less the $1,100,000 PIP = $12,900,000, or $165,385 per key. Screening range: $10,900,000 to $12,900,000. The two ends are $2,000,000 apart on the same hotel, which is why this is a screening range and a broker opinion of value is the next step. The revenue path gives the same NOI: $3,500,000 of total revenue at a hypothetical 30 percent NOI margin is $1,050,000. A screening range, not a valuation, an appraisal or a broker opinion of value. Cap rate bands are the Matthews Hotel Index, Q1 2026. The hotel inputs shown at the start are hypothetical. The estimate ignores brand, condition, ground leases, market supply, deferred capital work and management encumbrance. FAQ: - Q: How do I estimate what my hotel is worth? A: Divide NOI by a cap rate band for your segment and market, then subtract any PIP still to fund. That gives a screening range. A broker opinion of value built from comparable sales narrows it. - Q: Why does the estimator give a range and not one number? A: Because the Matthews Hotel Index publishes cap rate bands, not single rates, and Q1 2026 select-service spans 7.50% to 8.75% across its markets.[1] One number would claim precision the data does not have. - Q: What cap rate does the estimator use? A: The Q1 2026 Matthews Hotel Index band for your segment and market.[1] If that market publishes no band for your segment, it falls back to the band across all 14 markets and tells you. - Q: My hotel is not in one of the 14 markets. Can I still use it? A: Yes. Leave the market on all 14 markets. The index has no national figure, so that band is the lowest low to the highest high among its markets, and a hotel elsewhere can fall outside it. - Q: Why is the PIP subtracted from the value? A: The index bands describe stabilized, PIP-current hotels.[1] A buyer who inherits brand-required work prices it into the bid. A buyer may price it above or below cost, so treat the subtraction as a first pass. - Q: What NOI margin should I enter? A: Your own, from a trailing twelve-month statement, after a management fee and an FF&E reserve. The 30 percent default is a hypothetical placeholder, not a benchmark. If you know NOI, type it and skip the margin. - Q: Is this a hotel appraisal or a broker opinion of value? A: Neither. It is arithmetic on a published band. It ignores brand, condition, ground leases, supply, deferred capital work and management contracts. A broker opinion of value prices those against named comparable sales. - Q: Do I have to give my email to see the result? A: No. There is no sign-up, the result shows as you type, and the numbers stay in your browser. ### How big a loan can my hotel support? A hotel loan sizing calculator URL: https://matthewshotelmarkets.com/tools/hotel-loan-sizing-calculator Last updated: 2026-10-01 A hotel lender sizes the loan three ways and lends the smallest result. DSCR caps it at NOI divided by the test and the loan constant. Debt yield caps it at NOI divided by the test. LTV caps it at a percent of value. Lenders do not publish those tests, so enter yours.[1] Matthews Hotel Markets' October 2026 rate sheet has the 10-year Treasury at 5.29% on September 30, 2026.[2] Formula: rate = indexRate + spread monthlyRate = rate / 100 / 12 n = amortYears x 12 loanConstant = (monthlyRate / (1 - (1 + monthlyRate) ^ -n)) x 12 loanByDscr = noi / testDscr / loanConstant loanByDY = noi / (testDebtYield / 100) loanByLtv = value x testLtv / 100 maxLoan = the smallest of the tests you entered equity = value - maxLoan SBA 504 mode, hotel (13 CFR 120.910, 120.920; SOP 50 10 8): bankLoan = projectCost x 50% (minimum) borrower = projectCost x 15% (20% if the business is two years old or less) debenture = the smaller of the remainder and $5,000,000 uncovered = remainder - debenture Worked example (Pre-computed worked example (server-rendered): hypothetical hotel at the calculator's defaults): Hypothetical, using the calculator's own default inputs so the example and the live tool agree. The 1.35x, 10 percent and 65 percent tests are this hypothetical's assumptions, not lender requirements or market figures. The rate is the 10-year Treasury alone with a zero spread, which no lender quotes, so read the DSCR line as a ceiling. Inputs: NOI $1,050,000. Appraised value $12,000,000. Index 5.29% plus spread 0.00% = 5.29%, 25-year amortization. Tests: DSCR 1.35x, debt yield 10.00%, LTV 65.00%. DSCR test. Maximum debt service = $1,050,000 / 1.35 = $777,778. The loan constant at 5.29% over 25 years is 0.072193. Loan = $10,773,562. Debt yield test. $1,050,000 / 0.10 = $10,500,000. LTV test. $12,000,000 x 0.65 = $7,800,000. The binding constraint is LTV / LTC, so the loan is $7,800,000. Implied equity = $12,000,000 less $7,800,000 = $4,200,000. At that loan the DSCR is 1.86x and the debt yield is 13.46%. SBA 504 mode on the same $12,000,000 as total project cost: bank first lien at 50 percent = $6,000,000, debenture at 35 percent = $4,200,000, borrower contribution at 15 percent = $1,800,000.[3][4] For a business two years old or less the contribution is $2,400,000 and the debenture $3,600,000.[3] On a $16,000,000 project, 35 percent would be $5,600,000, so the $5,000,000 cap binds and $600,000 has to come from a larger bank loan or more equity.[5] Indicative arithmetic only. The three tests are yours: the defaults are hypothetical and no lender publishes them. Not a loan quote, a commitment or an offer of credit. SBA 504 figures are regulatory minimums and caps, not a lender's terms. FAQ: - Q: How do lenders decide how much to lend on a hotel? A: They size the loan under a DSCR test, a debt yield test and an LTV or LTC test, then lend the smallest result. The test that produces the smallest loan is the binding constraint. - Q: What DSCR, debt yield and LTV should I enter? A: The ones your lender stated. No lender type publishes a DSCR floor, a debt yield floor or an LTV ceiling, and our rate sheet marks those cells not yet published.[1] The defaults are hypothetical placeholders. - Q: Why is the spread field empty? A: Because lenders do not publish hotel spreads, and we will not print one we cannot source.[1] The index is public: the 10-year Treasury was 5.29% on September 30, 2026.[2] Type the spread from your own quote. - Q: What does binding constraint mean? A: It is the sizing test that limits the loan. If LTV binds, a higher appraisal helps and a lower rate does not. If DSCR binds, rate and amortization matter. If debt yield binds, only NOI moves the loan. - Q: How much equity do I need to buy a hotel? A: Price less the loan the binding test allows, plus closing costs, reserves and any PIP. The calculator shows the first part. Under SBA 504 the minimum borrower contribution on a hotel is 15 percent of project cost, or 20 percent for a business two years old or less.[3] - Q: What is the largest SBA 504 debenture on a hotel? A: $5,000,000.[5] The bank first lien sits alongside it and must be at least 50 percent of project cost, so the project can be far larger than the debenture.[4] - Q: Can I use LTC instead of LTV? A: Yes. Enter total project cost or purchase price in the value field and your lender's loan-to-cost test in the LTV field. The arithmetic is the same. - Q: Is this a loan quote? A: No. It is arithmetic on the numbers you type. It is not a quote, a commitment or an offer of credit, and a lender will underwrite its own NOI. ### Hotel refinance vs sell calculator: which path leaves me more cash? URL: https://matthewshotelmarkets.com/tools/refinance-vs-sell Last updated: 2026-09-18 Size the new loan from NOI, then price the sale from the same NOI. Maximum refinance proceeds are NOI divided by your lender's DSCR test, divided by the loan constant. Net sale proceeds are value at your cap rate, less the PIP, sale costs and the payoff. Matthews Hotel Markets' October 2026 rate sheet shows the 10-year Treasury at 5.29% on September 30, 2026.[1][2] Formula: monthlyRate = rate / 100 / 12 n = amortYears x 12 loanConstant = (monthlyRate / (1 - (1 + monthlyRate) ^ -n)) x 12 maxLoan = noi / testDscr / loanConstant refiNet = maxLoan - loanBalance - pip value = noi / (capRate / 100) salePrice = value - pip saleCosts = salePrice x saleCostPct / 100 netSale = salePrice - saleCosts - loanBalance gap = netSale - refiNet Worked example (Pre-computed worked example (server-rendered): hypothetical 78-key select-service hotel): Hypothetical, using the calculator's own default inputs so the example and the live tool agree. The 1.35x test, the 7.25 percent rate, the 8.25 percent cap rate and the 2 percent sale cost are this hypothetical's assumptions, not market figures. Inputs: NOI $1,050,000. Loan balance $8,400,000. New rate 7.25 percent, 25-year amortization, lender DSCR test 1.35x. Cap rate 8.25 percent, sale costs 2 percent, PIP $1,100,000. Refinance. Maximum debt service = $1,050,000 / 1.35 = $777,778. The loan constant at 7.25 percent over 25 years is 0.086737. Maximum refinance proceeds = $777,778 / 0.086737 = $8,967,100. Less the $8,400,000 payoff and the $1,100,000 PIP = negative $532,900. The owner brings $532,900 and keeps the hotel. Sale. Value = $1,050,000 / 0.0825 = $12,727,273. Less the $1,100,000 PIP = $11,627,273. Sale costs at 2 percent = $232,545. Less the $8,400,000 payoff. Net sale proceeds before tax = $2,994,727. The gap = $2,994,727 minus negative $532,900 = $3,527,627. Selling puts about $3.53M more cash in hand today than refinancing, before tax, and the hotel's $1,050,000 of NOI goes to the buyer. The paired page, `/hotel-financing/refinance-or-sell`, runs the same hotel with a smaller PIP price reduction and lands on a different sale number, which is the point of changing the inputs. Indicative only, before tax and before refinance closing costs. Every default is hypothetical. Not a loan quote, an offer of credit, a valuation or tax advice. FAQ: - Q: How do I calculate maximum refinance proceeds on a hotel? A: Divide annual NOI by your lender's DSCR test to get maximum debt service, then divide by the loan constant at the new rate and amortization. In the hypothetical above, $1,050,000 of NOI at a 1.35x test, 7.25 percent and 25 years supports $8,967,100. - Q: How do I calculate net proceeds from selling a hotel? A: Take value, which is NOI divided by the cap rate, subtract any PIP the buyer will price in, subtract sale costs, then subtract the loan payoff. The result is before tax. Tax depends on your adjusted basis, so run that with a CPA.[3] - Q: What DSCR test should I enter? A: The one your lender stated in writing. No lender type publishes a DSCR floor, and our rate sheet marks that cell not yet published for every lender type.[1] The 1.35x default is a hypothetical placeholder. - Q: Does a bigger gap mean I should sell? A: No. The gap is only the extra cash a sale produces today, before tax. Refinancing keeps the asset and its income. Compare the gap, after tax, with what the hotel would earn you if you kept it. - Q: Why is the PIP subtracted from both columns? A: Because it is a cost on both paths. If you keep the hotel you fund or reserve for it. If you sell, a buyer prices the work into the bid. Set the field to zero if the PIP is already funded and complete. - Q: What does the calculator not include? A: Capital gains and depreciation recapture tax, refinance closing costs, prepayment charges on the old loan, and the debt yield and LTV tests. Each one can change the answer, so treat the output as a first pass. - Q: What rate should I use for the new loan? A: A quoted rate if you have one. Fixed-rate quotes are struck over the Treasury curve, and the 10-year Treasury was 5.29% on September 30, 2026.[2] Lenders do not publish their hotel spreads, so we do not print one.[1] ### Hotel DSCR calculator: will my loan size? URL: https://matthewshotelmarkets.com/tools/dscr-calculator Last updated: 2026-10-01 DSCR is net operating income divided by annual debt service. No hotel lender type publishes its DSCR floor, so enter the test your own lender stated rather than a number off the internet. Matthews Hotel Markets' October 2026 rate sheet marks that cell not yet published for all seven lender types.[1] The 10-year Treasury was 5.29% on September 30, 2026.[2] Formula: monthlyRate = rate / 100 / 12 n = amortYears x 12 monthlyPayment = loanAmount x monthlyRate / (1 - (1 + monthlyRate) ^ -n) annualDebtService = monthlyPayment x 12 dscr = noi / annualDebtService verdict = dscr >= testDscr ? "Clears the test" : "Below the test" maxDebtService = noi / testDscr constantPerDollar = (monthlyRate / (1 - (1 + monthlyRate) ^ -n)) x 12 maxLoan = maxDebtService / constantPerDollar Worked example (Pre-computed worked example (server-rendered): hypothetical 95-key select-service hotel): Hypothetical, using the calculator's own default inputs so the example and the live tool agree. The 1.35x test below is this hypothetical lender's stated test, not a published industry floor. Annual NOI: $1,600,000. Loan amount: $12,000,000. Rate: 7.25 percent, amortization 25 years. Monthly payment: $86,737. Annual debt service: $1,040,842. DSCR = $1,600,000 / $1,040,842 = 1.54x. Against this lender's 1.35x test, it clears with room to spare. Max loan at that test = ($1,600,000 / 1.35) divided by the annual constant of about $0.0868 per dollar at this rate and term, or roughly $13,664,000. So this hypothetical borrower could take about $1.66M more loan and still clear the coverage test. Whether they should depends on the debt yield and LTV tests, which are the other two constraints, covered on `/hotel-financing`. Indicative only. Not a loan quote, an offer of credit, or a commitment to lend. FAQ: - Q: What is a good DSCR for a hotel loan? A: There is no published answer. No hotel lender type publishes a DSCR floor.[1] A good DSCR is one that clears the specific test your lender stated, with enough room that a soft quarter does not put the loan in default. - Q: How do I calculate DSCR? A: Divide annual net operating income by annual debt service (twelve months of loan payments). The calculator above runs the full amortization math for you from NOI, loan amount, rate and term. - Q: What DSCR do hotel lenders require in 2026? A: Nobody publishes it. We checked all seven lender types on our own October 2026 rate sheet and every coverage cell is marked not yet published.[1] Ask your lender for its test in writing, then enter that number above. - Q: What happens if my DSCR is below the test? A: The loan amount is reduced, more equity is required, or the deal does not qualify at that lender. There is no shortcut around the math; the fix is more equity, a longer amortization, or higher NOI. - Q: Does DSCR use trailing or projected NOI? A: It depends on the lender, so ask. In our experience, permanent lenders generally use trailing twelve-month NOI, while bridge and debt fund lenders will sometimes use a stabilized, forward-looking NOI, which can support more proceeds on a transitional asset. - Q: Is DSCR more important than LTV on a hotel loan? A: Neither is universally more important. A lender runs DSCR, debt yield, and LTV independently and lends the lowest of the three results, so whichever test is binding on your specific deal is the one that matters most. - Q: How does a longer amortization change DSCR? A: A longer amortization lowers the annual payment on the same loan amount and rate, which raises DSCR, or equivalently supports a larger loan at the same DSCR test. ### Hotel debt yield calculator: how big a loan does my NOI support? URL: https://matthewshotelmarkets.com/tools/debt-yield-calculator Last updated: 2026-09-18 Debt yield is net operating income divided by the loan amount, as a percent. It ignores the rate, the amortization and the appraisal. A hotel with $1,600,000 of NOI and a $12,000,000 loan has a 13.33% debt yield. No lender type publishes its floor, so Matthews Hotel Markets' October 2026 rate sheet prints none.[1] Type the test your lender stated. Formula: debtYield = noi / loanAmount x 100 verdict = debtYield >= testDebtYield ? "Clears the test" : "Below the test" maxLoan = noi / (testDebtYield / 100) room = maxLoan - loanAmount Worked example (Pre-computed worked example (server-rendered): hypothetical 95-key select-service hotel): Hypothetical, using the calculator's own default inputs so the example and the live tool agree. It is the same hypothetical hotel as the worked example on `/tools/dscr-calculator`. The 10 percent test is this hypothetical lender's stated test, not a published industry floor. Annual NOI: $1,600,000. Loan amount: $12,000,000. Debt yield = $1,600,000 / $12,000,000 = 13.33%. Against this lender's 10.00% test, it clears. Maximum loan at that test = $1,600,000 / 0.10 = $16,000,000. That is $4,000,000 more than the request. Now compare tests. On the DSCR calculator, the same NOI at a hypothetical 1.35x test, 7.25 percent and 25 years supports about $13,664,000. That is smaller than $16,000,000, so for this hypothetical lender DSCR is the binding test, not debt yield. If the rate fell far enough, the DSCR loan would grow past $16,000,000 and debt yield would bind instead, because the debt yield number does not move with the rate. Indicative only. Every default is hypothetical. Not a loan quote, an offer of credit, or a commitment to lend. FAQ: - Q: How do I calculate debt yield? A: Divide annual net operating income by the loan amount and express it as a percent. $1,600,000 of NOI on a $12,000,000 loan is a 13.33% debt yield. - Q: What debt yield do hotel lenders require? A: No lender type publishes one, so we do not print a number.[1] CMBS sizing shows up deal by deal in offering documents filed with the SEC.[2] Ask your lender for its test in writing and enter it above. - Q: How do I find the maximum loan from a debt yield test? A: Divide NOI by the test. At a hypothetical 10% test, $1,600,000 of NOI supports a $16,000,000 loan. At a hypothetical 12% test, the same NOI supports $13,333,333. - Q: Does the interest rate change debt yield? A: No. The formula has no rate and no amortization in it. A rate change moves the DSCR test and leaves the debt yield test where it was. - Q: Is debt yield the same as cap rate? A: No. Cap rate is NOI divided by price. Debt yield is NOI divided by the loan. Because the loan is smaller than the price, debt yield is the larger percent on the same hotel. - Q: How can I improve my debt yield? A: Raise NOI or borrow less. Rate buydowns, longer amortization and a higher appraisal do nothing to it, which is the reason lenders use it. - Q: Which NOI does the lender use? A: Ask, because it varies by lender. Expect NOI after a management fee and an FF&E reserve, which is lower than the NOI on many owner statements. Enter the lender's version, not yours. ### Hotel cap rate calculator: cap rate, value and price per key URL: https://matthewshotelmarkets.com/tools/cap-rate-calculator Last updated: 2026-09-18 Cap rate is net operating income divided by price. Value is NOI divided by a cap rate. Price per key is price divided by room count. A hotel with $1,050,000 of NOI offered at $12,000,000 is an 8.75% cap rate, and at 78 keys that is $153,846 per key. Matthews Hotel Markets' October 2026 rate sheet shows the 10-year Treasury at 5.29% on September 30, 2026.[1][2] Formula: capRateAtPrice = noi / price x 100 pricePerKey = price / keys value = noi / (capRate / 100) valuePerKey = value / keys Worked example (Pre-computed worked example (server-rendered): hypothetical 78-key select-service hotel): Hypothetical, using the calculator's own default inputs so the example and the live tool agree. The $12,000,000 price and the 8.25 percent cap rate are this hypothetical's assumptions, not market figures. Inputs: NOI $1,050,000. Offered price $12,000,000. 78 keys. Cap rate to test: 8.25 percent. From the price. Cap rate = $1,050,000 / $12,000,000 = 8.75%. Price per key = $12,000,000 / 78 = $153,846. From the cap rate. Value = $1,050,000 / 0.0825 = $12,727,273. Value per key = $12,727,273 / 78 = $163,170. Read together: if comparable hotels really are trading at 8.25 percent, the $12,000,000 offer is $727,273 under that value, about $9,324 per key. If they are trading at 8.75 percent, the offer is at the market. The arithmetic cannot tell you which is true. Comparable sales can. Indicative only. Every default is hypothetical. Not an appraisal, a broker opinion of value, or an offer to buy or sell. FAQ: - Q: How do I calculate the cap rate on a hotel? A: Divide annual net operating income by the price. $1,050,000 of NOI at a $12,000,000 price is 8.75%. Use NOI after a management fee and an FF&E reserve. - Q: How do I value a hotel from its NOI? A: Divide NOI by a cap rate drawn from comparable sales. At a hypothetical 8.25% cap rate, $1,050,000 of NOI is worth $12,727,273. The cap rate is the input that needs evidence. - Q: What is price per key? A: Price divided by the number of guest rooms. $12,000,000 for 78 keys is $153,846 per key. It lets you compare hotels of different sizes and check a cap rate result against recent sales. - Q: What is a good cap rate for a hotel? A: There is no single answer. It depends on segment, market, brand and PIP status, and it is set by what buyers pay. This page does not print one. See our hotel cap rates page for the bands our index reports. - Q: Does a higher cap rate mean a better deal? A: For a buyer it means more income per dollar of price, usually in exchange for more risk. For a seller it means a lower price. On $1,050,000 of NOI, moving from 8.00% to 9.00% lowers value by $1,458,333. - Q: Should I use trailing or projected NOI? A: Match the cap rate you are comparing against. Most quoted sale cap rates refer to trailing twelve-month NOI. A projected NOI divided by a trailing cap rate overstates value. ## Glossary ### Hotel Cap Rate URL: https://matthewshotelmarkets.com/glossary/cap-rate Last updated: 2026-09-21 A hotel cap rate is the property's stabilized net operating income divided by its purchase price, expressed as a percentage. It is the unlevered first-year yield a buyer accepts. A hotel capitalization rate, or cap rate, is the ratio of stabilized net operating income (NOI) to purchase price. A $20 million hotel producing $1.6 million of NOI prices at an 8.0 percent cap rate. Cap rates compare hotel investments to other yield-bearing assets and to each other across markets, brands, and chain scales. FAQ: - Q: What is a typical hotel cap rate in 2026? A: HVS's U.S. Market Pulse of August 27, 2026 puts the industry's average cap rate at 7.7 percent for the second quarter of 2026, the trailing-twelve-month average at 8.2 percent, and the range stabilized and near-stabilized hotels generally support at 8.0 to 8.5 percent. Bands by segment and market, for the 14 markets this team covers, are in the Matthews Hotel Index on /hotel-valuation/hotel-cap-rates. - Q: How is hotel NOI calculated for cap rate purposes? A: Hotel NOI is total revenue (rooms, F&B, ancillary) minus operating expenses (department costs, undistributed expenses, franchise and brand fees, management fees, property taxes, and insurance). It excludes capital expenditures, debt service, depreciation, and income taxes. The number used in a cap rate calculation should be stabilized, not trailing twelve months in a transition period. - Q: Why are select-service hotel cap rates tighter than full-service? A: Select-service NOI is more legible and predictable. Limited F&B exposure, lean labor, and a known PIP cycle make underwriting faster and the cash flow more durable. Buyers accept tighter cap rates for assets they can underwrite in 60 days versus full-service properties that require multiple quarters of F&B and group-pace analysis. - Q: How do interest rates affect hotel cap rates? A: Cap rates and the 10-year Treasury move directionally together, with a lag, and not one for one. CBRE's H1 2026 U.S. Cap Rate Survey, published August 12, 2026, is the clean example: the all-property average cap rate was essentially flat while Treasury yields rose, and hotel cap rates compressed. Risk premiums specific to hotels, PIP exposure, labor costs and brand standard changes, move independently of rates and can offset or amplify the rate effect in either direction. - Q: What is the difference between going-in cap rate and exit cap rate? A: The going-in cap rate is the yield at acquisition, calculated against the purchase price. The exit cap rate is the assumed yield at sale, used in underwriting models to derive the residual value. Exit caps are underwritten wider than going-in caps: HVS's U.S. Market Pulse of August 27, 2026 puts them roughly 100 basis points above the cap rate a stabilized hotel supports today. Sources: - HVS U.S. Market Pulse, August 27, 2026 (HVS): https://www.hvs.com/article/10541-hvs-us-market-pulse-august-2026 - CBRE H1 2026 U.S. Cap Rate Survey, published August 12, 2026 (CBRE Research): https://www.cbre.com/insights/reports/us-cap-rate-survey-h1-2026 - STR U.S. Hotel Performance Reports (STR): https://str.com/data-insights/news - AHLA 2026 State of the Hotel Industry (AHLA): https://www.ahla.com/resource/2026-state-industry - Capitalization Rate Definition (Investopedia): https://www.investopedia.com/terms/c/capitalizationrate.asp - Federal Reserve H.15 Selected Interest Rates (Federal Reserve): https://www.federalreserve.gov/releases/h15/ ### RevPAR (Revenue Per Available Room) URL: https://matthewshotelmarkets.com/glossary/revpar Last updated: 2026-09-18 RevPAR is revenue per available room. It equals occupancy multiplied by ADR, or rooms revenue divided by total available room nights. It is the headline performance metric in hotel investment. Revenue per available room, or RevPAR, is a hotel's rooms revenue divided by total available room nights in the period. Equivalently, it is occupancy times ADR. RevPAR captures how well a property is monetizing its room inventory and is the primary year-over-year performance benchmark used by STR, public REITs, and underwriters. FAQ: - Q: What is a good RevPAR for a hotel? A: It depends entirely on the chain scale and market. Select-service hotels in Sun Belt secondary markets typically run $90 to $130 RevPAR. Full-service downtown urban properties run $150 to $250. Trophy resort and lifestyle assets can exceed $400 stabilized RevPAR. The right benchmark is always the STR competitive set, not an absolute number. - Q: What is the difference between RevPAR and ADR? A: ADR (average daily rate) is rooms revenue divided by occupied rooms. RevPAR is rooms revenue divided by available rooms. ADR captures pricing per night sold. RevPAR captures revenue per night of inventory, occupied or not. RevPAR equals occupancy times ADR. - Q: How is RevPAR used in hotel valuation? A: Underwriters project forward RevPAR by year, multiply by available room nights to get forward rooms revenue, then layer in F&B and ancillary revenue, then apply a flow-through assumption to derive NOI. NOI divided by an exit cap rate produces the residual value. RevPAR growth is the single largest driver of forward IRR in most hotel underwriting models. - Q: What is RevPAR index? A: RevPAR index, often shown as MPI, ARI, or RGI on STR reports, is a property's RevPAR divided by the competitive set's RevPAR, multiplied by 100. An index of 110 means the property is outperforming its comp set by 10 percent. An index of 90 means it is underperforming by 10 percent. - Q: Why do hotels report RevPAR instead of just revenue? A: RevPAR normalizes for hotel size and reporting period, so a 90-key hotel can be compared to a 300-key hotel and a Q1 reporting period can be compared to a Q3 reporting period. Total rooms revenue tells you how big the business is. RevPAR tells you how productively each room is being monetized. Sources: - STR US Hotel Performance Reports (STR): https://str.com/data-insights/news - AHLA State of the Hotel Industry 2026 (AHLA): https://www.ahla.com/resource/2026-state-industry - HVS US Hotel Market Pulse (HVS): https://www.hvs.com/insights/ - CBRE Hotels Research (CBRE Research): https://www.cbre.com/services/property-types/hotels - RevPAR Definition (Investopedia): https://www.investopedia.com/terms/r/revpar.asp ### ADR (Average Daily Rate) URL: https://matthewshotelmarkets.com/glossary/adr Last updated: 2026-09-18 ADR, or average daily rate, is a hotel's rooms revenue divided by the number of occupied rooms in the same period. It measures pricing power per night sold. Average daily rate (ADR) is total rooms revenue divided by the number of paid occupied rooms in a given period. ADR isolates pricing from volume. A hotel running $200 ADR is selling each occupied room at an average $200 nightly rate, regardless of how many rooms were occupied. ADR pairs with occupancy to produce RevPAR. FAQ: - Q: How is hotel ADR calculated? A: ADR equals total rooms revenue divided by the number of paid occupied rooms in the same period. STR, brand-system reports, and public REIT disclosures all use this definition, though treatment of complimentary rooms and loyalty redemptions varies slightly across sources. - Q: What is a typical hotel ADR in 2026? A: It depends on chain scale and market. Select-service hotels in Sun Belt secondary markets typically run $130 to $180 stabilized ADR. Full-service downtown urban properties run $200 to $300. Trophy resort and lifestyle assets in destination markets can stabilize at $400 or more, with peak-week pricing exceeding $1,000 in markets like Miami Beach and Scottsdale. - Q: What is the difference between ADR and rate? A: Rate is the price for a single room on a single night. ADR is the weighted-average rate across all occupied rooms in a period. A hotel might publish a $189 best-available-rate for a Tuesday night and a $359 rate for a Saturday night during a major event, then report a $217 ADR for that month after blending all channels and rate plans. - Q: Does ADR include resort fees and other surcharges? A: Generally no. Resort fees, parking, and ancillary charges are typically excluded from ADR and reported separately. ADR is a rooms-only revenue metric. For full-picture revenue benchmarking, operators look at TRevPOR (total revenue per occupied room) alongside ADR. - Q: Why does ADR matter to hotel investors? A: ADR pricing power signals the durability of demand and the competitive position of the property. Markets with structurally rising ADR command tighter cap rates because forward NOI growth is more credible. Markets with flat or declining ADR get marked down even when current cash flow looks healthy. Sources: - STR US Hotel Performance Reports (STR): https://str.com/data-insights/news - AHLA State of the Hotel Industry 2026 (AHLA): https://www.ahla.com/resource/2026-state-industry - HVS US Hotel Market Pulse (HVS): https://www.hvs.com/insights/ - CBRE Hotels Research (CBRE Research): https://www.cbre.com/services/property-types/hotels - Average Daily Rate Definition (Investopedia): https://www.investopedia.com/terms/a/average-daily-rate.asp ### PIP (Property Improvement Plan) URL: https://matthewshotelmarkets.com/glossary/pip Last updated: 2026-09-18 A PIP, or property improvement plan, is the brand-mandated capital scope a franchisor requires a hotel owner to complete to maintain or earn a franchise license. It typically runs every 7 to 10 years. A property improvement plan (PIP) is a franchise-issued list of required capital upgrades a hotel owner must execute to keep, renew, or transfer a brand license. PIPs cover guest rooms, public space, exterior, FF&E, and brand-standard technology. Costs typically run $15,000 to $40,000 per key for select-service and substantially higher for full-service. FAQ: - Q: How much does a hotel PIP cost? A: Select-service PIPs typically run $15,000 to $40,000 per key depending on brand, scope, and renovation cycle stage. Full-service PIPs can exceed $75,000 per key. New brand-design rollouts, like Hilton's H4 Hampton refresh or IHG's Express Renovation program, push costs to the higher end of the range. - Q: How often are PIPs required? A: Routine PIPs are typically issued every 7 to 10 years for select-service hotels and every 5 to 7 years for full-service. Additional PIPs are triggered by change of ownership, franchise renewal, brand-standard updates, and material physical-condition deficiencies identified during quality-assurance inspections. - Q: Can a hotel buyer negotiate the PIP? A: Limited. Franchisors negotiate at the margin on non-core scope items, such as technology platforms with weak ROI or signage timing. Core scope, guestroom finishes, bedding, bathroom upgrades, and brand-standard FF&E, is rarely negotiable. The most successful negotiations focus on timeline extensions and phasing rather than scope reductions. - Q: What happens if a PIP is not completed? A: Failure to complete a PIP on the franchisor's timeline is a default under the franchise agreement. Consequences range from QA score penalties and reservation-system suspension to license termination. A terminated brand license eliminates loyalty-program access, central reservations, and brand-marketing channels, typically reducing property value by 15 to 30 percent. - Q: How do PIPs affect hotel valuation? A: PIPs are underwritten as additional basis. A buyer paying $20 million for an asset with a $3 million PIP underwrites a $23 million all-in basis. Cap rates quoted on the purchase price assume the buyer absorbs the PIP. PIP-current assets trade at 50 to 100 basis points tighter cap rates than PIP-due assets in the same submarket. Sources: - HVS PIP Cost Estimating Guides (HVS): https://www.hvs.com/insights/ - AHLA Lodging Industry Investment Council (AHLA): https://www.ahla.com/resource-center - CBRE Hotels Research (CBRE Research): https://www.cbre.com/services/property-types/hotels - Hotel Franchise Disclosure Documents (FDD) Overview (FTC): https://www.ftc.gov/business-guidance/resources/amended-franchise-rule-faqs - Hospitality Net PIP Coverage (Hospitality Net): https://www.hospitalitynet.org/news/term/property-improvement-plan.html ### BOV (Broker Opinion of Value) URL: https://matthewshotelmarkets.com/glossary/bov Last updated: 2026-09-18 A hotel BOV, or broker opinion of value, is a written valuation prepared by a hotel investment-sales broker that estimates the price an asset would clear in the current market, supported by comp set, financial analysis, and a buyer-pool view. A broker opinion of value (BOV) is a hotel-specific valuation produced by a brokerage at the request of an owner. The deliverable typically includes a transaction-comp analysis, an as-is and as-stabilized cash flow projection, a cap-rate-based and per-key valuation range, a buyer-pool assessment, and a recommended go-to-market strategy. BOVs are confidential, free, and produced ahead of formal disposition. FAQ: - Q: How long does a hotel BOV take to complete? A: Typical turnaround is two to four weeks from the date the owner shares trailing twelve-month financials, STR data, and physical-condition information. Complex full-service or portfolio BOVs can take six to eight weeks. Brokers sometimes deliver a preliminary range within one week, with the full deliverable following. - Q: Do BOVs cost money? A: No. BOVs are produced free as part of the broker's business-development process. The broker invests underwriting time in exchange for the opportunity to be retained on the disposition. Owners are not committed to a sale by requesting a BOV. - Q: What information does a hotel broker need to produce a BOV? A: Trailing twelve months and year-to-date P&L, current STR competitive-set report, capital-expenditure history, current PIP status and cost estimates, franchise agreement summary, brand standards correspondence, property tax bills, and a current rent roll if applicable. The more information available, the more accurate the valuation. - Q: How accurate are hotel BOVs? A: A well-prepared BOV from an active broker typically prices within 3 to 7 percent of the eventual transaction value. Accuracy depends on the broker's depth of market knowledge, the quality of the financial information provided, and the stability of the cap-rate environment between BOV date and trade date. - Q: Should an owner solicit multiple BOVs? A: Yes, on assets where the owner is genuinely considering a sale or wants to test the market. Two or three BOVs produce a price range and let the owner compare strategic fit, buyer-pool depth, and marketing approach across brokerages. A spread of 5 to 10 percent between BOVs is normal; spreads above 15 percent warrant a closer look at the underlying assumptions. Sources: - HVS Hotel Valuation Methodology (HVS): https://www.hvs.com/article/category/172-valuation - USPAP (Uniform Standards of Professional Appraisal Practice) (The Appraisal Foundation): https://appraisalfoundation.org/pages/uspap - AHLA Hotel Investment Resources (AHLA): https://www.ahla.com/resource-center - CBRE Hotels Research (CBRE Research): https://www.cbre.com/services/property-types/hotels - Broker Price Opinion Definition (Investopedia): https://www.investopedia.com/terms/b/broker-price-opinion.asp ### IOM / Investment Memorandum / OM URL: https://matthewshotelmarkets.com/glossary/iom Last updated: 2026-09-18 An IOM (investment offering memorandum), also called an OM or offering memorandum, is the marketing book a hotel broker produces to present an asset to qualified buyers during a confidential disposition process. An investment offering memorandum (IOM, OM, or IM) is the principal marketing document used in a hotel disposition. It presents the property, market, financial performance, and investment thesis to qualified buyers under NDA. A typical hotel OM runs 40 to 80 pages and includes property summary, market analysis, financial detail, transaction comps, and investment highlights. FAQ: - Q: What is the difference between an IOM, an OM, and an IM? A: All three terms refer to the same document. Investment offering memorandum (IOM), offering memorandum (OM), and information memorandum (IM) are used interchangeably across hotel investment-sales brokerages. CBRE, JLL, HVS, Marcus & Millichap, and Eastdil Secured all use slightly different conventions, but the document is the same. - Q: How long is a typical hotel OM? A: Select-service OMs typically run 40 to 60 pages. Full-service and resort OMs run 60 to 100 pages. Portfolio OMs covering multiple assets can exceed 150 pages. Length is driven by the complexity of the asset, the depth of the market analysis, and the volume of operating data. - Q: When is the OM distributed during a hotel sale? A: After listing engagement and after the buyer pool has been qualified and NDAs executed. The standard sequence is: listing engagement, OM production (typically two to four weeks), teaser distribution, NDA execution with interested parties, OM release, LOI process. OMs are not pre-released to buyers without NDA. - Q: What information does an OM include that a BOV does not? A: OMs include marketing-quality photography, full physical-condition documentation, detailed franchise and brand-standards summaries, transaction process and timeline, expanded comparable-sales analysis, and contact information for the broker team. BOVs are internal underwriting documents focused on valuation; OMs are external marketing documents focused on transaction execution. - Q: Can a buyer rely on the OM during due diligence? A: Buyers should treat the OM as the starting point for underwriting, not the final word. Independent due diligence on financials (third-party audit or accountant review), STR reports, franchise standing letters, PIP letters, environmental reports, and physical-condition assessments is standard. Material discrepancies between OM data and due diligence findings are the most common cause of price re-trade or deal break. Sources: - HVS Hotel Sales Process Resources (HVS): https://www.hvs.com/article/category/172-valuation - AHLA Hotel Transaction Resources (AHLA): https://www.ahla.com/resource-center - CBRE Hotels Capital Markets (CBRE Research): https://www.cbre.com/services/property-types/hotels/capital-markets - Offering Memorandum Definition (Investopedia): https://www.investopedia.com/terms/o/offeringmemorandum.asp - JLL Hotels & Hospitality Research (JLL): https://www.jll.com/en-us/property-types/hotels-hospitality ### Debt Service Coverage Ratio (DSCR) URL: https://matthewshotelmarkets.com/glossary/dscr Last updated: 2026-10-01 Debt service coverage ratio is net operating income divided by annual debt service. A 1.35x DSCR means a hotel produces 35 percent more cash than the loan needs. DSCR is the cash-flow cushion a lender requires between a hotel's net operating income and its annual principal and interest payment. No hotel lender type publishes its minimum, so get your lender's test in writing.[1] Because DSCR is computed against the payment rather than the price, a rate increase reduces the loan a given NOI can support. FAQ: - Q: What is a good DSCR for a hotel loan? A: There is no published answer. No hotel lender type publishes a DSCR floor, and our rate sheet at /rates marks it not yet published.[1] Clear your own lender's stated test with room for a soft quarter. - Q: How do I calculate DSCR? A: Divide annual net operating income by annual principal and interest payments on the senior loan. Both figures must cover the same twelve-month period. - Q: Do lenders use trailing or projected NOI for DSCR? A: Bridge lenders often size to a pro forma, stabilized NOI; permanent lenders more often size to trailing twelve-month NOI, sometimes with a haircut for stabilization risk. - Q: What happens if my hotel's DSCR is below the lender's test? A: The loan amount is reduced until the ratio clears, or the borrower brings more equity, extends amortization, or improves NOI before closing. - Q: Is DSCR or debt yield the harder test? A: It depends on the loan's rate, amortization and the appraisal. Whichever of DSCR, debt yield, and loan-to-value produces the smallest loan amount is the one that actually binds. Sources: - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates - 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration): https://www.sba.gov/sba-lenders/#7a-terms - Risk Management Manual of Examination Policies (Federal Deposit Insurance Corporation): https://www.fdic.gov/risk-management-manual-examination-policies - 12 CFR 34.43, appraisals required; transactions requiring a state certified or licensed appraiser (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/12/34.43 ### Debt Yield URL: https://matthewshotelmarkets.com/glossary/debt-yield Last updated: 2026-09-18 Debt yield is a hotel's net operating income divided by the loan amount, expressed as a percentage. It measures the lender's return if it had to take the asset back. Debt yield is NOI divided by loan amount. It is the one sizing test that does not depend on rate, amortization or an appraisal, which is why CMBS lenders lean on it. Lenders do not publish their hotel floors. At a hypothetical 10 percent test, $2.0 million of NOI supports a $20 million loan. FAQ: - Q: What is debt yield? A: Net operating income divided by loan amount, expressed as a percentage. It is the return a lender would earn on the loan balance if it took the property back at closing. - Q: What debt yield do hotel lenders require? A: We have not found a lender type that publishes one, so ask your lender for its test in writing. In CMBS, sizing is disclosed deal by deal in offering documents filed with the SEC.[2] - Q: How is debt yield different from cap rate? A: Cap rate divides NOI by purchase price. Debt yield divides the same NOI by the loan amount, a smaller number, so debt yield is always higher than the cap rate on a levered deal. - Q: Why do CMBS lenders use debt yield? A: It does not depend on an appraisal, an interest rate, or an amortization schedule, all of which can be flattered. It is the one test a borrower cannot improve by negotiating terms. - Q: Which test usually binds on a hotel loan? A: Whichever of debt yield, DSCR and LTV produces the smallest loan amount for that specific deal. It varies by rate environment and by how the appraisal compares to the purchase price. Sources: - 12 CFR 34.43, appraisals required; transactions requiring a state certified or licensed appraiser (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/12/34.43 - EDGAR full-text search (U.S. Securities and Exchange Commission): https://www.sec.gov/edgar/search/ ### Net Operating Income (NOI) URL: https://matthewshotelmarkets.com/glossary/noi Last updated: 2026-10-07 Hotel net operating income is total revenue minus operating expenses, including franchise fees, management fee, taxes, insurance and an FF&E reserve. It excludes debt service, depreciation and income taxes. NOI is the annual cash a hotel produces from operations, before financing and taxes. It includes a management fee and an FF&E reserve whether or not the owner pays them. It is the numerator in a cap rate and in every lender sizing test, the most consequential number in a hotel deal. FAQ: - Q: How do I calculate hotel NOI? A: Total revenue minus departmental expenses, undistributed expenses, franchise and brand fees, a management fee, property taxes, insurance and an FF&E reserve. See the line-by-line build at /hotel-valuation/how-to-value-a-hotel. - Q: Does NOI include an FF&E reserve? A: Yes, at the percentage of revenue the franchise, management agreement or lender requires. Owner-prepared statements often omit it, and buyers add it back. - Q: Should I include a management fee if I self-manage? A: Yes. Buyers underwrite a market management fee regardless of how the current owner operates, since the buyer may bring in a different operator. - Q: What is the difference between NOI and cash flow? A: NOI excludes debt service, depreciation and capital expenditures. A hotel can show healthy NOI and still have negative cash flow after loan payments and a major renovation. - Q: Do property taxes get reassessed when a hotel sells? A: Often, yes, in many jurisdictions, including California, based on the sale price rather than the prior assessment.[3] Buyers underwrite the reassessed figure, not the seller's current tax bill. Sources: - HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry (adopted January 1, 2026) (American Hotel & Lodging Association): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - 2025 Hampton Franchise Disclosure Document (issued March 30, 2025), Items 5, 6 and 17 and Franchise Agreement section 12.2.2 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - Change in ownership, frequently asked questions (Proposition 13 reassessment) (California State Board of Equalization): https://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm ### Loan-to-Value (LTV) URL: https://matthewshotelmarkets.com/glossary/ltv Last updated: 2026-10-02 Loan-to-value is the loan amount divided by the hotel's appraised value, as a percentage. A $6.5 million loan on a $10 million appraisal is 65 percent LTV. LTV is the share of a hotel's value that the lender finances. Federal guidelines cap a bank's internal limit at 85 percent for improved property, but no hotel lender publishes its own ceiling, and it is set by the lender.[1][4] The denominator is the appraisal or the price, whichever is lower. FAQ: - Q: What does LTV mean on my hotel term sheet? A: It is the maximum loan as a percentage of the hotel's appraised value. If the term sheet says 65 percent LTV and the appraisal comes in at $9.0 million, the loan cannot exceed $5.85 million, whatever the purchase price is. - Q: What is the maximum LTV on a hotel loan? A: No lender type publishes one. Federal guidelines cap a bank's internal limit at 85 percent for improved property,[1] but hotel limits are set by the lender, below that. Our rate sheet at /rates marks them not yet published.[4] - Q: My appraisal came in below the purchase price. What happens to my loan? A: The lender sizes to the lower number, so proceeds fall. You can bring more cash, renegotiate the price, dispute the appraisal with better comparable sales, or move to a lender whose binding test is DSCR rather than LTV. - Q: How much do I have to put down on a hotel with an SBA 504 loan? A: At least 15 percent of project cost, because SBA treats a hotel as a limited or single purpose property. It is 20 percent if the business is also two years old or less.[3] - Q: Is LTV or DSCR more important to a hotel lender? A: Neither on its own. The lender runs LTV, DSCR and often debt yield, and the test that produces the smallest loan sets the proceeds. Use /tools/dscr-calculator to see which one binds on your numbers. Sources: - 12 CFR Part 365, Appendix A: Interagency Guidelines for Real Estate Lending Policies (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/12/appendix-A_to_subpart_A_of_part_365 - 12 CFR 34.43, appraisals required; transactions requiring a state certified or licensed appraiser (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/12/34.43 - 13 CFR 120.910, How much must the Borrower contribute? (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.910 - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### FF&E Reserve URL: https://matthewshotelmarkets.com/glossary/ffe-reserve Last updated: 2026-10-05 An FF&E reserve is money set aside each year, usually quoted as a percentage of total revenue, to replace a hotel's furniture, fixtures and equipment. HVS called 4 percent of revenues typical in 2014. The FF&E reserve, also called the reserve for replacement, funds the periodic replacement of beds, case goods, carpet, televisions and equipment. Buyers, appraisers and lenders deduct it before NOI whether or not the owner funds it. HVS described a typical reserve as 4 percent of revenues in January 2014; your lender or franchisor sets the actual figure.[1] FAQ: - Q: What is an FF&E reserve on a hotel P&L? A: A yearly allowance, stated as a percentage of total revenue, for replacing furniture, fixtures and equipment. It sits below operating profit and above NOI in a buyer's or lender's underwriting. - Q: What percentage should my hotel's FF&E reserve be? A: HVS called 4 percent of revenues typical in January 2014.[1] Your actual figure is set by your lender, franchise agreement or management agreement. Read those documents before assuming a number. - Q: My broker added an FF&E reserve I do not actually pay. Why? A: Because every buyer and lender will. A value built on NOI without the reserve does not survive underwriting, so the honest number is the one with the reserve in it. See /hotel-valuation/how-to-value-a-hotel. - Q: Does my lender hold the FF&E reserve in escrow? A: Often, yes, on CMBS and many bank loans, with monthly deposits and draws against invoices. The amount and the release terms are set by the lender in the loan agreement. - Q: Can I use the FF&E reserve to pay for a PIP? A: Usually you can draw it toward eligible items, but it is rarely enough. Plan the PIP as its own capital need. See /hotel-financing/pip-and-renovation-loans. Sources: - Hotel Capitalization Rates and the Impact of Cap Ex, Suzanne R. Mellen, January 2014 (HVS): https://www.hvs.com/Jump/?f=3501.pdf&c=6766&rt=2 - HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry, July 11, 2024 (American Hotel & Lodging Association): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### MPI, ARI and RGI (STR Index Scores) URL: https://matthewshotelmarkets.com/glossary/mpi-ari-rgi Last updated: 2026-09-18 MPI, ARI and RGI are index scores that compare a hotel's occupancy, ADR and RevPAR with its competitive set. A score of 100 is fair share; above 100 means the hotel is taking more than its share. MPI is the occupancy index, ARI is the ADR index and RGI is the RevPAR index. Each is the hotel's figure divided by the competitive set's figure, times 100. Hilton's 2025 Hampton disclosure document reports an average RevPAR Index of 121.0 for comparable Hampton hotels in 2024.[1] FAQ: - Q: What do MPI, ARI and RGI mean on my STR report? A: MPI is your occupancy against your comp set, ARI is your ADR against it, and RGI is your RevPAR against it. Each is your number divided by theirs, times 100. 100 is fair share.[1] - Q: What is a good RGI for a hotel? A: Above 100 means you take more than your fair share of RevPAR. For scale, Hilton reported an average RevPAR Index of 121.0 across comparable Hampton hotels in 2024, with a range of 39.5 to 334.4.[1] - Q: Why does a buyer want my STR index scores? A: They show whether revenue comes from the hotel or from the market. A hotel with a 90 RGI has upside a new operator can claim. A hotel at 125 is already outperforming and is priced on what it earns. See /sell-a-hotel/documents-needed. - Q: My RGI dropped but my RevPAR went up. How? A: Your competitors' RevPAR rose faster than yours. The index is relative, so a rising market can hide a loss of share. - Q: Can I share my STR report with a buyer? A: Check your STR or CoStar subscriber terms first. Sellers commonly provide the reports in a diligence room under a confidentiality agreement. We do not republish subscriber data. Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### Price Per Key URL: https://matthewshotelmarkets.com/glossary/per-key Last updated: 2026-09-18 Price per key is a hotel's price divided by its number of guest rooms. A 96-key hotel that sells for $11.5 million trades at about $119,800 per key. Per-key value is the unit price of a hotel: total price divided by room count. It lets a buyer compare a 60-key hotel with a 140-key hotel and compare a purchase with the cost to build. Hilton's 2025 disclosure document puts an 89-room Hampton at $15.2 million to $22.2 million to develop, excluding land.[1] FAQ: - Q: What does price per key mean? A: The hotel's price divided by its guest room count. At $11.5 million for 96 rooms, it is about $119,800 per key. - Q: How much is my hotel worth per key? A: Work from income first: NOI divided by a market cap rate, then divide by keys. Then compare with recent sales of similar hotels and with the cost to build. See /hotel-valuation/how-to-value-a-hotel. - Q: What does it cost per key to build a new select-service hotel? A: Brand disclosure documents publish estimates. Hilton's 2025 Hampton document shows $15.2 million to $22.2 million for an 89-room prototype, about $171,000 to $249,000 per key, excluding land.[1] - Q: Why did a hotel near mine sell for a much higher price per key? A: Usually a higher NOI per room, a newer building, a stronger brand or less capital needed after closing. Per key compresses all of that into one number, which is why it needs the income behind it. - Q: Should I include the PIP in my price per key? A: Yes, when comparing deals. A buyer's real basis is price plus required capital. HVS found that capital averaged 12 to 15 percent of price on hotels it appraised at sale in 2013.[2] Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - Hotel Capitalization Rates and the Impact of Cap Ex, Suzanne R. Mellen, January 2014 (HVS): https://www.hvs.com/Jump/?f=3501.pdf&c=6766&rt=2 ### Going-Concern Value URL: https://matthewshotelmarkets.com/glossary/going-concern-value Last updated: 2026-10-05 Going-concern value is the value of a hotel as an operating business: real estate, furniture and equipment, and intangibles together. Federal appraisal guidelines dated December 2, 2010 say it may not stand in for market value of the real property. A hotel sells as a running business, so its price covers three things: the real property, the FF&E, and intangibles such as the franchise, the workforce and the reservation flow. Going-concern value is the total. The 2010 interagency guidelines define it as the value of a business entity rather than of the real property.[1] FAQ: - Q: What does going-concern value mean in my hotel appraisal? A: It is the value of the hotel as an operating business, including real estate, FF&E and intangibles. The 2010 interagency guidelines define it as the value of a business entity rather than the real property.[1] - Q: Why did my appraiser split the value into real estate, FF&E and business value? A: Because federally regulated lenders cannot treat going-concern value as the market value of the real property.[1] The split lets the lender see what its mortgage actually secures. - Q: Will my bank lend against the going-concern value or just the real estate? A: That is set by the lender. Ask before the appraisal is ordered, because the answer can move proceeds by more than a million dollars on a mid-size hotel. - Q: Is a broker opinion of value a going-concern value? A: Yes. A BOV prices the hotel the way buyers do, as an operating business, from its NOI. See /hotel-valuation/broker-opinion-of-value. - Q: Does going-concern value matter for property taxes? A: Yes. Property tax applies to real property, so owners often appeal assessments that capture business or franchise value. Rules vary by state, so use a local property tax adviser. Sources: - Interagency Appraisal and Evaluation Guidelines, December 2, 2010 (SR 10-16 attachment) (Board of Governors of the Federal Reserve System, OCC, FDIC, OTS and NCUA): https://www.federalreserve.gov/boarddocs/srletters/2010/sr1016a1.pdf - 12 CFR 34.42, definitions (market value, appraisal) (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/12/34.42 - SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs ### Franchise Comfort Letter URL: https://matthewshotelmarkets.com/glossary/comfort-letter Last updated: 2026-09-18 A comfort letter is a three-party agreement among a hotel franchisor, the owner and the lender. It gives the lender notice of franchise defaults and time to cure them. Hilton's 2025 Hampton document lists a $3,500 processing fee. A franchise agreement is personal to the owner, so a lender that forecloses does not automatically keep the flag. The comfort letter fixes that. In Hilton's 2025 form, the lender gets copies of default notices, 15 extra days to cure, and up to 180 more days to complete a foreclosure.[1] FAQ: - Q: My lender is asking for a comfort letter from the brand. What is that? A: A short agreement among the franchisor, you and the lender. It gives the lender notice of franchise defaults, extra time to cure, and a path to keep the flag through a foreclosure.[1] - Q: How much does a franchise comfort letter cost? A: It is set by each brand. Hilton's 2025 Hampton disclosure document lists $3,500 for a lender comfort letter and $1,500 for an assignment.[1] Your lender's counsel will also bill time to negotiate it. - Q: How long does it take to get a comfort letter? A: Brands do not publish a turnaround time. Request it as soon as the lender is chosen, because it needs the lender's legal name and notice address and is often one of the last closing items. - Q: Can the brand still terminate my franchise if there is a comfort letter? A: Yes. In Hilton's form the franchisor may still terminate if a default damages its reputation, if a court requires it, or if the lender's additional period expires with no arrangement in place.[1] - Q: Do SBA and bank loans need a comfort letter too? A: Most lenders on a franchised hotel ask for one, whatever the loan program. Whether it is required is set by the lender. See /hotel-financing/loan-requirements. Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### Franchise Disclosure Document (FDD) URL: https://matthewshotelmarkets.com/glossary/franchise-fdd Last updated: 2026-09-18 A Franchise Disclosure Document is the 23-item disclosure a franchisor must give a prospective franchisee at least 14 calendar days before signing or paying. For a hotel it is the public source for brand fees, terms and build costs. The FTC's Franchise Rule requires every franchisor to hand over a current FDD at least 14 calendar days before the prospect signs a binding agreement or pays.[1] The document has 23 numbered items.[2] A hotel buyer reads Items 5, 6, 7, 17 and 19 first: fees, investment, term and transfer rules, and performance data. FAQ: - Q: What is an FDD and why does my lender want it? A: It is the franchisor's federally required disclosure document, 23 items long.[2] Lenders use it to confirm fees, remaining term, transfer rules and the comfort letter form. - Q: How long do I have to review a hotel FDD before signing? A: At least 14 calendar days between receiving the current FDD and signing a binding agreement or paying the franchisor.[1] - Q: Where can I find a hotel brand's FDD? A: Ask the brand's development team, or search the public franchise registration databases that some states run. We link Hilton's 2025 Hampton document in the sources below.[3] - Q: What are typical hotel franchise fees? A: They vary by brand, so read the brand's own Item 6. Hilton's 2025 Hampton document lists a 6 percent royalty and a 4 percent program fee on gross rooms revenue.[3] - Q: I am buying an existing Hampton Inn. Do I get a new FDD? A: Yes. A change of ownership is a new franchise application, and the brand delivers its current FDD. Hilton's 2025 document lists a $200,000 change of ownership application fee.[3] See /sell-a-hotel/documents-needed. Sources: - 16 CFR 436.2, Obligation to furnish documents (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/16/436.2 - 16 CFR 436.5, Disclosure items (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/16/436.5 - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### Key Money URL: https://matthewshotelmarkets.com/glossary/key-money Last updated: 2026-09-18 Key money is a cash payment a hotel brand makes to an owner for signing or converting to its flag. It is usually forgiven in equal parts over the franchise term, such as 1/20th a year over 20 years. Brands call it a development incentive. Hilton's 2025 Hampton disclosure document says the incentive is not a loan but a contingent liability: it bears no interest and need not be repaid unless the franchise ends early or the hotel is transferred. The repayable balance falls by an equal share each year.[1] FAQ: - Q: What is key money in a hotel franchise deal? A: A cash incentive from the brand for choosing its flag, documented as a note and forgiven in equal yearly parts over the franchise term.[1] - Q: Do I have to pay key money back if I sell my hotel? A: Under Hilton's 2025 Hampton terms, yes, the then-current repayable amount is due on a transfer unless the brand lets the buyer assume the note.[1] Check your own note. - Q: How much key money can I get for converting my hotel? A: Brands do not publish amounts. Hilton's document says incentives are offered at its sole discretion when business circumstances warrant.[1] Size, market and how much the brand wants the location drive the offer. - Q: When is key money actually paid? A: Under Hilton's 2025 Hampton terms, within 30 days after the hotel opens under the brand, if the PIP is complete and the application fee is paid.[1] It does not fund the renovation itself. - Q: Will my lender count key money as equity? A: That is set by the lender. Because the money arrives after opening, it usually cannot fund the PIP draw schedule. See /hotel-financing/pip-and-renovation-loans. Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - 16 CFR 436.5, Disclosure items (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/16/436.5 ### SOFR (Secured Overnight Financing Rate) URL: https://matthewshotelmarkets.com/glossary/sofr Last updated: 2026-10-01 SOFR is the benchmark rate for most floating-rate commercial loans. It measures the cost of borrowing cash overnight against Treasury securities. It was 3.90 percent on September 30, 2026. The New York Fed publishes SOFR each business day at about 8:00 a.m. Eastern. It is a volume-weighted median of overnight Treasury repo transactions.[1] A floating-rate hotel loan is quoted as SOFR plus a spread. SOFR was 3.90 percent on September 30, 2026; the spread is set by the lender.[2] FAQ: - Q: What does SOFR plus 350 mean on my term sheet? A: Your interest rate floats at the SOFR index plus 3.50 percentage points. With SOFR at 3.90 percent on September 30, 2026, that is 7.40 percent.[2] The rate resets, usually monthly. - Q: What is SOFR today? A: The New York Fed publishes it each business day at about 8:00 a.m. Eastern.[1] Our rate sheet at /rates shows 3.90 percent for September 30, 2026.[2] - Q: Is a SOFR loan or a fixed-rate loan better for my hotel? A: A SOFR floater suits a short hold or a renovation, because it usually prepays cheaply. A fixed rate suits a stabilized hotel held for years. See /hotel-financing/bridge-loans and /hotel-financing/hotel-loan-rates. - Q: Do I need a rate cap on a SOFR loan? A: Most floating-rate lenders require one. The strike and term are set by the lender, and the cap's price moves with the market. - Q: What replaced LIBOR on hotel loans? A: SOFR. It is calculated from actual overnight Treasury repo transactions rather than bank estimates.[1] Sources: - Secured Overnight Financing Rate (SOFR) (Federal Reserve Bank of New York): https://www.newyorkfed.org/markets/reference-rates/sofr - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### Prime Rate URL: https://matthewshotelmarkets.com/glossary/prime-rate Last updated: 2026-10-05 The prime rate is the base rate banks use to price many business loans, including SBA 7(a) loans. Major banks moved it to 7.00 percent effective September 17, 2026. The Federal Reserve says the prime rate is determined by individual banks, many of which set it partly on the federal funds target.[1] Its H.15 release reports the rate posted by a majority of the top 25 U.S. banks.[2] BNY raised its prime rate from 6.75 to 7.00 percent effective September 17, 2026.[3] FAQ: - Q: What is the prime rate right now? A: 7.00 percent at major banks, effective September 17, 2026, up from 6.75 percent.[3] Our rate sheet at /rates tracks it.[6] - Q: My SBA loan is prime plus 2.75. What is my rate? A: Add the spread to the current prime rate. At 7.00 percent prime, prime plus 2.75 is 9.75 percent. It resets when prime moves, on the schedule in your note. - Q: Who decides the prime rate? A: Each bank sets its own. The Federal Reserve reports the rate posted by a majority of the top 25 U.S. banks, and says many banks base it partly on the federal funds target.[1][2] - Q: What is the highest rate a bank can charge on an SBA 7(a) hotel loan? A: For a variable-rate loan over $350,000, the base rate plus 3.0 percent.[5] With prime at 7.00 percent that is 10.00 percent.[6] - Q: Will my payment drop if the Fed cuts rates? A: If your loan floats over prime, yes, after banks lower prime and your note's reset date arrives. A fixed-rate loan does not change. See /hotel-financing/hotel-loan-rates. Sources: - What is the prime rate, and does the Federal Reserve set the prime rate? (Board of Governors of the Federal Reserve System): https://www.federalreserve.gov/faqs/credit_12846.htm - Selected Interest Rates (Daily), H.15 (Board of Governors of the Federal Reserve System): https://www.federalreserve.gov/releases/h15/ - BNY increases prime lending rate to 7.00%, September 16, 2026 (BNY via PR Newswire): https://www.prnewswire.com/news-releases/bny-increases-prime-lending-rate-to-7-00-302881066.html - Federal Reserve issues FOMC statement, September 16, 2026 (Board of Governors of the Federal Reserve System): https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm - 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration): https://www.sba.gov/sba-lenders/#7a-terms - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### SBA 7(a) Loan URL: https://matthewshotelmarkets.com/glossary/sba-7a Last updated: 2026-10-01 An SBA 7(a) loan is a bank loan of up to $5 million with a partial federal guaranty. Owner-operators use it to buy, refinance or renovate a hotel, with real estate terms up to 25 years. The bank makes the loan and SBA guarantees 75 percent of any 7(a) loan over $150,000, which caps SBA's exposure at $3.75 million.[1] Real estate maturities run to 25 years. A variable rate on a loan over $350,000 cannot exceed the base rate plus 3.0 percent, which is 10.00 percent with the 7.00 percent Prime in effect since September 17, 2026.[1][3] FAQ: - Q: Can I buy a hotel with an SBA 7(a) loan? A: Yes, if you will operate it and the business meets SBA's size and eligibility rules. The loan caps at $5 million and real estate can amortize over 25 years.[1] See /hotel-financing/sba-7a-vs-504. - Q: What is the interest rate on an SBA 7(a) hotel loan? A: It is negotiated with the bank under SBA's cap. For a variable-rate loan over $350,000 the cap is the base rate plus 3.0 percent,[1] which is 10.00 percent with prime at 7.00 percent.[3] - Q: How much do I need to put down on an SBA 7(a) hotel loan? A: SBA does not publish a 7(a) equity percentage for this case. It is set by the lender.[3] SBA 504 does publish one: at least 15 percent for a hotel. - Q: Is there a prepayment penalty on a 7(a) loan? A: On maturities of 15 years or more: 5 percent of the prepaid amount in year one, 3 percent in year two, 1 percent in year three, then none.[1] - Q: Do I have to personally guarantee an SBA loan? A: Generally yes, if you hold at least 20 percent of the business.[2] Sources: - 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration): https://www.sba.gov/sba-lenders/#7a-terms - 13 CFR 120.160, Loan conditions (guarantees) (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.160 - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### SBA 504 Loan URL: https://matthewshotelmarkets.com/glossary/sba-504 Last updated: 2026-10-01 An SBA 504 loan is a two-part financing: a bank first mortgage plus a fixed-rate second funded by an SBA-backed debenture. A hotel buyer puts in at least 15 percent. The 25-year debenture priced at 6.54 percent in September 2026. 504 loans fund buildings, land and long-life equipment, not working capital, and come only through Certified Development Companies.[1] On a hotel, the bank lends at least 50 percent of project cost,[3] the borrower contributes at least 15 percent,[2] and the CDC debenture fills the rest at a fixed rate. FAQ: - Q: How does an SBA 504 loan work for a hotel? A: A bank lends at least 50 percent in first position, a Certified Development Company lends up to 35 percent in second position from an SBA-backed debenture, and you contribute at least 15 percent.[2][3] - Q: What is the SBA 504 rate right now? A: The 25-year debenture priced at 6.54 percent on September 10, 2026, fees included. See /rates.[5] The bank's first-lien rate is set by the lender. - Q: How much down payment does a 504 hotel loan need? A: At least 15 percent of project cost, because a hotel is a limited or single purpose property. 20 percent if the business is also two years old or less.[2] - Q: What is the biggest hotel I can finance with SBA 504? A: The debenture is capped, not the project. SBA's page lists a $5.5 million maximum,[1] and /hotel-financing/sba-7a-vs-504 explains the $5 million cap that applies to a hotel.[4] The bank's first lien sits on top of that. - Q: Should I use 504 or 7(a) for my hotel? A: 504 gives a long fixed rate on the second lien and needs 15 percent down. 7(a) is one loan, can include working capital, and usually floats. See /hotel-financing/sba-7a-vs-504. Sources: - 504 loans (U.S. Small Business Administration): https://www.sba.gov/loans/504-loans/ - 13 CFR 120.910, How much must the Borrower contribute? (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.910 - 13 CFR 120.920, Required participation by Third Party Lenders (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.920 - SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026), Section C, Ch. 1: Debenture Limits, $5 million maximum gross debenture (Para. D.1, p. 243) and Borrower's Contribution with the Limited or Special Purpose Property list, which names hotels, motels and other lodging facilities (Para. E.1.c, p. 244) (U.S. Small Business Administration): https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### Defeasance URL: https://matthewshotelmarkets.com/glossary/defeasance Last updated: 2026-10-01 Defeasance releases a hotel from a CMBS mortgage by replacing the property with government securities that make the remaining loan payments. Tax rules bar it within 2 years of the securitization's startup day. In a defeasance the loan is not paid off. The borrower buys a portfolio of government securities that produces every remaining payment, pledges it to the trust, and the lien on the hotel is released. Treasury regulations let a securitized mortgage keep its tax status through this swap if four conditions are met.[1] FAQ: - Q: What does defeasance mean on my CMBS hotel loan? A: You can release the hotel from the mortgage by pledging government securities that make every remaining payment. The loan stays in the trust.[1] - Q: How much does it cost to defease a hotel loan? A: The cost of the securities above your loan balance, plus third-party fees. It falls as Treasury yields rise toward or above your note rate. Get a quote from a defeasance consultant for your payment schedule. - Q: When can I defease my loan? A: Not within 2 years of the securitization's startup day under the REMIC rules,[1] and only as your loan documents allow. Most notes state a specific lockout end date. - Q: Is defeasance or yield maintenance cheaper? A: They are built on similar math, so costs are often close. Yield maintenance usually has a minimum fee. Defeasance has higher transaction costs but no floor. Your note says which applies. - Q: I want to sell my hotel but have a CMBS loan. What are my options? A: Defease, or have the buyer assume the loan if the documents allow. See /hotel-financing/cmbs-loans and /hotel-financing/refinance-or-sell. Sources: - 26 CFR 1.860G-2, Other rules (qualified mortgages; defeasance at paragraph (a)(8)) (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/26/1.860G-2 - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### Yield Maintenance URL: https://matthewshotelmarkets.com/glossary/yield-maintenance Last updated: 2026-10-01 Yield maintenance is a prepayment charge that pays the lender the interest it loses when a fixed-rate loan is repaid early. Agency loan documents set it at the greater of 1 percent of the balance or the calculated amount. If a borrower repays a 6.50 percent loan when the lender can only reinvest at 4.50 percent, the lender loses the difference for the remaining term. Yield maintenance charges the present value of that lost interest. The formula, the reference Treasury and any minimum are set by the lender in the note. FAQ: - Q: What does yield maintenance mean on my loan documents? A: If you repay early, you owe the lender the present value of the interest it loses by reinvesting at a lower Treasury yield. The exact formula is in your note. - Q: How do I calculate my yield maintenance penalty? A: Take the gap between your note rate and the reference Treasury yield, apply it to the balance, and discount over the remaining term. Then compare with any minimum. Ask your servicer for a payoff quote before relying on your own math. - Q: Is there a way to avoid yield maintenance when I sell my hotel? A: A loan assumption by the buyer avoids it if the lender consents. Otherwise wait for the open window near maturity, which most notes include. See /hotel-financing/refinance-or-sell. - Q: Why is my prepayment penalty so large? A: Rates fell since you closed, or many years remain, or both. Each makes the lender's lost interest larger. - Q: Do SBA loans have yield maintenance? A: 7(a) loans use a published step-down instead: 5, 3 and 1 percent of the prepaid amount in the first three years on maturities of 15 years or more.[2] Sources: - Multifamily Selling and Servicing Guide, Part V, Section 213.02, Yield Maintenance Prepayment Premiums (effective September 14, 2026) (Fannie Mae): https://mfguide.fanniemae.com/node/8236 - 7(a) loan program: terms, conditions, and eligibility (U.S. Small Business Administration): https://www.sba.gov/sba-lenders/#7a-terms - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### Non-Recourse Carve-Outs (Bad-Boy Guaranty) URL: https://matthewshotelmarkets.com/glossary/non-recourse-carve-outs Last updated: 2026-09-18 Non-recourse carve-outs are exceptions that make a guarantor personally liable on an otherwise non-recourse loan. They come in 2 kinds: liability for the lender's actual loss, and full recourse for the entire debt. On a non-recourse loan the lender looks only to the hotel for repayment. The carve-out guaranty lists acts that bring the sponsor back in. A law firm summary dated August 18, 2023 groups them as bad-boy acts and insolvency actions.[1] FAQ: - Q: What does a bad-boy guaranty mean on my term sheet? A: You stay free of personal liability unless you commit a listed act. Some acts make you liable for the lender's loss. Others make you liable for the entire loan.[1] - Q: Which carve-outs trigger full recourse? A: It is negotiated, but voluntary bankruptcy, collusive involuntary bankruptcy, unauthorized transfers or financing, and breaches of separateness covenants are commonly placed there.[1] - Q: Can I negotiate non-recourse carve-outs? A: Yes, before the term sheet is signed. Ask to move items like late taxes or mechanics' liens into the loss tier, add cure rights, and limit liability to periods when you control the hotel. - Q: Are SBA hotel loans non-recourse? A: No. Holders of at least 20 percent of the business generally must guarantee an SBA loan.[2] - Q: Who has to sign the carve-out guaranty? A: A person or entity the lender accepts, often with minimum net worth and liquidity tests. Those tests are set by the lender. See /hotel-financing/loan-requirements. Sources: - Non-Recourse Carve-Outs: Borrower and Guarantor Considerations, August 18, 2023 (ArentFox Schiff LLP): https://www.afslaw.com/perspectives/alerts/non-recourse-carve-outs-borrower-and-guarantor-considerations - 13 CFR 120.160, Loan conditions (guarantees) (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.160 ### Mezzanine Debt URL: https://matthewshotelmarkets.com/glossary/mezzanine-debt Last updated: 2026-10-01 Mezzanine debt is a loan that sits between the first mortgage and the owner's equity. It is secured by the ownership interests in the borrower, not the hotel. In the example below it lifts total debt from 60 to 75 percent of value. A mezzanine lender takes a pledge of the equity in the company that owns the hotel. If the loan defaults, it forecloses on that pledge under UCC Article 9 and becomes the owner, subject to the first mortgage.[1] Rates and proceeds are set by the lender and are not published.[3] FAQ: - Q: What is mezzanine debt in a hotel deal? A: A loan behind the first mortgage, secured by a pledge of the ownership interests in the borrowing entity rather than by the hotel itself. - Q: What happens if I default on a mezzanine loan? A: The lender can sell the pledged ownership interests under UCC Article 9, in a commercially reasonable sale, and the buyer takes control of the company that owns the hotel.[1] - Q: What interest rate does mezzanine debt carry? A: Higher than the senior loan. Rates are set by the lender and are not published. Our rate sheet at /rates marks them not yet published.[3] - Q: Will my senior lender allow mezzanine debt? A: Only if the loan documents permit it or the lender consents, and it will require an intercreditor agreement. Raise it before the senior term sheet is signed. - Q: Does the hotel brand need to approve a mezzanine loan? A: Often, yes. A mezzanine foreclosure changes control of the franchisee. Hilton publishes a separate mezzanine lender comfort letter form in its 2025 Hampton disclosure document.[2] Sources: - UCC 9-610, Disposition of collateral after default (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/ucc/9/9-610 - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - Matthews Hotel Markets October 2026 rate sheet (Matthews Hotel Markets (first-party)): /rates ### Competitive Set (Comp Set) URL: https://matthewshotelmarkets.com/glossary/comp-set Last updated: 2026-09-18 A competitive set is the group of nearby hotels a property is benchmarked against in its STR report. Hilton's 2025 Hampton disclosure document says each hotel generally must identify at least 3 competitors. The hotel chooses its comp set, and STR reports the set's combined occupancy, ADR and RevPAR without showing any one competitor's numbers. Index scores compare the hotel with that aggregate. Hilton's 2025 Hampton document notes that a comp set does not represent every hotel in a geographic area.[1] FAQ: - Q: What is a comp set on my STR report? A: The group of competing hotels you selected. STR combines their occupancy, ADR and RevPAR into one benchmark and compares your hotel with it. - Q: How many hotels should be in my comp set? A: STR sets the minimums in its subscriber rules. Hilton's 2025 Hampton document says each of its hotels generally must identify at least 3 competitive hotels.[1] - Q: Who picks the comp set, me or the brand? A: The hotel identifies it, usually with input from the brand or management company.[1] A buyer may build its own version during diligence. - Q: Why does a buyer question my comp set? A: Because the index is only as meaningful as the set. If the set leaves out your real competitors, a 115 RGI tells the buyer little. See /sell-a-hotel/documents-needed. - Q: Can I change my comp set before I sell? A: You can, within STR's rules, but a recent change that raises your index will be noticed. Keep the history and the reason. Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### Gross Operating Profit (GOP) URL: https://matthewshotelmarkets.com/glossary/gop Last updated: 2026-10-07 Gross operating profit is hotel revenue minus departmental and undistributed operating expenses. It comes before management fees, property taxes, insurance and the FF&E reserve, so it is always higher than NOI. In the example below it is 49.0 percent of revenue. GOP measures what the on-site operation earns before ownership costs. It follows the Uniform System of Accounts for the Lodging Industry, whose 12th Revised Edition took effect January 1, 2026.[1] Management fees and non-operating items such as property taxes, insurance and rent come after GOP.[2] FAQ: - Q: What does GOP mean on my hotel P&L? A: Gross operating profit: revenue less departmental and undistributed operating expenses, before management fees and ownership costs such as taxes, insurance and reserves.[2] - Q: What is the difference between GOP and NOI? A: NOI is lower. From GOP, subtract the management fee, property taxes, insurance, rent and an FF&E reserve. Buyers and lenders value the hotel on NOI. See /hotel-valuation/how-to-value-a-hotel. - Q: What is GOPPAR? A: GOP per available room: GOP divided by rooms times days in the period. In the example here, $1,912,000 over 35,040 available room nights is $54.57. - Q: What is a good GOP margin for a hotel? A: It depends on service level. Select-service hotels run higher margins than full-service hotels because they carry little food and beverage. We do not publish a benchmark we cannot source. See /hotel-valuation/select-service-vs-full-service. - Q: Does my P&L need to follow USALI to sell my hotel? A: It is not required, but buyers and lenders will recast it that way. The 12th Revised Edition took effect January 1, 2026.[1] See /sell-a-hotel/documents-needed. Sources: - HFTP, AHLA and GFC unveil the 12th Revised Edition of the Uniform System of Accounts for the Lodging Industry, July 11, 2024 (American Hotel & Lodging Association): https://www.ahla.com/news/hftp-ahla-and-gfc-unveil-groundbreaking-12th-revised-edition-uniform-system-accounts-lodging - USALI P&L structure (Summary Operating Statement): a practical guide, February 23, 2026 (Hospitality Finance Network): https://hospitalityfinancenetwork.com/usali-pl-structure-summary-operating-statement-a-practical-guide/ ### Ground Lease URL: https://matthewshotelmarkets.com/glossary/ground-lease Last updated: 2026-09-18 A ground lease is a long-term lease of the land under a hotel. The hotel owner owns the building and pays ground rent. For an SBA 504 loan, the lease must run at least as long as the debenture, up to 25 years. Under a ground lease the owner holds a leasehold, not fee simple title. Ground rent is paid before debt service and lowers NOI, and the building reverts to the landowner when the lease ends. Lenders and brands both test the remaining term. SBA requires it to equal or exceed the 504 debenture term.[1] FAQ: - Q: What does it mean if a hotel is on a ground lease? A: The seller owns the building and the right to use the land for the lease term, not the land itself. You take over the lease, pay ground rent, and the improvements go to the landowner at expiration. - Q: Can I get a loan on a hotel with a ground lease? A: Yes, if the remaining term is long enough. For SBA 504 the lease, with options you control, must run at least as long as the debenture.[1] Other lenders set their own minimum. - Q: How does ground rent affect my hotel's value? A: It reduces NOI dollar for dollar. At an assumed 8.25 percent cap rate, $120,000 of rent is about $1.45 million of value. - Q: Will the brand approve a hotel on leased land? A: Hilton's 2025 Hampton agreement accepts a long-term ground leasehold with a term equal to the franchise term.[2] Other brands have their own rules. - Q: What should I check in a ground lease before buying? A: Remaining term and who controls the options, rent escalations, leasehold mortgage rights, lender notice and cure rights, and what happens to the building at expiration. Use a real estate attorney. See /sell-a-hotel/documents-needed. Sources: - 13 CFR 120.870, Leasing Project Property (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/13/120.870 - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf ### Hotel Franchise Agreement URL: https://matthewshotelmarkets.com/glossary/franchise-agreement Last updated: 2026-09-18 A hotel franchise agreement is the long-term license that lets an owner operate under a brand in exchange for fees. Hilton's 2025 Hampton terms run 22 years for new construction, with a 6 percent royalty on rooms revenue. The agreement grants the flag, the reservation system and the standards, and it binds the owner to fees, renovations and transfer rules. It does not pass to a buyer automatically. Hilton's 2025 Hampton disclosure document lists a $200,000 change of ownership application fee and liquidated damages of up to 60 months of royalties.[1] FAQ: - Q: Does the franchise transfer when I sell my hotel? A: No. The buyer applies to the brand for a new or assigned agreement. Hilton's 2025 Hampton document lists a $200,000 change of ownership application fee.[1] See /sell-a-hotel/how-to-sell-a-hotel. - Q: How long does a hotel franchise agreement last? A: It depends on the brand and the deal. Hilton's 2025 Hampton terms are generally 22 years for new construction and 10 to 20 years for a conversion.[1] - Q: What does it cost to leave my hotel brand early? A: Read the liquidated damages clause. Under Hilton's 2025 Hampton terms, termination after year two and before the final 60 months costs the hotel's average monthly royalty times 60.[1] - Q: My franchise expires in four years. Can I still refinance? A: Lenders want the flag in place for the loan term. Whether a short remaining term is acceptable is set by the lender. Talk to the brand about an extension before you go to market. See /hotel-financing/refinance. - Q: Will the brand require a PIP when I sell? A: Usually. A change of ownership is the brand's chance to bring the hotel to current standards. See /hotel-financing/pip-and-renovation-loans. Sources: - 2025 Hampton Inn and Hampton Inn & Suites Franchise Disclosure Document, issued March 30, 2025 (Hilton Franchise Holding LLC): https://hmd-wp.go-vip.net/wp-content/uploads/2025/03/2025-US-FDD-Hampton.pdf - 16 CFR 436.5, Disclosure items (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/cfr/text/16/436.5 ## Matthews Hotel Index methodology ### Q1 2026 URL: https://matthewshotelmarkets.com/research/mhi/q1-2026 Published: 2026-04-15 Q1 2026 marked the first full quarter of compressed bid-ask in two years. Sun Belt secondary markets continued to outperform primary metros on RevPAR recovery while pricing more aggressively on cap rate. Select-service is the most actively bid category by transaction count; resort and lifestyle is the tightest cap rate band by spread. Construction-loan freeze that lasted from late 2022 to early 2025 is now fully thawed for sponsors with track records, but supply pipeline remains constrained. Methodology: Cap rate ranges reconcile the CBRE H2 2025 U.S. Cap Rate Survey with HVS U.S. Market Pulse Q1 2026 commentary and Matthews internal underwriting on active mandates. ADR, RevPAR, and occupancy bands aggregate STR press-release headline metrics with metro-level chain-scale sub-segment commentary. Transaction counts combine Matthews-executed transactions with publicly recorded transactions in each MSA. Ranges reflect stabilized, PIP-current product unless otherwise noted.