Case Study · Florida · Limited-Service Hotel · SBA 504
Limited-Service Hotel Feasibility Study, Florida — An SBA 504 Worked Case
This is how our independent feasibility study company and hotel feasibility consultant team analyzed a new-build select- and limited-service hotel underwritten to an SBA 504 credit, from the STR competitive-set demand and penetration read through the debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set on a Florida leisure and interstate corridor.
A flagged select-service hotel on a Florida drive-to corridor.
A sponsor came to our feasibility study company with a ground-up hotel project and an SBA 504 lender that needed the projected cash flow independently tested before it would commit. The subject is a new-build, approximately 90-key select- and limited-service hotel carrying an upper-midscale national flag, on a Florida leisure and interstate corridor that blends drive-to leisure demand with interstate transient traffic and midweek commercial and project business. The program is a purpose-built, four-story flagged property with a pool, breakfast and market pantry, a small meeting room, and a fitness room — the standard select-service box for the tier.
Because a hotel is a going-concern operating business rather than passive real estate, the lender's question is not “what is the dirt worth” but “can this specific site penetrate its competitive set, ramp to a stabilized occupancy and rate, and cover this specific debt.”10 Hotels are also named special-purpose properties under SBA rules, which is precisely the condition that turns a discretionary feasibility study into an expected one on a ground-up deal.7 Our scope was the independent demand, penetration, competition, and debt-service analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, corridor, and parties are composited, not a real named borrower, address, or completed transaction.
STR competitive-set demand and fair-share penetration.
The demand read starts from the competitive set and its measured performance, not from an occupancy the sponsor hopes to hit. The subject is tested on whether it can reach fair-share penetration of a defined comp set and ramp to it over a realistic build-up.
Hotel value is driven by RevPAR — ADR multiplied by occupancy — and the core feasibility test is the STR competitive-set RevPAR index, a hotel's RevPAR divided by the RevPAR of its defined competitive set, where 100 percent is fair share.1 The competitive set here is a five-hotel group of comparable select- and limited-service flags on the corridor, running an aggregate RevPAR near $104 on roughly 73 percent occupancy in 2025. Assuming a new entrant will immediately exceed fair share without a product-quality rationale is a classic way these studies fail review; here the subject earns a modest premium as the newest, best-appointed product on the corridor, so the model credits a stabilized penetration index near 104 percent — not the 130-percent-of-fair-share figure sponsors often assume.1
That penetration translates into a stabilized ADR near $150 and occupancy near 72 percent, a RevPAR of about $108 — well above the depressed 62.3 percent national occupancy of 2025 because the corridor's blended leisure, transient, and midweek commercial demand fills both weekend and weekday nights.1 Critically, the study does not assume that performance on day one. STR data show new-construction hotels reach a 100 percent RevPAR index only around month 17, with the occupancy index starting near 58 percent in month one, and Cornell research finds an average occupancy build-up of about three years.11 The pro forma therefore grades the ramp across three years to the stabilized figures below.
| Demand driver | Basis | Supported figure |
|---|---|---|
| Competitive-set RevPAR (2025) | Five-hotel select/limited-service set, ~73% occ1 | ≈ $104 aggregate |
| Penetration index (fair share) | Newest product; modest new-build premium | ≈ 104% of fair share |
| Stabilized occupancy | Blended leisure + transient + midweek commercial | ≈ 72% (vs ~62.3% U.S. 2025) |
| Stabilized ADR / RevPAR | $150 ADR × ~72% occupancy | ≈ $108 RevPAR |
| Rooms + other revenue | 90 keys × 365 × $108 RevPAR, + ~10% other | ≈ $3.9M/yr |
Penetration and ramp logic grounded in STR/CoStar competitive-set methodology and new-construction ramp data; see sources 1 and 11. Figures are illustrative of the engagement type.
A defensible comp set, and a scan of the Florida pipeline.
Five comparable hotels define the competitive set on the corridor, spanning economy to upper-midscale. The rigorous test is not just the standing set but the announced Florida pipeline that could open during a two-to-four-year ramp.
| Hotel | Tier / flag | Keys | ADR / occ (2025) | RevPAR | Read |
|---|---|---|---|---|---|
| Comp A | Upper-midscale flag | 100 | $156 / 74% | $115 | Newest incumbent |
| Comp B | Midscale flag | 88 | $142 / 72% | $102 | Interstate node |
| Comp C | Economy flag | 76 | $112 / 69% | $77 | Dated, trailing-edge |
| Comp D | Upper-midscale flag | 94 | $150 / 72% | $108 | Corridor competitor |
| Comp E | Extended-stay | 105 | $146 / 77% | $112 | Midweek project demand |
Competitive set defined for the engagement; anonymized. Aggregate set RevPAR ≈ $104 on ~73% occupancy; the subject's stabilized $108 RevPAR implies a penetration index near 104%. Announced and planned Florida supply was scanned, not just the standing set.
Defining the competitive set honestly is the whole game: cherry-picking weak comparables to inflate the index is one of the classic failures in hotel feasibility, so the set here spans the full corridor rather than the two strongest performers.1 A rigorous study does not stop at the standing set, either — it scans the announced pipeline, because a competing flag opening next door mid-ramp can permanently reset the penetration assumption. Nationally, that pipeline is muted: U.S. supply grew only about 1.3 percent in 2025, well below the long-run 2 percent, and the construction pipeline stood at about 6,020 projects at the close of Q1 2026, down roughly 5 percent year over year.23 Within Florida, supply is concentrated in the largest metros — Miami had 24 projects and 5,317 rooms under construction, fourth-most in the nation, and Orlando ranked among the top five early-planning markets at 51 projects and 10,777 rooms — so a corridor away from those nodes faces materially less near-term new-supply risk than the metro cores.3
Florida macro: strong lodging demand, real cost drag.
The state backdrop is a tailwind for a drive-to leisure hotel, tempered by the nation's most expensive insurance and elevated construction cost. Florida reached an estimated 23.4 million residents in 2024 and remains one of the country's dominant leisure-travel destinations.
Florida reached an estimated 23,372,215 residents as of July 1, 2024, with growth now driven largely by international migration, and institutional activity concentrates in four metros — Miami tri-county, Tampa Bay, Orlando, and Jacksonville — while roughly 73 percent of the land area still qualifies as USDA-eligible rural territory.12 On the lodging side, Marcus & Millichap's 2026 projections put Orlando RevPAR at $147.83, Miami-Dade at $170.20, and Tampa–St. Petersburg at $119.77, and Miami's World Cup week drove RevPAR up 51.6 percent to $196.87 — a reminder that Florida's event and leisure demand is deep, and that a drive-to corridor property between metros can ride that demand at a select-service cost basis.4
The offsetting reality is cost. Florida home insurance runs roughly 2.8 times the U.S. average and premiums rose about 49.5 percent from 2020 to 2025, so national insurance assumptions materially understate a Florida hotel's NOI drag; a defensible study models named-storm coverage and deductibles as first-dollar risk using current Florida carrier quotes.12 The market has stabilized since SB 2-A was signed in December 2022 — the state's Citizens insurer fell to about 395,144 policies in early January 2026 — but insurance remains a line the model cannot borrow a national number for.12 Construction cost is the other pressure: median hotel development runs about $167,000 per key for limited-service, and this project's all-in cost near $150,000 per key sits modestly below that median, which is what makes the coverage math work at a Florida cost basis.5
Why the corridor supports the keys.
Leisure pull, interstate visibility, and a midweek commercial base point the same direction, and the site geometry converts that demand into room-nights across the week.
The corridor blends three demand segments that peak on different nights, which is exactly what a select-service hotel needs to fill a 90-key box seven days a week. Drive-to leisure — families and couples moving to and from Florida's beaches, parks, and regional attractions — peaks Friday through Sunday. Interstate transient demand, captured by frontage and signage on a high-count corridor, fills the shoulder nights. And a midweek base of commercial, contractor, and project travelers — the segment extended-stay product on the corridor already serves — covers Tuesday and Wednesday, the nights that sink an over-weekended leisure hotel.
Geometry and product do the rest. A new, well-located flag on the going-to side of the interstate interchange, with strong visibility and easy access, is the highest-conversion position for both the planned leisure stay and the impulse interstate stop. As the newest, best-appointed product in the set, the subject earns the modest penetration premium the model credits — the upper-midscale flag's reservation system and loyalty base deliver bookings the dated economy incumbent (Comp C) cannot match. That is why the study places the subject at roughly 104 percent of fair share rather than an average or discounted position.
The SBA 504 structure.
Total project cost lands at $13.5 million. The 504 program is purpose-built for owner-occupied, fixed-asset, ground-up construction, which is why an owner-operated, special-purpose hotel routes here on a three-part structure rather than a single 7(a) loan.
| Cost component | Amount |
|---|---|
| Land | $1.60M |
| Site work & utilities | $1.10M |
| Building shell (~90 keys, 4 stories) | $6.50M |
| FF&E | $1.60M |
| Franchise fee & brand PIP-standard items | $0.50M |
| Soft costs & contingency | $1.30M |
| Pre-opening & working capital | $0.90M |
| Total project cost | $13.50M |
All-in cost near $150,000 per key sits modestly below the ~$167,000-per-key limited-service median; see source 5.
| Item | Figure |
|---|---|
| Bank first mortgage (50%) | $6.75M |
| CDC / SBA 504 debenture (30%) | $4.05M |
| Borrower equity injection (20%) | $2.70M |
| Total sources | $13.50M |
| Bank first / illustrative rate | 25-yr amortization / ~9.5% |
| Debenture / illustrative rate | 25-yr / ~6.5% |
| Blended annual debt service | ≈ $1.03M |
Structure per SBA 504 conventions under SOP 50 10 8; bank first mortgage, CDC/SBA debenture, and borrower equity. See sources 7 and 8.
The equity injection sits at 20 percent, not the baseline 10 percent, and that is deliberate: SBA policy escalates the required injection to 15 percent for a special-purpose property and to 20 percent where the project is also, as a ground-up build, effectively a start-up. The extra equity comes out of the debenture share, so the 504 stack here is 50 percent bank first mortgage, 30 percent CDC/SBA debenture, and 20 percent borrower equity rather than the standard 50/40/10.8 On the two tranches — roughly $6.75 million of bank first mortgage at an illustrative 9.5 percent over 25 years, and about $4.05 million of debenture at an illustrative 6.5 percent over 25 years — blended annual debt service is about $1.03 million, the number the projected coverage has to clear. The study exists to support exactly that: the debt-service coverage the lender must document to approve the credit, tested against an independent read of demand rather than the sponsor's own projection.7
Feasible and bankable, on coverage the credit can document.
The stabilized model builds revenue from rooms and other income, nets the franchise load, an FF&E reserve, and operating expense to a going-concern NOI, and carries the coverage to the SBA floor and beyond once the ramp completes.
| Line | Basis | Amount |
|---|---|---|
| Rooms revenue | $108 RevPAR × 90 keys × 365 | ≈ $3.55M |
| Other revenue | ~10% of rooms (breakfast, market, fees, misc) | ≈ $0.35M |
| Total revenue | Rooms + other | ≈ $3.90M |
| Operating expense, franchise fees, FF&E reserve, mgmt fee | Departmental + undistributed + ~10–14% franchise load + 3–5% FF&E reserve9 | ≈ ($2.45M) |
| Net operating income (NOI) | ~37% going-concern NOI margin | ≈ $1.45M |
A pro forma that omits the franchise-fee load or an adequate FF&E reserve overstates distributable cash flow and fails review; both are carried here. See sources 9 and 10.
| Year | Stage | NOI | Debt-service basis | DSCR |
|---|---|---|---|---|
| Year 1 | Opening & lease-up (ramp) | ~$0.93M | Blended ~$1.03M | 0.90 |
| Year 2 | Building | ~$1.22M | Blended ~$1.03M | 1.18 |
| Year 3 | Stabilized | ~$1.45M | Blended ~$1.03M | 1.41 |
DSCR computed as NOI divided by the period debt-service obligation. See sources 8 and 11 for the coverage convention and the ramp basis.
The stabilized 1.41x coverage is the figure the lender documents, and it clears the SBA's roughly 1.15x floor — and the higher 1.15x-to-1.25x range lenders often apply to hotels — with real headroom.8 By Year 2 the project already covers blended debt service at 1.18x. The Year 1 figure of 0.90x is intentionally below the floor — it is the ramp year — which is exactly why a hotel credit is sized with an interest reserve and reserve discipline through stabilization: the reserve carries the ramp, and permanent coverage is measured once the hotel reaches its supportable penetration. Modeling stabilized performance from opening, the single most common way these pro formas fail review, would have shown a false 1.4x in Year 1; the graded ramp here reflects the STR new-construction build-up instead.11
On the equity side, the $2.70 million injection earns growing levered free cash flow as the ramp completes and the reserve releases. The exit is valued on a going-concern basis, not a leased-fee cap rate: a hotel is an owner-operated business, valued on the income approach applied to stabilized NOI net of a management fee and FF&E reserve, with total value allocated across real estate, FF&E, and intangible flag value.10 Capitalizing a Year-10 stabilized NOI near $1.7 million at a lodging going-concern rate around 8.5 percent — within the roughly 7.3 to 8.2 percent range the market applied to stabilized hotels in late 2025, and conservative against the wider 8.6-to-13.1 percent economy-and-midscale band — implies a gross value near $20 million, and meaningful net equity after selling costs and the outstanding 504 balances.6 The blended result is an illustrative levered equity IRR of about 18 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived penetration, a stabilized 1.41x DSCR, and a ~18% levered equity IRR, the projections support the SBA 504 credit — with the ramp and reserve discipline noted.
Independent penetration, competition, ramp, and DSCR stress.
The engagement was scoped the way a credit committee reads it. As an independent feasibility consultant, our role is to test the sponsor's projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We defined the competitive set across the full corridor rather than cherry-picking the two strongest performers, derived the penetration index from that set, and graded the ramp to stabilization across three years on the STR new-construction build-up rather than assuming stabilized performance on day one.
The coverage analysis was then stress-tested. We ran the debt-service coverage against ADR softness, an occupancy shortfall, and a competitor opening mid-ramp — the three variables a new hotel is most exposed to — to confirm the credit still holds when RevPAR compresses. Two scope boundaries are worth stating plainly: we reference, but do not perform, the Florida property-insurance quote and the appraiser's going-concern valuation; both run in parallel to the study, and a well-scoped engagement keeps the feasibility cash-flow work and the appraisal value work clearly delineated. That combination — independent penetration, competition, a graded ramp, and a stressed DSCR — is what lets the lender rely on the file.
Representative engagement
This is an anonymized, illustrative worked example of our methodology, built on market data current to 2026; figures are representative of a typical engagement of this type and do not depict a specific client, site, or completed transaction.
Underwriting a Florida hotel for an SBA loan? Start with the feasibility study.
Feasibility Study Company prepares independent hotel and hospitality feasibility studies for SBA 7(a) and 504 credits, built to the coverage standard your lender must document. A methodology briefing walks through the STR penetration, competition, ramp, and DSCR analysis behind a case like this one, calibrated to your corridor, flag, and format.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Florida, Hotel & Hospitality, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- CoStar (formerly STR), full-year 2025 U.S. lodging data: RevPAR $100.02 (the first RevPAR decline since 2020), occupancy 62.3%, ADR $160.54; 2024 nominal-record RevPAR $99.94 on 63% occupancy and $158.67 ADR; New York City led the top-25 markets at 84.1% occupancy and $280.71 RevPAR. The STR competitive-set RevPAR index (a hotel's RevPAR divided by its competitive set's RevPAR, where 100% is fair share) is the core penetration test; cherry-picking weak comparables or assuming immediate above-fair-share penetration is a classic failure. As compiled in the firm's hotel and hospitality analysis.
- CoStar and Tourism Economics 2026 U.S. outlook: RevPAR up ~0.5%, ADR up ~0.9%, occupancy near 62%, plus a FIFA World Cup lift of ~40 basis points; national hotel supply grew only ~1.3% in 2025 (0.2% in 2023 and 0.5% in 2024), all well below the long-run ~2%.
- Lodging Econometrics, Q1 2026 and Winter 2025/2026 pipeline reports: the U.S. construction pipeline stood at 6,020 projects at the close of Q1 2026, down ~5% year over year; Miami had 24 projects and 5,317 rooms under construction (fourth-most nationally) and Orlando ranked among the top five early-planning markets at 51 projects and 10,777 rooms.
- Marcus & Millichap 2026 projections (via Hotel Management, March 30, 2026): Orlando RevPAR $147.83, Miami-Dade $170.20, Tampa–St. Petersburg $119.77 (Tampa's first annual decline since 2020); CoStar/STR: Miami's World Cup week RevPAR rose 51.6% to $196.87 for the week of June 21–27, 2026. Aggregator metro RevPAR should be confirmed against STR/CoStar actuals before it drives a pro forma.
- Hotel development cost per key: limited-service median ~$167,000 per key to over $1,057,000 per key for luxury, with an all-type median near $219,000 per key, as compiled in the firm's hotel analysis (2025–2026). The subject's all-in cost near $150,000 per key sits modestly below the limited-service median.
- Hotel capitalization rates: stabilized rates stabilized around 7.3 to 8.1 percent by mid-2025 and near 8.17 percent by late 2025 against hospitality debt near 7.11 percent (roughly 106 basis points of positive leverage); economy and midscale cap rates ran a wide 8.6 to 13.1 percent for the twelve months ending October 2025. 2025 U.S. hotel transaction volume rose 17.5 percent to about $24 billion.
- U.S. Small Business Administration, SOP 50 10 8 (effective June 1, 2025) and 13 CFR 120.160(b): a feasibility study is discretionary but expected for special-purpose properties and ground-up projects; hotels are classified special-purpose, which triggers a third-party feasibility study for virtually all hotel 7(a) and 504 applications; owner-occupancy of 60% for new construction; the SOP reinstated the SBA Franchise Directory, so the flag must be listed or the lender must complete a detailed franchise and management-agreement review.
- SBA 504 structure and equity: the 504 program uses a bank first mortgage (typically ~50%), a CDC/SBA debenture, and borrower equity; the equity injection escalates to 15% for a special-purpose property and 20% where the project is also a startup, reducing the debenture share from the standard 50/40/10 to roughly 50/30/20; hotel DSCR conventions commonly run ~1.15x to 1.25x, above the general ~1.15x SBA floor.
- Hotel franchise and reserve economics: a brand flag costs roughly 10 to 14 percent of room revenue in combined royalty, reservation, marketing, and loyalty fees; a Property Improvement Plan (PIP) runs roughly $8,000 to $50,000 per room by tier and condition; hotel management agreements typically require an FF&E reserve of 3 to 5 percent of total revenue. A pro forma that omits the franchise-fee load, a required PIP, or an adequate FF&E reserve overstates distributable cash flow.
- Going-concern valuation: a hotel is a business that occupies real estate, valued on business-enterprise value using the income approach applied to stabilized NOI net of a management fee and FF&E reserve; total going-concern value is allocated commonly near real estate 60–75%, FF&E 10–20%, and intangible/flag value 10–25%. A leased-fee cap rate is not going-concern value.
- Hotel ramp-up: STR data show new-construction hotels reach a 100 percent RevPAR index around month 17, with the occupancy index starting near 58 percent in month one; Cornell research finds an average occupancy build-up of about three years, with top-25 markets stabilizing faster. A pro forma that assumes stabilized performance from opening overstates early NOI and DSCR and fails lender and SBA review.
- Florida macro: U.S. Census Bureau Vintage 2024 estimate of 23,372,215 residents (July 1, 2024), growth driven largely by international migration; institutional activity concentrated in Miami tri-county, Tampa Bay, Orlando, and Jacksonville, with roughly 73% of land area USDA-eligible. Florida home insurance runs roughly 2.8 times the U.S. average with premiums up 49.5% from 2020 to 2025; SB 2-A (signed December 16, 2022) stabilized the market, with the Citizens insurer down to about 395,144 policies in early January 2026. Florida ranks #3 nationally in SBA 7(a) dollar volume and is served by two SBA district offices spanning 67 counties; Live Oak Bank was the #1 national SBA 7(a) lender by dollar volume in fiscal 2025; SBA 504 credits route through statewide Certified Development Companies such as Florida First Capital Finance and the Florida Business Development Corporation.