Case Study · Georgia · Limited-Service Hotel · SBA 504
Limited-Service Hotel Feasibility Study, Georgia — An SBA 504 Worked Case
This is how our independent feasibility study company and hotel feasibility consultant team analyzed a new-build, roughly 110-key select-service flagged hotel on a Georgia interstate and tourism corridor, underwritten to an SBA 504 credit — from demand segmentation and the STR competitive-set penetration analysis 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 highway-visible corridor between metro Atlanta and the coast.
A new flag on a Georgia interstate-and-tourism corridor.
A sponsor came to our feasibility study company with a ground-up hotel and an SBA 504 lender that needed the projected cash flow independently tested before it would commit. The subject is a roughly 110-key select-service property under an upper-midscale flag — a limited-service operating model with breakfast, a small market, fitness, and meeting space — on a highway-visible, roughly three-acre pad at a signalized interchange on a Georgia interstate corridor between metro Atlanta and the coast. The site draws three distinct demand streams: interstate transient and leisure, corporate and project demand from a nearby industrial and business park, and weekend tourism.
Because a hotel is a going concern that occupies real estate rather than passive real estate, the lender's question is not “what is the dirt worth” but “can this specific hotel penetrate its competitive set, ramp to stabilization over two to four years, and cover this specific debt.”13 Hotels are named special-purpose properties under SBA rules, which triggers a mandatory third-party feasibility study for virtually all hotel 7(a) and 504 applications — precisely the condition that turns a discretionary study into an expected one on a ground-up deal.6 Our scope was the independent demand, STR penetration, competition, and debt-service analysis that supports that credit.
Interstate, corporate, and leisure demand, read three ways.
The demand read starts with segmentation, not a single occupancy assumption. The corridor supports weekday corporate and project demand, interstate transient and pass-through demand across the week, and weekend leisure and tourism — a three-legged base that lets a select-service hotel stabilize near 70 percent occupancy rather than swinging on one segment.
The national picture frames every projection. Full-year 2025 U.S. hotel performance posted the first occupancy and RevPAR declines since 2020, with occupancy at 62.3 percent, ADR $160.54, and RevPAR $100.02, against a 2019 baseline occupancy of 66.1 percent.1 A defensible study does not apply that national number to the subject; it builds occupancy and ADR from the competitive set and a realistic ramp. 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 roughly three years.2 We therefore modeled a graded ramp to a stabilized 70 percent occupancy and a $150 ADR — a RevPAR near $105, below the subject's product tier in a gateway but appropriate for a Georgia secondary corridor — reaching a competitive-set penetration index near 113 percent once the newest, best-located product on the corridor is credited against a comp-set RevPAR of about $93.3
| Demand driver | Basis | Supported figure |
|---|---|---|
| Available room-nights | 110 keys × 365 nights | 40,150 / yr |
| Stabilized occupancy | Graded 3-yr ramp to fair-share-plus2 | ≈ 70% |
| Stabilized ADR | Upper-midscale corridor positioning | ≈ $150 |
| Stabilized RevPAR | ADR × occupancy | ≈ $105 |
| Comp-set penetration | Newest product, interstate-visible (vs ~$93 comp RevPAR)3 | ≈ 113% index |
| Rooms revenue | RevPAR × available room-nights | ≈ $4.22M / yr |
Occupancy and ADR built on a two-to-four-year ramp consistent with STR and Cornell build-up data; penetration justified by product and location, not assumed. See sources 1–3. Figures are illustrative of the engagement type.
A corridor comp set, scanned for the pipeline.
Five flagged hotels within roughly five miles define the competitive set. The study scans the announced pipeline, not just the standing set, because a competing flag opening mid-ramp can permanently reset the penetration assumption on a two-to-four-year build-up.
| Property | Positioning | Keys | Distance | Read |
|---|---|---|---|---|
| Comp A | Upper-midscale flag | 98 | 1.2 mi | Newest defender; corporate midweek |
| Comp B | Midscale flag | 88 | 2.1 mi | Dated exterior, PIP overdue |
| Comp C | Upper-midscale flag | 124 | 2.9 mi | Strong weekday base, soft weekends |
| Comp D | Economy flag | 76 | 3.6 mi | Price-led, thin ADR |
| Comp E | Extended-stay flag | 102 | 4.4 mi | Adjacent segment, project demand |
Competitive set defined and surveyed for the engagement; anonymized. Announced and permitted rooms were scanned alongside the standing set, consistent with institutional penetration practice.
Only one true upper-midscale defender sits inside a mile and a half (Comp A), and the subject arrives as the newest and best-located product on the corridor, with direct interstate visibility the standing set cannot match. That is why the model credits a penetration index near 113 percent of fair share at stabilization — but the study justifies that index against product quality and location rather than assuming it, and grades it up over the ramp from below fair share in Year 1. Assuming a new entrant will immediately exceed 100 percent of its competitive set without a demand-generator or product rationale, or defining the competitive set to cherry-pick weak comparables, is a classic and common way these studies fail review.3 The coverage was then stress-tested for a new flag opening during lease-up, because Atlanta carried the second-largest U.S. hotel construction pipeline in early 2026 — about 158 projects and 17,524 rooms — and pipeline risk is real in Georgia even on a secondary corridor.5 One Georgia-specific point cuts in the sponsor's favor: lodging supply here is set by the market, not a permit gate. Georgia's Certificate of Need regime governs health-care beds and facilities, not hotels, so the supply test is the pipeline and the comp set, not a moratorium.12
Georgia macro: a three-economy state, priced by corridor.
Georgia is not one market. It is metro Atlanta, near 6.4 million people and the eighth-largest U.S. metro; the Savannah port-and-tourism coast; and a flat-to-shrinking rural south. A corridor hotel between them is priced on its own demand, never on a state average.
The state holds roughly 11.2 to 11.3 million residents, and the corridor between the Atlanta core and the coast is exactly where interstate transient, corporate-park, and tourism demand overlap.12 The supply caution is real: Atlanta carried the second-largest U.S. hotel construction pipeline in Q1 2026 at roughly 158 projects and 17,524 rooms, so the pipeline scan is not a formality in this state — though a secondary corridor market outside the Atlanta core faces materially lighter new supply.5 The funding channel, by contrast, is deep. All 159 Georgia counties are served by a single SBA Georgia District Office in Atlanta, which is also SBA Region IV headquarters, and Georgia ranked about fifth nationally in 7(a) dollar volume in calendar 2025 at roughly $1.35 billion; 504 credits route through statewide Certified Development Companies such as the Georgia Certified Development Corporation, CADDA on the coast, Capital Partners CDC, and NGCDC in the northwest, paired with active banks including Live Oak, Ameris, Synovus, and Truist.78
Two cost factors frame the pro forma. Georgia's flat state income tax steps to 4.99 percent for 2026 and effective property-tax rates run near 0.79 to 0.92 percent, a modest fixed-charge load that supports NOI; against that, Hurricane Helene in September 2024 demonstrated real inland wind exposure across Georgia, so the model carries a property-and-wind insurance line the underwriting must respect rather than assume away.12 Two 2026 tailwinds also help: the combined SBA 7(a)-plus-504 ceiling doubled to $10 million effective July 4, 2026, enlarging bankable deal size, and the FIFA World Cup lends a host-market lodging lift to Georgia's corridors during the period.115
Why the pad captures the corridor.
Interstate visibility, interchange geometry, and a mix of demand generators convert traffic into room-nights across all seven nights of the week.
The subject occupies a highway-visible pad at a signalized interchange with a full set of hotel-supporting generators: an interstate exit with fuel and food that captures transient and pass-through stays; a corporate and industrial park within a few minutes' drive that feeds midweek corporate and project demand; and a leisure and tourism draw that fills weekends. That combination is what lets a select-service hotel hold a stabilized occupancy near 70 percent rather than living or dying on a single segment — midweek corporate demand carries Monday through Thursday, transient interstate demand fills the shoulders, and leisure and tourism carry Friday and Saturday.
Geometry and product do the rest. Direct interstate visibility and an easy interchange approach convert the corridor's traffic into actual arrivals, and a new upper-midscale flag with the brand's reservation system and loyalty base out-competes an aging, PIP-overdue defender for the rate-paying corporate guest. That is why the model credits the subject with an above-fair-share penetration index once stabilized, rather than an at-market one — a premium earned by being the newest, most visible, best-distributed product on the corridor, and defended in the study against the specific competitors named in the set.
The SBA 504 structure.
Total project cost lands at $16.50 million. The 504 program is purpose-built for owner-occupied fixed assets: a bank first mortgage, a CDC/SBA debenture in second position, and borrower equity — the right structure for a ground-up, owner-operated hotel.
| Cost component | Amount |
|---|---|
| Land (~3-acre corridor pad) | $1.65M |
| Site work & utilities | $1.25M |
| Building shell & construction (110 keys) | $9.35M |
| FF&E & operating supplies | $2.10M |
| Brand fees, design & soft costs | $1.00M |
| Pre-opening & working capital | $0.55M |
| Contingency | $0.60M |
| Total project cost | $16.50M |
All-in cost of about $150,000 per key sits below the national select-service median (~$223,000) and near the limited-service median (~$167,000) per HVS, reflecting an efficient prototype and an interior-Georgia land and construction basis. See source 4.
| Item | Figure |
|---|---|
| Bank first mortgage (50%) | $8.25M |
| CDC / SBA 504 debenture (30%) | $4.95M |
| Borrower equity injection (20%) | $3.30M |
| Bank first mortgage rate / amortization | ~9.5% / 25-year |
| Debenture rate / amortization | ~6.5% / 25-year |
| Total annual debt service (stabilized) | ≈ $1.27M |
Structure per SBA 504 conventions under SOP 50 10 8; debenture of $4.95M sits within the ~$5.5M program cap; owner-occupancy met by owner-operation of the hotel. See sources 6 and 11.
The equity injection sits at 20 percent, not the baseline 10 percent, and that is deliberate: SBA escalates the required injection for a property that is both special-purpose (a hotel) and, as a ground-up build, effectively a start-up — 15 percent for special-purpose and 20 percent when it is also a start-up.6 Holding the CDC debenture at $4.95 million keeps it within the roughly $5.5 million program cap, so the clean 50/30/20 split holds inside a single 504 structure rather than requiring a companion facility. On 25-year amortizations, the bank first mortgage at an illustrative 9.5 percent carries about $865,000 a year and the debenture at an effective 6.5 percent about $401,000, for roughly $1.27 million of total annual debt service — the number the projected coverage must clear. An interest reserve funds the ramp-year shortfall. Where a project sits in a rural, lower-population county, USDA Business & Industry is an alternative channel — hotels are explicitly eligible and rural is defined as population 50,000 or under — but this corridor site routes cleanly to 504.10
Feasible and bankable, on coverage the credit can document.
The stabilized model builds NOI from rooms revenue net of departmental and undistributed operating expense, a management fee, fixed charges, and an FF&E reserve, then carries coverage to the SBA floor on a graded, ramp-aware basis.
| Line | Basis | Amount |
|---|---|---|
| Rooms revenue | ~70% occ × ~$150 ADR × 40,150 room-nights | ≈ $4.22M |
| Other operated & misc. income | Market, meeting, fees | ≈ $0.33M |
| Total revenue | Rooms + other | ≈ $4.55M |
| Departmental & undistributed expense | Rooms, A&G, sales & marketing, utilities, R&M/IT | ≈ ($2.08M) |
| Gross operating profit (GOP) | ~54% of total revenue3 | ≈ $2.47M |
| Base management fee (3.5%) | Percent of total revenue | ≈ ($0.16M) |
| Property taxes & insurance | Fixed charges, incl. wind coverage | ≈ ($0.36M) |
| FF&E reserve (4.0%) | Percent of total revenue4 | ≈ ($0.18M) |
| Net operating income (NOI) | After reserve | ≈ $1.77M |
GOP near 54% and EBITDA near 43% sit within the ~45–55% GOP and ~35–45% EBITDA range for limited- and select-service hotels; FF&E reserve at 4% is within the 3–5% convention. See sources 3 and 4.
| Year | Stage | NOI | Debt-service basis | DSCR |
|---|---|---|---|---|
| Year 1 | Opening ramp | ~$1.14M | Full amortizing ~$1.27M (interest reserve funds shortfall) | 0.90 |
| Year 2 | Building | ~$1.49M | Full amortizing ~$1.27M | 1.18 |
| Year 3 | Stabilized | ~$1.77M | Full amortizing ~$1.27M | 1.40 |
DSCR computed as NOI divided by the period debt-service obligation. See sources 2 and 6 for the ramp and the ~1.15–1.25x hotel coverage convention.
The stabilized 1.40x coverage is the figure the lender documents, and it clears the SBA's roughly 1.15x floor — hotels commonly 1.15x to 1.25x — with real headroom.6 The Year 1 figure of 0.90x is intentionally below 1.0: it is the ramp year, exactly what the STR and Cornell build-up data predict, with a 100 percent RevPAR index reached only around month 17 — which is why the structure carries an interest reserve through stabilization.2 By Year 2 the project already covers fully amortizing debt service at 1.18x. Modeling stabilized occupancy and ADR from opening day, or an above-fair-share penetration on day one, is the single most common way a hotel pro forma fails lender and SBA review; the ramp here is deliberately graded.
On the equity side, the $3.30 million injection earns growing levered free cash flow — roughly break-even in the interest-reserve-funded ramp year, building to about $0.50 million a year once stabilized, a stabilized cash-on-cash near 15 percent and already net of the FF&E reserve carried in NOI. The exit is valued on a going-concern basis, not a leased-fee cap rate: capitalizing a Year-10 stabilized NOI near $2.0 million at a going-concern overall rate around 10 percent — within the roughly 8.6 to 13.1 percent range the market applies to economy and midscale hotels — implies a gross going-concern value near $20 million, and, net of selling costs and the outstanding first-mortgage and debenture balances of about $10.7 million, roughly $9 million of net equity.9 Holding ADR growth modest, the blended result is an illustrative levered equity IRR of about 18 percent over a 10-year hold. Going-concern value then allocates across real property (about 60 to 75 percent), FF&E (about 10 to 20 percent), and intangible flag and business value (about 10 to 25 percent), the allocation an SBA going-concern appraisal requires.13
Verdict: financially feasible and bankable. On independently derived demand, an STR penetration ramp, a stabilized 1.40x DSCR, and a ~18% levered equity IRR, the projections support the SBA 504 credit.
Independent demand, STR penetration, competition, 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 and justified the competitive set, then built a penetration ramp rather than assuming fair-share-plus from opening. Occupancy and ADR were graded over a realistic two-to-four-year build-up consistent with STR and Cornell ramp data, and rooms revenue flowed into an operating statement carried to NOI after a management fee, fixed charges, and a full FF&E reserve.
The coverage analysis was then stress-tested against the two variables a new hotel is most exposed to — a competitor opening mid-ramp and ADR softness — plus seasonality, to confirm the credit still holds when penetration or rate compresses. Two scope boundaries are worth stating plainly: as the feasibility consultant, we reference, but do not perform, the going-concern appraisal that allocates value across real property, FF&E, and intangible flag value, and the Phase I environmental site assessment; both are separate professional engagements that run in parallel to the study.13 That combination — independent demand, an STR penetration ramp, competition, and a stressed DSCR — is what lets the lender rely on the file.
Underwriting a Georgia hotel for an SBA 504 loan? Start with the feasibility study.
Feasibility Study Company prepares independent hotel feasibility and market studies for SBA 7(a) and 504 credits, built to the STR penetration and coverage standard your lender must document. A methodology briefing walks through the demand segmentation, penetration ramp, competition, and DSCR analysis behind a case like this one, calibrated to your corridor, flag, and market.
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 Georgia, Hotel & Hospitality, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- CoStar (formerly STR), full-year 2025 U.S. hotel performance (Arlington, VA, January 2026): 2025 occupancy 62.3%, ADR $160.54, RevPAR $100.02 — the first full-year occupancy and RevPAR declines since 2020; 2024 RevPAR a nominal record $99.94; 2019 baseline occupancy 66.1%, ADR $131.21, RevPAR $86.76; real ADR still below 2019.
- STR (2019 Hotel Data Conference) and Cornell University / ISHC (John O'Neill): new-construction hotels reach a 100% RevPAR index around month 17, with an occupancy index near 58% in month one; an average occupancy build-up of roughly three years (3.08 years), top-25 markets faster (3.03) than smaller markets (3.36); brand-managed hotels ramp faster than independents.
- STR/CoStar chain-scale and service-model detail via MMCG analysis: the competitive-set RevPAR index (a hotel's RevPAR divided by its competitive set's RevPAR; 100% is fair share) as the core penetration test; limited- and select-service GOP margins ~45–55% and EBITDA ~35–45%. Proprietary single-provider; treated as indicative.
- HVS, 2025 U.S. Hotel Development Cost Survey (reflecting 2024 budgets) and Hotel Valuation Techniques: median cost per key by segment (limited-service ~$167,000; select-service ~$223,000; all-type median ~$219,000); the going-concern income approach; an FF&E reserve of 3%–5% of revenue.
- Lodging Econometrics, U.S. Construction Pipeline Trend Report (Q1 2026): Atlanta the second-largest U.S. market pipeline at 158 projects / 17,524 rooms; national census supply growth ~1.3% in 2025; CoStar / Tourism Economics U.S. and host-market RevPAR forecast (February 2026) and Atlanta Journal-Constitution World Cup lodging coverage (May 2026).
- U.S. Small Business Administration, SOP 50 10 8 (effective June 1, 2025) and 13 CFR 120.160(b): hotels are special-purpose going concerns requiring a third-party feasibility study; the 504 structure of a bank first mortgage, a CDC/SBA debenture in second position, and borrower equity; owner-occupancy of 51% (existing) or 60% (new construction), met for a hotel by owner-operation; 15% equity for special-purpose and 20% if also a startup; typical minimum DSCR ~1.15x–1.25x; SBA Franchise Directory.
- U.S. Small Business Administration, Georgia District Office directory (233 Peachtree St. NE, Atlanta; serves all 159 counties; also SBA Region IV / Southeast headquarters), 2026.
- GoSBA Loans analysis of SBA FOIA loan data (Georgia #5 in 7(a) dollar volume, CY2025, ~$1.35B across 2,047 loans), February 2026; SBA 504 CDC public disclosures (Georgia Certified Development Corporation, Coastal Area District Development Authority, Capital Partners CDC, NGCDC); Coleman Report fiscal 2025 7(a) lender rankings (Live Oak Bank #1 nationally; Ameris, Synovus, Truist, and United Community active in Georgia).
- CBRE Hotels Research (H2 2025 Cap Rate Survey) and CoStar via MMCG: hotel cap rates ~7.3%–8.1% by mid-2025 for full-service, and economy and midscale hotel cap rates 8.6%–13.1% for the 12 months ending October 2025; brand franchise fees roughly 10–14% of room revenue and PIP capex ~$8,000–$50,000 per room by tier.
- USDA Rural Development, Business & Industry (B&I) Guaranteed Loan Program under the OneRD Guarantee Loan Initiative: hotels, motels, and resorts explicitly eligible; loans up to $25 million; rural defined as population 50,000 or under; an alternative channel for rural-county lodging outside the metro corridors.
- SBA Policy Notice 5000-879058 (dated May 18, 2026; effective July 4, 2026), combined 7(a)-plus-504 cap of $10 million; SBA Office of Capital Access, a record 7(a) volume of $37.3 billion in FY2025 (September 30, 2025) and FY2025 combined 7(a)-plus-504 volume ~$45.1 billion.
- U.S. Census Bureau, Vintage 2024 Population Estimates (Georgia ~11.2–11.3M; metro Atlanta ~6.4M, eighth-largest U.S. metro); Georgia Department of Community Health and O.C.G.A. Title 31, Chapter 6 with HB 1339 (Certificate of Need governs health-care facilities and beds, not hotels); HB 463 flat income-tax schedule (4.99% for 2026); Tax Foundation / AARP effective property-tax rate ~0.79–0.92%; National Hurricane Center and FOX5 Atlanta on Hurricane Helene's Georgia inland wind impact (September 2024).
- HVS Hotel Valuation Techniques and CBRE/PeerSense: hotels valued as a going concern on business-enterprise value (real estate plus FF&E plus brand, flag, and goodwill), with total value allocated near real estate 60–75%, FF&E 10–20%, and intangible 10–25%; conventional hotel financing at 65–75% LTV with 25–35% sponsor equity, against which the SBA 504's 20% injection is comparatively low-equity.