Hotels and lodging — an operating business sitting on real estate.
Hospitality real estate encompasses hotels, motels, resorts, and short-term lodging properties. Unlike most CRE, hospitality is fundamentally an operating business sitting on real estate — daily rate-setting, marketing, brand, and staffing drive performance as much as the physical asset. This makes hospitality the most operationally complex CRE asset class.
Hospitality is classified by service level. Limited service hotels (Holiday Inn Express, Hampton Inn, Fairfield Inn) have basic operations: rooms, breakfast, sometimes a small fitness center. Operating margins are 30–40%, capex needs are moderate, and ownership is feasible for small-to-mid-market investors. Full service hotels (Marriott, Hilton flagship properties) add restaurants, banquet halls, concierge, and amenities. Operating margins are 15–25%, capex needs are heavy, and ownership typically requires institutional scale.
RevPAR (Revenue Per Available Room) is the hospitality industry's NOI equivalent — but it captures only revenue, not the cost structure. RevPAR is calculated as occupancy × ADR (average daily rate). A 100-room hotel with 75% occupancy and $135 ADR has RevPAR of $101.25. Property-level RevPAR vs. competitive set RevPAR (the "RevPAR Index") is the central performance metric.
Brand affiliation dominates hospitality economics. Independent hotels in primary markets often run 10–20 points below comparable branded hotels in occupancy and 15–25% below in ADR — the brand drives massive demand through loyalty programs, distribution channels, and brand recognition. The trade-off is franchise fees — typically 5–8% of revenue paid to the brand plus marketing assessments — that compress NOI margin.
Financing for hospitality is specialized. SBA 7(a) loans (up to $5M) are common for limited-service acquisitions. Bridge debt handles transitional and value-add hospitality. CMBS covers stabilized institutional-grade hotels. Underwriting is more conservative than other CRE — typical DSCR floors are 1.40+ (vs 1.20 on multifamily) and debt yields require 11–13% (vs 8–10% on multifamily) because operational risk is higher.
| Property: 95-room Hampton Inn, secondary market | |
| Annual room nights available (95 × 365) | 34,675 |
| Average occupancy | 72% |
| Average daily rate (ADR) | $128 |
| RevPAR | $92.16 |
| Total annual room revenue | $3,195,000 |
| Other income (F&B, parking) | $185,000 |
| Total revenue | $3,380,000 |
| Operating expenses (62%) | ($2,095,600) |
| NOI | $1,284,400 |
| Cap rate at acquisition | 8.0% |
| Acquisition value | ~$16,055,000 |
Revenue Per Available Room — the hospitality industry's key performance metric. RevPAR = occupancy × ADR (average daily rate). Captures demand intensity in a single number.
Limited service has basic operations (rooms, breakfast). Full service adds restaurants, banquet halls, concierge, amenities. Limited service has higher NOI margins (30–40%) and lower capex; full service has lower margins (15–25%) and heavier capex.
Operational complexity, daily rate-setting risk, exposure to travel and economic cycles, brand-driven demand, and capex-heavy operations. Hotels can dramatically underperform during downturns (2009, 2020) when travel collapses.
SBA 7(a) for smaller limited-service acquisitions. Bridge debt for transitional / value-add. CMBS for stabilized institutional. All typically with conservative underwriting — DSCR 1.40+, debt yield 11%+.
Limited service: 7.5–9.5%. Full service: 7–9%. Luxury / resorts vary widely. Hotels price wider than multifamily because of operational risk and capex intensity.
Matrix structures bridge and SBA debt on limited service hotels, extended stay, and small-to-mid market hospitality acquisitions.
