Worked Example: SBA 504 Hotel Feasibility Study in Washington

This is a worked example, not a client engagement. It follows a new-construction, rooms-focused hotel of an assumed 90 rooms on about 2.2 acres along the Interstate 90 corridor in Spokane Valley, Spokane County, owned and run by one operating company and financed with a bank first lien and an SBA 504 debenture. The hotel, its brand, its owner and its lender are hypothetical and unnamed, and nothing here describes a real loan. The example is built around a gap between two projections of the same building: the one a sponsor would bring to a bank, which borrows the rate of a listed company's whole portfolio, and the one a feasibility study would build from the hotel's own tier. It is written for a borrower deciding whether to commission a study, for a bank or certified development company reading one, and for anyone searching for what a Washington hotel feasibility study under the SBA 504 program has to show.

At a glance. A sponsor's pro forma for an assumed 90-room hotel in Spokane Valley covers its debt service 1.26x, because it uses the occupancy and rate of a listed REIT's portfolio. The study's base case uses the hotel's own tier and covers 0.57x, far under the assumed 1.25x lender minimum that binds over the 1.15x program floor. The one structure that passes, a bank first lien alone, needs 69.8 percent sponsor equity.

• Total project cost, all in: $17,073,106
• Sponsor's loan request (bank first lien plus 504 debenture): $11,670,000
• Sponsor equity, share of all-in cost: 31.6%
• Stabilized net operating income after reserve, study base case: $574,288
• Debt service coverage at stabilization, study base case: 0.57x
• Occupancy needed for the 1.25x binding minimum: 99.1%
• Restructure: bank first lien alone, coverage: 1.25x

What a Feasibility Consultant Tests First

A bank officer reading a request for a hotel with no history asks two things in order. Does the income the building earns, once the ramp is over, carry the debt? And is that income built from a rate and an occupancy that this hotel, in this tier and this market, could earn? The second question is where this example turns, because both projections below agree on the building, the cost and the loan, and disagree only on what the rooms earn.

The sponsor's pro forma takes its market figures from Apple Hospitality REIT, a listed owner of rooms-focused hotels, whose 2025 report gives an occupancy of 74.1 percent and an average daily rate of $159.06 for its hotels ^[1]. It also takes that company's margin, which the model computes as 33.7 percent from Apple Hospitality REIT's reported Adjusted Hotel EBITDA, a non-GAAP measure, over its total revenue ^[2]. On those figures the hotel earns $1,272,096 after the replacement reserve and covers its debt service 1.26x (Table 11). That is a passing result, just above the assumed 1.25x lender minimum, and it is what a sponsor would reasonably show a bank.

The study builds the same hotel's income from the hotel's own tier. Its stabilized occupancy is an assumed 70.0 percent, and its stabilized rate is an assumed $132.23, the figure InterContinental Hotels Group reported for the comparable Americas hotels of one of its rooms-focused brands in 2025 ^[3]. The result is $574,288 of net operating income and a coverage of 0.57x (Table 11). The difference is not aggressive costs. It is the rate. Apple Hospitality REIT describes its portfolio as many upscale and upper midscale rooms-focused brands ^[4], so its portfolio rate includes brands a tier above the one this hotel would carry, and the base-case rate sits 16.9 percent below it (Table 2).

A consultant therefore runs six tests in order: eligibility; a budget near what comparable hotels cost; a rate and occupancy from the hotel's own tier, checked against the local lodging tax record; a margin built line by line; coverage at stabilization and through the ramp against the minimum that binds; and a structure that still satisfies the program's rules at the loan the income supports. The example runs all six without moving an input to improve a result.

The outcome is a deep miss. Stabilized income is $574,288 against annual debt service of $1,011,050, and the income falls $689,524 short of what the binding minimum requires (Table 11). The lesson is not that hotels cannot be financed. It is that a pro forma resting on a portfolio rate can pass where a study resting on the tier's own rate cannot, so a lender who receives the first should ask for the second. The last section before the questions shows the distance: a bank lien alone, at 69.8 percent equity.

Eligibility is the easy test. A company that builds the Spokane Valley hotel and then runs it, renting rooms by the night to travelers, is an operating business, not an investor holding real estate. The bar in 13 CFR 120.110(c) is aimed at developers and landlords whose passive businesses do not themselves use or occupy the property financed, Eligible Passive Companies excepted ^[5]. One operating company is assumed to fill the whole building, which clears the test SBA sets for new construction by a wide margin: the borrower must take no less than 60 percent of the rentable space for itself and may lease out no more than 20 percent permanently ^[6]. A further rule, 13 CFR 120.160(b), allows SBA to make a feasibility study, a survey or professional appraisals a condition of the loan ^[7].

Decision. The study would carry this case on the hotel's tier rate and on the structure at the supported loan, not on eligibility, and would put the sponsor's rate and the tier's rate side by side for the lender.

The Spokane Valley Lodging Market in Washington

Spokane Valley is a city of 110,800 people inside a county of 570,600, both estimated by the Office of Financial Management for April 1, 2026 ^{[8] [9]}. Washington is estimated at 8,176,300 ^[10]. Growth since the 2020 Census is 7.6 percent in the valley, 5.8 percent in the county and 6.1 percent in the state (Table 2), so the city is outgrowing Washington, which supports local business travel and visits to friends and relatives.

The lodging record is thin and old. HVS reported in March 2023 that the Spokane County hotel market recorded 64.3 percent occupancy in 2022, just below pre-pandemic levels because of new supply ^[11]. In the same report HVS put the Spokane Valley market at 73.5 percent, above pre-pandemic levels despite new supply ^[12], and said the valley's rate kept growing far above its historical levels, without giving a figure ^[13]. A recovery-year reading is not a standing level, and no Spokane occupancy after 2022 was sourced for this example.

What does exist is the state's lodging tax record, the most useful local evidence in the case. The Department of Revenue distributed $903,845 of state-shared hotel/motel tax to Spokane Valley in 2024, against $907,227 in 2023 ^[14], and $894,673 in 2022 ^[15]. At the 2 percent rate ^[16], those distributions imply taxable lodging receipts of $45,192,250 in 2024 and $44,733,650 in 2022, a change of 1.0 percent in two years (Table 2). Receipts flat in dollars while costs rise mean no growth at the market level, which is why the study's occupancy sits under the valley's 2022 reading.

Three forces set the capital environment. HVS reports the Turner index rising 4.8 percent in its 2026 trailing-twelve-month reading ^[17]. HVS also reports that hotel lenders remain selective, frequently requiring larger equity contributions and underwriting new projects conservatively ^[18]. And HVS reports that since late February 2026 the conflict with Iran has pushed energy prices higher and prompted the Federal Reserve to raise interest rates ^[19].

Canadian travel is the regional risk. Visit Spokane, reported through the Spokane Journal of Business, counted 35,000 Canadian visitors in 2024 and expected about 30,000 for 2025 ^[20], and HVS cites Tourism Economics estimates that visits from Canada to the U.S. fell 25.7 percent in 2025 ^[21].

Decision. The study would set the stabilized occupancy below the valley's 2022 reading, say that no later occupancy is sourced, and require a purchased market report before the loan is sized.

Supply and Public Comparables

Supply in a competitive set comes from hotels open, hotels under construction and hotels announced. Table 1 lists every public supply and rate indicator found for this example, each beside its reporter; no hotel is named as a party.

Two rows carry rates, and they are the heart of the case. Apple Hospitality REIT describes 217 hotels with 29,583 guest rooms in urban, high-end suburban and developing markets across 37 states and the District of Columbia ^[27], and states that it invests primarily in rooms-focused hotels in the upscale sector ^[28]. The second rate is a single brand's. InterContinental Hotels Group presents its figures on a comparable basis, using hotels that traded in all months of both years ^[29], and gives fee-business figures with the Americas region first ^[30]. The case calls the brand upper midscale as its own characterization, because the filing does not label the tier. HVS names the brand among the top brands of its limited-service category ^[31].

The tier rate is a system average of comparable, mostly older hotels and the best sourced evidence for this format. A new hotel might price above it and a secondary market below it, and neither is sourced, so the base case takes the figure itself. The valley's tax record sits beside it: dividing the 2024 receipts by the nights charged under the Tourism Promotion Area gives implied receipts of $129.51 per night, an average over all taxed lodging, which the Department of Revenue says includes RV parks and campgrounds with 40 or more lodging units ^[32]. That figure is 2.1 percent below the tier rate (Table 2). An average that includes campgrounds and older motels should sit below a new hotel's rate, so it shows neither a local discount to the tier nor a premium over it.

The pipeline is the part of supply that moves a stabilized forecast. The Spokane Journal of Business reported in December 2025 that several new hotels are planned in Spokane County ^[22], and that three projects in Coeur d'Alene and Post Falls, Idaho, will add about 400 rooms by 2027 ^[23]. Neither report is a competitor list, so a study would obtain the planning filings and test occupancy against every announced room opening.

The hotel would be a modest addition to measured demand. Its occupied nights at the sponsor's occupancy come to 7.0 percent of the 2024 nights charged under the Tourism Promotion Area, and 6.6 percent in the base case (Table 2).

Decision. The study would keep the competitive set to the interstate corridor across Spokane Valley and Liberty Lake, treat announced rooms as an unquantified risk until permits are confirmed, and report the stabilized occupancy as a range.

Demand: Visitors, Groups, the Airport and the Valley's Venues

Demand has four documented sources. The first is air access: Spokane International Airport handled 4,350,330 passengers in 2025, up 2.0 percent from 4,264,875 in 2024 ^[33]. The second is visitor volume: Visit Spokane, citing Tourism Economics, states that Spokane County visitor volume passed 10 million for the first time in 2024 and visitor spending reached $1.53 billion ^[34]. The third is group business. Visit Spokane reported through the Spokane Journal of Business that 2025 group business comprised 106 events, 44,597 attendees and more than 76,000 room nights ^[35], and its February 2026 report showed 66 events booked for 2026 with more than 60,000 room nights ^[36]. The two are not a trend: one is a finished year, the other a calendar counted in February. HVS adds that the Spokane Convention Center produced about 75,000 actualized room nights in 2022, slightly below the 83,000 of 2019 ^[37].

The fourth source is the valley's own venues, which matter more to a corridor hotel than the downtown convention center does. HVS describes CenterPlace Regional Event Center as a 54,000-square-foot facility suited to smaller regional conferences, events and weddings ^[38], and the Spokane Journal of Business reported that Spokane Valley's new cross-country venue will host the NCAA Division III Cross Country Regionals in 2026 ^[39].

The table sets the demand record beside the study's choices: the hotel's assumed stabilized occupancy of 70.0 percent against the valley's 73.5 percent and the county's 64.3 percent of 2022, and its assumed rate against the sponsor's market rate. The assumed 70.0 percent, 3.5 points under the valley's 2022 reading, rests on flat lodging receipts from 2022 to 2024, planned new hotels, lower Canadian visits and fewer group room nights booked for 2026 in February than 2025 produced. InterContinental Hotels Group's brand tier ran 69.1 percent in 2025 ^[24], shown for context only, because the base case keeps its own occupancy reasoning.

Decision. The study would underwrite demand from corporate, sports and small-event travel, with group business in a supporting role.

The Site on the Interstate Corridor

The site is an assumed 2.2 acres in Spokane Valley, close enough to the interstate for freeway visibility and for access from the valley's retail and employment areas. The model's land budget is $1,031,650 and site work $902,694 (Table 7); both are assumptions, because no Spokane Valley land sale and no local bid was sourced.

Washington adds rules that a hotel study must price, because several change what the guest pays and what the operator keeps.

Lodging taxes. The Department of Revenue's flyer for April to June 2026 lists, for Spokane Valley lodging with 40 or more units, a 2 percent special hotel-motel tax, a 1.3 percent convention center tax, a total lodging tax rate of 12.00 percent and a Tourism Promotion Area charge of $4.00 per night ^[40]. For 39 or fewer units the total is 10.30 percent, with neither the special tax nor the charge ^[41]. A hotel of an assumed 90 rooms is above the threshold, and the Department of Revenue states that in Spokane County the special hotel/motel tax applies only to lodging with 40 or more units ^[42]. RCW 67.28.181(1) caps the additional municipal lodging excise tax at the lesser of 2 percent or the rate that brings all lodging taxes to 12 percent ^[43], so the valley's 12.00 percent leaves no statutory headroom. The model shows taxes of $364,875 and the charge of $91,980 as memo lines passed to guests and outside revenue (Table 8); if the hotel absorbed the charge, it would come out of net operating income.

Business and occupation tax. Gross income from renting rooms to transient tenants is subject to the retailing B&O tax under WAC 458-20-166 ^[44], at .00471 of gross income ^[45]. The model carries $14,894 a year (Table 9).

Licence. A Department of Health licence is required before a transient accommodation operates or advertises ^[46], applied for at least 60 days before opening ^[47].

Labor. Washington's minimum wage is $17.13 an hour in 2026 ^[48] and $17.73 from January 1, 2027 ^[49]. RCW 49.60.515 requires every hotel or motel that employs an isolated employee to provide a panic button to each one ^[50]. The Washington Hospitality Association, citing a 2025 AHLA and Hireology survey, states, as context and not as a model assumption, that 65 percent of hotels report staffing shortages, with housekeeping the largest at 38 percent ^[51]. These facts keep the model's rooms department cost, an assumed $38.00 per occupied room night, high, although Apple Hospitality REIT's own figure is $45.04 because it carries restaurants at its larger hotels (Table 10).

Decision. The study would carry the lodging taxes and the Tourism Promotion Area charge as pass-throughs, confirm the charge with the Department of Revenue before closing, and treat the wage schedule as a rising floor under the rooms line.

SBA 504 Program Rules for a New-Construction Hotel

The first program question is why a 504 and not a 7(a) loan. A 7(a) loan tops out at $5,000,000 ^[52], while this project costs $17,073,106 all in (Table 7). A 504 pairs a bank first lien with a debenture issued through a certified development company, and the borrower's equity fills the rest.

13 CFR 120.900 describes the typical shape of permanent financing, a shape this example does not assume: the borrower contributes 10 percent, third-party loans 50 percent and the 504 loan 40 percent ^[53]. The contribution is higher here. Under 13 CFR 120.910(a), the borrower's share rises to a minimum of 15 percent of project cost when the business has run two years or less, to the same 15 percent when the building is limited or single purpose, and to a minimum of 20 percent when the project is both ^[54]. Treating a hotel as single purpose is an assumption the development company would confirm, and with it the contribution is 20.0 percent of the 504 project, $2,890,612 (Table 7). The bank's share is higher too: 13 CFR 120.920(a) makes third-party lenders supply at least half of the total for a borrower two years old or less, or for a limited or single purpose asset ^[55], and the example assumes both. In the assumed structure the bank first lien is $7,217,253, at the minimum share of the 504 project (Table 7). The debenture is therefore limited by the contribution and the bank's share, at $4,456,557 (Table 4), under 13 CFR 120.930(a), which generally caps a 504 loan at 40 percent of total project cost, with eligible administrative costs added on top ^[56], and under 13 CFR 120.931(a), which limits 504 loans to $5,000,000 per borrower and affiliates outside the small manufacturer and energy categories ^[57].

Other rules shape the budget. The program lets a construction project budget for overruns, capped at 10 percent of construction cost ^[58], and the model's contingency is 5.0 percent. 13 CFR 120.882(d) lets the project count what it repays on interim financing, interest and points included, as eligible cost ^[59], so construction-period interest of $730,752 sits inside the 504 project. Hotel furniture wears out faster than the 10 years of remaining life SBA requires of equipment ^[60], so the $1,633,446 for it is cash outside the project. Working capital and inventory are off limits for a 504 loan, SBA says ^[61], so the $249,315 pre-opening line and the $432,000 operating reserve are cash too.

The debenture carries fees. SBA charges a 0.5 percent guarantee fee ^[62], a development company may charge up to 1.5 percent of the net debenture as a processing fee ^[63], a funding fee of no more than 0.25 percent may cover trustee and agent costs ^[64], and a closing fee of up to $10,000 can be financed ^[65]. The model adds an assumed underwriters' fee of 0.40 percent. The administrative costs financed in the debenture come to $126,106 (Table 7).

On rate, SBA ties the 504 loan to an increment over the 10-year Treasury market ^[66] and offers terms of 10, 20 and 25 years ^[67]. One certified development company, SomerCor 504, Inc., listed 6.57 percent for a 25-year debenture once the November 5, 2026 pricing had completed ^[68]. The model reads that as all in, which is 1.71 points over the 10-year yield (Table 11). The bank loan is priced at an assumed 3.00 points over the 5-year yield, 7.64 percent, amortized over an assumed 25 years. On jobs, the September 30, 2025 Federal Register notice from SBA sets one job opportunity for each $95,000 guaranteed, with a higher amount for small manufacturers and energy projects ^[69], so the debenture calls for 46.9 job opportunities (Table 7). A project that falls short can still qualify on a community development or public policy goal if the development company's portfolio meets its required average ^[70]. The case states no staff count, because none is sourced.

The sponsor's request follows from Table 3. It is the loan the sponsor's income carries at the assumed 1.25x lender minimum with the bank at its minimum share, rounded down to $10,000, and the sponsor's equity may not exceed the larger of an assumed 35 percent and what the 504 itself requires. An assumed 104-room select-service design at the HVS median of $200,000 per room ^[71], and a 90-room version of it, each needed 37.0 percent equity and were dropped. The rooms-focused format, costed at the assumed central value of HVS's limited-service range, fits at 31.6 percent, with the request capped by the 504 itself and not by coverage (Table 4).

The coverage convention is where a case like this is most easily misread. For a 504 loan, the site's own SBA program page gives 1.15x, reachable on history or on two-year projections ^[72], and that is this case's program floor; the operating procedure behind it was not read. The lender adds its own minimum, assumed here at 1.25x because 13 CFR 120 names none. The binding minimum is the higher of the two, so the assumed 1.25x lender minimum binds over the 1.15x floor. A new hotel has no history, so only the two-year projection remains, and the second-year coverage of 0.37x (Table 12) fails that path too.

Decision. The study would size the debt on the assumed 1.25x lender minimum, test the program floor beside it on the two-year projection, and show the development company a second structure at the supported loan so the bank share can be checked before anyone commits.

SBA Lending Record for This Asset Class in Washington

Loan Analytics keeps a loan-outcomes dataset built from the SBA's own loan-level 7(a) and 504 files ^[73]. For this example's state and asset class it covers SBA loans approved in fiscal 2017 to 2026 to businesses coded to hotel and motel, with the project in Washington. The figures are the SBA program's record in the state, not Loan Analytics' work and not this hypothetical project. The dataset notes a limit on the class: one code for hotels and motels; limited service and full service cannot be separated.

Uses and Sources of Funds: What the Hotel Costs and Who Pays

The cost basis rests on the HVS survey. HVS's 2026 hotel development cost survey puts median per-room costs of limited-service and midscale extended-stay hotels in the $170,000 to $197,000 range ^[26]. HVS gives no single figure inside that range, so the budget is an assumed point in its middle, $183,500 per room, which comes to a development cost of $16,515,000 before the reserve and the 504 fees (Table 7). The split of that value into land, site work, building, soft costs, contingency, interim interest, furniture, pre-opening and closing is the case's own, and the inputs table marks each line as sourced or assumed.

Rounded to the dollar; lines may not foot by $1.

The 504 project covers land, site work, building, soft costs, contingency and interim interest, $14,434,505 in all. Cash outside it is $2,512,495, and the debenture's financed administrative costs of $126,106 bring the all-in cost to $17,073,106, or $189,701 per room (Table 7).

The sources are a bank first lien of $7,217,253, a gross debenture of $4,452,747 and borrower cash of $5,403,106, which is 31.6 percent of all-in cost, so debt is 68.4 percent (Table 7).

The SBA's own record for this class in Washington, shown in Table 5, places the debenture in context. It counts approved loans and not hotels and carries no operating results, so it shows how large 504 hotel loans in the state usually are and not whether this project would perform. The example's gross debenture of $4,452,747 would sit above the 75th percentile of the 504-only record.

Decision. The study would present sources and uses at two loan sizes, the requested $11,670,000 in Table 7 and the supported loan in Table 11, and never set the equity at one against the project cost at the other.

The Pro Forma: The Sponsor's Projection Beside the Study's Base Case

Table 8 prints both columns. The assumed 90 rooms give 32,850 available room nights a year. The base case uses an assumed 70.0 percent occupancy and an assumed $132.23 rate, for $92.56 of revenue per available room and $3,040,629 of rooms revenue. The sponsor's column uses 74.1 percent and $159.06, for $117.86 and $3,871,815. Other revenue is an assumed 4.0 percent of rooms revenue in the base case, $121,625, because breakfast is in the rate and there is no restaurant; the sponsor's column uses Apple Hospitality REIT's ratio of other revenue to room revenue, 10.5 percent, computed from its food and beverage and other revenue ^[77], for $405,719. Total revenue is $3,162,254 in the base case and $4,277,533 in the sponsor's.

The base-case operating statement is built line by line. Operating expenses total $2,461,476, leaving EBITDA of $700,778, a 22.2 percent margin; after the assumed 4.0 percent replacement reserve of $126,490, net operating income is $574,288 (Table 9). Rooms department cost is an assumed $38.00 per occupied night, franchise and program fees an assumed 11.0 percent of rooms revenue, property sales and marketing an assumed $90,000, repairs an assumed $2,000 per room and the management fee an assumed 3.0 percent although the borrower operates the hotel. Administrative and general, utilities, and property taxes with insurance take the listed REIT's own per-room figures, because no Spokane rate or quote was sourced.

Apple Hospitality REIT supplies the comparison. Apple Hospitality REIT reported 2025 hotel operating expense of $847.3 million, or 60.0 percent of total revenue ^[84]. Apple Hospitality REIT put the rise down mainly to labor, utility, and repair costs and general inflation ^[85]. Table 10 sets its ratios beside the case's.

The two projections differ in four places, in order of size.

• The rate. The tier's assumed rate is $132.23 against the portfolio's $159.06, which puts the case 16.9 percent below, and its RevPAR is 78.5 percent of the portfolio's (Table 10). At the base occupancy and the market rate, the case's own cost lines give $1,087,781 and 1.08x.
• Occupancy. The base case is an assumed 70.0 percent against 74.1 percent. At the market occupancy and rate, the case's cost lines give $1,214,905 and 1.20x, close to the sponsor's $1,272,096, so the cost build is not what fails the case.
• Fixed costs over less revenue per room. Revenue per room is $35,136 against $47,743, which is 73.6 percent of it. Administrative and general, utilities, and property taxes with insurance take 12.1, 4.9 and 8.6 percent of the case's revenue against 8.9, 3.6 and 6.4 percent of the REIT's. At the REIT's margin, this case's revenue would give $940,423 and 0.93x.
• Other revenue. An assumed 4.0 percent of rooms revenue against 10.5 percent, because the format has no restaurant.

The sponsor's pro forma is sound on the building and its costs. It fails on the rate, which a portfolio spanning upscale brands in larger markets cannot supply for a rooms-focused valley hotel.

Decision. The study would show a lender both columns, name the portfolio as the source of the sponsor's rate, and say that a bottom-up budget from the intended brand and operator would replace the borrowed expense lines before a lender relied on them.

Coverage Under the Convention and What Sensitivity Shows

The bank first lien is $7,217,253 at 7.64 percent, the 5-year yield of 4.64 percent plus an assumed 3.00 points, for annual debt service of $647,926. The gross debenture is $4,452,747 at 6.57 percent over 25 years, for $363,124. Total annual debt service is $1,011,050, a loan constant of 8.66 percent (Table 11).

The sponsor's income of $1,272,096 over that debt service is 1.26x, and the base case's $574,288 is 0.57x. Where this site's own SBA program page sets 1.15x for a 504 loan ^[72], the lender minimum assumed here is 1.25x, so the assumed lender minimum binds over the program floor in both columns. The sponsor's column clears it by $8,284. The base case falls $689,524 short of it, and short of the 1.15x floor and 1.00x as well.

The structure is also stated at the loan the income supports, so that equity and project cost are read at one loan size. The total debt the base-case income carries at the binding minimum, on the same mix, is $5,302,954. The debenture fees recomputed on it are $62,679, the total project cost at the supported loan is $17,009,679, and the equity at the supported loan is $11,706,725, or 68.8 percent (Table 11). Those four figures belong together. At the supported loan the bank first lien is 22.7 percent of the 504 project, far below the half that 13 CFR 120.920(a) requires ^[55], so at this income the same-mix structure is not a valid 504 at all.

The ramp makes the picture worse before it makes it better. The model assumes 58.0 percent occupancy at 92.7 percent of the stabilized rate in year 1, 65.0 percent at 96.5 percent in year 2, and the stabilized 70.0 percent in year 3. Coverage runs 0.14x, 0.37x and 0.57x (Table 12).

The cash shortfall after debt service is $873,876 in year 1 and $637,361 in year 2, a combined $1,511,237. The operating reserve is $432,000, so it falls $1,079,237 short (Table 13).

Sensitivity moves one input at a time. With revenue down 10 percent coverage is 0.32x, with revenue down 20 percent 0.07x, with rates up 2 points 0.48x, with expenses up 10 percent 0.33x, and with occupancy down 5 points 0.45x (Table 14). The base is already below the minimum, so each column is a deeper miss; the table is more useful for its ranking, in which revenue and expenses matter most and a rate rise least.

The break-even table solves for the input that reaches each threshold. At the base rate, occupancy would have to reach 88.5 percent for 1.00x, 94.9 percent for the 1.15x floor and 99.1 percent for the assumed 1.25x binding minimum. At the base occupancy, the rate would have to reach $155.05, $162.97 and $168.26 (Table 15).

The last figure is the sharpest. The rate needed for the assumed binding minimum at an assumed 70.0 percent occupancy is $168.26, above the $159.06 that the listed REIT earns across a portfolio including upscale brands, and far above the $132.23 the hotel's own tier earns. Fixed operating costs of $1,082,622 do not move with occupancy or rate, and each occupied night adds a contribution of $72.06 (Table 15). No plausible operating assumption closes a gap of that size.

Decision. The study would report the miss as the finding, not adjust assumptions to hide it, and show the lender the ways to a credible request: a much cheaper hotel, a rate the market evidence supports, a different structure, or no hotel now.

What Would Change the Answer

Four things could change the finding, and they differ in how much evidence each needs.

The rate. To reach the assumed 1.25x binding minimum at an assumed 70.0 percent occupancy the hotel would need $168.26 (Table 15). The evidence here does not support that: the tier's own figure is $132.23, the valley's all-lodging implied receipts are $129.51 per night, and no Spokane premium for the tier is sourced. A purchased competitive-set report is the most valuable addition. If it showed the corridor's new hotels near $168.26, the finding would change; if near the tier figure, it would be confirmed.

Cost per room. The budget sits at an assumed central value of the HVS range. Income and cost both scale per room, so a smaller project alone does not help; Table 3 shows the same equity share for the assumed 90-room and 104-room designs of one format.

Rates. A rise of 2 points lowers coverage to 0.48x, so a fall of similar size would help but not close the gap, and HVS notes that the Federal Reserve has been raising rates ^[19].

The ramp. The reserve of $432,000 covers well under half of the two-year shortfall of $1,511,237 (Table 13). A real request would size the reserve to the shortfall, negotiate interest-only terms during the ramp, or have the borrower carry the gap from other cash.

None of these alone does what a restructure does. The restructure drops the debenture and sizes a bank first lien alone to the binding minimum. The base-case income carries $459,430 of debt service at that minimum, but the bank's minimum share of the 504 project alone costs $647,926 a year and would need $809,907 of net operating income, which is $235,620 more than the base case earns (Table 16). So no standard 504 fits this income. The restructure is a bank first lien alone of $5,110,000, which is 30.2 percent of a $16,947,000 project without 504 fees. Its debt service is $458,748, and its coverage is 1.25x, which passes both the assumed lender minimum that binds and the 1.15x program floor. The price is sponsor equity of $11,837,000, or 69.8 percent, which is $6,433,894 more than at the sponsor's request. Year 2 coverage is still 0.81x, and the year 1 and 2 shortfall of $406,634 leaves $25,366 of the reserve.

This restructure passes both tests, and no sponsor held to its equity cap would bring it. It makes the distance between the two projections visible: at its own tier's rate, the hotel does not carry a 504. The honest answers are a rate near $168.26 at an assumed 70.0 percent occupancy, a much cheaper hotel, or no hotel now. Nothing happened to this project, and the example does not suggest that any lender would approve the restructure; it shows what the arithmetic requires.

Decision. The study would lead with the rate evidence, because the break-even rate sits far above the tier's own, and treat every other lever as second order.

Questions to Ask a Feasibility Study Company

Why does a Spokane Valley hotel use the 504 program instead of a 7(a) loan?

The size of the project decides it. A 7(a) loan tops out at $5,000,000 ^[52], and this project costs $17,073,106 all in. The 504 lets a bank carry the larger first lien while the debenture supplies a long-term, fixed-rate portion, itself limited to $5,000,000 per borrower ^[57].

Why does the sponsor's pro forma pass when the study's base case fails?

The sponsor uses the 2025 rate and occupancy of Apple Hospitality REIT's portfolio, $159.06 and 74.1 percent ^[1]. The study uses an assumed 70.0 percent and an assumed $132.23, the rate InterContinental Hotels Group reported for one brand's comparable Americas hotels ^[3]. Apple Hospitality REIT's portfolio includes upscale brands ^[4], which lifts its rate above the tier's, and the base case sits 16.9 percent below it.

Does a hotel that covers its debt at 0.57x qualify for a 504 loan?

No lender could approve it on that coverage. A lender would not stop at 1.15x, the floor named by this site's own SBA program page for a 504 loan ^[72], and the example assumes the lender wants 1.25x, which is the minimum that binds. Stabilized coverage is below both, and so is year 2. The practical question is how much debt the income supports, which the debt table answers at $5,302,954, and at that size the bank minimum fails.

What changes if the hotel has fewer than 40 rooms?

The Department of Revenue lists a total lodging rate of 10.30 percent for 39 or fewer units in Spokane Valley, with no special hotel-motel tax and no Tourism Promotion Area charge, against 12.00 percent and a $4.00 nightly charge at 40 or more ^[41].

How should a borrower choose a feasibility study company or consultant?

Ask what the report will show that this one does not. Look for a rate built from the hotel's own tier and checked against local tax records, not a portfolio average from a company in other markets. Look for a named competitive set with current occupancy and rate data from a vendor the lender accepts, and a ramp tested year by year against a reserve. Look for a statement of which coverage minimum binds, and for the supported loan beside the requested one. The study should be independent of the franchisor, the developer and the lender, and the borrower should expect it to say no as readily as yes.

Where do the numbers in this example come from?

Sourced figures carry a numbered citation to the page they came from, and project numbers that are assumptions say so in the sentence that uses them. Every figure in the model's tables recomputes from the inputs table. Nothing happened to this project: it describes what a study would test, not what a study decided.