Hotel Feasibility Study in California

California's SBA hotel and motel lending is large in dollars and nearly loss-free so far. From FY2017 to FY2026 the state approved 1,180 loans worth $3.06 billion, ranking 2 of 53 among states. Yet hotels are only 9 of 39 among California's classes, and at 0.79x the location quotient shows them below their national weight in the state's SBA book: California's SBA market is broad enough that even a large hotel book is a modest slice of it. None of the three measures we test for distinctness is flagged in the California hotel cell.

A charge-off floor of 0.30%

Of the 674 California hotel loans disbursed in FY2017 to FY2021, 0.30% have been charged off to date and 0.15% inside the first five years. Both floors are low, and they cover a cohort that includes the pandemic years, but they are floors: many of these loans are still open and the cohort has not run its full term. Between 8.3% and 10.0% of approved hotel loans were cancelled, depending on how the undisbursed are counted. For a lender, the record supports the class; for a borrower, it means the underwriting attention goes to the specific property rather than to the asset type.

504 and the specialist hotel banks

SBA 504 carries 355 of the approvals and SBA 7(a) 825. The Mortgage Capital Development Corporation dominates hotel 504 lending in California, holding 136 loans and $377.6 million, ahead of CDC Small Business Finance Corp. with 41 and Business Finance Capital with 37. Pinnacle Bank holds 122 of the 7(a) loans worth $320.6 million, US Metro Bank 70 worth $197.9 million and Open Bank 62 worth $143.5 million. At $2.4 million, the median California hotel loan is 1.09x the class median nationwide, with an interquartile range of $1.1 million to $4.1 million. Franchise units account for 45.6% of loans. Pinnacle's lead is measured on loans it holds in SBA's current files.

What a California hotel study must test

Demand testing has to be done at the submarket, by segment and by day of week. Hotel approvals cluster in Los Angeles County at 132, San Bernardino at 106, Riverside at 100, San Diego at 60 and Kern at 56, which puts the inland markets alongside the coastal metros. Cost testing must cover property improvement plans for flagged acquisitions and full construction budgets for new builds. Coverage has to be shown twice, for a stabilized year and for a stress year. Lending has slowed: FY2023 and FY2024 brought 74 and 75 approvals, against 185 in FY2017. The appraisal must separate real property from business enterprise value. One coding limit applies: California's hotel figures blend limited and full service, since motels and hotels are coded together.