Hotel Feasibility Study in the Detroit-Warren-Dearborn, MI Metro Area

Brand-flagged hotels in an area that borrows little for lodging

Detroit-Warren-Dearborn lends to hotels at well under the national rate: its location quotient is 0.40x. Yet the 81 loans that SBA approved from FY2017 to FY2026, worth $210.4 million, are large, with a $2.5 million median at 1.17x the national level and middle loans from $1.3 million to $3.8 million. Three out of four, 75.3%, carry a franchise flag. Out of 807 areas Detroit is sixteenth for lodging loans, which are the thirteenth of its 39 classes.

Programs divide 61 loans to SBA 7(a) and 20 to SBA 504. Wayne County has 35 of the loans, Oakland County 26 and Macomb County 13, so the lodging file follows the three core counties.

Concentrated holders

Only three names reach SBA's lender lists. Michigan Certified Development Corporation holds 13 of the 504 loans, worth $31.0 million. On the 7(a) side the entries are Shoreham Bank (14 loans, $40.0 million) and the Peachtree Group affiliate First Western SBLC, LLC (7, $19.1 million). These are very large loans for their count. The tables are present holders of record, and do not describe any institution's appetite for lodging.

SBA's release for Detroit hotels leaves out how often Detroit hotel approvals were cancelled and how often funded loans were written off, since each rests on too few loans; no outcome floor appears here, and an absent rate is not a zero. The yearly record is complete: 6 loans in FY2017, worth $11.3 million, 9 in FY2019, worth $28.9 million, 5 in FY2022, and 12 in FY2026, worth $40.4 million, the largest annual dollar figure in the series.

Hotel study: Detroit-area tests

Can demand carry a large debt payment steadily? That is the first test. Detroit draws business travelers, event and convention visitors, travelers using the airport and visitors from across the border, and each segment follows a different seasonal pattern. A study should compare the proposed property against the supply of rooms in its submarket, project occupancy and average daily rate with an independent source, and run debt service coverage at an occupancy well below the base case. A franchised hotel adds required improvements and fees to cost. The appraisal should treat the land and building apart from the going business. The data cannot tell limited-service from full-service properties, since hotels and motels share one industry entry. Counts for Wayne, Oakland and Macomb exclude any loan whose county was not found on the July 2023 list.