Hotel Feasibility Study in Iowa

Smaller Iowa hotels, heavily branded

Iowa hotel loans are smaller than hotel loans nationally, and loan size is the Iowa cell's distinguishing mark. The Iowa median across 106 approvals from FY2017 to FY2026 is $1.5 million, 0.67x the national hotel median, a difference our test finds beyond the margin against both Iowa's lending in every class and hotels across the country. Iowa's quartiles fall at $827,000 and $2.3 million, and the gross approved is $178.3 million. Those sizes fit limited-service properties in regional and highway markets, or the purchase of an existing select-service hotel, more than a new full-service build.

Franchise flags are close to universal: 70.8% of Iowa hotel loans went to franchised properties. The 504 program is prominent, with 38 approvals against 68 under SBA 7(a). Iowa Business Growth Company holds 17 of those 504 loans worth $32.0 million, and Siouxland Economic Development Corporation and Dakota Business Finance hold 7 each. On 7(a), GBank holds 8 worth $17.9 million, Shoreham Bank 6 worth $11.0 million and United Bank of Iowa 5. Hotels weigh more in Iowa's SBA lending than nationally, with a location quotient of 1.35x and a rank of 4 of 39 among Iowa's classes, though Iowa is only 32 of 53 states by hotel loan count.

Outcomes on Iowa hotel loans

The Iowa hotel record is close to clean so far. Of 50 Iowa hotel loans funded during FY2017 to FY2021, 2.0% ended in charge-off, against 0.00% inside five years, so the losses that have occurred came after the fifth year; both are floors. Cancellation is 7.1% of approvals made in FY2017 through FY2024, or 9.4% if every Iowa loan still undisbursed is treated as cancelled. Annual approvals ranged from 5 in FY2023 to 16 in FY2021, and FY2024's 12 approvals carried $26.9 million.

What an Iowa hotel study has to test

The record is scattered: Linn County leads with only 9 approvals, Clinton and Polk have 7, and Dubuque, Johnson, Pottawattamie and Scott 5 each. With demand that local, a feasibility study has to build the hotel's case from the specific market's room nights, corporate accounts, highway traffic, university or medical demand and events, measured against the competitive set's occupancy and rate. Cost testing must price a property improvement plan at a flag change or purchase, and construction at current bids for a new build. Debt service coverage should be run on a ramp of occupancy and average rate, stressed for a soft year and for the franchise charges and reserves that come off revenue. An Iowa hotel appraisal should split land and building from furniture, fixtures and the operating business, and value the hotel under a different flag. One coding note: SBA files hotels and motels together under a single code, which means Iowa's economy roadside motels and its full-service hotels are counted as one.