SBA 504 Hotel Feasibility Study

504 hotel loans against their two parents

The 504 program's hotel and motel book for FY2017 to FY2026 holds 2,885 approvals and $6.68 billion in gross dollars. None of the headline figures, whether the median, the cancellation rate or the charge-off rate, stands far enough from 504 lending overall and from hotel lending in both SBA programs to register as distinct. The differences that do exist run between the two programs. Next to 7(a) hotel loans, 504 hotel approvals are cancelled more often, with a 13.1% floor among hotels approved in FY2017 to FY2024 and a 19.2% ceiling if every hotel approval not yet disbursed were to cancel, while funded 504 hotels have been charged off less often.

The median 504 hotel loan is $2.0 million, and the middle half runs from $1.0 million to $3.4 million. Franchised properties took 63.0% of the loans, and that share shapes the underwriting: a flag brings a reservation system and brand standards, and with them a property improvement plan and a franchise agreement that a lender will want to run at least as long as the debt. Funded loans have held up. The charge-off floor is 0.55% on 1,085 loans disbursed from FY2017 to FY2021, a cohort that lived through the pandemic years, and only 0.09% of the hotels failed inside five years of their approval.

The largest 504 hotel book belongs to The Mortgage Capital Development Corporation: 211 loans worth $572.5 million. Florida First Capital Finance Corporation, Inc. holds 142 worth $370.4 million and Florida Business Development Corporation 137 worth $381.5 million; Empire State Certified Development Corporation holds 129 hotel loans and Granite State Economic Development Corporation 112. California leads the states with 355 loans, then Florida with 225, Texas with 149 and Georgia with 144. Approvals fell to 199 in FY2021 and rose to 382 loans and $1.03 billion in FY2025.

Where a 504 hotel study earns its keep

The cancellation ceiling is the figure a borrower should take seriously, because an approved hotel can still fail to close. SBA's files do not record why, so the study has to test each point where a hotel project can break before funding. Demand should be shown from the competitive set's occupancy and rate, the midweek and weekend demand generators near the site, and new rooms in the pipeline. Cost should carry the brand's improvement plan or the construction budget, furniture, fixtures and equipment, and pre-opening spending. Coverage of the hotel's combined first-lien and debenture payments needs a ramp-up year for a new build and a stressed occupancy case. The appraiser will separate real property from the business value of the flag and its management, and the study's forecast should be one the appraiser can rely on. On the data itself: one NAICS entry covers the whole lodging class here, which puts a roadside motel and a full-service convention hotel in the same 504 figures.