SBA 504 Hotel Feasibility Study in Texas

A big-ticket, branded program in a big state

Few cells in SBA's records carry larger loans than hotels financed through the 504 program in Texas. From FY2017 to FY2026 SBA approved 149 such loans, worth $433.6 million in gross dollars, and a typical loan of $2.9 million, 1.41x the national 504 median for hotels. Half the loans sit between $1.8 million and $3.8 million. Texas ranks 3 among states for 504 hotel and motel loans by count, and across Texas's own asset classes the hotel category stands at 3 of 39. The median is the metric that most clearly separates this cell from its parents.

Franchise-affiliated borrowers account for 81.9% of these loans, so a Texas 504 hotel is overwhelmingly a branded property, and a study should state the flag and its requirements as a cost and a revenue input. Capital Certified Development Corporation holds 45 loans worth $146.9 million. LiftFund, Inc. holds 18 worth $49.9 million, Greater East Texas Certified Development Company 15 worth $53.6 million, Community Certified Development Corporation 12 worth $29.3 million, and North Texas Certified Development Corporation 10 worth $28.2 million. SBA reports the current holder; this is a record of holdings and says nothing about how any of them underwrites. Dallas County has 17 loans, Harris 15, Tarrant 12 and Bexar 9.

Reading the limitation, and the trend

The industry code lumps motels with hotels, so limited-service and full-service properties sit mixed together in these counts. A study should say which it is analysing, because the two earn very differently. Approvals fell to 5 in FY2021 and rebuilt to 27 in FY2024, the peak, with $75.9 million that year, then stood at 16 in FY2026.

Cancellation after approval touched 10.8% at the least among Texas hotel loans approved through FY2024, though counting undisbursed approvals as cancelled lifts it to 24.3%, a gap that reflects projects approved and not yet funded, which in hotel construction can take a long time. The 50 Texas hotel loans in the earliest five funded vintages show 2.0% charged off as a minimum, with the five-year measure landing on the same 2.0%. Both are floors; open loans can still fail.

Underwriting tests for a Texas 504 hotel

A study for a 504 hotel in Texas has to build demand from what actually fills rooms near the site: corporate and government travel, airport or highway access, events, and the supply already open or under construction. Average daily rate and occupancy should be tested against the competitive set, not against a national average, and the franchise's brand standards should be priced into the budget. With loans commonly in the low millions, construction or acquisition cost per room, the reserve for replacing furniture and fixtures, and debt service coverage under a slower ramp are the tests a lender will care about, and an appraiser will want the income approach reconciled to the cost of the building.