A hotel or motel is financed as a business as much as a building — lenders underwrite how well it actually operates, not just what it’s worth. That’s the fundamental difference from an apartment building, and it’s why hospitality has its own language: occupancy, ADR, and RevPAR.
Why hotels are underwritten differently
An apartment building signs a tenant to a year-long lease. A hotel re-rents every room, every night. That means income is more variable and far more sensitive to the season, the local market, and how well the place is run. Lenders account for that variability with a stricter look at operations and, typically, more money down.
The three numbers that matter
- Occupancy. The percentage of available rooms actually filled.
- ADR (average daily rate). What a filled room brings in on average.
- RevPAR (revenue per available room). Occupancy multiplied by ADR — the single number that captures how the hotel is really doing. It’s the metric a lender looks at first.
From there, the lender works down to the property’s net operating income and measures it against the debt, just like any commercial asset — but with hospitality-specific expenses (staffing, housekeeping, franchise fees, reserves for replacing furniture and fixtures) taken seriously. Programs like SBA loans also help finance smaller hotels.
What you’ll bring
- A larger down payment. Often in the 25%–35% range, reflecting the variability of hotel income.
- Operating history. The property’s actual performance — occupancy, ADR, RevPAR, and its financials.
- Experience or management. Because it’s an operating business, lenders want relevant experience — or a credible third-party management company running it.
Flag vs. independent
A franchised property (a recognized brand) brings a reservation system and brand demand, which lenders view favorably — but also franchise fees and required property improvements. An independent has more freedom and lower fees, but has to prove its demand on its own. Both are financeable; they’re simply underwritten with different eyes.
A typical deal
A scenario I see often: an investor buying a small independent motel in a tourism market. We work from its occupancy and ADR to a realistic RevPAR, build the operating expenses honestly, arrive at NOI, and size the loan against the debt. The investor brings 30% down and a management plan. The building matters — but the operation is what gets underwritten.
Looking at a hotel or motel?
Hospitality has its own rules, and the numbers tell the story fast. Tell us about your deal and we’ll run it — in English or Spanish.
By Andres Jara — Alpha Equity Lending (NMLS #1855083). 20+ years in real estate finance, an MS in Finance, and an active South Florida investor and landlord.
