The Complete Guide to Hospitality Real Estate: Buying and Selling Hotels and Motels

Hospitality real estate covers hotels, motels, inns, lodges, and resorts. Unlike most commercial property, a hotel is both a real estate asset and an operating business, so its value depends on revenue, operations, brand, and the physical condition of the building. Buyers and sellers need to evaluate both the property and the business.

How are hotels and motels valued?

Hotels are usually valued using net operating income and a capitalization rate, along with price per room as a quick comparison. Key operating metrics include occupancy, average daily rate (ADR), and revenue per available room (RevPAR). Cap rates vary by asset type, brand, condition, and market, and properties needing major renovation generally price at higher cap rates. Always review actual operating statements, not just broker summaries.

What should buyers look at in hotel due diligence?

Review at least three years of profit and loss statements, STR or market performance reports where available, online travel agency commissions, payroll and management costs, and franchise agreements. Inspect the physical plant: roofs, HVAC, plumbing, elevators, fire and life-safety systems, and room condition. Confirm licenses, permits, and any outstanding code or health violations.

What is a PIP and why does it matter?

A property improvement plan (PIP) is a list of renovations a hotel brand can require when a franchise is renewed or transferred to a new owner. PIP costs can be substantial, so buyers should request the current PIP and estimate the cost before setting an offer price. Independent hotels avoid franchise PIPs but give up brand reservations and loyalty programs.

How is hotel financing different?

Lenders treat hotels as operating businesses, so they often require larger down payments, strong operator experience, and more reserves than other commercial property. Options include conventional loans, SBA 7(a) and 504 loans for qualifying owner-operators, bridge loans for value-add deals, and seller financing. Expect the lender to review the franchise agreement and the management plan closely.

What should sellers do to prepare?

Sellers should organize clean financial statements, maintenance records, franchise documents, and employee information. Address visible deferred maintenance, keep reviews and online listings accurate, and be ready to explain seasonality and any recent capital improvements. Transparent records reduce renegotiation late in the process.

Frequently asked questions

What is RevPAR? Revenue per available room is occupancy multiplied by average daily rate. It shows how well a hotel earns from every room, whether occupied or not.

Can I get an SBA loan for a hotel or motel? Often yes, if you will operate the property and meet SBA and lender requirements. Terms change, so confirm with an SBA lender.

Is it better to buy a flagged or independent hotel? It depends on market, budget, and operating skill. Flagged hotels offer brand distribution and standards, while independents offer flexibility and potentially lower fees.

Do I need a hospitality-specific broker? Hospitality sales involve operating data, franchise approvals, and specialized buyers, so a broker with hotel experience is usually valuable.

Summary

Hospitality deals reward careful review of operations, brand obligations, and physical condition. This guide is general information, not legal, tax, or financial advice. Work with a qualified hospitality broker, lender, attorney, and tax advisor before you buy or sell.