Buying a hotel or lodging business in New York

The 30-second version

Hotels price on RevPAR and an EBITDA multiple, not on SDE. Your job in diligence is to verify 24 months of occupancy, average daily rate and RevPAR; the franchise agreement portability (if branded); and the NYC hotel license + transient occupancy tax compliance (if in NYC). PIPs (Property Improvement Plans) from the franchisor are a real capex liability — a hotel near a PIP deadline is worth less than the EBITDA multiple suggests.

How hotels are valued

Unlike most small businesses, hotels are valued on RevPAR and EBITDA multiples, not SDE. See the SDE vs EBITDA guide for the EBITDA formula. The key hotel-specific metrics:

• Occupancy rate. Rooms sold ÷ rooms available. Trailing 24-month average is the diligence standard.
• ADR (Average Daily Rate). Room revenue ÷ rooms sold.
• RevPAR (Revenue Per Available Room). Room revenue ÷ rooms available = Occupancy × ADR.
• RevPAR index / RGI. The hotel's RevPAR ÷ competitive set RevPAR. Above 100 means outperforming the comp set.

Rebuilding EBITDA for a hotel usually means adding back real-estate depreciation, which is large here, the mortgage interest, and any genuinely one-off legal or renovation cost. Lenders will challenge: ongoing capex (hotels are capex-intensive), franchise fees and reservation system contributions, and any owner 'salary' that's actually two owner-operators' compensation when only one will be replaced.

The three real value drivers

1. RevPAR trend vs. comp set

The single most important diligence item: trailing 24 months of RevPAR compared to the competitive set.

• Declining RevPAR with stable comp set = the hotel is losing market share. Structural.
• Stable RevPAR with rising comp set = the hotel is being left behind. Structural.
• Rising RevPAR with stable comp set = the hotel is gaining share. Good.
• Rising RevPAR with rising comp set = market tailwind, not hotel outperformance. Be careful.

Get trailing 24 months of monthly RevPAR, occupancy, and ADR — not just a 12-month summary.

2. Franchise agreement + PIP

Most branded hotels operate under a franchise agreement with Marriott, Hilton, IHG, Hyatt, Wyndham, Choice, or similar. The agreement specifies:

• Brand standards (signage, room design, amenities, service levels).
• Required renovations (PIPs — Property Improvement Plans) on a set cadence (typically every 5–7 years).
• Reservation system and franchise fees, taken from the actual agreement — they are a percentage of room revenue and they are not negotiable by you.
• Loyalty programme contributions, also from the agreement.
• Term and renewal; assignability.

PIP is the diligence question. A hotel near a PIP deadline has a real capex liability — PIPs can cost $10K–$50K+ per room depending on the brand and the property's current condition. Verify the franchise agreement's assignability, the PIP schedule, and any pending PIP notifications before signing an LOI.

3. Real estate condition

Hotels are real-estate-heavy. If the deal includes real estate (most do), the property condition is a major value driver:

• Roof, HVAC, plumbing, electrical — major capex items with 15–25 year replacement cycles.
• Room interiors — furniture, fixtures, and equipment (FF&E) typically need replacement every 5–7 years.
• Common areas — lobby, breakfast area, fitness center, pool (if applicable).
• Building envelope — exterior, parking lot, signage.

Commission your own property condition assessment from a commercial inspector. Not the seller's broker. Budget for the PCA findings in your pro-forma.

NYC overlay — hotel license + occupancy tax

NYC has a distinctive overlay for hotel acquisitions:

• NYC DCWP Hotel License. Required to operate a hotel, motel, or lodging house in NYC. Separate from any NYS requirement.
• NYS Department of Health sanitation regulation. State-level; applies statewide.
• NYS Liquor Authority (SLA) hotel liquor license. Required if the hotel serves alcohol (most do). Distinct from on-premise restaurant licenses.
• NYC Hotel Room Occupancy Tax. Combined NYS + NYC hotel tax burden in NYC can be 14.75% plus a $2 per night flat fee (verify current rates at the NYC Department of Finance — they change). Collected by the hotel from guests and remitted to NYC. Under-remittance creates a back-liability exposure.
• NYC Short-Term Rental Registration Law. Affects hotels indirectly by limiting Airbnb-style competition in some NYC neighborhoods.

For hotels outside NYC, the overlay is lighter — NYS DOH sanitation + SLA hotel liquor + local occupancy tax (each county and city has its own rate).

The demand base decides the underwriting

Occupancy tells you what happened. The demand base tells you whether it will happen again, and it is the single most important thing to establish before pricing a lodging asset.

Two demand bases with identical annual occupancy require different amounts of working capital and support different amounts of debt. Get monthly occupancy and rate for thirty-six months, find the trough quarter, and test the debt service against that rather than the average — the seasonality stress test does it.

Hotel-specific diligence red flags

• Declining RevPAR vs. comp set. Structural problem; the hotel is losing market share.
• Pending PIP from franchisor. Real capex liability; can cost $10K–$50K+ per room.
• Franchise agreement not assignable. Verify with the franchisor before LOI; an unassignable agreement kills the deal.
• Hotel tax under-remittance. Compare collected tax (from POS) to remitted tax (from tax returns). Gaps create back-liability exposure.
• Online review trends. TripAdvisor, Google, Booking.com review volume and ratings declining over trailing 12 months signals operational problems the listing won't disclose.
• Major deferred maintenance. Roof, HVAC, or FF&E at end of life. Get a PCA.
• Brand standards non-compliance. The franchisor may require immediate remediation as a condition of consent to assignment.
• Concentration in one corporate account or group booking. Some hotels derive 20%+ of revenue from one corporate account or one annual event. Verify the contract terms and renewal risk.
• Seller pushing to skip PCA or PIP diligence. Walk.

New York State-specific items

• NYC DCWP Hotel License (NYC only).
• NYS Department of Health sanitation regulation (statewide).
• NYS SLA hotel liquor license (if serving alcohol).
• NYC Hotel Room Occupancy Tax (NYC) or local county/city occupancy tax (outside NYC).
• Combined NYS + local sales tax on hotel occupancy ^[5] .
• Bulk-sale / successor-liability notice. Same NYS process — protects against seller's unpaid sales or occupancy tax.
• Workers' comp, statutory disability, PFL — mandatory for hotel employees ^[6] . WC rates for hotels (housekeeping injury profile) are typically higher than many service businesses.
• UI registration (NYS 100) via NYS DOL ^[7] .
• NYC Fair Workweek Law — applies to fast food employers and large retail employers, not directly to hotels, but related NYC labor rules affect hotel operations.

SBA 7(a) and 504 financing for hotel acquisitions

SBA 7(a) is a fit for smaller hotels and motels (under ~$5M deal size). SBA 504 can finance owner-occupied hotel real estate at longer amortization. Key items:

• Max 7(a) loan $5M; max 504 loan $5.5M ^{[2] [4]} .
• Debt service coverage of at least 1.25:1 on a first acquisition, the SOP 50 10 8.1 floor ^[1] ; lenders can ask for more as credit policy ^[3] . Hotel lenders often want higher DSCR (1.25–1.4) due to revenue volatility.
• Buyer equity injection of 10% of total project cost as the SBA floor, which cannot be reduced or eliminated on a first acquisition. ^[1] Lenders commonly want considerably more on lodging assets — that is credit policy above the floor, and it is where the negotiation happens. See the equity injection guide.
• Franchise agreement is a financing contingency. The lender will want to see the franchisor's consent to assignment and any PIP notifications before approving the loan.
• Property condition assessment (PCA) is required.
• Buyer hospitality experience is heavily weighted — first-time hotel operators face significant scrutiny.

See the affordability calculator for the full SBA 7(a) math.