A hotel is underwritten as an operating business: build rooms revenue from occupancy and average daily rate (ADR), add other departments, take off departmental costs, franchise and management fees and an FF&E reserve, then price the brand's property improvement plan (PIP). A spreadsheet or Titleman's underwriting handles the model from the monthly T-12 and OM; a hotel market report and a hotel consultant fit better for rate forecasts and brand decisions.
Updated 19 October 2026. Published by Titleman, which makes one of the tools compared.
Start from RevPAR, not a rent roll
A hotel has no leases; guests rent by the night. The core metric is revenue per available room (RevPAR): occupancy times ADR.
For example, an illustrative 120-room hotel at 72 percent occupancy and a 150 dollar ADR earns RevPAR of 108 dollars. Rooms revenue is 120 x 365 x 108, or 4,730,400 dollars a year. If total revenue with food, parking and other departments is 5,600,000, then, for example, franchise fees at 10 percent of rooms revenue (473,040), management at 3 percent of total revenue (168,000) and an FF&E reserve at 4 percent (224,000) take about 865,000 before payroll, utilities, taxes and insurance. A 5-point drop in occupancy removes about 329,000 of rooms revenue, most of it from NOI.
Risks specific to hotels
| Risk | What to check | Where it shows up |
|---|---|---|
| Seasonality | Occupancy and ADR by month, not the annual average | Monthly T-12 |
| Market rate pressure | RevPAR against a competitive set of nearby hotels | Market report |
| Brand and PIP | Required renovations on a sale or renewal, cost and timing | Franchise agreement, PIP letter |
| Management contract | Fee structure, term, whether it can be ended on sale | Management agreement |
| FF&E reserve | Whether the T-12 reserves for it or the loan requires it | T-12, loan terms |
The steps in order
- Rebuild the T-12 by month and department.
- Normalize taxes, insurance, the management fee and the reserve.
- Set occupancy and ADR for each year of the hold from the competitive set, not the seller's budget.
- Price the PIP and the downtime while rooms are renovated.
- Compute NOI after reserve (net operating income), then coverage and debt yield.
- Take an exit cap from similar hotel sales.
Which tool for which job
| Option | Best for | What it does | Where it stops | Pricing model |
|---|---|---|---|---|
| Spreadsheet | One hotel, a known template | Departmental pro forma | Monthly inputs typed by hand | Staff time |
| Hotel market report | Competitive set and RevPAR trends | Benchmarks occupancy, ADR and RevPAR | Not a model of this asset | Per report or subscription |
| Hotel consultant | Brand, PIP and a market study | Forecasts and a written opinion | Weeks, not hours | Per engagement |
| Titleman | A first full read on a deal or loan request | Underwrites the property from the address, T-12 and OM in live Excel | No rate forecasting tool and no brand advice | Per run; terms on a demo |
Where Titleman fits
Titleman's underwriting returns a memo and a live Excel model with a 10-year pro forma, debt and sensitivity grids, built from the documents and the address in about 58 minutes at the median (production runs, 30 days to 18 October 2026). Ask in the brief for the departmental lines you want (what a T-12 is). For the wider category see AI real estate underwriting software. To try it on a hotel you know, request a demo.
FAQ
What is RevPAR?
Rooms revenue divided by rooms available, or occupancy times ADR: the main measure of a hotel's top line.
What is a PIP?
A property improvement plan: renovations a brand requires, often on a sale or renewal. Its cost and room downtime belong in the price and the budget.
Why do lenders treat hotels differently from apartments?
Hotel income resets nightly and can fall fast, so lenders often ask for lower leverage, a higher debt yield and a funded FF&E reserve.
Can Titleman underwrite a hotel?
It underwrites the property from the address and the documents you send, with a live Excel model where every input shows its source. It does not forecast rates and gives no buy or sell verdict.