Buying a Hotel
Two Purchases in One: the Property and the Operation
A hotel is real estate and an operating business fused: the building carries most of the value, and the operation decides what the building earns. That dual nature runs through everything, the valuation reads like both a cap-rate deal and an earnings multiple, the lender underwrites both an appraisal and a P&L, and the diligence walks both the roof and the booking pace. Flagged properties add a third party to the room: the franchisor, whose agreement governs standards, fees, and the renovation bill at transfer. The prize is a limited-service property in a corridor with durable demand; the trap is a tired flag with a deferred plan priced as if the brand were the asset.
What Hotels Trade For
Flagged limited-service hotels commonly trade around 8x to 12x EBITDA and select-service a step higher, with the whole market clearing roughly 6x to 12x run-rate earnings depending on segment and brand. The real-estate lenses run alongside: per-key values commonly land near $30,000 to $50,000 for the properties a first-time buyer sees, and stabilized deals price at 7% to 10% capitalization rates in ordinary markets. The searcher-scale end of the trade, independent and exterior-corridor properties, prices closer to its real estate than to its brand, and every lens tightens or widens on the same facts: RevPAR against the comp set, the property's age, and the market's demand drivers.
The Flag: Fees, Standards, and the Transfer Moment
A franchise flag delivers reservations, brand trust, and a booking engine, and it charges for them: royalty and marketing fees commonly take a tenth or more of room revenue, standards are audited, and the agreement's transfer provisions govern the sale itself. The transfer moment is where the money hides, because the franchisor typically requires a property improvement plan as a condition of licensing the buyer, and that scope, decided by the brand rather than the seller, can run from cosmetic to structural. Get the PIP in writing before pricing the deal, confirm the agreement's remaining term and territory protections, and treat a lapsing flag as either upside or a demand cliff, depending on what the comp set says.
Reading the Operation Under the Real Estate
Three operational reads decide the earnings quality. Demand mix first: a property living on one driver, a single employer, a seasonal attraction, a highway interchange whose traffic is being rerouted, carries concentration risk no multiple discounts honestly. Labor second: housekeeping and front desk staffing set the margin, and the manager the deal needs is priced against the seller's own on-site hours. Records third: the STR-style comp report, three years of monthly P&Ls, and occupancy and rate data are the file; a seller who cannot produce them is selling a building with a story attached. Read the booking channels too, since a property bought on third-party listings pays commissions a direct book does not.
What to Verify in Diligence
The record to assemble before the offer holds:
- The franchise agreement: remaining term, fees, territory, and every transfer provision
- The PIP scope in writing from the franchisor, priced by a contractor rather than the seller
- Three years of monthly P&Ls with occupancy, rate, and RevPAR against the comp set
- The property condition: roof, systems, life safety, and the capex the building needs regardless of the brand
- Demand drivers and their concentration: who fills the rooms and what could stop
- Labor roster, wages, and the manager the operation needs priced at market
- Booking-channel mix and the commissions paid for third-party reservations
Financeability Notes
Hotels finance on both halves of their nature: SBA 7(a) and 504 structures are standard at this scale, with the 504 carrying the real-estate weight and the 7(a) the going concern, and lenders underwriting the appraisal, the P&L, and the PIP as one package. Expect the franchise agreement to be a closing document the lender reads, the PIP to be financed alongside the purchase or escrowed, and hospitality experience to be a real underwriting question in a way it is not for most trades. Model debt service net of a market manager's wage and the property's capex schedule, and treat a deal whose numbers only work at the seller's own occupancy peak as unpriced seasonality, not upside.
What the Data Says
Flagged limited-service hotels commonly trade around 8x to 12x EBITDA with select-service properties a tier higher, and the broad market clears roughly 6x to 12x run-rate EBITDA depending on segment and brand affiliation.
Source: Hotel EBITDA multiples by tier (Bay Street Hospitality)
The real-estate lenses on a hotel run alongside the earnings multiple: per-key values commonly range near $30,000 to $50,000 depending on market quality, and stabilized properties price at roughly 7% to 10% capitalization rates in ordinary markets.
RevPAR, the average daily rate multiplied by occupancy, is the industry's joining metric for price and fullness, and a property's RevPAR position against its competitive set is the cleanest single read on whether the operation or the market is doing the work.
Holding a live deal in this industry? Underwrite it with the comps, cited band, and charge-off rate pre-loaded.
Compare bands across industries in the cited multiple bands by industry.
Who Else Is Buying in This Industry
No consolidator is confirmed in this trade from a primary source. Silence means unverified, not uncontested: check the current list before assuming a quiet market.
The Buyers profiles every confirmed firm across all trades.
The Numbers That Run This Business
- RevPAR against the competitive set
- Occupancy and rate by month across three years
- Franchise fees as a share of room revenue
- The PIP scope and cost in writing from the brand
- Booking-channel mix and commissions paid