Underwriting Hotel Revenue: RevPAR, ADR, TrevPAR, and STR Report Analysis
Unlike commercial properties governed by long-term leases, hotels operate on 24-hour lease cycles. Commercial mortgage underwriters evaluate hospitality performance through specialized metrics—including Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), Total Revenue Per Available Room (TrevPAR), and Smith Travel Research (STR) competitive set indices.
Key Financing Parameters & Standards
Institutional Market Reference
ADR FormulaTotal Rooms Revenue ÷ Total Number of Rooms Sold
RevPAR FormulaTotal Rooms Revenue ÷ Total Available Rooms (or ADR × Occupancy %)
TrevPAR FormulaTotal Operating Revenue (Rooms + F&B + Spa + Parking) ÷ Total Available Rooms
STR Competitive SetMinimum 4 to 6 peer hotels comparable in location, chain scale, and amenities
RevPAR Penetration Index (RGI)Target > 100% (indicates property captures more than its fair share of market revenue)
Gross Operating Profit (GOP)Target 35% – 45% of total revenue for select-service; 25% – 35% for full-service
* Hospitality underwriting criteria, required FF&E replacement reserves (typically 4% to 5% of gross revenue), and minimum debt yield thresholds vary by hotel chain scale.
The Core Trinity of Hotel Revenue Analytics
Commercial hotel lenders rely on three foundational metrics to analyze lodging cash flows:
1. Average Daily Rate (ADR)
ADR measures the average pricing power per occupied room. While valuable, high ADR can be misleading if occupancy is depressed due to uncompetitive rate positioning.
2. Revenue Per Available Room (RevPAR)
RevPAR is the gold standard metric in hotel underwriting. By dividing rooms revenue by all available rooms (both vacant and occupied), RevPAR reflects the combined effectiveness of pricing and occupancy management.
3. Total Revenue Per Available Room (TrevPAR)
In full-service resorts, boutique hotels, and conference properties, rooms revenue accounts for only 55% to 70% of total cash flow. TrevPAR captures non-rooms revenues—including food & beverage (F&B), meeting space banquets, resort fees, spa operations, and valet parking.
Deconstructing the Smith Travel Research (STR) Report
Lenders require a certified 3 to 5-year STR Trend Report to benchmark a hotel against its competitive set (Comp Set):
Key STR Performance Indices
Market Penetration Index (MPI): Property Occupancy ÷ Comp Set Occupancy × 100. Measures fair share of room nights.
Average Rate Index (ARI): Property ADR ÷ Comp Set ADR × 100. Measures pricing power relative to peers.
Revenue Generation Index (RGI): Property RevPAR ÷ Comp Set RevPAR × 100. An RGI above 100 demonstrates market leadership and superior operating efficiency.
Frequently Answered Questions
Common Questions About Underwriting Hotel Revenue: RevPAR, ADR, TrevPAR, and STR Report Analysis
Direct, transparent answers regarding underwriting standards, documentation, and process.
Hospitality Metrics
What is RevPAR and why is it the most important metric in hotel financing?
Direct Answer
RevPAR (Revenue Per Available Room) is calculated by multiplying Average Daily Rate (ADR) by Occupancy percentage; it is the most critical lodging metric because it measures how effectively a hotel generates revenue across its entire room inventory.
Commercial hotel underwriters use RevPAR to evaluate historical performance stability and benchmark properties against competing local hotels.
STR Report Analytics
What does a Revenue Generation Index (RGI) above 100 mean on an STR report?
Direct Answer
An RGI above 100 means that the subject hotel generates more revenue per available room than its fair share of the competitive market, indicating superior brand strength, location, or management execution.
Hotels with sustained RGI indices above 100 secure preferential financing terms and lower interest rate spreads from hospitality lenders.
Connect with our commercial underwriting team. We provide prompt indicative pricing, leverage sizing, and lender placement strategy upon scenario review.
