Sector Analysis

U.S. Hotel Market Report and Outlook, Fall 2026

The Rebound Is Real, Uneven and Rate-Led: What Lenders, CDCs and Sponsors Should Underwrite Through 2028

By David Jones, MAI, CCIM · SBA Feasibility Study LLC Research · Published September 2026 · Data current through mid-September 2026

Companion reading: our hotel feasibility study methodology and the SBA hotel feasibility study service page.

The Rebound Is Real, Uneven and Rate-Led: What Lenders, CDCs and Sponsors Should Underwrite Through 2028

SBA Feasibility Study LLC Research. Published September 2026. Data current through mid-September 2026.

The U.S. hotel industry enters the final third of 2026 in a far better position than it held twelve months ago. After a 2025 in which national revenue per available room slipped for the first time since the pandemic, 2026 has delivered the strongest run of rate growth since early 2023, and every major forecaster has raised its full-year outlook at least once. For a lender or a sponsor, though, the headline number hides almost everything that matters. The recovery is concentrated in luxury and upper-upscale hotels, in urban cores fed by technology and convention demand, and in a handful of host cities that captured one-time FIFA World Cup rate premiums. Economy and midscale hotels, the segment where most small-balance and SBA hotel credit actually sits, are flat to negative in real terms.

This report pulls together the performance data, forecasts, supply pipeline, cost structure, capital markets and credit conditions that shape hotel underwriting today, and closes with the specific adjustments we believe a feasibility study, a credit memo or a sponsor pro forma should make in this environment. Every figure carries its source and its date, and forecasts are labeled as forecasts. Hotels are a market where the vintage of a number can change its meaning entirely, as the forecast revisions described below make clear.

Key Figures at a Glance

Executive Summary

The short version for a credit committee runs as follows.

First, 2025 was a genuine stall, not a statistical blip. CoStar's STR benchmark recorded full-year occupancy down 1.2 percent to 62.3 percent, ADR up just 0.9 percent to $160.54, and RevPAR down 0.3 percent to $100.02, the first full-year decline in key national metrics since 2020 (Hotel Dive). The American Hotel and Lodging Association's 2026 State of the Industry report put RevPAR at $99.80, down 0.4 percent, on a slightly different basis. Whichever figure a reader uses, national RevPAR was flat while expenses rose, which means profits fell at most hotels.

Second, 2026 has rebounded sharply and almost entirely on rate. CBRE reported first-quarter RevPAR growth of 3.8 percent and second-quarter growth of 5.7 percent, with ADR contributing 4.4 points of the second-quarter gain. July, the World Cup final month, posted national RevPAR of $119.77, up 8.2 percent year over year (CoStar). CoStar and Tourism Economics now forecast full-year 2026 RevPAR growth of 4.4 percent, up from 0.6 percent in February (CoStar).

Third, the market is K-shaped. CBRE's midyear outlook projects full-year 2026 RevPAR growth of 5.2 percent for luxury hotels against 0.7 percent for midscale and a 0.6 percent decline for economy. The typical franchised limited-service hotel on a highway interchange is not living through the recovery that the national headline describes.

Fourth, supply is the structural tailwind for anyone who already owns or finances a well-located hotel. Lodging Econometrics expects only 1.3 percent room supply growth in 2026, rising to 1.4 percent in 2027 and 1.5 percent in 2028, well below the long-run average. New construction remains hard to finance and expensive to build, and a record share of pipeline activity is conversions rather than ground-up development.

Fifth, credit stress is elevated but has stopped worsening. Trepp's lodging CMBS delinquency rate fell 51 basis points to 6.01 percent in May 2026, and lodging special servicing fell 121 basis points to 8.45 percent (Multifamily Dive, citing Trepp). A hotel maturity wall estimated at more than $46 billion still has to be refinanced against a federal funds rate that has not moved since late 2025 and may yet move higher.

Sixth, the capital markets are reopening. JLL recorded $5.6 billion of U.S. hotel transactions in the first quarter of 2026, up 14.4 percent year over year, with deal count up 35 percent (Hotel Dive, citing JLL). Volume remains roughly half of the 2022 peak, but pricing discovery has returned.

Our overall read: the 2026 recovery supports existing well-located assets and disciplined new projects in supply-constrained markets, but it does not justify underwriting national-average RevPAR growth into a midscale or economy project, and it certainly does not justify capitalizing World Cup rate premiums into a stabilized pro forma.

How 2025 Stalled

The 2025 slowdown matters because it is the baseline every 2026 comparison is measured against, and because its causes have not fully disappeared.

The first cause was the lower-income leisure traveler. Inflation fatigue, higher consumer credit costs and a softer labor market for hourly workers reduced discretionary trips at exactly the price points where economy and midscale hotels compete. Higher-income households, supported by asset prices, kept traveling and kept paying luxury rates. The result was a year in which luxury RevPAR rose roughly 3 percent while economy RevPAR fell by more than 4 percent, according to JLL's full-year read of the benchmark data.

The second cause was international inbound travel. According to the National Travel and Tourism Office, international arrivals to the United States fell 5.5 percent in 2025 to about 68.3 million, only 86 percent of 2019 levels. Canada, historically the largest source market, fell 20.9 percent to about 16.0 million visitors as tariff disputes, political rhetoric and border concerns pushed Canadian travelers elsewhere. Mexico grew 6.4 percent and partly offset the decline, but the loss of Canadian drive-in and fly-in demand was felt hard in border states, Florida, Las Vegas and New York.

The third cause was government. Federal workforce reductions, contract cancellations and reduced government travel hit the Washington, D.C. metro area through the summer of 2025, and the government shutdown that ran from October 1 into mid-November compounded the damage. D.C. area occupancy fell by roughly 4 to 6 percent year over year each month from July through early October, and D.C. RevPAR fell 8.8 percent in October (Skift; Hotel News Resource). HVS observed that the episode broke the D.C. market's long-held reputation as recession-resistant (HVS). AHLA estimated the shutdown cost the hotel industry about $650 million nationally.

The fourth cause was specific market shocks. Las Vegas, which had been one of the strongest post-pandemic markets, saw RevPAR fall by roughly 11 percent in 2025 as visitation softened, airline capacity shrank and rate resistance set in after several years of aggressive pricing and resort fees.

None of these forces was a classic recession. That is precisely why 2025 was instructive for underwriters: a hotel's revenue can stall in a growing economy if its guest profile sits on the wrong side of the consumer split.

The 2026 Rebound in Numbers

The recovery arrived earlier and faster than forecasters expected. CBRE characterized first-quarter 2026 RevPAR growth of 3.8 percent as the strongest quarter since early 2023. The second quarter was stronger still at 5.7 percent, driven by ADR growth of 4.4 percent, demand growth of 1.7 percent and measured supply growth of just 0.4 percent. Demand outrunning supply is the single most favorable condition a hotel market can have, because it gives operators pricing power without requiring occupancy gains that drive up labor.

Monthly data tell the same story. March 2026 benefited from a heavy conference calendar, with San Francisco posting RevPAR growth of nearly 39 percent on the back of technology and security events. May saw Las Vegas ADR climb by double digits as the market recovered from its 2025 slump. June and July were shaped by the World Cup. July 2026 posted national occupancy of 69.7 percent, ADR of $171.74 and RevPAR of $119.77, gains of 2.3, 5.7 and 8.2 percent respectively (CoStar).

Two cautions apply. The first is that growth is measured against a weak 2025, so part of the 2026 gain is recovery of lost ground rather than new peak performance. AHLA notes that inflation-adjusted gross operating profit per available room remains around 90 percent of 2019 levels, and roughly three quarters of U.S. submarkets still operate below their 2019 occupancy. The second is that operating-panel data can overstate the national picture. One widely reported first-half 2026 operating panel showed RevPAR up 8.9 percent to $144.01, with luxury RevPAR up 15.9 percent and economy RevPAR down 2.7 percent (Asian Hospitality). Panels of that kind skew toward larger, full-service properties, so their growth rates run well ahead of the census benchmark. Both data sets are valid; they simply measure different universes of hotels, and a feasibility analysis must know which one it is quoting.

What Is Driving Demand

Domestic leisure and the split consumer

Domestic travel remains the backbone of U.S. hotel demand. The U.S. Travel Association and Tourism Economics forecast total 2026 travel spending of about $1.37 trillion, with domestic travelers accounting for roughly 87 percent of the total and domestic leisure spending forecast to rise about 0.9 percent in real terms. That is modest growth, and it is not evenly distributed. Affluent households continue to book resorts, city breaks and experiential trips at rising rates. Price-sensitive households are trading down, shortening trips, staying with friends or choosing short-term rentals, and many are simply traveling less.

For a hotel project, this makes the guest profile of the trade area more important than the national trend. A select-service hotel near a university medical center, a corporate campus or a sports complex can show strong demand fundamentals in a year when a similar product at an interstate exit a few miles away loses occupancy.

Business transient, group and the technology economy

The most important change in 2026 is the return of weekday demand. CBRE's midyear analysis attributes more than half of expected 2026 RevPAR growth, excluding the World Cup effect, to business transient and convention-linked group demand. That demand is concentrated. Technology hubs, and particularly the San Francisco Bay Area, have rebounded on artificial intelligence investment and conference activity. Markets receiving large data center, power and advanced manufacturing construction projects, including Memphis, Houston and St. Louis, are seeing sustained midweek demand from construction crews, engineers and vendors. Memphis posted second-quarter RevPAR growth of about 20 percent.

Construction-driven demand deserves careful treatment in a feasibility study. It is real and it can fill an extended-stay or select-service hotel for several years, but it is project-dependent and it ends. A lender should ask how much of a market's recent growth is tied to identifiable projects with known completion dates, and underwrite a stabilized year that does not assume those crews stay forever.

International inbound travel

International demand remains a drag. The NTTO's April 2026 forecast calls for arrivals to rise 3.2 percent to about 70.5 million in 2026, helped by the World Cup, with a return to the 2019 level of about 79 million not expected until 2029. The U.S. Travel Association estimates international visitor spending fell 2.4 percent to $175 billion in 2025 and forecasts a modest recovery to $178 billion in 2026, still well below 2019 in real terms. Visa processing times, border policy and political sentiment in key source markets, above all Canada, remain the binding constraints. Gateway urban markets such as New York, Miami, Orlando, Los Angeles and Honolulu, and Canadian-dependent markets in the Northeast, Florida and the Mountain West, carry the most exposure.

Events: the World Cup and America 250

The FIFA World Cup, played across eleven U.S. host cities from June 11 to July 19, 2026, produced dramatic rate spikes where matches concentrated. New York City, host of the final, posted July ADR of $351.18, up 24 percent, and RevPAR up 27 percent. The week of Independence Day, boosted by America 250 celebrations, lifted national RevPAR 10.9 percent year over year, with Washington, D.C. leading the top 25 markets that week (Hotel Dive).

The tournament nonetheless underdelivered against the expectations set in 2024 and 2025. An AHLA survey of hoteliers in host cities released May 4, 2026 found that nearly 80 percent reported bookings tracking below initial forecasts, with visa barriers and geopolitical concerns cited as the primary suppressants of international demand (Yahoo Sports). Large contracted room blocks were released back to hotels ahead of the tournament. The lesson for underwriting is simple: mega-events create short, concentrated rate windows. They are useful for a hotel's trailing twelve months and irrelevant to its stabilized year. Any 2026 operating statement from a host-city hotel should be normalized before it is used to size debt.

Government travel and Washington, D.C.

Washington has begun to recover. D.C. RevPAR rose 7.5 percent in March 2026 on occupancy of 73.9 percent and ADR of $206.74, aided by America 250 programming and a recovering convention calendar (Hotel Investment Today). Government-dependent demand elsewhere, including hotels near military installations, federal research facilities and agency field offices, should still be underwritten conservatively. Federal per diem lodging rates held flat for fiscal 2026, which erodes the real value of government room nights, and budget uncertainty remains a live risk as each fiscal deadline approaches.

Performance by Chain Scale: The K-Shaped Market

The divergence between the top and bottom of the market is the defining feature of this cycle, and it has direct consequences for the credit profile of small-balance hotel lending.

Sources: JLL full-year 2025 read of CoStar STR data; CBRE Hotels Research midyear 2026 outlook.

CoStar's August 2026 forecast assumptions point in the same direction, projecting double-digit luxury RevPAR growth in the middle of 2026, luxury ADR growth of close to 6 percent for the year, and select-service ADR growth of about 2.5 percent, which is below general inflation. In the midscale and economy segments, whatever RevPAR growth exists is coming from occupancy rather than rate, and occupancy growth is the expensive kind because it requires more housekeeping hours, laundry and utilities per dollar of revenue.

Profitability followed the same shape in 2025. Among the property categories tracked by the major operating surveys, only resort and all-suite hotels grew profit, and by chain scale only luxury and upper-upscale hotels did. For a feasibility analyst, this means the national RevPAR forecast is almost never the right growth assumption for a franchised upper-midscale or midscale project. The right assumption comes from the hotel's actual competitive set, its chain scale trend and its local demand generators.

Performance by Location Type and Market

CBRE's second-quarter 2026 data show that occupancy remains below 2019 levels for every location type. Resort hotels are the furthest below their 2019 occupancy, by about 5.4 points, even though resort ADR remains well above pre-pandemic levels; the resort segment has traded occupancy for rate. Urban hotels are leading year-over-year growth in 2026 on group, business transient and technology demand. Suburban, airport, interstate and small-metro hotels are lagging, which is significant because those location types hold a large share of franchised limited-service supply and most SBA hotel exposure.

Among the top 25 markets, the 2026 winners so far include San Francisco, where technology and conference demand produced some of the largest RevPAR gains in the country in the first quarter; Memphis, on data center construction; Detroit, where July occupancy rose more than 10 percent; and New York, where the World Cup final arrived on top of an already supply-constrained market. New York held the highest absolute performance of any major market in 2025, with occupancy of 84.1 percent, ADR of $333.71 and RevPAR of $280.71, helped by the city's restrictions on short-term rentals and years of limited new hotel openings.

The laggards of 2025 are worth watching as recovery candidates rather than as structural losers. Las Vegas has rebounded on events and rate in 2026 after a difficult 2025. Houston, which saw occupancy fall sharply in 2025, benefits in 2026 from energy, medical and industrial construction activity. Washington, D.C. has improved from its shutdown low. Markets with heavy supply pipelines, discussed below, deserve more scrutiny than markets recovering from a demand shock, because excess supply takes years to absorb while demand shocks can reverse within a season.

Forecasts: What Changed and Why It Matters

Hotel forecasts for 2026 have been revised upward repeatedly. The table below shows how the consensus moved over the year.

Sources: CoStar (August 2026, Q2 2026); Hotel Dive; CBRE Hotels Research; PwC; HVS; company earnings releases.

The spread between CoStar's 4.4 percent and CBRE's 2.5 percent is not a disagreement about direction. It reflects timing, methodology and treatment of the World Cup rate effect. CoStar's August revision incorporated the strong June and July results directly. CBRE's midyear figures were set earlier and apply a more conservative view of the second half. Both forecasters converge on roughly 2 percent RevPAR growth in 2027, which is closer to the long-run inflation-adjusted trend and is a sensible anchor for underwriting years two and three of a new project.

A forecast upgrade of this size also carries a warning. Forecasters began the year cautious because 2025 had disappointed; they upgraded because demand grew faster than expected in the first four months. If the same forecasters misjudged the start of 2026 by several points, they can misjudge 2027 by the same margin in either direction. A feasibility study should show the reader how sensitive a project's debt coverage is to RevPAR outcomes several points below the base case, not merely report a single forecast.

We frame the outlook in three scenarios. These are our own scenario ranges for underwriting purposes and are not published forecasts from any of the organizations cited above.

Supply and Pipeline

Supply is the most favorable part of the current outlook for existing hotels. Lodging Econometrics' second-quarter 2026 pipeline report counted 5,975 projects totaling 703,001 rooms, down about 4.9 percent in projects and 4.6 percent in rooms from a year earlier.

Source: Lodging Econometrics, U.S. Construction Pipeline Trend Report, Q2 2026.

Lodging Econometrics forecasts 661 hotel openings with 74,820 rooms in 2026, a supply growth rate of about 1.3 percent, followed by 738 openings in 2027 and 832 in 2028, for growth rates of about 1.4 and 1.5 percent. By historical standards those are low numbers. Long-run U.S. supply growth has averaged closer to 2 percent a year, and peaks in the 2000s and 2010s ran higher.

Several features of the pipeline matter for underwriting. Upper midscale and upscale projects make up about 59 percent of the pipeline by project count, which means new competition is concentrated in exactly the franchised select-service segment where most small-balance lending occurs. Luxury and upper-upscale pipelines have reached record room counts, though from a small base. Conversions have reached a record 1,567 projects with 152,044 rooms, and conversions plus renovations total more than 2,000 projects. That reflects a simple calculation by owners and brands: converting an existing building to a new flag costs far less and takes far less time than building from the ground up in an environment of high construction and financing costs.

New project announcements rose about 18 percent year over year in the second quarter and construction starts rose about 14 percent. That is an early sign that developers expect financing and cost conditions to improve, and a reminder that today's low supply growth will not last indefinitely.

The heaviest pipelines sit in fast-growing Sunbelt markets. Dallas leads with 183 projects and 22,840 rooms, followed by Atlanta, Nashville, Austin and Phoenix. Strong population and employment growth justify much of that activity, but a feasibility study in any of those metros needs a submarket-level supply analysis, not a metro-level one. A single dual-brand select-service opening within three miles can change a new project's ramp more than any national forecast.

The extended-stay segment deserves particular mention. Every major brand company has launched an economy or midscale extended-stay concept in the past three years, including Marriott's StudioRes, Hilton's LivSmart Studios, Hyatt Studios, Wyndham's ECHO Suites and Choice's Everhome Suites, alongside independent platforms. The model's appeal is lower staffing, longer stays and steadier occupancy. The risk is that many of these brands are aiming at the same suburban and industrial-corridor sites at the same time, and several have limited operating history from which to build revenue assumptions. AHLA also noted that roughly 50,000 rooms were deferred or cancelled in 2025, the most in a decade, a reminder that pipeline counts include many projects that will never open.

Operating Costs and Margins

Revenue recovery does not automatically translate into profit recovery. Hotel operating costs have risen faster than revenue for three consecutive years, and margin compression is the most frequently underestimated risk in hotel pro formas.

Labor is the largest line. AHLA estimates total hotel wages and benefits reached about $127.9 billion in 2025 and will rise to roughly $131 billion in 2026. Hotel employment of about 2.17 million remains roughly 164,000 jobs below pre-pandemic levels, and many operators still struggle to fill housekeeping, maintenance and food and beverage positions. Immigration enforcement has tightened the labor pool in several markets, and wage pressure has shifted from a post-pandemic spike to a persistent structural cost. Industry data show payroll cost per available room growing in the mid single digits, ahead of revenue growth in many segments.

Unionized hotels face an especially difficult margin structure. HotStats data show union hotels running an average gross operating profit margin of about 30.3 percent against 36.5 percent for non-union hotels, with labor consuming roughly 43 percent of revenue against 33.5 percent. More striking is flow-through: non-union hotels have been converting about 25 cents of each incremental revenue dollar into profit, while union hotels have been converting almost nothing. Several major union contracts renegotiated in 2024 and 2025, including in Houston, Boston and other gateway markets, locked in wage escalators that will continue to press margins through the rest of the decade.

Property insurance is the second pressure point. Premiums and deductibles have risen sharply in Florida, the Gulf Coast, coastal Carolinas and wildfire-exposed markets in California and the Mountain West. For some coastal hotels, insurance costs have doubled over a few renewal cycles, and a pro forma that inflates insurance at general inflation can materially overstate net operating income. Property taxes are rising alongside assessed values in many growth markets.

Brand and distribution costs remain heavy. Franchise royalties, marketing and reservation fees, loyalty program assessments and online travel agency commissions together commonly consume a mid-teens share of room revenue for a franchised hotel. Property improvement plans required at conversion, change of ownership or franchise renewal can run from the low five figures to well above $40,000 per key depending on brand and scope, and a PIP is a real cost to the buyer and a real reduction in the collateral's value until it is completed. Regulatory changes on fee disclosure, including federal rules requiring all-in pricing, have also reduced the ability of some hotels to use resort and amenity fees as hidden rate.

For underwriting, the implication is that expense growth assumptions should be set line by line. Labor at 4 to 5 percent a year, insurance at a market-specific rate, and franchise costs tied to revenue give a more honest picture than a single blended inflation factor applied to total expenses.

Capital Markets and Valuation

Hotel transaction activity has turned a corner. JLL recorded $5.6 billion of U.S. hotel sales in the first quarter of 2026, up 14.4 percent from a year earlier, across 227 transactions, up 35 percent. Single-asset sales accounted for about $5.4 billion. Private equity accounted for about 34 percent of buyer volume, signaling that opportunistic capital has returned after two years on the sidelines. Orlando led all markets by volume, followed by New York and Jackson Hole (Hotel Dive, citing JLL). First-quarter volume nonetheless remains roughly 47 percent below the 2022 cyclical peak, and much of the recovery has been led by luxury and resort trades rather than select-service portfolios.

Notable 2026 transactions illustrate where capital is concentrating. Host Hotels and Resorts sold the Four Seasons Resort Orlando and the Four Seasons Resort and Residences Jackson Hole in transactions totaling about $1.1 billion, and the Ritz-Carlton New York, Central Park changed hands. JLL expects transactions above $250 million to increase through the rest of 2026 as debt markets deepen.

Stabilized hotel capitalization rates generally sit in the range of 8.0 to 8.5 percent according to HVS, with meaningful dispersion by chain scale, location and asset quality. Trophy urban and resort assets trade tighter; older economy and midscale hotels in secondary and tertiary markets trade wider, often well into double digits on in-place income when a PIP is outstanding. Terminal capitalization rates in feasibility and appraisal work are commonly set 50 to 100 basis points above going-in rates to reflect age, obsolescence and the uncertainty of a sale several years out.

The bid-ask spread between buyers and sellers has narrowed but not closed. Sellers who bought or refinanced at 2021 and 2022 valuations often cannot sell today without writing down equity, and many have chosen to extend loans and wait. That backlog of deferred sales is one reason transaction volume should continue to recover as maturities force decisions, and one reason a buyer or lender evaluating an acquisition should expect more motivated sellers in 2027 than in 2025.

Debt Markets and Credit Conditions

Interest rates remain the most important variable for hotel credit. The Federal Reserve held the federal funds target range at 3.50 to 3.75 percent at each meeting through July 29, 2026, following three cuts in late 2025 (Advisor Perspectives). Sticky inflation has pushed market expectations away from further cuts, and futures markets have priced a meaningful probability of a rate increase. The Federal Reserve's September 16 decision was pending when this report was finalized. With the prime rate at 6.75 percent, variable-rate small business and hotel loans priced off prime carry all-in coupons far above the levels at which many existing hotel loans were originated.

Commercial mortgage-backed securities offer the clearest public window into hotel credit performance. Trepp's overall CMBS delinquency rate stood at 7.55 percent in May 2026. The lodging delinquency rate improved to 6.01 percent that month and lodging special servicing improved to 8.45 percent. Hotels have performed better than office and in recent months better than multifamily within CMBS, but the lodging figures remain elevated by historical standards, and newly delinquent loan lists continue to include hotel portfolios in Florida, the West Coast and national select-service pools. Market commentary in late 2025 estimated that a significant share of full-service hotel loans in gateway and convention markets were on watch lists or had transferred to special servicing.

The larger issue is maturities. More than $46 billion of hotel loans are estimated to mature over the current refinancing window, and many were underwritten at far lower interest rates and higher projected RevPAR growth. Borrowers facing maturity must choose among extensions, modifications with fresh equity, recapitalization with preferred equity or mezzanine capital, or a sale. For lenders, this creates both risk in existing portfolios and opportunity in new originations, since well-capitalized sponsors can acquire assets from distressed sellers at lower bases.

Lending appetite has improved but remains selective. Single-asset, single-borrower CMBS issuance has recovered, and large-balance hotel loans are available again for quality sponsors and assets. Debt funds and private credit have filled much of the gap left by banks, typically at higher spreads and shorter terms. Regional and community banks continue to lend on franchised hotels, but with lower leverage, stronger guarantor requirements, larger interest and PIP reserves and a clear preference for experienced operators with a track record in the brand and the market.

Where SBA and USDA Programs Fit

Government-guaranteed lending plays a meaningful role in the limited-service hotel market, and the current environment makes that role more visible.

The SBA 7(a) program caps loan size at $5 million, which in practice limits it to acquisitions of smaller hotels, refinancing, renovation and PIP funding, or a component of a larger capital stack. The SBA 504 program pairs a senior bank loan with a subordinate debenture from a Certified Development Company and allows projects well above the 7(a) ceiling, with borrower equity commonly in the range of 10 to 20 percent depending on whether the business is a start-up and whether the property is treated as special purpose. For illustration, a 90-key limited-service prototype at a development cost of $150,000 per key represents a $13.5 million project before land, which is why ground-up hotel financing through SBA channels runs predominantly through 504 structures. SBA's Standard Operating Procedure 50 10 8 sets the underwriting framework, including debt service coverage expectations, and hotel files involving new construction, a start-up operator or a change of ownership commonly require an independent feasibility study.

USDA Rural Development's guaranteed loan programs can support hotel projects in eligible rural areas, generally outside cities with populations above 50,000 and their adjacent urbanized areas. Guarantee percentages typically decline as loan size increases, and start-up projects require an independent feasibility study addressing market, technical, financial and management feasibility. Rural hotels near energy projects, recreation destinations, state and national parks, and new manufacturing plants are the typical candidates.

The 2026 market has three implications for these programs. First, most SBA and USDA hotel exposure sits in the midscale, upper midscale and economy segments that are lagging the national recovery, so guaranteed lenders should not rely on national RevPAR headlines. Second, SBA and USDA coverage minimums are floors; at current coupons, a project that barely clears them has little room for the downside scenario described above. Third, the government guarantee reduces the lender's loss severity, not the probability that the project fails to cover its debt, which is exactly the question a feasibility study must answer.

Brands and Franchising

The major brand companies reported strong second-quarter 2026 results and raised full-year guidance, but their reporting underlines the uneven nature of the recovery.

Marriott reported worldwide RevPAR growth of 3.4 percent in the second quarter, with U.S. and Canada RevPAR up 5.0 percent, net rooms growth of about 4.5 percent, and a record pipeline of about 629,000 rooms. It raised full-year worldwide RevPAR guidance to 3.0 to 3.5 percent. Hyatt reported system-wide RevPAR growth of 5.9 percent, a record pipeline of roughly 154,000 rooms and net rooms growth guidance of about 6 percent, and raised full-year system-wide RevPAR guidance to 3.5 to 4.5 percent. Hilton reported net unit growth of about 6.1 percent. Companies focused on the economy and midscale segments reported materially weaker RevPAR, consistent with the K-shaped pattern.

For franchisees and lenders, several brand trends matter. Brand companies are growing primarily through franchising and conversions, which means a growing number of flags competing for the same owner base and, in some markets, the same demand. Loyalty programs have become the core of brand value proposition; Marriott's Bonvoy program exceeded 295 million members and Hyatt's program grew to roughly 69 million. A hotel's share of loyalty-sourced revenue is increasingly the best predictor of how it will perform against an independent or soft-branded competitor. Distribution is also changing. Search engines and AI-driven booking assistants are becoming meaningful channels, with uncertain effects on direct booking share and on commission costs. A new-brand extended-stay project should be evaluated on the brand's actual operating record, its reservation contribution and the depth of its franchise support, not only on its prototype cost.

Alternative Lodging and Outdoor Hospitality

Short-term rentals

Short-term rentals remain a structural competitor, particularly for economy and midscale hotels, family leisure demand and extended stays. Short-term rental demand continued to grow in 2025 and 2026, and rental operators have held rate above pre-pandemic levels. Regulation is the key local variable. New York City's Local Law 18, fully enforced since September 2023, eliminated the large majority of short-term listings in the city and is widely credited with supporting New York hotel occupancy and rate. Other cities have adopted registration, licensing and occupancy tax requirements with varying enforcement. A feasibility study in a leisure or resort market should quantify active short-term rental supply and evaluate the local regulatory trajectory, because a permissive regime can add effective room supply that never appears in a hotel pipeline report.

RV parks, campgrounds and glamping

Outdoor hospitality continues to show resilient demand. KOA's 2026 North American Camping and Outdoor Hospitality Report found that more than 52 million North American households camped in 2025, well above the pre-2020 baseline, with campers generating about $66 billion in local spending. At the same time, the RV Industry Association has lowered its 2026 wholesale shipment forecast to about 314,000 units, down roughly 8 percent from 2025. The divergence suggests that site demand is supported by existing RV owners and a broader camping population rather than a new wave of buyers, and that younger and value-focused campers are driving more of the growth.

Stabilized, well-located RV resorts have traded around an 8 percent capitalization rate, with institutional buyers concentrating on larger properties and portfolios and smaller single assets trading wider. Glamping remains attractive on revenue per site but faces zoning uncertainty in many jurisdictions, seasonal revenue volatility and limited operating history for many concepts. RV parks and campgrounds are common SBA and USDA credits, particularly in rural recreation markets, and their feasibility depends heavily on seasonality, site mix, utility capacity and the drive-time relationship to population centers.

Regional Notes

The Northeast is led by New York City, where constrained supply, short-term rental restrictions and strong group demand support above-average performance, though labor and property tax costs are among the highest in the country. Boston and Philadelphia benefit from medical, education and convention demand.

The Southeast and Sunbelt combine the strongest population and employment growth with the heaviest supply pipelines. Dallas, Atlanta, Nashville, Austin and Phoenix are growth markets where submarket supply analysis is essential. Florida remains a strong leisure market but faces the most acute property insurance and hurricane exposure in the country, along with sensitivity to Canadian travel.

The Midwest has benefited from data center, battery and advanced manufacturing construction, which supports select-service and extended-stay demand in secondary markets, with Detroit among the stronger 2026 performers. Many small-metro Midwest markets, however, rely on interstate and highway demand that has lagged.

The Mountain West benefits from resort, outdoor recreation and in-migration demand, with high rates in destination markets and wildfire-related insurance costs as a growing risk. The West Coast is mixed: San Francisco has rebounded sharply on technology demand from a deep trough, Los Angeles faces labor cost pressure and the long runway to the 2028 Olympics, and Seattle's performance is tied to technology employment and cruise traffic. Hawaii continues to work through the Maui recovery and weaker Japanese visitation.

Key Risks

Interest rates top the risk list. A rate increase, or simply the absence of cuts, keeps refinancing costs high, pressures valuations and extends the maturity wall's resolution. Inflation in labor, insurance and property taxes erodes margins even if revenue grows.

Consumer bifurcation is the second risk. If lower-income households continue to pull back, midscale and economy hotels could see a second year of real RevPAR decline even with national growth positive.

Policy is the third. Trade tariffs raise construction and furniture costs; immigration enforcement tightens labor supply; visa and border policy influences international travel; and federal budget disputes can disrupt government travel and D.C. area demand on short notice.

Climate and insurance form the fourth risk, with rising premiums and, in some locations, a narrowing set of insurers willing to write coverage. Building performance standards in some cities add capital expenditure requirements to older hotels.

Distribution is the fifth. AI-driven search and booking tools could shift channel economics in ways that benefit large brands and online travel agencies at the expense of independent hotels, or could reduce commission costs for hotels that adapt early.

Finally, supply risk is local even when national supply growth is low. A single well-capitalized competitor in a submarket can undermine a project's ramp and stabilization.

Outlook: Second Half 2026 Through 2028

For the remainder of 2026, we expect national RevPAR growth to moderate from the World Cup-inflated summer peak but to remain positive, supported by business transient, group and constrained supply. Full-year 2026 RevPAR growth in the range of 3 to 4.5 percent appears likely, with luxury and urban hotels well above that range and economy and midscale hotels near flat.

In 2027, comparisons against strong 2026 summer months will be harder, and the industry should settle into RevPAR growth of roughly 1.5 to 2.5 percent in the base case. Supply growth of about 1.4 percent leaves room for modest occupancy gains in most markets. Group and convention demand should remain healthy, and international arrivals should continue a gradual recovery. Transaction volume should increase as maturing loans force decisions, which could create attractive acquisition opportunities for well-capitalized buyers.

In 2028, the base case remains modest growth, with the Los Angeles Olympics providing a concentrated lift in Southern California and some national demand support. The key swing factors will be interest rates, the health of the lower-income consumer, the pace of international travel recovery and whether the rise in new project announcements in 2026 translates into a meaningful supply increase in 2028 and 2029.

What This Means for Underwriting a Hotel Project Today

For lenders, CDCs and sponsors evaluating hotel projects in this environment, we recommend the following disciplines.

Use the right growth assumption. Build RevPAR projections from the competitive set, the chain scale trend and identifiable local demand generators. Do not apply national forecasts to a midscale or economy project, and do not assume that a luxury-led recovery will lift a highway-oriented limited-service hotel.

Normalize for events. Remove World Cup and America 250 rate premiums from trailing results before using them to size debt or estimate stabilized income. Treat construction-crew demand as temporary unless the pipeline of projects is long and documented.

Model the ramp honestly. New hotels commonly take two to three years to reach stabilized occupancy, and new brands with limited operating history may take longer. Size interest reserves and working capital to the ramp, not to the stabilized year.

Set expenses line by line. Grow labor, insurance and property taxes at market-specific rates. Include franchise, loyalty and distribution costs as a percentage of revenue. Include a replacement reserve and quantify any PIP as a cost that reduces value until it is completed.

Stress test coverage. Show debt service coverage and breakeven occupancy under the downside scenario, at current interest rates and at a rate 100 basis points higher. A program minimum coverage ratio is a floor, and a project that clears it only in the base case is exposed.

Analyze supply at the submarket level. Identify every project under construction or approved within the competitive radius, and every conversion that could reposition an existing competitor.

Evaluate the operator. Experience with the brand, the chain scale and the market is often the single best predictor of whether a hotel reaches its projections. Management feasibility deserves the same rigor as market feasibility.

Favor resilient positioning. Well-located upscale and upper midscale select-service, extended-stay near durable demand generators, and hotels in supply-constrained markets with diversified demand have the strongest risk profile in this cycle. Economy and midscale hotels at commodity locations, government-dependent hotels and assets with large deferred capital needs warrant additional caution and more conservative leverage.

The 2026 recovery gives hotel owners and lenders a better environment than the one they faced a year ago. It does not remove the need for rigorous, sourced, project-specific analysis. In a market this uneven, the difference between a hotel that thrives and one that struggles to cover its debt is almost always found in the details of its location, its competitive set, its operator and its cost structure, not in the national headline.

Methodology and Sources

This report draws on publicly released data and published research. Performance data are from CoStar's STR benchmark press releases and forecast assumptions, CBRE Hotels Research, HVS, PwC and published hotel operating panels. Supply data are from Lodging Econometrics. Transaction data are from JLL. Credit data are from Trepp as reported in trade media. Travel data are from the National Travel and Tourism Office and the U.S. Travel Association. Industry cost and employment data are from the American Hotel and Lodging Association's 2026 State of the Industry report. Company data are from quarterly earnings releases. Outdoor hospitality data are from KOA, the RV Industry Association and published brokerage valuation surveys. Where primary data sets are subscription-based, figures are drawn from the publishers' own public releases or from reputable trade media reporting of those releases. Scenario ranges are our own and are not published forecasts of any cited organization.

Selected sources:

• CoStar, U.S. hotel performance for July 2026
• CoStar, U.S. Hotel Forecast Assumptions, August 2026
• CoStar, U.S. Hotel Forecast Assumptions, Q2 2026
• Hotel Dive, CoStar and Tourism Economics raise U.S. hotel outlook
• Hotel Dive, Key full-year U.S. hotel metrics fall for first time since 2020
• Hotel Dive, Luxury trades drove U.S. hotel transaction uptick in Q1 (JLL)
• Hotel Dive, U.S. hotels see RevPAR boost from America 250 events and World Cup
• Multifamily Dive, CMBS delinquency and special servicing rates in May (Trepp)
• Asian Hospitality, U.S. hotels post H1 2026 RevPAR growth
• American Hotel and Lodging Association, 2026 State of the Industry
• HVS, State of the District: The Washington, D.C. Lodging Market
• Hotel Investment Today, Robust March and America 250 point to D.C. recovery
• Skift, D.C. hotels slump during government shutdown
• Yahoo Sports, Hotels in World Cup host cities are underperforming
• Advisor Perspectives, Fed interest rate decision, July 29, 2026

This report is published for general informational purposes and does not constitute investment, legal or credit advice, an appraisal, or a feasibility conclusion for any specific project. SBA Feasibility Study LLC is not affiliated with the U.S. Small Business Administration or the U.S. Department of Agriculture.

For the financing consequences of hotel cap rates, read what SBA debt can actually support by asset class, including the worked hotel acquisition, coverage floor and equity gap.