Lender Check List

Hotel Name:
Contract (General Manager or Owner):


  • Is the legal entity that is the borrower providing current financial statements?
  • Does the borrower have any other hotels?
    • Are they cross collateralized?
    • Are they managed by the same company?
    • Are their books kept wholly and completely separate?
  • Are other hotels managed by the same company?
    • Are their books kept wholly and completely separate?


  • Is there a current and last year-end financial statement (profit and loss and balance sheet) in the file? Is the financial information in the file up-to-date per loan document requirements?
  • Are payroll taxes paid and current?
  • Are sales (bed) taxes paid and current?
  • Are real estate taxes paid and up to date?
  • Is the insurance certificate in the lender file up-to-date with the correct lender information?
  • Are hotel revenues on an up or down trend?
  • Are hotel profits on an up or down trend?
  • Is marketing up or down from last year? (Marketing is an easy place to cut costs, but skimping on marketing can cause declining performance.) Industry average for marketing ranges from 5.4% to 7.9% for full-service and from 3.4% to 6.8% for limited-service hotels, including franchise marketing charges, but excluding franchise royalties.
  • Is property operations and maintenance up or down from last year? (Inadequate maintenance results in deteriorating asset value.) Industry average for POM ranges from 4.1% to 5.9% for full-service hotels and from 3.6% to 6.0% for limited-service hotels.
  • Is insurance adequate per loan requirements? Are there any outstanding/unpaid claims?
  • Is the borrower meeting CapEx (Reserve for Furniture, Fixtures and Equipment) requirements? Does reinvestment show on the balance sheet? On average, hotels spend 5% to 9% of annual revenues on Capital Expenditures. But, in any given year, the ratio could be higher or lower depending on the items due for replacement.


  • Is the management fee subordinated to debt service? This is critical in the event management is not performing at the time a hotel is taken back.
  • What was debt service coverage last year?
    • Does it meet loan requirements?
    • Is coverage improving or declining?
  • The Franchise or Brand – For most hotels, the franchise, or brand, is critical to revenues and value.
  • Do you have a copy of the franchise agreement on file?
    • Is it the current agreement?
    • Do you have a lender’s comfort letter?
  • When does the franchise expire?
    • If it expires within two years, what is the borrower’s plan for renewal or replacement with another franchise?
  • Is the franchise in compliance with the terms of the loan?
  • Is the hotel in “good standing” with the franchisor (fees to the franchisor must be current and the hotel must be passing inspections)?
  • Ask for the most recent TWO inspection reports. Are there any product issues that put the franchise license at risk?
    • Are there any management issues that put the license at risk?
  • Franchise PIP. Prior to renewing a license or approving a new purchaser as a licensee, franchisors generally issue a Product Improvement Plan (PIP). Costs to comply with a PIP can be high, so the PIP affects the potential for renewal and the value of the hotel on sale. Ask for a copy of any PIP.


  • Are the elevator inspections current? (Inspection reports are usually posted.)
  • Is the health department inspection score over 90%? (Rooms as well as food and beverage may be inspected, inspection reports are usually posted.)
  • Is the business license up to date?
    • Occupancy license?
    • Food service license? (Licenses are usually posted.)
  • Has an effort been made to make hotel facilities ADA compliant?
  • Did the pool pass inspection? (Inspection reports are usually posted.)


  • Who manages the asset (owner/operator, hired general manager, management company)?
  • What is the history of management and management turnover over the past 2 to 3 years?
  • Are management reports available on time, and complete?
  • Are budgets prepared and tracked?
    • Is a marketing plan in use?
  • Are accounts payable fairly consistent in amount and current?
    • Have any vendors put the hotel on COD?
  • Are there any leases (equipment and furnishings are sometimes leased instead of financed).
    • Hotels also have leases on retail shops, services (parking, laundry, etc.)?
    • Leases can materially encumber a hotel. Do any leases affect the lender’s potential position?
  • Is the hotel meeting the debt service coverage required under the loan documents?
  • Have there been any modifications to the management agreement? (If there have, they should be on file with the lender and reviewed by the lender.)
  • If there is liquor service, if who’s name is the liquor license? (If you have to take the hotel back, having a liquor license in place will be critical.)


  • Market. Hotel markets have winners and losers, nothing static. Asset value for the losers can deteriorate rapidly.
  • STAR. Almost all franchised hotels get monthly STAR reports from Smith Travel Research through their franchisor.
    • Ask for several STAR reports including the prior year end report (usually in March.)
    • Be sure to look at STAR results for comparable periods (last year vs this year, or June last year vs June this year, not October vs December).
  • STAR. Is the hotel gaining occupancy compared to its competitive set, or losing occupancy?
  • STAR. Is demand in market growing? (If demand is growing, the hotel is more likely to sustain or improve performance.)
  • STAR. Are average rates growing? (Average rates tend to decline in overbuilt markets, and recessions.)
  • STAR. Is supply growing faster than demand? (If supply increases faster than demand, hotel performance is likely to decline, at least temporarily.)
  • Supply. From your knowledge of the community, how many new hotels will come on line this year, next year and the year after? (A sharp or sustained increase can significantly affect asset revenues and therefore value.)
  • Transportation. Hotels require access to travelers. Will road changes (new routes, interchange construction, widening) affect revenues in this location?
  • Community. Consider how the local economy will effect this hotel asset in the next two years.
    • Is the asset in a growing or declining sector of town?
    • Are any major demand generators for the asset growing, relocating, shrinking, or closing?


  • The Property – Ultimately, the property itself is the lender’s collateral. Is it still sufficient/
    • Tour the hotel. Spend a few minutes walking around before your tour. You may want to discuss the hotel with the owner or manager, and tour with the maintenance man.
  • Tour Curb appeal.
    • Is landscaping maintained?
    • Are signs lighted?
    • Is the parking lot maintained (swept, no potholes)?
    • Is the entry bright and attractive?
  • Building exterior. Is the exterior maintained?
    • Is paint/stucco in good condition (no obvious cracks, dents, discoloration, broken areas)?
  • Tour Lobby.
    • Is the lobby warm?
    • Inviting?
    • Clean?
    • Lights working?
    • Smell fresh?
  • Tour Rooms. Walk into 5 to 10% of the guest rooms, ask to see rooms on each floor, each section of the building, and each room type. Ask to see the best and the worst room.
  • Tour Rooms. Pay attention to cleanliness, condition of carpet/drapes/spreads, sags in mattresses, furniture condition (good, tired or worn out), odor.
  • Tour Guest baths. Notice cleanliness, mildew or odor, cracked or damaged tile or linoleum, discolored fixtures.
  • Tour Is the hotel sprinklered (in the lobby), (in all guest rooms)?
    • Are there working smoke detectors in the rooms?
    • Is the emergency enunciator system working?
  • Guest room televisions are:
    • 19 inch?
    • 25 inch?
    • 27 inch?
    • Remote? Cable? etc.
  • Guest room air conditioners are less than 5 years old, 5 to 10 years, older?
  • Public areas. Do the restaurant, lounge, and meeting space look and smell clean? Furniture in good condition? Décor fresh or dated? Are railings firm and strong?
    Tour Kitchen and laundry. Is the back-of-the house clean? Does equipment appear to be in working condition?
    Tour Can the asset compete (you may want to drive around a few other hotels to compare)?
    Tour Are the rooms rentable and facilities functional?
    Tour Did you see anything that could put a guest or an employee at risk (exposed wires, leaks or standing water, broken equipment or structures…)


  • Does the hotel’s value exceed the loan balance?
    • Hotel valuation is a complex process, however, there are two back-of-the-envelope approaches to get a rough idea of value.
      • Value test #1: 2.5 to 3 times room revenue for hotels in good condition, less the cost of a PIP (any needed renovations).
      • Value test #2: Divide annual net income by .11 to .13, and then subtract the the cost of a PIP. If these tests raise concern, have a specialist value the hotel.
  • Value When will a change in franchise potentially affect the value of the asset?


  • Will local market conditions (supply and demand) enhance this hotel’s revenues, or cause revenues, and thereby values, to deteriorate?
  • Does management appear to be doing a reasonably competent job?
  • Is the borrower motivated to support this loan?
  • Are there any overt financial concerns (reporting, profitability, co-mingling of finds, comingling of payables, etc.)?
  • Does it appear that the borrower is reinvesting to keep the asset up?
  • Did you notice any major items that look like they need immediate attention (disasters looming)?