Any brokers, lenders, development folks who have dealt with hotels before? Have a question
An experienced hotel owner said something along the lines of a hotel could be more profitable if it sells 10 rooms at $100 each as opposed to $100 rooms at $10 each. Why is that the case?

Isnt the REVPAR the same for both scenarios at $10? Is REVPAR not the be all end all when it comes to calculating hotels bottomline profitability? I would really appreciate if any experienced professionals in the field chime in on this. 
[{"id": "doaml03", "text": "Think about it. Imagine how much it costs to clean and maintain a 100 room hotel versus a 10 room hotel. In both situations your gross potential revenue is $1,000 while the larger hotel costs substantially more to operate.\n\nHow can you consider profitability if you ignore expenses?", "replies": [{"id": "doamzeg", "text": "Makes sense, thank you!, So would a good metric to measure hotels performance be (ADR-variable costs for every occupied room)*occupancy?\n\nSecondly- I have a meeting/informal interview with Wells Fargo's Hospitality group. I dont have any experience with hospitality. I know about the general metrics that lenders use like debt yield and debt service coverage ratio, but are there any hospitality specific metrics that lenders like to use? Or is it just like any other product type- just see the borrower's ability to service debt? On this note, a hotel owner would always be concerned about bottom line profitability/after tax cash flow and IRR. Would a lender even care about that? Do they care more about before tax cash flow?-ability to service debt? Thank you for helping me out here. ", "replies": [{"id": "doan4ej", "text": "Have a view of where you think we are in the cycle and know some RYG markets from Moody\u2019s", "replies": [], "depth": 3}, {"id": "dodbyof", "text": "You measure revenue performance (not profitability) relative to competitors using occupancy, average daily rate (ADR) and revenue per available room (RevPAR = occupancy * ADR). Nearly all hotels in the U.S. participate in reporting to Smith Travel Research, who aggregates all of the room revenue data from all of the hotels and then distributes reports (\"STR reports\") to all participants on a weekly/monthly basis. This allows hotel managers/owners to benchmark their revenue performance against their competitors (\"comp set\"). There have been some suggestions by asset managers to make an adjusted RevPAR metric (similar to what you described) more mainstream, but it's not widely used as most owners keep the details of their profits private.\n\nSome hotel metrics to be familiar with:\n\n* ADR, occupancy, RevPAR\n* Franchise fees - typically paid as a percentage of room revenue\n* Management fees - paid to a third-party manager, if there is one, typically 3% of total revenue\n* FF&amp;E reserves (sometimes called replacement reserves), typically 4% of total revenue\n* EBITDA less replacement reserves, or net operating income, and its percentage of total revenue (or margin)\n\nIt's also important to understand how the nature of hotels as a 24/7/365 operating business with one-night contracts can make underwriting them far more complex than a typical office/industrial/retail deal with longer-term leases that are often backed by credit. There are far more factors that need to be considered when reviewing the borrower's ability to service hotel debt, including the hotel brand/franchise (Marriott, Hilton, Hyatt, etc.), the hotel's amenities (restaurant/bar/meeting space/spa/etc.), the management team's ability to execute the business plan, labor markets/unions, the type of guests the hotel will host (corporate, groups, leisure travelers, etc.), and seasonality/funding reserves.\n\nOn your question about what cash flow a lender cares about, they will be underwriting EBITDA less replacement reserves (typically 4% of total income). Lenders typically want to see at least 1.2-1.4x DSCR so that they know there is downside protection in case performance drops unexpectedly.\n\nIf you want more detailed information, check out the free [Hotel Investments Handbook](https://www.hvs.com/article/3237-The-Rushmore-Letter-Hotel-Investments-Handbook).\n\nWells Fargo has a great hospitality group, and I'm impressed every time we do business with them. I heard they just started a hospitality franchise finance group as well. Good luck with your interview!", "replies": [{"id": "dodg7ej", "text": "Hey! thank you so much for such a detailed response! This was incredibly helpful and I really appreciate it.  Last q. Would you say full-service hotels should have higher expense ratios (b/c of food and banquet costs) most likely in the 40% range on stabilized income and limited service hotels w/o food service should be in the 35% range on stabilized income. On average is there a rule of thumb regarding margins when it comes full service and limited service hotels? \n\nLastly, somebody who I know commented that Wells Fargo's Hospitality Finance Group is the most white shoes group of all groups in the bank. What does this mean? Doesn't the term white show typically refer to older more prestigious law firms?", "replies": [{"id": "dodj3nn", "text": "There are a number of variables that will impact the NOI margins in addition to F&amp;B, including the number of guestrooms (having more rooms spreads fixed costs across more revenue-producing units), unionized staff, a ground lease, type of F&amp;B operations (restaurants are generally less profitable than catering, which is less profitable than a cool bar that draws in locals too), type of hotel operations (standard hotel, resort, extended stay, etc.), and ADR. \n\nWith all of these variables, it's difficult to drill down into rules of thumb without knowing more, but stabilized NOI (aka, profit) margins, in general, are around 25% for full-service hotels, 30% for limited-service hotels due to F&amp;B, and 35% for extended-stay properties due to needing less housekeeping. That being said, I've seen stabilized Residence Inns at 50% profit margins, so it varies.\n\nOn the \"white shoes\" comment, I'm not really sure what that means. I've interacted with the WF CMBS team, non-hotel CRE balance sheet team, and the hotel team (who have balance sheet capital as well). The hotel team definitely knows the most about hospitality investments, but I don't know enough about WF to say they are the oldest and most prestigious group. ", "replies": [], "depth": 5}, {"id": "dozwzck", "text": "From my experience 'white shoes' probably has more to do with the fact Wells Fargo lending is very tight in hotels.  They only finance the best hotels, mainly new development and established operators, and won't even consider 90%+ of the hotels out there.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dobkff7", "text": "On a follow up note, somebody who I know commented that Wells Fargo's Hospitality Finance Group is the most white shoes group of all groups in the bank. What does this mean? Doesn't the term white show typically refer to older more prestigious law firms?", "replies": [], "depth": 1}]