Beyond the Base Case: Hospitality Feasibility Insights That Actually Predict Performance

Most hospitality feasibility studies tell developers what they want to hear. The ones that protect capital tell them what they need to know.

A feasibility study that confirms the development thesis is not a feasibility study. It is a comfort document.

The hospitality feasibility study has a structural problem that the industry has not resolved honestly. It is almost always commissioned by a party who already has a development thesis and who is paying for analysis that will either validate that thesis or be discarded in favor of analysis that does. The consultants who produce feasibility studies know this, and the most commercially successful ones have learned to deliver conclusions that are rigorous enough to satisfy lenders while optimistic enough to keep developers engaged.

This is not an argument against feasibility analysis. It is an argument for understanding what good feasibility analysis actually looks like, what questions it needs to answer honestly, and how to use it as a genuine risk management tool rather than as a pre-investment ritual that makes the capital commitment feel more defensible than it is.

What a Feasibility Study Is Actually Trying to Answer

The fundamental question a hospitality feasibility study is trying to answer is not whether the project can be built. It is whether the stabilized asset can generate returns sufficient to justify the capital required to build it, at a level of confidence high enough to make the investment decision rational rather than speculative.

That question breaks into four components. First: is there sufficient demand for the proposed product in the proposed market, at the proposed price point, from the proposed customer segments? Second: can the project capture enough of that demand to achieve the occupancy and rate the financial model requires? Third: can the hotel generate the NOI margin that the projected revenue requires, given realistic operating cost assumptions for the specific market? Fourth: does the stabilized NOI support the capital structure at the development cost the project actually requires rather than the cost the developer hopes to achieve?

Demand Analysis: Where Optimistic Bias Enters First

The demand analysis component is where optimistic bias most consistently enters and where it does the most damage to ultimate project performance. Developers consistently include demand generators that are aspirational rather than proven: a corporate campus planned but not yet occupied, a convention center expansion announced but not funded, a tech company relocation rumored but not confirmed. Each of these generators may materialize. None should be underwritten at face value in a conservative feasibility model.

The demand segmentation step is where the second layer of optimism typically enters. The proposed hotel's capture rates are benchmarked against a competitive set frequently defined to include only the hotels that make the proposed property look good by comparison. A luxury lifestyle hotel that benchmarks its capture rates against full-service business hotels is setting up a comparison that will flatter its projections and fail to predict its actual performance.

The competitive set in a feasibility study is often defined to make the project look viable rather than to predict how it will actually compete.

The Competitive Set Problem

Defining the competitive set is one of the most consequential analytical decisions in a hospitality feasibility study and one of the least carefully made. The competitive set needs to reflect the hotels the proposed property will actually compete with for the same guests, at the same price points, across the same demand segments. It should not be defined by geography alone, by star rating alone, or by the developer's preference for comparables that support the ADR assumptions in the pro forma.

A genuinely useful competitive set analysis includes a pipeline analysis identifying hotels planned, under construction, or in active permitting within the relevant competitive radius. New supply entering the market during the stabilization period is a direct competitor for the demand the new hotel needs to ramp, and its impact on the supply-demand balance needs to be explicitly modeled. Developers who underwrite against the current competitive set rather than the projected one are building a pro forma that will be invalidated by the time the hotel opens.

Operating Cost Assumptions: The Margin Squeeze That Nobody Models Honestly

The revenue side of a hotel feasibility study receives the most analytical attention and the cost side receives the least. That imbalance is consequential because operating cost errors compound directly into NOI in ways that are not recoverable through revenue outperformance. A hotel that achieves its ADR and occupancy targets but runs labor costs at 32 percent of revenue rather than the 27 percent in the pro forma has delivered below its financial model regardless of top-line performance.

Labor cost is the single most consistently underestimated line item in hotel feasibility modeling. Full-service hotel labor in primary US and European markets has experienced structural cost increases driven by minimum wage legislation, labor market tightness, and post-pandemic compensation recalibration that have outpaced RevPAR growth in most markets. A feasibility study using labor cost benchmarks from 2019 or 2021 to model a hotel opening in 2027 is building a margin assumption on a cost structure that no longer exists.

The operating cost assumptions in a hotel feasibility model are where most of the optimistic bias hides.

Structuring the Financial Model for Honest Outcomes

The most useful financial models for hospitality feasibility include three scenarios: a base case built on realistic inputs, a downside case that stress-tests the key assumptions by 15 to 25 percent in the unfavorable direction, and an upside case that models returns if the most favorable plausible outcomes occur. Investors and lenders who see only the base case are making decisions without the information they need to evaluate the risk profile of the investment.

The sensitivity analysis accompanying the financial model should identify which assumptions the returns are most sensitive to, because those deserve the most scrutiny and the most conservative treatment in the base case. If a project's returns are highly sensitive to achieving a specific ADR target, that target needs to be supported by a level of demand evidence proportional to its importance in the model. If it cannot be, the model needs to reflect that uncertainty rather than resolve it optimistically.

Feasibility for Mixed-Use and Branded Residence Projects

The feasibility framework for mixed-use hospitality projects is more complex than for standalone hotels because it needs to evaluate the interdependencies between components. The hotel's performance assumptions are not independent of the residential component's pricing assumptions. The retail component's leasing assumptions are not independent of the foot traffic generated by the hotel and residences. A feasibility study that models each component independently and then adds the results is not a mixed-use feasibility study. It is three standalone feasibility studies that miss the most important part of the analysis.

The branded residence component introduces a specific set of feasibility considerations that standard residential analysis does not cover. The premium that branded residences command over unbranded comparable product needs to be validated against genuine transaction evidence from comparable branded projects in comparable markets, not against asking prices or developer projections. The absorption pace assumption needs to be benchmarked against actual absorption data rather than what the sales team thinks is achievable.

For the full strategic framework for mixed-use hospitality development and how components interact, see mixed-use hospitality strategy

For the specific financial structure of branded residence programs and how they reshape development economics, see branded residences strategy

For a clear-eyed inventory of the execution decisions that most consistently undermine projects that look viable in feasibility, see hotel development mistakes

Using Feasibility to Make Better Decisions, Not Easier Ones

The developers and investors who get the most value from hospitality feasibility analysis are those who use it to make harder decisions earlier rather than easier decisions later. That means commissioning feasibility work before the development thesis is fixed rather than after. It means asking the feasibility analyst to find the reasons the project might not work rather than the reasons it will. It means treating the downside scenario with the same seriousness as the base case.

The hospitality projects that consistently deliver on or above their underwriting are not the ones with the most aggressive assumptions. They are the ones with the most honest ones. The market rewards developers who know what they are building, why it will perform, and what will happen if the key assumptions do not materialize as expected. That knowledge starts with a feasibility process designed to answer the hard questions rather than to avoid them.