# Back-of-napkin math: the calculations every deal starts with
A hotel broker gets a one-line email: "142-room select-service asset, $18M ask, 68% occupancy, $145 ADR. Interested?" Before replying, she runs five calculations in about ninety seconds, on the back of a napkin if she has to. No spreadsheet, no analyst, no meeting. If the napkin math doesn't work, the deal dies before lunch. This lesson teaches you those five calculations.
A 142-room select-service hotel (limited food and beverage, no full-service restaurant or banquet space):
RevPAR (Revenue Per Available Room) blends occupancy and rate into one number, so you can't hide a weak rate behind a full house.
RevPAR = Occupancy x ADR
For our property: 0.68 x $145 = $98.60
As-of-2025 estimates from STR (a CoStar company, the industry's main benchmarking data provider) put US full-year RevPAR around $100 to $103, and Europe's around €90 to €95 depending on currency and mix of markets (both figures are industry estimates, not exact figures, and vary by source and month).
Breakeven occupancy is the occupancy level at which revenue exactly covers costs, below it, the hotel loses money regardless of how good the rate looks.
Formula: Breakeven Occupancy = Fixed Costs / (ADR x Available Room-Nights x Variable Margin)
Simplified version pros actually use on a napkin:
Breakeven Occupancy ≈ Fixed Costs / (ADR x 365 x Rooms)
Plugging in: $1,400,000 / ($145 x 365 x 142) = $1,400,000 / $7,517,150 ≈ 18.6%
That looks very safe against actual occupancy of 68%, a healthy cushion. But this simplified version ignores variable costs (housekeeping labor, OTA commissions, utilities tied to occupancy), so real breakeven is higher. A more honest gut-check: take total expenses ($3.1M) against the same denominator: $3.1M / $7,517,150 ≈ 41%. That's the number that matters when a downturn hits and occupancy drops 20 points overnight, which happened industry-wide in 2020 and again regionally during shocks like the 2023 to 2024 European energy price spike.
Cap rate (capitalization rate) expresses a property's net operating income as a percentage of its price, it's the hotel-investing equivalent of a bond yield, and it's the fastest way to sanity-check an asking price.
Cap Rate = Net Operating Income (NOI) / Purchase Price
NOI here: Revenue minus operating expenses. Annual room revenue = RevPAR x rooms x 365 = $98.60 x 142 x 365 ≈ $5,110,000. Add incidental F&B/other revenue, say $400,000, for total revenue ≈ $5.51M.
NOI = $5.51M - $3.1M = $2.41M
Cap Rate = $2.41M / $18M = 13.4%
That's unusually high for full-service urban hotels (US hotel cap rates have generally run in the 7% to 9% range in recent years, per CBRE's hotel research, estimate, varies by market and asset class), which should make our broker curious rather than excited. A cap rate this rich usually signals a secondary market, deferred maintenance, a short-term lease risk, or a seller who's overstating NOI. This is exactly the kind of gap that turns a napkin calculation into a real due-diligence question.
CPAR (Cost Per Available Room, sometimes CostPAR) mirrors RevPAR but on the expense side, letting you compare cost efficiency across properties of different sizes.
CPAR = Total Operating Expenses / (Rooms x 365)
$3,100,000 / (142 x 365) = $3,100,000 / 51,830 = $59.81 per available room per night
Compare this to RevPAR ($98.60): the gap ($38.79) is your rough per-room daily margin before fixed financing costs. CPAR is especially useful when benchmarking a management company's efficiency across a portfolio, a chain running $55 CPAR against $100 RevPAR is in much better shape than one running $70 CPAR against the same RevPAR, even if both hotels look similar on the surface.
Vérification des acquis
1. Two hotels report identical RevPAR. Hotel A achieves this through high occupancy and low ADR, while Hotel B achieves it through low occupancy and high ADR. What does this scenario illustrate about RevPAR as a metric?
2. Why does a broker calculate RevPAR before diving into a full expense analysis when first evaluating a deal?
3. A select-service hotel (like the one in this lesson) typically has less food and beverage revenue and banquet space than a full-service hotel. What is the most likely implication of this distinction when doing napkin math?
4. Select ALL correct answers about what RevPAR does and does not tell you about a hotel.
Sélectionnez toutes les réponses correctes.
5. Select ALL correct answers about why experienced brokers or investors run 'napkin math' calculations before engaging further with a deal.
Sélectionnez toutes les réponses correctes.
The fifth calculation isn't about the building, it's about how the hotel fills its rooms. CAC (Customer Acquisition Cost) is what it costs to acquire one paying guest through a given channel. CAC payback tells you how many stays (or how long) it takes to recover that cost.
Say the hotel sells a room through an OTA (Online Travel Agency, like Booking.com or Expedia) that charges an 18% commission, versus its own website (direct booking) where the marketing cost per booking (Google Ads, metasearch like Google Hotel Ads or Trivago, email) is roughly $12.
On a $145 ADR:
CAC payback in hospitality is usually near-instant since it's charged per transaction, not amortized like a SaaS subscription, but the comparison still matters enormously at scale. On 10,000 annual bookings, that gap ($26.10 vs $12.00) is $141,000 a year, money that funds loyalty programs, renovations, or margin. This is why hotel groups like Marriott and Accor spend heavily pushing guests toward direct-booking apps and loyalty enrollment: every point of "direct mix" shift is pure CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.Voir la définition complète → savings.
On our napkin: RevPAR looks healthy ($98.60), breakeven cushion looks comfortable (41% vs 68% actual), but the cap rate (13.4%) is a red flag demanding a second look at the seller's NOI, and the CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.Voir la définition complète → gap shows real value sitting in distribution strategy, not just the building. None of these five numbers is decisive alone. Together, in under two minutes, they tell you whether to keep reading the deal or move on.
For a deeper primer on the standard hotel performance metrics before your next deal conversation, STR's glossary is the industry-standard free reference.
🎬 [VIDEO: "Hotel Investment 101: How to Underwrite a Deal" - youtube.com - search for hotel underwriting or cap rate explainer videos from CBRE Hotels or HVS for a walkthrough of these same mechanics applied to a real deal]