A risk-adjusted investment analysis of select Sunbelt markets — Nashville, Charleston, Scottsdale and Tampa — designed to identify where boutique-hotel returns are supported by operating fundamentals rather than optimistic exit assumptions.
Supply Constraint + Pricing Power + Entry Basis
The framework prioritizes markets where these three conditions align. The premise is deliberately operational: returns should be driven by the asset's performance, not by cap-rate compression at exit.
| RANK | MARKET | WEIGHTED SCORE | POSITION |
|---|---|---|---|
| 01 | Charleston | 4.3 | PRIMARY TARGET |
| 02 | Scottsdale | 3.3 | SECONDARY TARGET |
| 03 | Tampa | 3.1 | AVOID |
| 04 | Nashville | 2.6 | MONITOR |
Weighted criteria included supply-pipeline risk, price per key, RevPAR, occupancy, RevPAR growth, population growth, household income, implied cap rate and insurance-cost risk.
Strong revenue fundamentals were not enough to overcome structural supply risk. Nashville's pipeline is the reason supply risk receives the highest weight in the market framework.
Charleston combines structural supply constraints — including zoning, preservation barriers and limited developable land — with leisure, group and corporate demand. The underwriting uses a 7.5% going-in cap rate and does not require cap-rate compression.
Primary risk identified in the presentation: seasonality concentration, mitigated through a conservative occupancy ramp.
The modeled asset is a 100-key independent upper-upscale boutique in Charleston, built in 2018 and renovated in 2022. Total acquisition including 1.5% closing costs is $22.84 million.
Leverage contributes approximately 460 basis points of additional IRR. The base-case 14% levered return does not require cap-rate compression or above-trend growth.
Years 3–5 amortize on a 25-year schedule. Coverage remains above the 1.20× minimum lender threshold throughout the modeled hold.
Exit cap rate is the dominant variable.
The sensitivity analysis tests exit cap rate against ADR growth and interest rate. Base assumptions center on a 7.75% exit cap, 3.0% ADR growth and 8.0% interest rate, producing a 14% levered IRR. Performance falls below the hurdle primarily when cap-rate expansion occurs alongside below-trend ADR growth.
Selected cells from the full sensitivity matrix shown in the original presentation.
Supply constraint is structural — not cyclical. Returns are driven by operations — not exit assumptions.
← BACK TO RESEARCH