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Case Study - Operating Expenses of Upper Midscale Hotel in Florida

  • Writer: MMCG
    MMCG
  • 12 minutes ago
  • 3 min read


When planning to develop an 80-room, upper-midscale hotel in Florida, one of the most critical financial metrics to model is the Operating Expense Ratio (OER)—the portion of revenues consumed by property operating costs. Based on actual 2023 performance for a comparable Florida property and our wider database of similarly sized hotels at ~78% occupancy, this study breaks down what expense categories you should expect, how they vary, and what they include.


1. Financial Snapshot (2023 Actuals)

Metric

Amount

Effective Gross Income (EGI)

$41,622.25

Total Operating Expenses (OPEX)

$26,629.58

Operating Expense Ratio (OER)

63.98%

Rooms (Keys)

80

Occupancy Rate

78.2%

  • OER of 63.98% means roughly $0.64 of every revenue dollar is spent on daily operations.

  • Per-room OPEX: $26,629.58 ÷ 80 ≈ $333 per room, per year.


2. Expense Categories & What They Include

  1. Departmental Expenses

    • Room Departmental (19.1% of EGI; $7,963 total)Housekeeping labor and supplies, front-desk staffing, in-room amenities, guest laundry services.

    • Other Departmental (0.4% of EGI; $155 total)Business center supplies, fitness center upkeep, vending commissions.

    • Food & Beverage / Telephone$0 in 2023 (no full-service F&B or in-room phone revenue/charges).

  2. Undistributed Operating Expenses

    • Real Estate Taxes (3.3% of EGI; $1,369)Local property taxes—largely fixed, subject to annual assessments.

    • Property Insurance (2.5%; $1,056)Building, liability, flood/hurricane coverage. Florida’s coastal risk can drive this above national norms.

    • Utilities (4.8%; $1,996)Electricity, water, sewer, waste removal. Climate and HVAC usage heavily influence this line.

    • Repairs & Maintenance (4.5%; $1,875)Routine preventive work (HVAC servicing, plumbing, general repairs).

  3. Fees & Management

    • Franchise Fees (7.8%; $3,230)Brand royalties and reservation system fees (usually 4–6% of revenue).

    • Management Fees (3.9%; $1,623)Third-party operator’s base and incentive fees (typically 3–5% of revenue).

  4. Sales & Marketing

    • Advertising & Marketing (6.2%; $2,586)OTA commissions, digital campaigns, print/media ads. Varies widely based on distribution strategy.

  5. General & Administrative

    • G&A (11.5%; $4,776)Corporate overhead allocations, accounting, HR, software licenses, office supplies.


3. Expected Expense Benchmarks at 78% Occupancy

Drawing on our database of 78%-occupied, upper-midscale hotels in Florida (per-room, per-year):

Category

Our Hotel

Peer Range

Room Departmental

$7,963

$5,108 – $9,522

Other Departmental

$155

$0 – $306

Real Estate Taxes

$1,369

$822 – $1,836

Property Insurance

$1,056

$774 – $1,263

Utilities

$1,996

$1,328 – $1,612

Repairs & Maintenance

$1,875

$1,477 – $1,881

Franchise Fee

$3,230

$2,265 – $6,342

Management Fee

$1,623

$1,094 – $1,898

Advertising & Marketing

$2,586

$469 – $5,415

General & Administrative

$4,776

$2,668 – $5,338

Total OPEX per Room

$333

$299 – $398

OER

64.0%

54% – 71%

  • Utilities and G&A are on the higher side; advertising varies most dramatically.

  • Franchise fees are relatively fixed; management fees may be renegotiable.


4. Key Drivers of Expense Variability

  • Climate & Energy Usage: Florida summers drive up HVAC costs.

  • Brand Standards: Some flags require higher staffing levels or amenity packages.

  • Distribution Strategy: Heavy reliance on OTAs bumps up marketing/commission expenses.

  • Ownership Structure: In-house vs. third-party management directly affects management fees and G&A.

  • Scale & Occupancy: Smaller hotels lack economies of scale; fluctuations in occupancy magnify per-room costs.


5. Planning & Budgeting Implications

When underwriting a new 80-room midscale development in Florida:

  1. Budget OER ~60–65% of projected revenues at stabilized occupancy.

  2. Allocate capital reserves for 2–3% of EGI in annual R&M.

  3. Factor in climate risks by planning 5% of EGI for utilities and 2–3% for insurance.

  4. Negotiate management agreements to cap fees below 4% of revenue if possible.

  5. Set marketing spend at 2–4% of revenue, and monitor channel ROI monthly.

  6. Plan for tax appeals and seek competitive insurance quotes annually to contain those fixed costs.


6. Conclusion

A disciplined approach to modeling and managing operating expenses—grounded in real-world benchmarks—will sharpen projections and bolster the financial viability of an upper-midscale hotel project in Florida. By anticipating that roughly 64% of revenues will be consumed by operating costs, and by drilling into line-item drivers (utilities, G&A, marketing), developers can set realistic budgets, identify potential cost‐savings, and optimize long-term profitability.


April 26, 2025 by Michal Mohelsky, J.D., principal of MMCG, hotel feasibility study consultant


Sources: MMCG database, CMBS.

 
 
 

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