Every fall, hotel owners and operators build the following year’s budget. The temptation is familiar: Agree on a RevPAR target, flow it through the P&L and call it a plan.
For 2027, that approach could cost NOI and asset value. With revenue growth insufficient to absorb rising costs, value creation will depend on revenue conversion, operating-model discipline and precision across the capital stack.
In 2025, U.S. hotel RevPAR declined approximately 0.3% — the industry’s first non-recessionary annual decline on record. CoStar and Tourism Economics forecast a 2026 rebound, with RevPAR increasing 4.4%, aided by the FIFA World Cup and America 250. Growth is expected to moderate in 2027: RevPAR is forecast to rise 2.1%, ADR 1.6% and GOPPAR only 1%, with expenses growing faster than inflation.
Against this backdrop, seven priorities should shape the 2027 plan.
1. Remove the 2026 event lift
The World Cup and America 250 created nonrecurring demand and pricing opportunities. Normalize the 2026 base by month and segment, particularly in host markets. A smooth annual RevPAR assumption will obscure difficult June and July comparisons. Across World Cup host markets, match-day ADR increased approximately 26%, while occupancy was essentially flat. Segment and channel mix differed from prior years; determine whether each hotel outperformed or underperformed its market and adjust the 2027 forecast accordingly.
2. Budget the structural expense base
The post-pandemic cost base is structurally higher, not merely cyclically elevated. CBRE reported above-GOP expenses increasing 4.1% in 2024, compared with revenue growth of 2.3%. HVS subsequently found GOP-margin compression across every property type in its year-to-date 2025 data.
Budgeting expenses at “last year plus CPI” will not suffice. Leverage AI-enabled tools to benchmark P&Ls, identify anomalies, automate variance reporting and track initiatives, allowing asset managers to focus on insights, operator collaboration and value creation. Clean data and experienced judgment remain essential; AI should enhance decision-making, not replace it.
3. Rebuild the labor model around demand
Review labor from a zero base and measure productivity by occupied room, cover, event and revenue dollar. Examine scheduling, overtime, contract labor, management layers and shared services. AI forecasting and scheduling tools can align staffing with demand while automating administrative work — improving productivity without diminishing service. This should give hotel leaders more time with guests and team members. Set explicit productivity, flow-through and GOP-conversion targets. Revenue is influenced by the market; conversion is more controllable.
4. Treat insurance and property taxes as owner initiatives
Insurance and property taxes generally affect NOI dollar for dollar. Re-market coverage, revisit coverage limits and deductibles, evaluate portfolio purchasing and identify loss-control investments that improve the hotel’s risk profile. Because assessments frequently rely on lagging data, owners should determine whether values reflect current income, required capital and market conditions. A well-supported appeal can generate material NOI savings.
5. Stress-test debt and liquidity now
For every maturity within 18 to 24 months, model multiple refinancing scenarios. Stress-test rates, debt-service coverage, debt yield, loan-to-value, proceeds, equity requirements and PIP obligations.
The question is not simply whether the hotel can refinance, but whether it can do so at acceptable proceeds while retaining sufficient liquidity to execute its plan. Owners who address maturities early preserve optionality. Those who wait risk more expensive financing or becoming somebody else’s acquisition opportunity.
6. Make every capital dollar compete
Separate mandatory and asset-preservation needs from brand obligations and discretionary projects. Protect investments that increase revenue, reduce expenses or reposition the asset. Evaluate them using payback, return on cost and incremental NOI. Defer aesthetic-only projects that do not support the underwriting.
Treat the FF&E reserve as a funding mechanism, not the capital plan itself. Every owner-funded dollar should generate a return or mitigate a material risk.
7. Do not underwrite a cap-rate rescue
Benchmark exit assumptions against current transactions and real-time data by market, segment and asset quality. Require clear support for any exit cap below the range evidenced today. Recent failed sale processes demonstrate the danger of relying on values that current debt and equity markets will not support.
At $10 million of NOI, moving from an 8% exit cap to a 7% exit cap increases said value from $125 million to approximately $143 million — a 14% increase without operational improvement. Conservative exit assumptions separate credible underwriting from hopeful underwriting.
2027 will be a prove-it year. The hotel budget should integrate operating strategy, capital allocation and financing — not merely forecast results. Operators who realign the operating model to improve NOI flow-through and margins — and owners who manage fixed costs and allocate capital against measurable returns — can turn modest revenue growth into meaningful value. The rest will spend 2027 in variance reports explaining why revenue grew but NOI did not.
Romy Bhojwani is senior vice president and head of asset management at HHM Hotels.
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