Is a 4% FF&E reserve enough for a hotel?

The evidence

The ISHC’s CapEx study, conducted with HAMA on STR data across more than 700 hotels over 2018–22, found actual capital spending at roughly 9% of total revenue and $5,147 per available room. Full-service hotels ran higher — about $6,160 per key.

Set against a conventional 3–5% reserve, that is approximately double. This is not a controversial finding, and it is not new. It is simply one that most capital plans are built as though it did not exist.

Why the gap exists, which is not a mystery

The reserve’s scope is narrower than the building. FF&E is what it funds; building systems and infrastructure frequently sit outside it entirely, while remaining unavoidably inside the hotel.

And the reserve is revenue-linked, which means it shrinks in exactly the years the property is under pressure — while the chillers age on the calendar rather than on the P&L. A reserve that is a percentage of revenue funds least when it is needed most, and that is a structural property of the mechanism, not bad luck.

How to size it honestly

Build the plan from the cycles and the condition data — soft goods at 6–7 years, case goods at 12–15, building systems at 15–25 — and price it. Then compare that number to what the reserve will actually accumulate. The gap is your funding decision, and it is better made four years out than four months out.

The alternative is not that the money is not spent. It is that it is spent later, at roughly four times the amount, under a deadline, or handed to a buyer as a discount on your sale price.

Terms

• FF&E Reserve