The average daily rate for commercial real estate is determined by dividing the entire rental income for a day by the number of occupied rooms on a property. For example, if a hotel makes $50,000 in one day, as a result of 100 rooms being rented, their ADR for that day is $500. To clarify, average daily rate does not include complimentary rooms or ‘house use’ rooms in its calculation.

Source: www.commercialrealestate.loans/commercial-real-estate-glossary/adr-average-daily-rate

The average daily rate (ADR) for commercial real estate is an important metric for lenders to consider when evaluating a property for financing. It is especially important for owner-occupied hotel properties that want to refinance their debt, as well as investors that lease their property out to a hotel company and want to refinance or acquire a property in which a hotel is currently the main tenant. ADR, along with LTV, DSCR, debt yield, and other metrics, can be an effective way for a commercial lender to determine a property’s suitability or financing.

However, for larger hotel companies (and those with better credit), factors like ADR become less important. This may not necessarily be the case with franchised hotels, where the credit of the franchisee becomes significantly more important.

For other types of real estate, such as residential or office, ADR is not typically a factor that lenders consider when evaluating a property for financing. Instead, lenders may look at metrics such as rental income, vacancy rates, and other factors to determine the suitability of a property for financing.

The average daily rate (ADR) for commercial real estate is influenced by a variety of factors, including the size of the hotel company, the credit of the franchisee, and the occupancy rate. For owner-occupied hotel properties that want to refinance their debt, ADR, along with loan-to-value (LTV), debt service coverage ratio (DSCR), debt yield, and other metrics, can be an effective way for a commercial lender to determine a property’s suitability or financing. For investors that lease their property out to a hotel company and want to refinance, or would like to acquire a property in which a hotel is currently the main tenant, average daily rate may also be important. However, while looking at a property's ADR is a good place to start, it doesn't tell the whole story. Most importantly, average daily rate does not look at occupancy (i.e. the number of rooms sold).

Understanding the Average Daily Rate (ADR) for commercial real estate can be beneficial for both owners and investors. For owners, ADR can be used to determine the income and profitability of a property. For investors, ADR can be used to determine the suitability of a property for financing. Additionally, for investors that lease their property out to a hotel company, ADR can be important when refinancing or acquiring a property. However, for larger hotel companies, the credit of the franchisee may be more important than ADR.

You can use the average daily rate for commercial real estate to your advantage by using it to compare different properties and determine which one is more profitable. For example, if two properties have the same ADR, but one has a higher occupancy rate, it may be more profitable. Additionally, you can use the ADR to determine the potential income of a property and use it to calculate loan terms. For example, if a property has an ADR of $500, you can use that to calculate the potential income of the property and use it to determine the loan amount and terms.