Food & Beverage Revenues

Definition of Food & Beverage (F&B) Revenues

In the context of commercial mortgages, specifically within the hospitality and leisure sectors, Food & Beverage (F&B) Revenues refer to all income generated from the sale of food, alcoholic drinks, and non-alcoholic beverages on a property. While most common in hotels and resorts, this revenue stream is also a critical factor in the valuation of convention centers, private clubs, and certain mixed-use developments.

For a lender, F&B revenue is categorized as operating income. It is distinct from room revenue or rental income because it involves significantly higher variable costs, including labor, inventory, and raw materials. In a commercial mortgage application, these revenues are carefully analyzed to determine the property's total Gross Operating Profit (GOP).

Detailed Description and Key Components

F&B revenues are rarely a single line item; they are comprised of several different "outlets" and services within the commercial asset. Lenders evaluate these components to understand the stability and diversification of the property's income. Common sources include:

• Restaurants and Cafes: Direct sales from on-site dining establishments, including breakfast, lunch, and dinner services.
• Bars and Lounges: High-margin revenue generated from the sale of alcohol and small plates.
• Banquet and Catering: Significant revenue earned from hosting weddings, corporate conferences, and special events. This often includes room rental fees associated with the food service.
• In-Room Dining: Income from room service provided to guests, which typically carries a higher price point but also higher labor costs.
• Minibars and Grab-and-Go: Revenue from automated in-room bars or lobby marketplaces.

The Importance of F&B in Commercial Mortgage Underwriting

When underwriting a loan for a hospitality asset, a commercial lender looks beyond the top-line F&B figure. They focus on the profitability margins of these revenues. Generally, F&B departments operate at lower margins than room departments due to the Cost of Goods Sold (COGS) and intensive staffing requirements.

Lenders use F&B data to calculate several key performance indicators (KPIs) that influence the loan terms:

1. TrevPAR (Total Revenue Per Available Room): This metric combines room revenue with F&B and other income to show the true earning power of the asset. A high TrevPAR suggests a strong, diversified business model.

2. Capture Rate: This measures the percentage of hotel guests who choose to dine at the on-site facilities. A high capture rate indicates that the F&B operations are a value-add to the property, making it a more attractive collateral for a mortgage.

3. Operating Ratios: Lenders compare the F&B expenses against the F&B revenue. If the expenses are too high, the F&B department may actually be a drag on the Net Operating Income (NOI), which could lead to a lower appraised value and a reduced Loan-to-Value (LTV) ratio.

In summary, while room revenue is often the primary driver for a commercial mortgage in the hospitality space, Food & Beverage Revenues provide the necessary volume to cover fixed costs and increase the overall valuation of the commercial real estate.