Editor’s note: This is the second in a two-part series examining the hotel capital markets. Part 1 examined how a shifting mix of buyers and capital sources is reshaping the acquisition market.
The hotel debt market has no shortage of capital. But that doesn’t mean every loan can be refinanced.
For cash-flowing properties, lenders are competing aggressively for business. For hotels with weaker cash flow, too much legacy debt or capex coming due, the refinancing universe can shrink dramatically.
“If you have ample cash flow to really service the debt, there’s a lot of liquidity… there’s just a plethora of options,” said Jared Schlosser, head of credit originations and Commercial PACE for Peachtree Group.
But once debt yields fall below roughly 8%, Schlosser said, “there’s a very limited universe for refinance.”
For the past few years, the refinancing market has increasingly split into haves and have-nots. Does Schlosser think that divide has narrowed?
“No. If anything, the gap has gotten worse.”
Liquidity is not the problem
Kevin Davis, Americas CEO of JLL Hotels & Hospitality, said liquidity is abundant across the hotel debt market, with banks, CMBS, life insurance companies and private debt all actively lending.
“The market is functioning incredibly well. We’ve seen a return of liquidity in every sector of the market… As I look across the broader hospitality financing landscape, it’s incredibly fertile and active.”
Davis said debt funds have been particularly active in the $50 million to $250 million space, with much of that capital coming from institutional private credit.
Improving hotel performance and a deeper pool of capital have given some owners refinancing options that weren’t available before.
“So as the markets have opened up, owners are now refinancing into better markets,” Davis said.
When the numbers no longer work
The problem for some borrowers isn’t capital availability. It’s that the assumptions behind their existing loans no longer work.
Ryan Bosch, principal at Arriba Capital, said one of the biggest changes from a year ago is that borrowers are no longer counting on interest-rate cuts to solve their refinancing problems.
“The biggest thing that’s changed is people aren’t counting on rate cuts currently,” he said. “There was still optimism about that last fall.”
Bosch said most loans coming up for maturity can still be refinanced in some form, but a significant group of borrowers is finding their existing capital structures no longer work. The common denominator is often the property’s basis.
“It’s just people that are stuck with a bad basis on the transaction,” he said. “They bought too high and they weren’t able to execute the business plan. The business plan was counting on rate cuts that didn’t come or the PIPs that they executed had massive cost overruns.”
Schlosser is seeing a similar problem with hotels acquired in 2021 and 2022 using bridge debt. In many cases, the cash flow anticipated when those loans were originated never materialized, leaving borrowers struggling to meet the tests required to extend or refinance their debt.
Even borrowers who correctly anticipated interest-rate cuts in 2025 didn’t necessarily get the relief they expected, Bosch said.
“What never came was the value recovery those rates were supposed to deliver because the long end refused to follow, and exit cap rates never compressed,” he said. “So you had floating-rate borrowers that got coupon relief, but no real proceeds relief.”
That means some owners may be paying less interest but still can’t generate enough refinancing proceeds to pay off their existing loan.
Then comes the PIP
For some owners, refinancing the existing debt is only part of the problem. Years of deferred capital spending can leave them facing a major PIP at the same time refinancing proceeds are constrained.
“The biggest driver that I see is capex,” Bosch said.
Those capital needs can make an already difficult refinancing even harder. An owner may need enough proceeds not only to pay off the existing loan, but also to fund renovations required by the brand — or contribute additional equity to make the new capital structure work.
That helps explain why cash-out refinancings remain the exception despite the abundance of debt capital. For many borrowers, the goal is considerably more modest.
“Most people are making the decision on the other side of (cash out), where they’re saying, ‘Hey, we’re trying to be cash neutral and hoping we don’t have to be cash in,’” Bosch said.
The extensions are running out
For borrowers facing a refinancing gap, that can mean getting more creative with the capital stack. Schlosser said C-PACE has become an increasingly mainstream option.
“If you don’t have a bunch of in-place cash flow, you have to think outside the box, or you have to pay down the loan,” he said.
For other owners, however, the answer for the past several years has been simpler: Wait.
Banks extended loans while borrowers waited for interest rates to fall, values to recover or operating performance to improve. Bosch said some owners have received extension after extension, but 2026 is increasingly becoming the year when lenders say no more.
At the same time, brands that allowed owners to put off PIPs are increasingly requiring those renovations to move forward, potentially forcing borrowers to find new capital just as their loans mature.
“We are in the last stages of extend and pretend,” Bosch said.