Public support can take many forms when it comes to getting a project off the ground, but today, there is one critical type of support many hotel developers don’t just want, they need: public incentives.
“In today’s capital environment, public incentives aren’t just helpful, they’re often the difference between a project moving forward or dying in a spreadsheet,” says Travis Burns, executive vice president of development for Remington.
Burns views tools like PACE, abatements and historic credits as the “bridge lenders of last resort,” except cheaper and far more patient than traditional sources of capital. Once considered a nice-to-have, this type of public support is increasingly built into the financial assumptions behind new hotel development.
It’s a capital stack strategy Burns doesn’t see disappearing anytime soon.
“If you’re not stacking incentives, you’re probably not closing,” he adds.
Designing the capital stack around incentives
Of course, incentives alone aren’t an automatic ticket to success. The key to maximizing their value is understanding how they fit into the deal from the outset. With construction costs elevated and lenders underwriting conservatively, the traditional capital stack often falls short when it comes to covering total development costs. Filling in this financing gap is where public incentives can really come into play, notes Suraj Bhakta, CEO of NewGen Advisory and Chief Legal Counsel of NewGen Worldwide.
“Sophisticated developers are layering these tools using credit equity to reduce sponsor cash, abatements to increase loan proceeds and TIF as quasi-mezzanine support,” he says. “This helps design the capital stack around public incentives from day one rather than applying for them after the deal is assembled.”
That layering often means combining multiple tools that influence different parts of the capital stack. Property tax abatements or PILOT structures can improve stabilized NOI, strengthening debt service coverage ratios and allowing lenders to size larger senior loans. Tools like C-PACE financing can provide long-term, fixed-rate capital that sits alongside or behind senior debt, reducing the amount of equity developers must contribute.
Historic tax credits can play a similarly powerful role in adaptive reuse projects, functioning almost like equity in the stack. In some cases, hotel occupancy tax rebates or tax increment financing districts can also support early year cash flow during the ramp-up period, further improving feasibility for lenders and investors.
Jamison Dague, director at HR&A Advisors, says incentives that directly affect operating performance can be especially powerful when structuring hotel projects.
“Incentives that lower operating expenses through property tax reductions and provide lower-cost debt can be the most impactful for developers and the public sector,” he notes.
Those tools often work best when layered with other financing sources to close the remaining gap in the capital stack.
“PACE financing, historic tax credits and local abatements are doing the heavy lifting, especially when layered to fill the last 10 percent to 25 percent of the capital stack,” Burns adds. “The winning formula is usually a PACE plus abatement plus historic credits cocktail that lowers carry and reduces equity pressure. It’s not creativity for creativity’s sake, it’s a new development’s survival math.”
Brian Connoly, founder and CEO of Feasibly, says the most effective packages are layered not just across the capital stack, but across the project itself. This is often done via public-private partnerships that align municipal participation with project feasibility.
“The strongest results come when developers combine public participation in the site or infrastructure - such as city-owned land, parking or ground leases - with financial tools that improve feasibility across the capital stack,” he says.
When cities compete for capital
Incentives don’t just shape whether some deals get done, but where they get done.
“Incentive-friendly cities are attracting the lion’s share of new developments because they meaningfully change returns,” Burns says. “Markets without them are watching capital migrate to states and municipalities that understand the assignment. Money follows momentum and public support creates it.”
For investors and lenders, that support can serve as a signal that a project has a clearer path to execution. That’s because markets that have established incentive programs and a track record of completing public-private partnerships tend to attract more attention from capital providers.
Naturally, the structure and predictability of incentive programs can be just as important to investors as the incentives themselves.
“Incentive programs whose associated benefits are clear and easy to understand are almost always preferred over more generous benefits that could be negotiated ad hoc because the terms or outcomes are less certain,” Dague says.
That clarity can make a big difference when lenders and investors evaluate whether a project is worth pursuing.
“Capital is going where the numbers work and the process is predictable,” Connolly adds.
Those incentives are particularly critical for projects where development costs and civic priorities intersect. Convention hotels, downtown repositionings, adaptive reuse developments, and emerging growth corridors in secondary and tertiary markets looking to attract brand-affiliated hotels often carry development costs that private capital alone struggles to support, Bhakta notes.
“Where that support is absent, the financing gap often remains unbridgeable and capital moves on,” he adds.
Bhakta emphasizes, however, that incentives work best when there is genuine alignment between the public and private sectors. Cities often view hotel development as a catalyst for broader economic activity, from visitor spending and job creation to additional tax revenue. When structured properly, public participation in infrastructure costs or long-term abatement programs can reduce execution risk while improving the financial outlook for developers and lenders alike.
But that alignment must be earned.
“Incentives are not free money,” he says.
Instead, they introduce legal complexity, compliance risk, political exposure and timeline considerations. If structured poorly, they can impair exit flexibility or refinancing options down the road.
Connolly agrees that the strongest projects treat incentives as part of a disciplined development strategy rather than a financial shortcut.
“When it is done well, public participation can reduce upfront costs, strengthen coverage in the early years and share defined risks between the public and private sectors,” he says. “But it only works when the economics are sound and the public benefits are clear.”