The Difference Between Two Hotel Markets and Their Impact on Financing
Branded assets in the top quartile are refinanced into five-year loans at competitive rates. Compare assets that are in the exact same scale and sometimes even the same submarket but cannot get quotes from the identical lender list. This gap gives the clearest picture of the state of the hotel industry in 2026. It is not closing. Normal cycles will see the weaker properties recover while the stronger ones plateau.
This isn’t the case this cycle.
Structure is the main factor that separates these two extremes. The PIP cost is increasing while the insurance and labor costs remain stable.
Flags have to be more stringent with their brand standards because guests expect it. The asset which has been performing well gets further ahead every quarter. Meanwhile, assets that are falling behind fall further. The market will take a very long time to bring an asset up to speed.
Stronger and stronger are the strong
The P&Ls of 2026 are a direct result of rate decisions taken two years earlier. Operators who did not discount into occupancy but held rates through 2023-2024’s soft patch are being rewarded.
The operators who held rate through the soft patch of 2023-2024, rather than discounting into occupancy are being rewarded.
The midweek market has recovered faster than expected, especially in secondary and third-tier markets, with the reshoring of manufacturing, expansions at universities and healthcare, as well as defense spending. It’s real, recurring, sticky demand. Not construction crew demand. The drive-to leisure market is stable.
The economics of select-service are superior to full-service. This gap has grown beyond historic norms. Select and extended stay are the most profitable operating stories in the hotel industry because of the lower labor burden, the lack of F&B drag and the F&B segment which hasn’t recovered fully in full service.
There is a lack of supply. The construction starts are below average and the replacement cost formula doesn’t apply to today’s prices. This protects the existing owners of high-quality assets against the supply shocks which defined the previous cycle.
Market Challenges
The prevailing narrative of the situation is that of distress. However, this issue actually involves a slow and quiet erosion.
PIP deferrals expire.
The cost of PIPs has increased by 25-40% since many owners deferred. Deferred payments are no longer permanent, and owners who hoped for a long-term deferral now face a PIP with today’s costs.
In many markets, insurance renewals have increased by 20-40 percent. Reassessments of property taxes are now catching up with sales in 2021-2022. Even in areas where occupancy is down, labor costs have remained stable. Rate increases are more easily absorbed by stronger assets, while margins are squeezed for weaker assets.
The fragility of assets built around one demand driver is becoming apparent. The hotel is stuck if there’s an issue with its driver. The national averages can also hide real weaknesses within specific geographic areas that have not benefited from tailwinds such as leisure and reshoring.
In 2026, the most risky position is to own an asset with a rising absolute revenue. This allows owners to avoid making difficult decisions while margins, indexes, and guest ratings tell a completely different story.
When the conversation about refinancing begins, the lender’s view of the numbers is not the same as the owner’s.
The Meaning of Financing
Capital markets don’t just punish hotels randomly — they sort them. Regional banks have returned to the hotel loan market, CMBS rates are low, and spreads on debt funds are decreasing.
Capital options for hoteliers are more diverse today than they were in 2019.
Not all opportunities are created equal. The top-end assets see real competition between lenders, low pricing and flexible prepayment and structure options. Assets with reliable sponsors and middle-performing performance are financed on fair market conditions. Financing is still possible for weaker assets, just through a new lender group.
Bridge lenders and debt funds build structures that are aware of workouts. Mezzanine and preferred equity fill in the gaps. A strategic sale, or even a handover negotiated by the parties involved is not a failure if numbers do not support refinancing on any conditions. Owners who are able to recognize the pattern and act on it early have more options.
Ask yourself these three questions:
- What is your RevPAR Index, not including absolute RevPAR,? When the absolute RevPAR increases and the index declines, it is the market, not the asset, that is at work.
- What is the next payment due date and cost for your PIP? Lenders reserve for PIPs between 110 and 120 percent of the flag estimate now. Assume that if your CAPEX is not funded at this level, it could be a financial issue and not an operational one.
- What would the lender look at if you were to have to refinance tomorrow on trailing figures? You should read the T12 or T24 to a stranger, and not your own narration.
Answers will help owners determine where they are in the market and how to proceed with their next strategic plan for the next twelve to eighteen months.
Opportunities Ahead
The year 2026 will be a great time to take action if you are a strong owner. Refinancing into spreads that are compressed and acquiring assets which are underperforming are both opportunities.
Owners who find themselves in a difficult situation have options. The capital can be invested to upgrade the asset, either by completing PIPs, rebuilding indexes, or diversifying the demand. The capital can be used to recapitalize with sources of funds that are built for the transition or exit when they want, while the market is healthy and able to take inventory.
Markets sort hotels by structural factors, rather than cyclical ones.
Owners who evaluate their assets as a stranger might and then act on that information will be on the winning side. Those who are patient will be forced to make a decision for them.
