The hotel financing market has changed. Not in ways that make deals impossible, but in ways that make straightforward deals increasingly rare. Conventional senior debt is available, but rarely sufficient on its own. Equity is cautious and selective, particularly for assets that require meaningful capital investment before they can perform at their potential. Construction lending remains constrained. And the gap between what a traditional lender will provide and what a transaction actually needs has widened considerably over the past several years, leaving owners, developers, and investors who lack a clear capital strategy watching viable projects stall at the starting line.
The sponsors finding success in this environment aren’t waiting for conditions to simplify. They’re doing something more sophisticated: building capital structures for the market that exists today, not the one they wish still existed.
Why Conventional Structures Fall Short
For much of the hotel transaction history, financing followed a familiar path. A sponsor identified an acquisition or development opportunity, approached a lender, negotiated terms on a senior loan, contributed equity, and closed. The capital stack was straightforward because market conditions allowed it to be. Lenders were aggressive, equity was abundant, and deals could be underwritten with room to spare.
That environment no longer exists in the same form. Interest rates are higher and have remained elevated longer than anticipated. Lenders have tightened underwriting standards and reduced leverage. Construction costs continue to challenge the feasibility of new development. A combination of rising costs and elevated debt has slowed new hotel supply growth to 0.2 percent and 0.5 percent in 2023 and 2024, respectively, well below pre-pandemic averages, with HVS projecting only 0.8% supply growth through 2025 and 2026. At the close of Q4 2025, only 1,088 hotel projects (134,380 rooms) were under construction nationwide, as financing constraints continue to limit development. Heading into 2026, development leaders across the major brands have acknowledged that labor, materials, and land costs show no signs of meaningful short-term relief.
Value-add acquisitions often involve assets that require significant renovation and stabilization before they can support conventional debt. The result is that more deals today require more capital sources to work. Senior debt often can’t cover the gap, and equity alone is too expensive or simply unavailable at workable terms. The math only works when the capital structure is intentionally engineered.
The Full Stack: What’s Actually Available
Sophisticated hotel financing today draws from a wide range of sources, often simultaneously. Understanding what each instrument does, and when it’s appropriate, is the foundation of effective capital advisory work.
For many transactions, the starting point is a conventional first mortgage, whether a CMBS execution, a bank, or a loan from one of the many debt funds that have become active hotel lenders over the past decade. These products offer real advantages: competitive pricing, reasonable leverage for stabilized assets, and a well-understood closing process. But in today’s environment, they frequently aren’t enough on their own. A CMBS or bank loan or debt fund first mortgage can anchor the capital structure, but when the asset requires significant renovation, when leverage needs to be higher than the senior lender can support at acceptable coverage metrics, or when the transaction involves a market or asset that creates underwriting complexity, one or more additional layers are needed to make the economics work. The question isn’t whether to use conventional first mortgage debt. The most important question is what goes alongside it.
Government-guaranteed loan programs, including USDA Business & Industry loans and SBA products, can also serve as anchor senior debt facilities for assets in eligible markets, often at leverage levels and terms that conventional lenders won’t match. These programs are underutilized in part because they are administratively complex and require advisors with direct experience navigating their approval processes.
C-PACE financing has emerged as a powerful tool for acquisitions and renovations that include qualifying energy-efficiency or resiliency improvements, or new-build assets that fall within the lookback windows of the specific state programs. C-PACE sits in a unique position in the capital stack. It’s long-term, fixed-rate, non-recourse financing that attaches to the property rather than the borrower, and it can often be layered alongside senior debt without triggering lender conflicts, if structured correctly from the outset.
Historic Tax Credit equity remains underdeployed in the hotel sector, even though many of the most compelling repositioning opportunities involve properties with genuine historic character. For qualifying assets, HTC equity can represent a meaningful percentage of total project costs, reducing the burden on both senior debt and sponsor equity. The approval and certification process is rigorous, multi-agency, time-consuming, and only works if it’s integrated into the broader capital structure from the beginning, not bolted on after the fact.
Mezzanine debt and preferred equity can often fill the space between senior debt and common equity, providing higher leverage for sponsors who need it while offering structured return profiles that institutional capital providers find attractive. In today’s market, where senior lenders are tightening loan-to-value ratios, mezzanine and preferred equity have become essential components of transactions that might have been fully senior-financed a few years ago.
Opportunity Zone capital is worth watching closely right now. The original program sunsets at year-end, but the One Big Beautiful Bill Act made OZ permanent with a redesigned framework taking effect January 1, 2027. The new structure features a rolling five-year gain deferral and, notably, enhanced incentives for rural-designated funds, including a 30 percent basis step-up, to from the standard 10 percent. For hotel developers active in secondary and rural markets, this is a meaningful change, and sponsors with qualifying assets should be assessing their positioning under the new rules sooner rather than later.
Where Advisory Work Gets Genuinely Valuable
The most important thing a capital advisor can do in today’s market isn’t find a lender. It’s design the structure before the lender conversation begins.
That means approaching every transaction with a clear-eyed view of what the asset can support, what the sponsor needs, and which combination of financing sources creates the most executable path to closing. It also means taking the time to understand a sponsor’s broader business plan and exit strategy because those answers have a direct and material impact on how the stack should be built.
A sponsor planning a near-term sale requires a very different structure than one executing a long-term hold. Yield maintenance and prepayment flexibility, preferred equity return hurdles, tax credit compliance periods, and the timing of mezzanine payoffs all need to align with where the sponsor ultimately intends to go, not where they’re starting. Getting that wrong at the front end creates expensive problems, sometimes impossible to unwind. It requires understanding the interdependencies between layers.
How a PACE lender’s requirements interact with a senior lender’s intercreditor expectations, how HTC certification timelines affect a closing schedule, and how a preferred equity partner’s return hurdles affect overall project economics. It means having relationships with lenders of all types, tax credit investors, PACE providers, and government loan administrators to assemble the right team for each transaction.
And it means having the patience and discipline to see complex structures through. Multi-source transactions don’t close quickly. They require sustained coordination across parties who may have never worked together before, and the ability to maintain alignment when, not if, outside factors introduce delays and complications.
The operators and investors who are successfully executing today are not relying on more favorable conditions. They are adapting their approach to reflect the realities of today’s market. They recognize that in a more constrained and complex market, outcomes are driven not only by the quality of the asset or sponsor, but by the quality of the capital structure behind it.
Stan Kozlowski is a hospitality finance executive with more than 25 years of experience and over $2.5 billion in completed transactions across acquisitions, financings, restructurings and asset sales. Prior to co-founding CooperWynn, he held senior roles at Glenmont Capital Management and CBRE Hotels Finance, advising institutional investors and owners on complex hotel transactions.