Despite economic uncertainty and tighter lending conditions, the Sunbelt continues to shine as a beacon for many hotel investors.
“The Sunbelt region generally continues to show strong demand for hotel investment and development, driven by population growth, economic resilience and favorable business climates,” says Phil Mader, president of Kingsbarn Capital & Development. “The region's appeal is bolstered by its attractive weather, tourism and business-friendly environment.”
The fact of the matter is these fundamentals have turned the Sunbelt – spanning from southeastern California to Florida – into a beacon for many since the pandemic. This includes residents, commercial developers and key industries.
Over the past decade, the Sunbelt has accounted for 80 percent of total U.S. population growth, with states like Texas, Florida and Arizona drawing millions of new residents, per Moody’s Analytics. Employment in the region has also grown by 20 percent, more than double the rate of non-Sunbelt states.
The increasing demand from more businesses, residents and visitors has created a need for more hotel supply. The problem is, many traditional lenders have hit pause during this period of high costs, high rates and uncertainty. However, as many who have invested in the Sunbelt already know, there are still opportunities to be had.
Why So Attractive?
Before we dive into the financing aspect, let’s take a closer look at why this “Southern smile” has been booming for a while.
This region occupied six of the top 10 spots on PwC's “Top Markets 2025 for Overall Real Estate Prospects,” with the accounting firm noting that migration patterns continue to benefit the Sunbelt.
The region is also emerging as a manufacturing powerhouse, with domestic and foreign companies committing nearly half a trillion dollars to build semiconductor, electric vehicle and related-product factories, according to Green Street.
Phoenix, for example, is the planned home of the $65 billion Taiwan Semiconductor Manufacturing Co. (TSMC) facility. Less than 50 miles northeast of Memphis, construction is underway in BlueOval City on the $5.6 billion Ford electric pickup truck plant.
Anna-Marie Allander Lieb, executive managing director of commercial real estate investments at Crowd Street, adds that while manufacturing is a major source of hotel demand in some markets, the great thing about the Sunbelt is its diversity.
“The strong wave of hospitality development we’ve seen in the Sunbelt markets has largely been fueled by population growth, economic diversification and a steady tourism sector,” she says. “Cities like Austin emerged as tech hubs, while Las Vegas has broadened its appeal beyond entertainment, helping to attract corporate and leisure travelers alike. Strong migration trends and infrastructure improvements have helped drive hotel demand, with markets like Dallas and Atlanta among the leaders for new developments.”
In fact, Dallas led the nation with nearly 23,000 hotel rooms under construction in 194 projects, according to the 2024 United States Construction Pipeline Trend Report from Lodging Econometrics. Other Sunbelt cities like Atlanta, Nashville and Phoenix remain among the most active development zones.
Financing the Dream
Hotel developers who want to remain active in the Sunbelt sometimes come up with creative solutions to do so.
“The economic and political forces at play nationally are making financing more complicated and uncertain,” says Anne Hill, senior vice president of Bayview PACE. “This is where private credit and alternative finance often play a critical role.”
Yes, it seems hospitality investors (and commercial developers, manufacturers, residents, etc.) aren’t the only ones eyeing this region. Private credit and capital providers are eager to play in this space, too…when the stars align.
For Mader, this starts with strong market fundamentals.
“We like projects in high-growth markets with robust economic indicators,” he says.
It then segues into analyzing the borrower.
“We want experienced operators – borrowers with a proven track record in hospitality development,” he continues. “We also want to see financial wherewithal - borrowers with a strong balance sheet and financial capacity.”
Peachtree Group is also active in the Sunbelt – both as a private credit lender and as a hotel developer. The Atlanta-based vertically integrated investment management firm is particularly bullish on Texas where it has three hotel developments underway in Dallas, Austin and San Antonio.
These include a new 171-room studio-suite Residence Inn by Marriott in downtown San Antonio near the Riverwalk. Offered as a direct investment opportunity, this asset will succeed an older-generation property when it opens in the second quarter of 2026.
"San Antonio is a unique market with a growing need for extended-stay hotels," says Greg Friedman, managing principal and CEO of Peachtree. "The Residence Inn will cater to the diverse demand drivers of San Antonio, including its thriving tourism sector and extensive corporate presence. Positioned within easy reach of the city's popular attractions, restaurants and business hubs, this hotel will provide guests with a prime location for both work and leisure."
Extended-stay brands in general seem to be doubling down on high-growth Sunbelt markets that tout steady logistics, medical and manufacturing demand.
Peachtree also recently broke ground on a 19-story, dual-branded hotel development featuring Marriott brands AC Hotel and Moxy Hotel in Uptown Dallas, as well as a 28-story, dual-branded Embassy Suites and Tempo Hotel in Austin. The firm’s executives have cited population growth and Texas’ business-friendly climate as key reasons they continue to build, operate and lend in the state.
In addition to dual-branded assets, Mader believes a couple other categories are positioned to do well in many Sunbelt markets, particularly when private credit’s involved.
“Luxury and boutique hotel projects benefit from the tailored financing solutions offered by private credit,” he says. “Private credit can also provide the necessary funds for development and converting existing buildings into hotels, offering innovative financing solutions.”
Going Further Outside the Box
Private credit may have captured much of the spotlight, but it’s not the only option gaining traction with the Sunbelt’s top hotel projects. Industry experts note a few other structures have also garnered favor as of late.
“In today’s tightening lending environment, hospitality developers are seeking flexible and creative financing strategies,” Lieb adds. “We’ve noted that preferred equity financing is gaining traction in some of the fast-growth markets, offering a crucial alternative to traditional debt financing.”
Crowd Street reviewed an offering for an upscale hotel earlier this year that was looking to fill the preferred equity piece. This part of the financing sat behind the senior loan at 60 per cent loan to value, and brought the total financing up to 80 per cent of the property’s value. The preferred equity offered a 15 per cent accrued return, along with a share of profits upon sale.
Preferred capital can sweeten the pot, or it can be the reason a transaction comes to fruition. This was the case on another Crowd Street deal that involved the recapitalization of a portfolio of Sunbelt-based hospitality assets. Preferred equity financing was used to bridge the gap between senior debt financing proceeds and the required capital to complete the transaction.
“The transaction was complicated due to the number of assets being rolled up, each with a different ownership structure,” Lieb continues. “The transaction did close, and may not have occurred without private capital playing a role in the capital structure.”
A specialized form of private credit is also gaining steam, as Hill notes.
“C-PACE (Commercial Property Assessed Clean Energy) has mushroomed in popularity in the past two years alone, and hospitality has been the most active sector,” she says. “Our own deal flow has echoed this trend. We have experienced a significant increase beyond the steady demand for C-PACE for hotel and resort projects.”
Originally established as a financing mechanism that allows commercial property owners to fund energy-efficient, water-saving and renewable energy projects through their property tax bill, this financing tool is becoming mainstream – particularly in certain regions.
“C-PACE is taking off in the Sunbelt, especially in Texas, Nevada and Florida where C-PACE legislation is more firmly established and the markets have become familiar with it,” Hill continues. “Though it was once seen as a niche alternative, over time borrowers and traditional lenders have seen how C-PACE can bolster the capital stack.”
Bayview PACE recently provided $137 million in C-PACE financing for Driftwood Capital’s new Westin Resort Cocoa Beach in Cocoa Beach – the largest C-PACE deal ever completed in the State of Florida.
Hill notes the deal had attractive terms, including a PACE loan to value of 27.9 per cent and a combined loan to value of 42.2 per cent.
“It helped meet the sponsor’s goals,” she adds. “It’s also worth noting that the PACE financing was larger than the traditional financing. A Florida institution provided $70 million in construction financing, whereas Bayview provided $137 million in C-PACE.”
Beyond its traditional role, C-PACE is also being used in increasingly strategic ways. For example, borrowers can take advantage of C-PACE’s look-back feature to refinance eligible costs up to three years after a project’s completion (in many jurisdictions). Larger providers like Bayview are also streamlining execution by offering both the C-PACE and senior financing components. This can simplify the capital stack and accelerate the closing process.
Further, C-PACE can help borrowers achieve higher leverage. This occurred on a recent hotel project in Austin where Bayview’s financing filled a critical gap in the capital stack, aligning with the sponsor’s long-term hold and cash flow strategy.
A long-term hold strategy may also be the key to success for many of today’s active hotel investors. Remember that economic uncertainty? It still exists. And it’s causing some major headwinds.
J.P. Morgan Research recently reported an increased probability of a recession, putting it at 60 per cent. Meanwhile Delta, Southwest and American Airlines all revised their revenue forecasts downwards, suggesting growing economic uncertainty and reduced consumer confidence in travel. The National Travel and Tourism Office (NTTO) has also reported an 11 per cent drop in foreign visitors to the U.S. this past March.
“These factors have created a more challenging environment for hospitality growth today than what was previously anticipated,” Lieb says. “While the wave of hospitality development in the Sunbelt markets has been relatively significant, it is important to recognize that many of the new starts we are seeing today were initiated when the future outlook for the sector was more optimistic.”
Still, some believe those with a long-term investment horizon can make some promising moves in the Sunbelt.
“The long-term trends of migration to Sunbelt markets will continue to drive demand,” Hill adds. “Project sponsors will be responsive to individual markets that present the best opportunities.”