There’s never a good time for a loan to come due. But for hotel owners with CMBS loans originated in the low-rate era, this maturity cycle is arriving at a particularly unforgiving moment.
Today, borrowers are trying to refinance in a market that has little resemblance - and even less sympathy - to the one that created them. Rates are higher, proceeds are lower and lenders are underwriting more conservatively.
This alone would make the math hard enough. But it gets worse.
“What makes the math harder is that lenders aren’t just sizing to the existing debt balance, they’re sizing to the all-in basis at refinance, which means the existing loan plus deferred capex plus any brand-mandated PIP inside the loan term,” says Ryan Bosch, principal at Arriba Capital. “A lot of these assets deferred capital through the pandemic and the rate volatility cycle, and the brands aren’t waiving standards anymore.”
Refi math that doesn't always work
For hotel owners, the refi environment is only part of the squeeze. Higher labor costs, insurance premiums and property taxes have already pressured NOI. Now, years of delayed capital spending are colliding with a brand environment that is less willing to bend.
The result isn’t pretty.
“It’s a capital structure problem dressed up as an operating one,” Bosch explains. “And the PIP overlay is what’s tipping borderline deals from refinanceable to reset.”
Hotels are notably carrying a larger near-term maturity burden than most other property types. The Mortgage Bankers Association reports that 30 percent of hotel/motel-backed loans are scheduled to mature this year, compared to industrial (23 percent), office (17 percent) and multifamily (13 percent) loans.
This includes $76.6 billion in CMBS hard maturities, 36 percent of which have debt yields at or below 8 percent, the segment Trepp identifies as most likely to face difficulty refinancing.
That strain is already showing up in the delinquency data. Trepp’s CMBS delinquency rate rose to 7.55 percent in March, while lodging posted the largest increase among major property types, jumping 137 basis points to 7.31 percent. Roughly 40 percent of newly delinquent loans that month had been classified as performing matured balloons just one month earlier.
The problem is these aren’t necessarily broken assets. Many are simply loans that are reaching maturity before the borrower can find a workable refinancing solution.
“The biggest performance-vs-viability disconnect isn’t a demand problem,” Bosch adds. “We’re seeing full-service hotels where occupancy is up, RevPAR has recovered, and trailing NOI is still flat because labor, insurance and property tax growth has outrun the revenue gains.”
This is changing how lenders look at deals. For starters, leverage is no longer the main conversation topic, Bosch notes. Not when debt yield is increasingly influencing the outcome.
“Eighteen months ago, the question was how high could you size the loan,” Bosch continues. “Today the binding constraint is debt yield, not LTV, and that’s a structural change that isn’t reversing.”
Suraj Bhakta, CEO of NewGen Advisory, sees a similar reset in today’s transaction market.
“The 80/20s are gone,” he says. “Even 75/25 is hard to come by. Most deals are being structured around 60/40, with some lenders pushing toward 50 to 55 percent LTV.”
The end result? Owners often need more equity…at the exact time that their assets require more capital.
Extension is only the start
Naturally, the best way forward when a loan matures is usually an extension. If you can get one.
“The cleanest path when it’s available is still an extension with the existing lender, but lenders are conditioning extensions on something the borrower brings to the table: a pay-down, a funded reserve account, additional recourse or a credible exit timeline,” Bosch says. “The days of a friendly six-month extension with no strings are over.”
Bhakta agrees six- to 24-month extensions are often the most realistic first step, but he cautions they are not a cure, especially with the added strings that now come with securing more time.
Still, that time can be valuable for some owners. It can allow them to complete a PIP, rebuild NOI, bring in an equity partner or prepare the asset for sale.
Owners should also use that time, Bhakta argues, to reconsider the question in front of them. What starts as a loan problem can quickly become a capital structure problem, forcing owners to weigh whether an extension, new equity partner, different financing structure or exit is the only realistic path through the next phase.
“Keep an open mind about equity partners,” Bhakta says. “The instinct to protect control is understandable, but if you’re not willing to explore what you’d give up to bring in a capital partner, you may not survive long enough to realize the upside you’re protecting.”
That mindset can come into play as today’s capital seems to flock to the deals giving lenders and investors a clear reason to move forward. This includes the $600 million in financing that was arranged for the Diplomat Beach Resort, a 1,000-room beachfront resort in Hollywood, Fla., this May. The floating-rate, interest-only loan was structured as a single-asset, single-borrower CMBS transaction through JP Morgan Chase and Citi. The refinancing followed an $80 million renovation tied to the property’s conversion to the Signia by Hilton brand.
The reasons why this refi worked were apparent: institutional sponsorship, substantial beachfront resort collateral, meaningful reinvestment and a repositioning story that had already moved beyond the planning stage.
The harder path belongs to smaller borrowers with maturing conduit loans, thinner reserves, deferred capex and PIPs still ahead. For those owners, the answer may be a recapitalization, joint venture, preferred equity investment, note sale or asset sale.
Bosch says opportunity is already forming around that gap. Family offices, high-net-worth operators and private credit shops with hotel expertise are sourcing deals from special servicers, lender-directed sales and note transactions at a basis 25 percent to 40 percent below replacement cost.
For owners, however, the best strategy – as always – is to strategize before the maturity date starts making decisions for them.
“The first warning sign is a trailing-12 debt yield under 9 percent with a maturity inside 18 months and no concrete plan beyond hoping rates cooperate,” Bosch says.
That may ultimately be what separates the borrowers who preserve options from those who run out of them.
“The borrowers who navigate this successfully are the ones who get ahead of it, know their numbers and stay flexible on structure,” Bhakta adds.