- Hotels are underwritten differently than all other CRE: lenders use RevPAR, occupancy, and ADR rather than traditional rent rolls.
- CMBS hotel loans require a minimum 12 months of branded operating history and a minimum 1.25x DSCR on underwritten NOI.
- SBA 7(a) and SBA 504 are the most accessible programs for hotel owners who cannot meet CMBS minimum loan sizes ($2M–$3M).
- Hotel cap rates in 2026 range from 7.5% (top markets) to 10%+ (secondary/tertiary markets), implying CMBS loan sizing tighter than multifamily.
- PIP reserves at closing are a standard feature of hotel CMBS loans — not an exception.
Hotel financing is the most complex commercial real estate lending discipline. Unlike an office building with a rent roll or an apartment complex with per-unit income, hotels generate revenue by the night — a single bad season, a new competitor, or a brand mandate for a $3M PIP can transform a performing loan into a special servicing situation. Understanding how lenders think about hotel credit, and which capital sources are available in 2026, is essential for any hotel owner approaching a refinance or acquisition.
How Hotel Underwriting Differs From Other CRE
Hotel underwriting starts with three metrics that don't exist in other asset classes: RevPAR (Revenue Per Available Room), ADR (Average Daily Rate), and Occupancy. RevPAR = ADR × Occupancy. A hotel with 78% occupancy and $115 ADR has RevPAR of $89.70. Lenders use STR (CoStar's hotel benchmarking service) to compare these metrics to the hotel's competitive set and to market trends.
The underwritten NOI for a hotel starts with RevPAR-driven revenue, then deducts: departmental expenses, undistributed expenses (admin, sales, maintenance), management fees (typically 3–4% of total revenue), franchise fees (4–6% of room revenue), FF&E reserves (3–5% of total revenue), and property taxes and insurance. The result — the underwritten NOI — is typically 30–40% of total revenue for a well-run limited-service hotel.
CMBS Hotel Loans: The Primary Large-Loan Option
CMBS is the dominant financing vehicle for hotel loans above $3M. Non-recourse structure, 10-year fixed rates, and the ability to fund a PIP reserve at closing make CMBS the preferred long-term capital source for stabilized, flagged hotels. CMBS hotel underwriting requirements: minimum 12 months of branded operating history (lenders won't underwrite a newly flagged hotel's "projected" performance), LTV up to 65–70%, DSCR minimum 1.25x on underwritten NOI, and a franchise agreement with at least 5 years remaining beyond the loan term.
Current CMBS hotel rates: 10-year Treasury + 195–245 bps, translating to all-in rates of approximately 6.2%–7.0% for well-positioned select-service hotels. Full-service and lifestyle hotels carry wider spreads (220–280 bps) due to higher operational complexity.
SBA Programs for Smaller Hotels
For hotels too small for CMBS ($1M–$5M loan range), SBA 7(a) and SBA 504 are the most competitive options. SBA 7(a) offers up to $5M at prime + 2.75% (fully amortizing over 25 years), with no minimum occupancy history required — a significant advantage for recently acquired or repositioned properties. SBA 504 pairs a 50% conventional first mortgage with a 40% SBA debenture (25-year fixed rate), requiring only 10% equity — ideal for owner-operators with limited liquidity but strong operating properties.
2026 Hotel Financing Rate Reference
| Program | Rate (2026) | Max LTV | Best For |
|---|---|---|---|
| CMBS Conduit | 6.2–7.0% fixed | 65–70% | Stabilized, flagged, $3M+ loan |
| SBA 7(a) | Prime + 2.75% (~10.5%) | 85–90% | Under $5M, owner-operated |
| SBA 504 | ~6.8% blended | 90% total | Owner-operated, long-term fixed |
| USDA B&I | Prime + 1–2.5% | 80% | Rural markets, $2M–$25M |
| Bridge (value-add) | SOFR + 350–500 bps | 70–75% LTC | Pre-PIP or lease-up hotels |
What is the minimum loan size for a CMBS hotel loan?
Most CMBS conduit lenders require a minimum loan of $2 million to $3 million for hotel properties. The economic floor is driven by origination costs and bond market execution — smaller loans don't generate enough profit to justify the securitization process. Hotel owners with loan needs below $3 million are typically better served by SBA 7(a), SBA 504, or USDA B&I programs, all of which have no minimum loan size and offer competitive long-term fixed rates.
Can a hotel CMBS loan fund a PIP renovation?
Yes. Funding a PIP renovation reserve at CMBS closing is standard practice for hotel loans. The reserve is sized based on the brand-issued PIP estimate (typically at 100–110% of the estimate to allow for scope changes), held by the servicer, and disbursed in draws as work is completed and inspected. The PIP reserve is factored into the loan sizing — a larger reserve means a slightly smaller cash-out amount at closing, but enables the renovation without disrupting operations or cash flow.
First Realty Capital specializes in hotel financing across Florida, Texas, Tennessee, Georgia, North Carolina, South Carolina, Mississippi, and Arkansas. Request a hotel financing term sheet — delivered in 5–7 business days.
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