Hospitality Financing: What Brokers Need to Know in 2025

Hospitality properties offer some of the highest upside potential in commercial real estate — but also some of the greatest complexity. Unlike other asset classes, hospitality is deeply tied to operations. For brokers, that means understanding not just real estate fundamentals, but also how lenders evaluate risk, brand, and management performance.

This guide, part of our longer series on financing any type of commercial property, explores all aspects of financing hospitality real estate.

What Is Hospitality Real Estate?

Hospitality real estate includes properties used for short-term lodging and related services, ranging from high-end hotels to roadside motels to vacation rentals. What makes this asset class unique is that the income isn't lease-based — it's based on nightly occupancy, pricing power, and operational efficiency.

Key Terms in Hospitality Underwriting

Lenders typically evaluate hospitality deals using the following metrics:

• Occupancy Rate: The percentage of available rooms rented over a given period.
• Average Daily Rate (ADR): The average price paid per room per night.
• Revenue per Available Room (RevPAR): ADR multiplied by occupancy — a core performance metric used to assess property-level income.

Understanding these terms (and how they trend over time) is fundamental to positioning a financeable hospitality deal.

Hospitality Asset Subtypes

Hotel

Full-service or limited-service properties under a recognized brand (flagged) or independent ownership. May include amenities like restaurants, gyms, conference space, and room service.

Financing Note: Flagged hotels with experienced third-party operators tend to be the easiest to finance. CMBS and bank loans are common, though lenders require strong financials and stable RevPAR trends.

Motel

Typically smaller, lower-cost properties with exterior room access, often located near highways or in secondary markets.

Financing Note: Seen as higher risk due to lower barriers to entry and potential for operational or location-based issues. Financing is typically limited to regional banks or credit unions.

Short-Term Rental (STR)

Properties (or portfolios) that operate on platforms like Airbnb or Vrbo. These may be single-family homes, multifamily units, or boutique properties offering short-term stays.

Financing Note: Financing for STRs is evolving. Traditional lenders often require long-term rental income, but specialty lenders and debt funds are entering the space. Lenders will scrutinize location, occupancy history, and STR regulations.

Hospitality Land

Entitled or speculative land intended for hospitality development, including hotels, resorts, or STR communities.

Financing Note: Highly speculative and dependent on local demand drivers and development plans. Land lenders require strong sponsorship and may offer short-term, recourse loans only.

Where to Find Capital for Hospitality Deals

• Banks and Credit Unions: Active in financing stabilized hotels and motels with proven cash flow. May also provide construction loans for hospitality development.
• CMBS: Attractive for flagged, stabilized hotels with consistent performance and professional management.
• Debt Funds: Willing to finance value-add hotel plays, rebranding efforts, or short-term rental portfolios.
• SBA Loans: Particularly the SBA 504 program can be used to finance owner-operated hospitality assets.

What Lenders Are Watching

• Brand & Management: A recognized flag and experienced operator dramatically improve loan terms.
• PIPs (Property Improvement Plans): Brand-mandated renovations are a major cost center. Lenders want to see these budgeted and capitalized.
• Seasonality & Market Volatility: Lenders will review historical performance through economic cycles and seasonally adjusted cash flows.
• Zoning & Regulatory Risk (for STRs): Short-term rental laws vary widely. Some municipalities have outright bans.

Broker Tips: Structuring a Financeable Deal

• Highlight management experience and brand strength. These carry significant weight.
• Have a detailed renovation plan and budget if a PIP or reflagging is required.
• Emphasize market demand drivers: tourism, corporate travel, medical facilities, universities, etc.
• For STRs, provide historic booking data, ADR trends, and proof of compliance with local laws.

Final Thoughts

Financing hospitality real estate is about more than location and square footage — it's about people, performance, and brand. For brokers, understanding the operational and financial nuances is key to getting these deals closed.