The Fold, by Ori

If you own or operate a hotel, you’ve probably felt the ground shift under your feet during the past 18 months. Transfers to special servicing are back at pandemic‑era highs, refinancing has become a gauntlet, and long‑trusted demand segments are wobbling. Below we unpack the nine forces accelerating hotel distress in 2025, followed by five must‑watch metrics for 2026.

9 Drivers of Rising Hotel Distress

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1. A $1.9 trillion “refinancing wall” meets the highest borrowing costs in two decades
S&P Global projects $946 billion of commercial-property debt maturing in 2024 and another $998 billion in 2025 — more than $1.9 trillion that must refinance at rates roughly double those available in 2021. Hotels are a small slice, but even the best performing assets are struggling to clear debt-services tests. (Source: Globest)

2. CMBS distress is surging
Trepp’s April 2025 reading shows special-servicing rates for lodging increased to 10.21%, the first double-digit reading since 2021 — an unmistakable sign that extensions are running out. (Source: Yield PRO)

3. Revenue momentum is stalling below 2019 benchmarks
AHLA/STR expect 2024 occupancy of 63.6 percent, still below 2019 performance , while PwC expects RevPAR growth at just 1.5 percent in 2025, barely keeping pace with inflation. That demand weakness is concentrated in lower-tier hotels: room demand is down 2.7 % in mid-scale and 3.9 % in economy segments. That revenue drag leaves little free cash for rising debt service. (Source: AHLA, PwC)

4. Labor remains scarce — and expensive
Despite 400k jobs added since 2020, 65% of hotels were still understaffed this past winter and the industry paid a record $123 billion in wages in 2024, up 20% from 2019. Housekeeping shortages (38% of all open positions) are forcing higher overtime and agency-labor spend, eroding gross operating profit margins. (Source: Hotel Dive)

5. Property-level cost inflation is outpacing ADR
CBRE finds insurance premiums up 17.4% in 2024 and now roughly 70% above pre-pandemic levels. Additionally, property taxes climbed another 4.3 % in 2024 as municipalities recapitalised post-COVID budgets. Together they wipe out much, if not all, of the modest ADR-driven revenue growth. (Source: CoStar, CBRE)

6. The deferred-capex bill has arrived—and it’s bigger than owners budgeted
Brands paused many Property Improvement Plans (PIPs) during 2020-21 due to the pain from the pandemic; those grace periods are now expiring. Industry executives report PIP costs running 30% higher than pre-COVID, or roughly $35-40k per key for a select-service hotel. The owners that cannot fund the work (for many reasons, but some mentioned above), risk de-flagging, which could result in a cash-flow collapse. (Source: CoStar)

7. Capital-markets liquidity has evaporated for all but trophy assets
Peachtree Group notes that traditional banks—which historically supplied 40% of hotel debt—remain on the sidelines, while the CMBS conduit market (25-30% of historical hotel lending) is “well under pressure.” Lenders that are active are demanding lower leverage, higher DSCR cushions, and sizable interest reserves, stranding many refinance candidates without options. (Source: Peachtree Group)

8. Alternative accommodations are capping pricing power
Short-term-rental demand grew 5.6 percent YoY in March, raising STRs to 13.4 percent of all U.S. lodging demand versus 12.1 percent in 2019. Airbnb alone reported 7.7 million active listings worldwide at 2023 year-end, up 18 percent year-over-year — giving leisure travellers abundant non-hotel options and limiting hoteliers’ ability to push rate. (Source: Airbnb Newsroom)

9. Remote and hybrid work have structurally reshaped corporate demand
Corporate-transient room nights—historically the most stable cash-flow component—are still ~30 % below 2019, according to travel-management consultants, as companies replace many one-day trips with Teams or Zoom and concentrate meetings into fewer, longer off-sites. That demand gap is most painful for big-box urban and airport hotels that were built around weekday corporate volume.

5 Metrics to Watch Through 2026

1. Fed's Rate Trajectory
Now: 4.25–4.50%.
Signal: Each 0.25% cut trims ~30–40 basis points off of hotel loan coupons. If rates plateau above 4%, refinancing will remain dicey.

2. CMBS Lodging Special‑Servicing Rate
Now: 10.21%
Signal: Every extra 0.50% adds ~$700 million of hotel debt to the pipeline — fuel for discounted sales.

3. RevPAR growth vs CPI.
Now: forecasts indicate nominal RevPAR increases of +1.5 % for 2025.
Signal: Even mid‑single‑digit cost inflation from here can blow up the capital stack unless brands offer new grace periods.

4. PIP Cost Inflation & Brand Deadlines
Now: PIP quotes are 30 % higher than pre‑COVID — and most 5-year deferrals expire by 2026.
Signal: A negative spread to CPI means shrinking profit dollars and rising default risk.

5. Short‑Term‑Rental Share of Room Nights
Now: alternative STRs are capturing 13.4 % of total lodging demand (Mar 2025)
Signal: A move past 15 % nationally — or 20 % in key leisure markets — will cap hotels’ ability to raise occupancy and rates

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Key Takeaways for Owners

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• The current distress cycle is capital-markets led (expensive, scarce debt) but is magnified by all types of operating headwinds — PIPs, labor, insurance, and especially shifting demand mix.

• Whereas the “extend and pretend” strategy may have worked in the past, this cycle feels different, with no major macro indicators pointing to relief without major pivot.

• Adaptive reuse, extended‑stay repositioning, or multifamily conversion can unlock higher and better uses when traditional hotel economics no longer work.

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Curious to learn more about specific pivot strategies? Check out our deep dive on Unlocking Multifamily Value in Under‑Performing Hotels.