Yes, the days of a wink, a smile and a little wishful thinking are gone. They’ve been replaced by a show-me-the-money mindset or, at minimum, a show-me-the-math one.
“The deals closing have capital stacks that work on Day One,” says Ryan Bosch, principal at Arriba Capital. “Lenders aren't taking flyers on projections anymore - you have to show them why you're the sponsor who can actually deliver that ramp. If you've done it three times in similar markets with similar assets, that's a conversation. If you're pitching a turnaround story with no receipts, that's a pass.”
Ronnie Givargis, senior vice president of Northmarq, notes that the deals getting done today all have one thing in common.
“Limited underwriting friction,” he says. “Lenders are backing transactions where the story is simple, defensible and rooted in current performance rather than aggressive forward assumptions.”
And why wouldn’t they? Hotel performance has been uneven enough that lenders have little incentive to underwrite on faith. CoStar’s final U.S. hotel forecast revision of 2025 projected U.S. RevPAR would dip 0.4 percent in 2025 before improving in 2026. Not exactly a backdrop that rewards loose assumptions.
Meanwhile, distress is still alive and well. Trepp notes that lodging CMBS delinquency hovered around 6 per cent in late 2025, emphasizing why lenders remain focused on downside protection and Day-One durability.
Anything outside of these guardrails is viewed as a gamble today, Bosch adds.
“What's non-negotiable is realistic underwriting – Day One,” he says. “If the deal only works with Year-Three assumptions, that's not a deal. That's a bet.”
When lenders lean in
These stricter standards may make it seem as though lenders either don’t have the capital to lend or are striving for something unrealistic. Neither is true.
“Debt isn't as scarce as people make it sound,” Bosch says. “It's available - for deals with the right basis. The issue isn't access to capital. The issue is a lot of deals don't pencil at the seller's price with today's underwriting standards.”
Givargis adds that many deals getting done today involve stabilized or near-stabilized assets with strong trailing cash flow and high-quality sponsorship with meaningful liquidity and operational depth. Capital continues to favor primary and top-tier secondary markets with diversified demand drivers, he notes, as well as select-service and limited-service hotels.
Still, even with all this in place, leverage remains conservative, often in the 50 to 60 percent LTV range or lower.
“And lenders are underwriting to in-place cash flow rather than projected upside,” Givargis says. “Deals tend to stall when they rely on future NOI growth, heavy renovation risk or optimistic exit assumptions that increase uncertainty for lenders.”
Thus, the market’s current “show me the math” baseline. A deal can be a great asset and still not be financeable at the seller’s number.
“What's actually dying are the deals where the math only works on optimism,” Bosch says. “Seller’s price requires 5 percent RevPAR growth for three years. Trailing doesn’t support the basis, but everyone’s banking ‘on the market coming back.’”
Creativity, compromise keep deals moving
Bosch notes buyers aren’t walking away because they don’t want an asset. Rather, they’re doing so because the capital stack can’t stretch far enough without adding risk they can’t justify.
“That's where we're watching buyers walk away from assets they genuinely want to own,” he says. “They need 75 to 80 percent leverage and senior is capping at 60 to 65 percent.”
That’s why he argues the bid-ask gap isn’t simply about pricing. It's about what the capital markets will actually finance at that price, and whether the borrower can credibly defend the execution plan to get there.
Tim Osborne, senior vice president of Hunter Advisors, thinks he knows how borrowers can achieve both.
“Serious buyers who are truly motivated to transact must complete their diligence upfront, including physical inspections, confirmation of franchise terms, and lender pre-approvals, as deal terms do not include contingencies for property condition, financing or franchise matters,” he says.
On the seller side, Osborne encourages his clients to provide updated third-party reports, including property condition reports, Phase I environmental reports, surveys and PIPs, during the marketing process to de-risk the transaction.
“This has become the standard for most successful transactions, and the best buyers understand and respect this approach,” he continues. “As I often tell buyers, the seller doesn’t want your deposit. They want to sell the hotel.”
There are many ways to bridge the gap between seller expectations and lender reality.
Givargis notes buyers are increasingly using preferred equity to replace the leverage senior lenders won’t provide. Seller financing and other forms of seller participation are also back in play, particularly when owners are motivated to preserve pricing rather than cut it outright. Assumable debt has also become a go-to move, especially when a legacy loan comes with a below-market rate that helps the deal pencil.
Investors are getting more creative with joint venture structures, adjusting control provisions, promote hurdles and cash flow splits to better align capital and execution risk.
Of course, there’s always the ability to compromise if a borrower really wants to get a deal done.
“There is growing acceptance of lower near-term returns in exchange for long-term asset quality and durability,” Givargis adds, noting he’s seeing larger equity checks to satisfy conservative lender requirements, longer hold periods and less emphasis on aggressive IRR targets. Investors are also more open to shared-control JVs or preferred equity partners, as well as delayed distributions in favor of balance-sheet resilience.
“The focus has shifted away from financial engineering and toward acquiring well-located, durable hotels at a defensible basis, even if Year-One cash flow is modest,” he continues.
Nevertheless, even the best strategies and stacks aren’t inherently risk-free. Givargis notes that equity stack fragility is a real thing, particularly with preferred equity that carries fixed returns, tight covenants or limited flexibility.
Bosch adds another red flag that puts lenders on high alert.
“Reverse engineering is where it gets dangerous,” he says. “Someone starts with a return target and works backward until the model gives them what they want. RevPAR growth that ignores where the market actually is. Exit caps assuming we're going back to 2019. Expense ratios that haven't caught up with where insurance and labor are trending. You can tell when someone started with the answer.”
You can also tell when someone’s serious about procuring financing, Osborne argues. It’s when they put their money where their mouth is.
“Traditionally, real estate transactions included a due diligence period with a refundable deposit, allowing buyers to walk away or renegotiate at no cost,” he explains. “Hunter has shifted away from that model, prioritizing offers from buyers who commit to a non-refundable deposit at the signing of the PSA – ‘hard money Day One.’”
For hotel investors who want to keep growing their position, the path forward is clear. Show your work, and put real skin in the game.
By Nellie Day
