Rising CMBS Loan Maturities in Hospitality | Challenges and Solutions for 2025

In 2025, the hospitality sector finds itself at a crossroads. A significant wave of commercial mortgage-backed securities (CMBS) loans is set to mature, creating financial and operational challenges for hotel owners and operators. At the same time, shifting buyer sentiment and rising costs are forcing the industry to adapt to a new reality. This article explores the current landscape, highlights the key challenges, and provides actionable strategies to address them.

The 2025 CMBS Maturity Landscape

The maturity of approximately $5.8 billion in U.S. hotel single-asset securitized loans represents a pivotal moment for the hospitality industry. These loans include CMBS and CRE CLOs, both of which are integral to the financing of hotel properties. The question many owners face is how to navigate these maturities while maintaining operational and financial stability.

Comparing Sectors: Hospitality vs Other Asset Classes

While the delinquency rate for hotel CMBS loans reached 5.8% in the first nine months of 2024, other asset classes have fared differently:

• Office: A delinquency rate of 7.97% highlights ongoing struggles due to remote work and changing office space needs.
• Retail: Delinquencies rose to 6.21%, reflecting the continued shift toward e-commerce.
• Industrial: In stark contrast, the industrial sector remains strong with a 0% maturity distress rate, driven by robust demand from e-commerce and logistics industries.

Challenges Facing Borrowers in 2025

Borrowers in the hospitality industry face a unique set of challenges as they prepare for the wave of maturities:

Property Improvement Plans (PIPS)

Many hotel brands require Property Improvement Plans (PIPs) as a prerequisite for refinancing or ownership transfers. These upgrades, while essential for maintaining brand standards, come at a steep cost. Over the past five years, FF&E expenses have risen by 15–20%, and general contractor costs are up by 30–35%. For borrowers, this creates a significant financial burden, particularly in markets where cash flow is already constrained.

To meet these requirements, owners must carefully evaluate their financing options and ensure their properties are competitive in a post-renovation market.

High Borrowing Costs and Compressed Debt Yields

The persistent “higher-for-longer” interest rate environment means that commercial mortgage rates are between 7% and 8%. These elevated costs limit cash flow, compress debt yields, and reduce the feasibility of refinancing. Some owners have achieved debt yields as low as 11%, particularly when cash is reinvested in PIPs, but this remains a challenge for many.

Escalating Construction Costs

With labor shortages and material price hikes, construction costs have reached historic highs. These pressures directly impact renovation timelines and costs, making it difficult for owners to comply with PIPs or reposition their properties for sale or refinancing.

Borrowers need to plan carefully, balancing the cost of construction with the expected ROI from upgraded or repositioned assets.

Shifting Buyer Sentiment

The market is moving away from trophy assets toward value-add and distressed opportunities. For sellers, this means finding the right buyer requires a strategic approach. Owners of stabilized properties may struggle to secure premium pricing, particularly in secondary markets or less established brands.

Financing Opportunities for Hospitality Owners

Despite the hurdles, there are tailored financing solutions available that cater to the needs of the hospitality industry:

• Cash-Out Refinancing: Permanent debt options in the high 6% to low 7% range allow owners to reinvest directly into their properties, whether for renovations or PIP compliance. These loans can provide the liquidity needed to meet operational and financial goals.
• Bridge Financing: Short-term loans starting at 8% offer flexibility for renovations, conversions, or acquisitions. Loan-to-cost ratios can reach up to 80%, depending on market conditions and the borrower’s business plan.
• Construction Loans: With rates ranging from 7.75% to 12%, construction loans provide up to 75% of project costs. These loans are ideal for major renovations or ground-up development.
• Interest-Only Payment Structures: Full-term interest-only loans help preserve cash flow during transitional periods, offering a buffer for borrowers as they navigate renovations or repositioning.

Each financing option is designed to address specific borrower needs while aligning with broader market conditions.

Disposition Strategies in a Changing Market

For owners looking to sell, the evolving market offers opportunities to capitalize on strong demand in certain segments:

• 1031 Exchange Buyers: Matthews™ Real Estate’s network connects sellers with buyers seeking high-quality assets. These buyers are motivated by tight timelines and tax advantages, often resulting in competitive offers.
• First-Time Buyers: Investors diversifying portfolios from office or multifamily properties are increasingly drawn to hospitality, attracted by higher yields.
• Value-Add and Conversion Opportunities: Private equity groups and high-net-worth individuals are actively pursuing assets with repositioning potential, whether through renovations or brand conversions.
• REITs and Institutional Investors: Despite rising cap rates above 9%, well-located and branded properties continue to attract interest from institutional investors.

For sellers, understanding buyer motivations and tailoring marketing strategies to highlight property strengths is critical for achieving optimal results.