Not every hotel facing pressure looks distressed.

Some are still making their debt-service payments. They are operating, generating revenue, and may appear stable on paper. But current performance does not necessarily mean a hotel is positioned to refinance, sell, or remain competitive when the loan comes due.

That distinction matters, particularly for older, large-format, full-service hotels.

Hotels represent 10% of outstanding U.S. commercial real estate distress, according to Berkadia’s Special Situations Market Report. That does not mean that every older full-service hotel is in trouble. Many remain successful because they are well-located, well- maintained, and aligned with durable demand. But a segment of the market is facing a more difficult reality: the property may still function as a hotel, while no longer functioning as a competitive hotel.

These are often the larger properties with hundreds of rooms, significant meeting space, restaurants, bars, ballrooms, and other amenities that once helped define their appeal. Today, those same amenities can also mean a more complex operating model, higher costs, and greater capital needs.

Meanwhile, newer limited-service hotels have continued to enter many markets. These properties typically have a simpler operating structure and fewer amenities to maintain. They may not have the meeting space or full-service offerings of other hotels, but they can still compete effectively for room nights, particularly when they are newer, better located, or priced competitively.

Over time, that competition can pull away occupancy, rate, and group business. At the same time, the older hotel may be facing a property improvement plan from its franchisor, deferred maintenance, aging systems, and the need to renovate guestrooms and public spaces. The question becomes whether the required investment will meaningfully restore competitiveness or simply delay a larger issue.

For lenders, servicers, owners, and investors, debt service coverage is only one part of the picture.

A hotel can be current on its loan while its underlying risk is increasing. Capital expenditures may be deferred. Cash flow may be supported by a strong market rather than a strong relative position. The asset may be losing ground to newer competitors. And when maturity arrives, the hotel’s value may not support the existing loan balance.

That is when a property that appeared stable can become much more challenging.

Location can make the problem even more pronounced. We see examples of older hotel towers that were built near what was once the center of business activity. Over time, that activity shifts. New restaurants, offices, residential development, entertainment venues, and newer hotels emerge in another part of the market. The older property may still be a functioning hotel, but it is no longer where guests want to stay.

That is not always a management issue. Sometimes, it is an asset-positioning issue.

The important step is to start planning before the loan maturity creates urgency. A thoughtful review should address a few key questions:

• How does the hotel compare with its current competitive set, including newer properties?
• What capital expenditures, renovation requirements, and deferred maintenance items are likely ahead?
• Would the asset’s value support a sale or refinancing at the current loan balance?
• Is there a viable path to repositioning, recapitalization, modification, or disposition?
• Where appropriate, could an alternative use such as multifamily, affordable or workforce housing, senior housing, or student housing create a better outcome?

Alternative use can be worth exploring, but it is not a simple solution. Building layout, zoning, municipal support, construction costs, and local demand all need to be evaluated. A hotel conversion may be feasible in one market and impractical in another.

The goal is not to assume every older full-service hotel is impaired. It is to identify potential pressure points early, while there is still time to preserve options.

The right strategy will depend on the individual asset, its market, its capital needs, and its ownership and debt structure. But the fundamental question is the same: Is the hotel truly durable, or is it simply current?

For guidance on evaluating hotel maturity risk, challenged assets, and potential resolution strategies, contact Berkadia’s Special Situations team.

– Kyle Stevenson, Senior Managing Director – Head of Special Situations

Source: Berkadia Special Situations Market Report, “Outstanding Distress,” page 1, citing MSCI Real Capital Analytics data as of September 2, 2026.