Hospitality & Hotel Project Financing in 2025: Why Underwriting Is Stricter, But Capital Is Flowing
- AI staff
- 13 minutes ago
- 7 min read
After several years of uneven recovery, the hospitality sector has entered 2025 with renewed strength. Global tourism has stabilized, group and leisure travel are healthier than anyone predicted in 2021, and corporate travel (once declared permanently impaired) is quietly regaining momentum. Capital has followed. Private credit funds, debt platforms, tourism-focused investors, sovereign vehicles and institutional groups are once again deploying into hotel projects across key markets.
Yet despite this resurgence, one trend stands out above the rest: capital is flowing, but underwriting is stricter than it has been in over a decade. Lenders and investors have not pulled back; they have simply raised their standards. They want quality sponsors, credible operating partners, realistic financial models and projects backed by real market evidence — not assumptions imported from earlier cycles.
This second installment of Amimar’s PF25 Series examines why hotel project financing has been both highly active and highly disciplined in 2025, and what this means for developers preparing new hospitality projects.
1. A Return of Capital — Without a Return to 2018 Underwriting
One of the biggest misconceptions in the market is that the availability of capital means underwriting has eased when, in fact, the opposite is true. Lenders remain enthusiastic about hospitality, but they have become far more selective. After several years of cost inflation, interest-rate volatility and operational variability, hotel financing has shifted toward a more cautious, data-driven approach.
In practice, this means lenders are no longer approving projects on the strength of a brand concept alone. They want to see evidence that the market can support the proposed ADR, that tourism demand is resilient rather than episodic, and that the operator has not only the right experience, but also a proven record of stabilizing assets in comparable environments. Senior lenders in particular are rewarding projects with clear feasibility work, realistic ramp-up assumptions and capital structures that reflect operational realities.
The appetite is there, but the threshold for quality is higher.
2. Market Positioning and Performance Metrics Now Shape the Entire Credit Narrative
For hospitality assets, performance begins and ends with demand. In 2025, lenders are examining ADR and RevPAR trends with far more granularity than in the previous cycle. They want to see how the market behaves across seasonality, whether pricing power is sustainable, and how diversified the demand base truly is. A market reliant on a single driver (a single employer, a single event season, or a single source country) is no longer considered resilient enough to support strong underwriting.
Franchise affiliation has emerged as a decisive underwriting factor; lenders now explicitly differentiate credit quality based on brand tier and flag strength, recognizing that branded properties demonstrate measurably superior RevPAR performance and occupancy resilience versus independents. Underwriters scrutinize brand agreements closely, evaluating franchise term length, property improvement plan obligations, and comfort letter provisions that protect lenders’ interests post-foreclosure. Properties with franchise agreements extending beyond loan maturity and strong brand positioning (RevPAR index ≥100%) command the most competitive terms.
Developers are also encountering deeper questioning on comp sets. Lenders want to understand not only whether the comps are appropriate, but whether the subject property can realistically outperform them. They are paying close attention to brand alignment, digital demand capture, distribution strategies and the operator’s revenue management capability. Hotels that can articulate their unique positioning (and back it with data) are earning significantly more traction with credit committees than those relying on general market optimism.
3. The Capital Stack Has Become a Reflection of Operational Discipline
The 2025 hospitality capital stack looks very different from the one seen in the mid-2010s. Senior lenders are still active, but they are insisting on leverage levels that allow projects to withstand cost escalation, slower ramp-up curves or temporary demand dips. Typical senior construction loans now fall in the 50–60% loan-to-cost range, with more variation depending on the stability of the market and the sponsor’s track record.
Mezzanine financing has re-emerged as a critical gap-filler as senior lenders maintain disciplined leverage caps. Once viewed as alternative capital, mezzanine debt, preferred equity, and structured mezz layers are now standard components of the hotel capital stack.
Private credit providers have stepped aggressively into this void, offering construction and bridge financing at SOFR + 500-800 basis points with leverage reaching 75-80% through stretch-senior or true mezz structures. These lenders pursue opportunities traditional banks avoid, providing bespoke structures for sponsors looking to refinance or reposition assets in the US$70-200 million range.
The return of mezzanine capital reflects both necessity and opportunity. With senior lenders capping proceeds at 60-65% LTV and equity requirements climbing, mezzanine fills the gap while allowing developers to preserve equity for multiple projects. For experienced sponsors with strong brands, mezzanine lenders provide the flexibility to achieve acceptable returns despite higher blended capital costs.
C-PACE financing has also evolved from niche retrofit tool to mainstream capital markets solution. C-PACE originations for hotels have grown substantially, with long-term, fixed-rate, non-recourse financing now available for both new construction and refinancing at rates well below mezzanine debt. Properties can access C-PACE for 30-35% of project costs, financing everything from HVAC systems and elevators to comprehensive energy efficiency upgrades—many of which hotels must complete anyway to meet code requirements.
4. Operators and Flags Carry More Weight Than at Any Point in the Past Decade
In 2025, lenders view the operator as one of the main forms of risk mitigation. A strong operator or brand no longer enhances the underwriting — it anchors it. Lenders want to see management teams that not only know the market but have delivered stabilized performance in similar environments.
Brand and flag selection is being evaluated through a much more analytical lens. Lenders are asking: Does the brand have pricing power in this market? Does it attract the right mix of leisure, group and corporate demand? Does the flag come with loyalty-program strength, distribution efficiency and operational consistency? Even lifestyle and boutique concepts — which remain highly attractive — must now demonstrate operational credibility, not just design appeal.
The operator relationship itself is under scrutiny. Lenders want to see fee structures that align incentives and support long-term performance, not overly complex agreements that over-distribute cash in the early years.
5. Construction Risk Is the Lender’s Primary Focus
Lenders’ construction risk appetite has contracted sharply, even as development lending resumes. Uncertainty doesn’t kill hotel construction deals, but unquantified uncertainty does. Lenders demand comprehensive risk mitigation frameworks before committing capital to ground-up projects or major renovations.
Cost overrun protection has become non-negotiable. Many lenders now add limited recourse tied to cost overruns or liquidity gaps—provisions that go beyond standard completion guarantees to keep developers financially engaged through the full construction cycle. Projects must demonstrate contingency reserves, typically 5-10% of hard costs, with clear protocols for addressing material price fluctuations, weather delays, and labor shortages.
Construction costs, which escalated 20-30% above pre-pandemic levels, have recently stabilized, providing some relief. However, lenders remain hyper-focused on execution risk. They scrutinize developer track records, general contractor selection, guaranteed maximum price contracts, and procurement strategies. Developers must show they can absorb cost creep and carry projects longer than expected without imperiling deal economics.
Hotel-specific construction complexities amplify lender caution. Pre-opening expenses, FF&E procurement, brand compliance requirements, and the operational ramp-up period create unique risks absent in multifamily or office development. Lenders evaluate whether property improvement plan costs are fully funded, whether brands have approved designs, and whether comfort letters protect the franchise relationship through construction completion.
The result is a heightened emphasis on sponsor quality over leverage. Credibility outweighs capital structure, and lenders back experienced developers who demonstrate clean budgets, verified bids, and clear delivery paths. The easiest way to lose a lender is to overpromise or under-document; sophisticated lenders will fund risk if they can quantify it, but they will walk away from uncertainty they cannot measure.
6. Feasibility Studies and Market Analysis Are Now the Litmus Test of Readiness
If there is one area where underwriting has changed most, it is documentation. Hospitality lenders are demanding market and feasibility studies that reflect today’s market dynamics — not pre-pandemic assumptions or outdated models. They want demand analyses that take into account shifts in traveler behaviour, distribution channels, digital booking patterns, and competitive supply additions.
A credible feasibility study now includes detailed ramp-up curves, realistic ADR trajectories, sensitivity testing under multiple scenarios and an honest appraisal of operational cost structures. Lenders are evaluating not only the outcomes but the methodology behind them, looking for rigour and market alignment.
Poor documentation, incomplete feasibility work or overly optimistic modelling is no longer seen as a sign of “early stage.” It is viewed as a red flag.
7. Stricter Underwriting Doesn’t Mean Less Capital — It Means Smarter Capital
The paradox of 2025 is that hotel financing is both more competitive and more available than in recent years. But this availability is conditional. Projects that demonstrate strong fundamentals, disciplined budgeting, thoughtful operator selection and comprehensive feasibility analysis are attracting more interest than ever.
Private credit funds, in particular, are leaning into hospitality because the asset class offers yield, operational flexibility and inflation alignment. Institutional investors continue to view hotels as a long-term play with substantial upside, especially in growing tourism markets and mixed-use compounds. Capital is not the issue in 2025 — alignment is.
8. What Successful Developers Are Doing Differently This Year
The most successful hotel sponsors in 2025 are those who embrace the new underwriting landscape rather than fight it. They are preparing lender-ready documentation long before entering the financing process. They are selecting operators based on measurable performance. They are structuring capital stacks that protect the asset, not stretch it. And crucially, they are grounding every assumption in data, from demand sources to RevPAR projections.
These sponsors understand that financing in 2025 rewards discipline, not speed. They recognize that lenders are not looking for risk to avoid; they are looking for risk that is acknowledged, quantified and mitigated.
The Projects That Win Are the Ones Prepared to Prove Themselves
Hotel financing in 2025 is a landscape defined by both opportunity and scrutiny. Developers who arrive with well-thought-out concepts, experienced partners, realistic budgets and robust documentation are finding capital to be plentiful. Those who arrive underprepared are quickly filtered out.
The hospitality sector’s resurgence is real; but only the projects that meet today’s elevated standards will capture the flow of capital.
Ready to position your project for financing success in 2026? Contact Amimar International to discuss how our specialized project finance consulting services can help you navigate today’s complex capital markets and optimize your development for financing.
**This analysis is based on comprehensive research of market data, banking reports, and regulatory publications current as of November 2025. Market conditions are subject to change.