The idea that regional banks have pulled back entirely from commercial real estate lending oversimplifies the reality, according to Stephen Haase, Director of Capital Markets at Greysteel. While regional banks have not exited hotel lending altogether, they have become much more selective based on deal size. Haase says this shift is creating a clear split in the market, forcing sponsors of larger hotel projects to seek alternative sources of capital.
Haase says bank appetite begins to change as hotel transactions approach the $20 million mark. Deals in the $10 million to $20 million range can still draw interest from a wide pool of regional banks and credit unions, provided the property has in-place cash flow and the borrower is seeking no more than roughly 65% loan-to-cost financing. “There are still plenty of lenders willing to look at those deals,” Haase says. Above that level, lending conditions shift rapidly.
Why Bigger Deals Hit a Wall
As hotel transactions move above $20 million to $25 million, financing problems start to emerge even when the property itself is performing well. According to Haase, at that size regional banks typically limit loans to about 55 percent of the purchase price. For many hotel buyers, that lower loan amount creates a funding gap that makes the deal difficult to complete.
In practical terms, buyers are being asked to contribute far more cash than they would have in the past. While many hotel owners control valuable assets, they often do not have enough liquid capital on hand to cover the difference between a 55 percent bank loan and the roughly 65 percent financing levels that were once common. When that gap can’t be filled, buyers are forced to restructure the transaction or turn to alternative lenders.
Making Things Worse
The financing squeeze on larger hotel deals intensified in 2024 as many regional banks added another requirement on top of lower loan amounts. In addition to capping how much they would lend, banks often required buyers to place a portion of the purchase price on deposit with the bank as part of the deal. That extra cash commitment further reduced the amount of financing available to complete an acquisition.
Haase says those deposit requirements typically ranged from 5 percent to 10 percent of the deal value, effectively lowering the usable loan even further. “You add in a five to ten percent deposit requirement, and you’re really at about 50 percent financing,” he says, a level that made many hotel purchases unworkable even for experienced buyers.
Those deposit requirements have eased in 2025, according to Haase, reducing one of the major hurdles buyers faced last year. “That hasn’t been as much of an issue on recent deals,” he says. Even so, the combination of lower loan amounts and added cash requirements in 2024 pushed many hotel buyers to look beyond banks for financing, a shift that may persist even as deposit rules continue to loosen.
Debt Funds Step in
As regional banks pull back from larger hotel acquisitions, alternative lenders known as debt funds have become the primary source of financing for those deals. These lenders are willing to step into transactions that banks now avoid, particularly hotel purchases that involve modest renovations or repositioning plans.
Haase says debt funds are more willing to evaluate individual properties and local market conditions in detail, which allows them to finance deals that fall outside traditional bank limits. “They’re digging much deeper into the fundamentals,” he says, making debt funds an increasingly important source of capital over the past year as bank terms have tightened.
The shift toward debt funds also changes both the structure and cost of financing. Haase says loans packaged and sold to investors – which typically limit a lender’s claim to the hotel itself – are still available but remain expensive, with all-in costs around 7 percent to 7.5 percent. By contrast, loans from debt funds often require personal guarantees but can be priced about 100 basis points lower, giving buyers a more affordable option even if it comes with greater risk.
Market Implications
The trend Haase describes suggests that hotel capital markets are now segmented more by deal size than by asset quality or local market conditions. Smaller hotel transactions in the $10 million to $20 million range can still secure traditional bank financing on competitive terms. Larger hotel purchases, however, increasingly depend on alternative lenders that offer different loan structures and higher borrowing costs.
For hotel buyers, deal size has become a central factor in financing strategy. It influences how much cash buyers must contribute, which lenders are willing to participate, and what terms they can expect. The assumption that a well-performing hotel can easily secure bank financing no longer holds once transactions move beyond roughly $25 million.
Whether regional banks will return to more active lending on larger hotel deals remains uncertain. Regulatory pressures and concerns about deposit stability may continue to limit their appetite for risk. For now, buyers pursuing larger hotel acquisitions must plan for lower bank loan amounts and be prepared to work with debt funds or other alternative lenders to complete their financing.
