In Brief: Access Point Financial’s report says high borrowing costs, construction inflation and tighter lending standards are limiting hotel development, while renovations, extended-stay projects and selective luxury construction remain active.
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Hotel Construction Faces Higher Costs as Developers Shift to Renovations – Image Credit HNR News
Report examines hotel construction lending
Access Point Financial has released a report examining conditions in the U.S. hotel construction lending market. The five-page document reviews the history of hotel construction loans since the early 2000s, assesses current financing conditions and outlines factors that could shape future development.
The report, titled “I Will Gladly Pay You Tuesday for a Hamburger Today: The State of Hotel Construction Loans,” focuses on the impact of rising construction costs, higher interest rates, limited lender appetite and operating-margin pressure on hotel owners and developers.
According to the report, hotel development remains slow nationally. However, it identifies activity in certain hotel categories and locations, including extended-stay properties and luxury projects in markets with limited existing supply.
Dana Tsakanikas, chief investment officer at Access Point Financial, said the company prepared the report to help owners and developers plan future projects amid changing market conditions.
Renovations replace some ground-up development
The report says many developers are prioritizing renovations, property improvement plans and brand conversions over new hotel construction. These projects let owners update properties and reposition them for new guests without taking on the costs of building a hotel from the ground up.
Construction expenses have increased in recent years. The Turner Building Cost Index, which measures U.S. nonresidential construction costs, rose 8 percent in 2022 and 6 percent in 2023, according to the report. The index reached 1,552 in the second quarter of 2026, up 5.15 percent from a year earlier.
The report states that construction-material costs are only one part of the challenge. Developers also face higher capital costs, more selective lenders and operating margins that have not recovered at the same pace as hotel revenue.
While average daily rates and revenue per available room may appear healthy at some hotels, gross operating profit per room remains near 90 percent of 2019 levels, the report said. This leaves owners with less capacity to absorb additional costs from financing or construction.
Extended-stay and luxury projects show activity
Extended-stay hotels remain an exception to the broader slowdown in new construction, the report said. Owners are drawn to the segment’s lower operating overhead and demand characteristics, which can make projects more feasible than traditional full-service developments.
The report also points to early-stage pipeline activity in luxury hotels. Developers are responding to limited supply in that segment, with 59 luxury hotels under construction at the end of the first quarter of 2026.
Overall U.S. hotel supply growth has slowed. The report said annual supply growth fell from a pre-pandemic average of 1.3 percent to 0.5 percent in early 2025. Hotel rooms under construction also remained below pre-pandemic levels.
This disparity between building new hotels and purchasing existing assets has supported merger, acquisition and partnership activity among hotel companies, the report said. Still, transactions can be difficult to complete because sellers and buyers often have different expectations about property values.
Hotel debt remains more expensive than other property loans
Hotel-specific debt remains more expensive than financing for several other commercial real estate sectors, according to the report. As of July 2026, 10-year fixed commercial mortgage-backed securities rates for hotels ranged from 5.85 percent to 6.85 percent. Comparable rates for multifamily and industrial properties ranged from 5.50 percent to 6.30 percent.
Hotel construction and bridge financing carried higher rates, generally ranging from about 8 percent to more than 10 percent depending on leverage and loan structure, the report said.
The market also faces a significant volume of maturing debt. About $48 billion in CMBS-era hotel loans are scheduled to mature during 2025 and 2026, according to the report. Refinancing these loans may raise debt service costs by about 40 percent over those on the original loans.
The report said this refinancing pressure could redirect lender and sponsor capital to support existing properties rather than finance new construction.
Hotel loan volume increases despite constraints
Despite the financing challenges, the report cited growth in hotel lending volume during the first half of the year. Hotel loan dollar volume rose 85 percent year over year in the first quarter and another 19 percent year over year in the second quarter.
Access Point Financial said areas with aging hotel inventory and limited new supply may create opportunities for developers who can secure financing and complete projects. The report concludes that development decisions will continue to depend on local supply conditions, project type, operating economics and access to capital.