Regional Banks Are Lending on Hotels Again: What Middle-Market Borrowers Need to Know

Why It Matters

The shift gives middle‑market hotel owners a lower‑cost, more flexible financing alternative, reshaping competitive dynamics in hospitality debt markets.

Key Takeaways

• Regional banks offer 6% mid‑term hotel loan rates
• LTVs up to 70% now available for middle‑market assets
• Recourse loans bring lower coupons and flexible covenants
• Deposits growth fuels banks' new lending capacity
• Pacific Northwest, Midwest, Sunbelt favored locations

Pulse Analysis

The resurgence of regional banks in hotel lending reflects a broader rebalancing of capital after the 2023 banking turbulence. With domestic deposits swelling by nearly $900 billion, community banks now possess the liquidity to underwrite commercial real‑estate loans that were once the domain of CMBS and private debt funds. Their renewed appetite is not indiscriminate; banks are targeting stabilized, cash‑flow‑visible properties and applying rigorous underwriting standards that still permit attractive loan‑to‑value ratios of 65‑70 percent. This liquidity shift is especially pronounced in the $20 million‑$50 million deal band, where competition remains limited but intensifying.

For borrowers, the most compelling advantage lies in the structural flexibility banks bring to the table. While CMBS loans often impose strict DSCR triggers and limited prepayment options, regional banks typically offer 25‑year amortization with seasonality‑aware covenants, lighter reserve requirements, and the ability to negotiate prepayment terms that align with a hotel's operating cycle. Recourse, a common requirement, is offset by lower coupons—mid‑6% versus 8‑9% for debt funds—and the possibility of leveraging deposit relationships to further improve pricing. This combination of cost efficiency and operational leeway can translate into significant cash‑flow benefits over a five‑to‑seven‑year hold period.

Geographically, banks are gravitating toward markets where they have strong branch footprints and data visibility, such as the Pacific Northwest, Midwest, and Sunbelt regions. Select‑service and extended‑stay properties, as well as well‑run full‑service hotels, are receiving particular attention. Savvy owners should audit their portfolios for assets that meet these criteria and initiate conversations with multiple regional institutions well ahead of any CMBS maturity. By doing so, they can lock in more favorable terms before the window narrows, positioning themselves ahead of peers still reliant on higher‑cost debt‑fund financing.