Purchasing a distressed hotel presents a unique investment opportunity, but it requires careful evaluation of operating costs, market conditions, and financial risks. A distressed hotel is typically a well-located, structurally sound property that struggles with financial obligations due to over-leverage, declining revenue, or market shifts.

While the expected wave of distressed hotel assets may not fully materialize, an increasing number of high-leverage CMBS loans are reaching maturity, prompting lenders to take a more aggressive stance on foreclosures. As a result, more distressed hotel assets will become available, often at prices well below replacement costs and with higher cap rates.

The key to a successful distressed hotel acquisition is identifying properties with the greatest potential for turnaround and long-term profitability. Investors should focus on:

• Assessing financial feasibility, including outstanding debt, operating expenses, and required capital expenditures
• Evaluating the property’s market position and demand drivers
• Identifying value-add opportunities, such as rebranding, repositioning, or operational improvements
• Analyzing competitive dynamics and benchmarking performance against similar assets
• Structuring financing options that align with investment goals and risk tolerance

With strategic planning and due diligence, acquiring a distressed hotel can yield significant returns while capitalizing on market inefficiencies.