SECTOR FOCUS — HOSPITALITY
Ground-up nearly stopped. The pipeline moved into what's already standing.
We track this market closely — new hotel construction has become genuinely hard to finance, and the industry has moved accordingly.
This page reflects general industry practice and BuildIQ Advisors' professional perspective as of publication. It is not tailored to any specific project, does not constitute engagement-specific advice, and does not create an advisory relationship. Verify current codes, standards, and site-specific conditions independently before acting.
CURRENT CHALLENGES
Ground-up development has nearly stopped.
Only 16 full-service hotels are currently under development nationally, reflecting how difficult it now is to underwrite new construction. Debt costs rose roughly 40% from 2020–2022 originations (3.0–4.5%) to 2025–2026 refinancings (6.25–7.0%-plus); conventional bank construction loans currently price at 6.25–7.25% all-in yield and require 25–35% equity, and lenders are underwriting conservatively, keeping otherwise-feasible projects sidelined. Construction cost per room in 2026 runs from $175,000 (midscale) to $550,000-plus (luxury), with labor costs continuing to climb even as broader inflation cools.[1][2]
WHAT SHOULD BE CONSIDERED TO OVERCOME THEM
HOW IT'S ACTUALLY GETTING BUILT
Adaptive reuse and conversion
Proven at real, growing volume — where the market has actually moved
Renovations and brand conversions reached a record 2,118 at the close of Q4 2025, extended-stay conversions show strong momentum below roughly $15 million per project, and adaptive reuse costs about 50% of new construction, delivering in 6–18 months versus 3–5 years for ground-up. The tradeoff: conversion inherits the donor building's structural grid, window pattern, and systems capacity — guest-room configuration, corridor width, and bathroom placement are constrained by what the building already is, not what would be ideal for a hotel, and the cost advantage that makes conversion attractive can mask a real design-compromise cost that only surfaces once construction starts.[3][4]
High-net-worth and all-cash capital
Real and observed, not proposed — but carries its own tradeoff
Filling the gap left by retreating institutional lending on the projects that are getting built. The tradeoff: capital filling the financing gap through high-net-worth or all-cash structures frequently comes without brand affiliation, meaning the owner takes on brand-standard and franchise-value risk that an institutionally financed, brand-affiliated project wouldn't carry. What's genuinely unsettled: whether independent, non-brand-affiliated hotels funded this way perform comparably to brand-affiliated properties over a full cycle — a live, unresolved debate in hospitality finance.
WHAT WE WOULD HELP THEM NAVIGATE
- Testing early whether a conversion or adaptive-reuse path pencils better than ground-up for this specific site, given how few ground-up full-service projects are actually financeable right now — before capital commits to the wrong strategy.
- Verifying the debt assumptions in the pro forma reflect current 6.25–7.25% financing costs and 25–35% equity requirements, not stale prior-cycle assumptions.
- If this is a conversion, flagging the donor building's specific structural and systems constraints (plumbing stacks, HVAC zoning, structural grid) against what a hotel guest-room layout actually requires — before those constraints are discovered mid-construction.
A 248-key, five-story, precast-concrete ground-up hotel is a real hotel-sector delivery — not the scale of a national chain's portfolio, but genuine experience in exactly this building type.
WEEK-ONE QUESTIONS
WEEK ONE — WHAT WE'D ASK ON A PROGRAM LIKE THIS
- 01
Has a real feasibility comparison been run between ground-up and conversion or adaptive reuse for this specific site, given how few ground-up full-service projects are financing right now?
- 02
What are the actual current debt terms this specific deal can obtain, versus what the original pro forma assumed?
- 03
If this is a conversion, what building-system constraints — plumbing, HVAC zoning, structural grid — are specific to converting this asset's original use into hotel guest rooms?
Professional Services Disclosure
BuildIQ Advisors provides construction advisory and consulting services under signed engagement agreements, performed to the standard of care customary for the industry. We are not a licensed architecture, engineering, accounting, or law firm — advice requiring those licenses should come from one. Engagement terms govern each project.