Practical considerations for owners, operators, and opportunistic purchasers of distressed property
The U.S. hotel industry is accustomed to flexibility from lenders, extending maturities and waiving defaults to give owners and operators a chance to turn things around. The headwinds hotel owners and operators face are well understood – upside-down capital structures, higher-for-longer debt, rising operating costs, cap-ex heavy assets, and an uncertain economy impacting travel and the urban rebound. If recent chapter 11 filings, receiverships, foreclosures, and distressed sales[1] around the country are indicative of a trend; owners and operators expecting a smooth maturity extension or default waiver may be having more difficult conversations than expected with their lenders in the coming months.
With historically high numbers of loan maturities in 2025 and 2026, and as lenders appear increasingly ready to exercise remedies and take control of deteriorating situations, owners and operators must prepare for increasingly difficult conversations. Additionally, opportunistic buyers should be prepared to capitalize.
Hotel Owners
- What are your goals? Is continued ownership the primary goal, or is a negotiated resolution to avoid recourse obligations (or litigation) the favorable outcome? Knowing your goals before a difficult conversation will help you direct the outcome before it is too late.
- What are your rights under management and franchise agreements or loan documents? Do not assume you know your rights and obligations. The mere fact that something has happened in a certain way with another property (even another distressed property) in the past does not mean that it will happen with an increasingly aggressive lender. Franchise agreement change-of-control provisions and property improvement plans, among other terms, can significantly impact deal economics and structure. Chapter 11 may provide increased negotiating leverage.
- What is your strategy? Even if you are ready to walk away from a property, there may be strategies to control the sale process, mitigate existing guarantee claims, reduce carve-outs (e.g., surviving bad-boy guarantees, post-close indemnities), and maximize recoveries. Developing a strategic plan to cooperate with your lenders and partners can maximize value for all stakeholders.
- Know your options, as well as your lenders and partners’ options. Understanding the risks and benefits of Chapter 11, receiverships, foreclosures, and other transaction structures from all angles can help you shape the conversation and maintain as much control as is appropriate given your goals. If a partner owns an asset, it is also a critical time to refresh your memory on your partner’s options and potential resulting liabilities.
Hotel Operators
- What are your goals? Do you want to continue operating through distress or find ways to mitigate risk? Knowing your goals early will position you to influence outcomes earlier in the process.
- What are your rights under management agreements and subordination, non-disturbance, and attornment agreements (SNDAs)? Do not assume you know how the documents work, as they can change from property to property. Additionally, lender consent requirements may impact optionality.
- Who can you talk to and when? Understanding when you can speak with the owner, lender, and potential buyers (and pressing for early access) may be one way to influence outcomes in your favor. Do not miss an opportunity.
Opportunistic Buyers
- Be prepared to move fast. Some assets can indeed be trapped in a prolonged Chapter 11 case, receivership, or foreclosure process. But expedited deed-in-lieu transactions and/or non-judicial foreclosures, such as UCC sales of a mezzanine interest, have been on the rise. Having the ability to move fast may give you a leg up, including the right to break-up fees and payment of attorney fees if you lose at an auction. You can structure a transaction that gives you benefits and optionality. Vet opportunities with potential partners and take-out lenders early – leveraging existing relationships means speedy transactions and reduced legal spend.
- Understand everything. Business operations, title and survey diligence, transferability of management and franchise agreements, ground lease assignment issues, underwriting nuances, and the real estate taxing regime. For ongoing construction, pay even closer attention and detect issues early – outstanding code violations, hidden mechanics, and tax liens, as well as challenging contractor and architect disputes (including those related to consistently high construction costs and force majeure clauses) can turn a promising project into a lengthy nightmare. Make sure your team can provide a comprehensive analysis of the legal and practical aspects and can creatively structure the transaction to your advantage.
- Know what you are stepping into. This is not merely a business question; it is also a legal question. Make sure your legal team is fully equipped to advise you through the unique terms of hospitality contracts and complex real estate transactions, including the various transaction structures (including free and clear sales under section 363 of the bankruptcy code) available in distress situations.
- Understand the lender; engage with the lender. It is not all dollars and cents. Figuring out the right timing and leverage points you may have with the lender – and fostering a working relationship with the lender – may be the difference between a winning bid and a losing bid. Consider whether the existing lender is a viable capital provider for you, or whether acquisition financing with a bridge or take-out lender is needed.
- Make sure your strategy is broad and not penny-wise, pound-foolish. You may want to buy the assets out of distress, but is that always the best decision? Consider buying the debt, as this could put you in the driver’s seat to collect interest, exercise remedies, and own the property at a future date.
With lenders increasingly pursuing remedies rather than granting forbearance, hotel distress may feel overwhelming. With all uncertainty comes opportunity. Strategic buyers can position themselves for opportunistic investments. Strategic owners and operators can maximize their outcomes and even come out ahead. In all cases, capitalizing on distress requires a strategic plan based on a nuanced understanding of the legal rights and options of all stakeholders, a thoughtful balancing of practical considerations, and the guidance of an experienced team of advisors to help you accomplish your goals.
If you have questions or are considering making a move in the distressed space, please contact Josh Altman, Beth Radichel, or your Neal Gerber Eisenberg attorney.
[1] E.g., In re LuxUrban Hotels Inc., No. 25-12000 (Bankr. S.D.N.Y.); In re MOM CA Investco LLC, et al.,25-10321-BLS (Bankr. D. Del.); In re BY Hotel SPE-3 LLC, et al., No. 26-10324 (Bankr. D. Del.); In re Via Mizner Owner II, LLC, et al., No. 25-25197 (Bankr. S.D Fla.); In re Breakers Mezz I, LLC, No. 25-18796 (Bankr. C.D. Cal.); In re Sonder Holdings Inc., No 25-12040 (Bankr. D. Del); Lorraine Mirabella, “Renaissance Baltimore Hotel Sells for $30 Million to Lender at Auction,” The Baltimore Sun, March 11, 2026; Silas Valentino, “Buyer Nabs 2 Bay Area Hotels for $20 Million Less Than Previous Sale,” SFGate, March 11, 2026; Ecker, Danny, “River North hotel sells for $29M as downtown lodging values lag pre-pandemic era,” Crain’s Chicago Business, May 12, 2026.
