A hotel is not just a building: It’ s an operating business, a brand platform and a layered partnership among ownership, management, franchisors and capital providers. That complexity does not disappear when an owner evaluates financing. In many ways, that is where complexity begins. When owners shop for financing, the conversation tends to focus on proceeds, pricing and timing. Those terms matter, but they are not the whole story. For hotel owners, the more consequential questions are structural.

Hotels occupy an unusual position in the lending world. Most real estate assets are underwritten primarily against the property value, with the mortgage as the lender’ s core security. At the same time,

most operating businesses are underwritten against cash flows, contracts and enterprise value. The thing is: hotels are both. A lender financing a hotel may hold a recorded first-lien mortgage on the physical asset, but may also seek rights to revenue generated by daily operations. Understanding which of those two levers your lender can pull, and when, is the most important thing a hotel owner can know before signing a loan.

The mechanism that determines cash-flow control is the cash-management agreement. These agreements give the lender a security interest in the dollars the hotel produces, in addition to the real estate itself. In a hard, cash-management structure, revenues are swept into a lender-controlled account from day one. In a springing structure, the owner retains control until a trigger occurs, such as an event of default or

failure to meet a debt-servicecoverage threshold. The difference between those two structures is not legal fine print: It is the difference between an owner who controls the operating checkbook and one who does not.

ASK YOURSELF The core questions every owner should have answered before closing are: Who has first claim to cash flow? What happens if performance softens? Which expenses are paid before debt service reaches the lender? When can the lender redirect funds, and how quickly?

Brand-managed hotels add another layer. Major brands typically require management fees, incentive fees and operating expenses to be paid before funds are diverted to the lender, even in a default scenario. That can create direct tension between what the lender’ s documents require and what the management

agreement demands. If those two waterfalls are not reconciled at closing, they will be reconciled under pressure, which is a worse time to have the conversation.

Reserves for replacement deserve attention, too. Lenders frequently require cash to be set aside for capital expenditures, maintenance and furniture, fixtures and equipment replacement. Owners should compare those requirements against obligations under any brand or franchise agreement. When both the lender and the brand require reserves for overlapping purposes, the combined drag on distributable cash flow can be material.

Hotel owners should also underwrite their lender the same way their lender underwrites them. If the business plan hits turbulence, who will you be talking to? Will it be the same team that originated the loan, knows the market and understood

40 hotelsmag. com September 2026