Transaction volume in Hawaii hotels is thin. Lender interest is not, and the divergence between the two is the more useful signal for anyone financing an acquisition or a maturity this year.
By one count discussed at a New York hotel conference in June, more than fifteen hundred lenders are currently active in hotel debt. The composition has shifted as much as the number. Family offices seeking diversification, newly raised funds, and distressed-focused capital have all entered a space that a decade ago was dominated by a much shorter list of banks and CMBS conduits.
What Competition Does to Pricing
Hotel lenders compete primarily on spread. The base is typically SOFR or a comparable published rate, plus a spread, and the negotiation runs on what gets added on top, anywhere from 75 basis points up to 350, wherever the appetite for a particular asset happens to sit.
That last qualifier is where the competition actually shows up. Appetite is not a fixed institutional position. It moves with a lender’s current allocation, its recent losses, and how badly it wants a deal in a given month.
“They’ll change their position day to day, month to month,” says Mark D. Bratton, CCIM, of The Bratton Team at Colliers International Hawaii. A lender that passed in the spring may price aggressively in the autumn, on the same asset, for reasons that have nothing to do with the asset.
The practical implication is that a single-source quote may not reflect the full range of what is available. Borrowers who take one bank’s terms as the market price are accepting a number that reflects that institution’s position at that moment rather than the market’s.
A Recent Test of the Spread
The financing on PACIFIC 19 Kona in Kailua-Kona offers a reasonably clean read on how wide that gap can be.
Nine Brains, a Santa Monica-based hospitality investment firm, had held the property under a leasehold position, investing substantially in repositioning and rebranding the former Kona Seaside Hotel before exercising its right to acquire the fee simple interest. That created a defined financing requirement on a repositioned 150-room asset with an operating record attached, the kind of profile a banker would ordinarily quote in isolation.
Rather than run it locally, the debt was taken to a broader market through Colliers’ New York capital markets practice, which the firm built out roughly three years ago and which is led by Mark Owens and Estelle Wang, who grew up in Hawaii.
What the process changed was the structure of the negotiation. Running the debt through a national platform turns a bilateral discussion with one institution into a competitive process across many. The closing itself is a matter of record. How the financing behind it was arranged is the part of the transaction that rarely gets described.
Loan Structure as a Risk Variable
The other lesson of the current market has less to do with pricing than with what happens when a loan comes under stress, and that depends heavily on which type of lender wrote it.
CMBS loans are bond-backed and typically carry no personal guarantee. The borrower’s downside is capped at their equity. That protection has a cost on the other side. These loans are inflexible by design, and there is limited scope to negotiate when performance deteriorates. A local bank lends less cheaply, in many cases, but it will pick up the phone and work with a borrower.
Three Hawaii properties illustrate the range of outcomes. The Grand Naniloa Hotel Hilo, a DoubleTree by Hilton, struggled through the pandemic recovery carrying meaningful debt and spent years in a protracted dispute with its lender over that loan. The Hyatt Regency Waikiki Beach Resort & Spa carries a large loan maturing this autumn, into a market that has moved since the loan was written.
The Hilton Hawaiian Village Waikiki Beach Resort also carries a substantial maturity this year. Its owner, Park Hotels & Resorts, holds modest leverage on the asset and has publicly signaled a defined repayment path, which makes it a timing question rather than a solvency one.
The variable separating those three is not asset quality. It is the combination of leverage level and lender flexibility at the moment the maturity arrives.
Underwriting Income That Hasn’t Normalized
The harder financing problem in the current market is the asset whose income has not stabilized. Underwriting to a trailing twelve months understates it. Underwriting to a projection requires the lender to accept a forecast.
The item that carries the most weight in resolving that is the sponsor. What has this operator repositioned before, and what happened? Trinity Investments, a Honolulu-based firm operating globally, is the reference case Bratton points to. The Westin Maui Resort & Spa, Kāʻānapali is the local illustration. A joint venture including Trinity acquired the resort in 2017, then took it through a multi-year renovation and repositioning that ran directly across the pandemic.
Ownership refinanced the hotel in July 2023 with a new $515 million mortgage, retiring a $360 million loan. Executed enough times, that record means lenders and equity partners are underwriting the sponsor rather than the pro forma.
Two further questions follow. Branding is one, meaning whether the asset takes a major flag or whether an independent identity serves it better, as with PACIFIC 19 Kona. The other is the nature of the capital plan, whether the investment is transformational or cosmetic, and whether the projected income assumes the former while the budget funds the latter.
Distinguishing Temporary From Permanent
Depressed net income is a buying opportunity or a value trap depending on a judgment that lenders and sponsors have to make in parallel.
Currency-driven demand shortfalls sit in the temporary column, even where the horizon is six or seven years rather than one or two. Reputational damage to a destination with intact physical assets similarly tends to resolve. Operator failure is the most reversible category of all. An owner with fifty hotels and one small property in Waikiki is dependent on a single manager, and managers get sick, get distracted, or stop trying. That is a fixable problem with a new operator.
What sits in the permanent column is a structural change in why demand existed at all. The distinction matters because it determines whether a lender is being asked to underwrite patience or to underwrite hope.
The Other Side of the Discipline
Not every loan works out. Some borrowers are over-leveraged, and after years of fighting to reposition or renegotiate, they tire and will eventually succumb to the lender. Many owners of hotels in Hawaii are not highly leveraged and have options for the future.
About the Expert: Mark D. Bratton (R), CCIM, leads The Bratton Team at Colliers International Hawaii in Honolulu, specializing in hotel, resort, and commercial investment sales, including debt and equity placement.
The Bratton Team is a Hawaii commercial real estate and investment sales group, exclusively contracted to Colliers International HI, LLC. Led by Mark D. Bratton (R) CCIM and Mike Perkins (S), the team has advised buyers and sellers across all Hawaii asset classes for 40 years.
Disclaimer: This article is intended for general informational and editorial purposes only. It does not provide financial, legal, tax, real estate, lending, investment, underwriting, or professional advice, and it should not be relied upon as a substitute for guidance from qualified professionals. Hotel financing terms, loan pricing, SOFR spreads, CMBS structures, refinancing options, maturity risk, leverage levels, lender flexibility, asset valuation, transaction outcomes, and investment performance can vary based on market conditions, property performance, borrower profile, sponsor experience, lender requirements, jurisdiction, and applicable law. Borrowers, investors, and property owners should consult licensed attorneys, tax advisors, commercial real estate professionals, lenders, financial advisors, and other qualified professionals before making financing, acquisition, refinancing, or investment decisions.
