In Brief: Hotel developers are increasingly turning to alternative financing options such as EB-5 capital and CPACE loans as traditional lenders reduce their exposure to the hospitality sector, according to industry executives at the NYU International Hospitality Investment Forum.
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Alternative Financing Expands for Hotel Projects as Traditional Lending Tightens – Image Credit Unsplash
Alternative Financing Options Expand in Hotel Sector
Hotel owners and developers are finding that while capital remains available for new projects, the sources and structures of that funding are changing. Traditional lenders remain in the market, but many are limiting their hospitality portfolios or imposing stricter conditions. As a result, alternative financing methods are taking a larger share of funding for hotel projects.
At the NYU International Hospitality Investment Forum, industry leaders discussed how programs like the EB-5 Immigrant Investor Program and Commercial Property Assessed Clean Energy (CPACE) loans are being used to fill funding gaps and enable deals that might not otherwise move forward.
EB-5 Capital: Foreign Investment Drives Hotel Projects
The EB-5 Immigrant Investor Program allows foreign investors to contribute capital to U.S. development projects that create at least ten jobs. In exchange, investors may qualify for lawful permanent residency. This program has become a significant funding source for hotel projects, especially in rural areas where investment requirements are lower.
Jared Schlosser of Peachtree Group explained that his firm uses EB-5 capital to offer borrowers more competitive loan rates, particularly for rural projects. For example, while a standard construction loan might carry a higher interest rate, the EB-5 structure can lower borrowing costs by several hundred basis points.
Ryan Bosch of Arriba Capital noted a surge in EB-5 capital targeting rural “targeted employment areas” (TEAs), as investors seek to qualify under current program requirements before expected changes in 2027. The current rules are set to expire in September 2027, with likely higher investment thresholds after that date. As a result, there is a rush among investors to deploy capital before September 2026.
Rachael Sery of George Smith Partners observed that EB-5 capital, previously used mainly for mezzanine debt or preferred equity, is now being used in senior lending due to changes in capital costs. Working directly with EB-5 regional centers can provide significant savings, but the opportunity is narrowing as the grandfathering period for current rules nears its end. Sery noted that many rural regional centers are no longer seeking new projects due to the limited time remaining to complete them under current guidelines.
CPACE Loans: Flexible Funding for Energy and Resilience Projects
CPACE loans provide upfront capital for projects that improve energy efficiency, water usage, resilience, or public benefit. These loans are repaid through a voluntary property tax assessment. Peachtree Group has expanded its CPACE lending, especially for complex deals where traditional lenders may not provide full funding.
Schlosser described scenarios in which CPACE loans are used to supplement senior mortgages or to fill funding gaps when banks have lending limits. For example, if a bank can provide only $20 million for a project requiring $50 million, a CPACE loan can cover the difference.
Sery added that CPACE is now better understood in the market and is being used effectively on complicated projects. While it may not always increase the loan-to-value ratio, it can reduce the overall cost of capital when paired with other debt products. She also highlighted CPACE’s “retroactive” capabilities, which can be useful for non-traditional real estate projects.
Despite some resistance from senior lenders—especially in distressed situations—Sery believes CPACE offers valuable options for developers. The flexibility of CPACE is also beneficial for mixed-use projects, where different components can each benefit from the program.
Case Studies and Market Outlook
Peachtree Group recently combined USDA loans with CPACE debt to finance two adjacent branded hotels on separate tax parcels. This approach allowed the company to maximize available funding for each property.
Overall, the shift toward alternative financing reflects broader changes in the lending environment for hotels. As traditional banks become more cautious, developers are increasingly relying on programs like EB-5 and CPACE to move projects forward. Industry executives expect these trends to continue, especially as regulatory deadlines and market conditions evolve.
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