Economic distress in the hospitality sector by no means always begins with empty rooms or collapsing revenues. Hotels often record stable guest numbers and generate sound operating income, yet find themselves on the brink of insolvency because their original financing structure is no longer sustainable. According to the Mortgage Bankers Association, around 30 percent of outstanding hotel loans were due to mature within 60 days last winter. For owners who had counted on rising valuations and favourable refinancing, the changed interest rate environment and deferred renovation costs are proving to be serious obstacles.
The phase of so-called 'extend and pretend', in which maturities were simply pushed back, is drawing to a close. When refinancing stalls, the dispute rarely remains a mere disagreement over monetary claims. Instead, the focus shifts to contractual powers, operational obligations and the strategic leverage of the parties involved.
Insolvency proceedings and foreclosure in Texas
How differently such disputes can unfold is demonstrated by two recent cases in the US state of Texas. On 4 October, American Hospitality Properties REIT and affiliated companies filed for Chapter 11 bankruptcy protection in Dallas. Just nine days later, the bankruptcy court issued interim orders authorising the use of cash collateral, the payment of wages, and the coverage of insurance premiums and essential operating costs. A hotel business cannot simply be brought to a halt in the event of insolvency. Salaries must be paid on time and ongoing operations maintained while creditor claims are being negotiated simultaneously.
The situation surrounding the Thompson San Antonio took an entirely different course. After lenders took over the hotel via foreclosure in March 2026, they sold the property in October for $41 million to the Loren Group. Notably, the lenders provided $32 million in financing to the buyer. They thus retained substantial financial exposure to an asset they had only just foreclosed on, while concurrently pursuing claims under the former sponsor's guarantee.
Lessons for lenders and owners
These two situations represent opposite ends of the operational spectrum. In Dallas, the Chapter 11 process provides judicial oversight that stabilises operations and limits creditors to formal legal objections. In San Antonio, foreclosure granted the lenders ownership, but abruptly turned them into operators with commitments to brands and staff. The transfer of ownership did not extinguish the risk; it merely restructured it.
- —Cash collateral arrangements should be defined precisely in advance
- —Liability claims and sponsor guarantees require robust contractual provisions
- —Franchise agreements and change-of-control clauses must be tailored to crisis scenarios
Restructuring expert William A. Brewer III of law firm Brewer, Attorneys & Counselors stresses that the fate of distressed hotels ultimately hinges on contractual agreements. Clarifying ownership alone is rarely sufficient to resolve operational and legal risks entirely.
