Above 5%: What the 10-Year Treasury Now Means for Your Hotel's Loan, Its Value and Your Exit

By Erik Ransdell and Mike Annunziata

Strands Realty Group

October 2026

In the composite we run below, a 150-key hotel that has made every payment on time comes up about $2.7 million short when its $20 million loan matures at an 8.5% rate, which sits in the lower half of today’s range. Nothing is wrong with the hotel. The test that sets the size of its loan changed this fall, and that is worth knowing before a lender tells you.

The 10-year Treasury is what moved. On September 30 it passed its 2007 peak, and a week later it traded above 5.35%, the highest level since 2002. On October 14 a hot inflation report pushed it back above 5.3% during the day, and by the next day’s close it was down to 5.10%, a drop of more than 20 basis points in about a day and a half. It still sits above 5%. At the end of May it was 4.45%.

Most hotel owners we talk to hear about rates through the Federal Reserve. The Fed raised its benchmark rate a quarter point on September 16, to a range of 3.75% to 4.00%, its first increase since 2023, and its next meeting is October 27 and 28. That is real news. But for a fixed-rate hotel loan, the Fed's rate is not the number that sets the price. The 10-year is.

That matters more for hotels than for almost any other property type. Hotel lenders size loans more conservatively, charge wider spreads and hold owners to tighter tests. A hotel's income resets every night, so a lender sees more risk in it than in an apartment building with a year of leases behind it. When the benchmark moves the better part of a point in a few months, hotel owners feel it first in the refinance and second in the value.

This issue explains how a hotel loan is actually priced, runs a refinance on a real-world composite hotel at today's rates, looks at what the move means for cap rates and values, and closes with what owners should be doing about it now. Each piece carries its own consequence, and together they describe the market owners will be selling and refinancing into for the next year.

The Rate That Prices Your Hotel Loan Is Not the One the Fed Sets

A Treasury is a loan to the federal government. Investors lend the government money for a fixed term, from a few weeks out to thirty years, and receive interest in return. The interest rate the market demands on that loan is the yield. Because the government is treated as the safest borrower there is, the yield on a Treasury is the baseline every other lender works from. No lender will tie up money in a hotel for ten years at the same return it can get from Washington for ten years.

So the lender starts with the Treasury that matches the term of the loan and adds a spread on top. The spread pays the lender for the risk of the property, the borrower, its own costs and its profit. Spreads are quoted in basis points, where 100 basis points is one percentage point. A ten-year fixed loan quoted at 350 over the 10-year, with the 10-year at 5.10%, carries a rate of 8.60%. A five-year fixed loan is priced off the five-year Treasury, which crossed 5% in September for the first time in nearly two decades and has since eased back to about 4.9%.

Hotels pay more spread than most property types. Bridge, a commercial lending marketplace, reported in August that all-in fixed rates on stabilized hotel loans ran 7.5% to 8.5% in its second-quarter report, based on its own term sheets. According to Treasury data, the 10-year spent most of that quarter between about 4.3% and 4.5%. That implies hotel spreads of roughly 300 to 420 basis points over the Treasury. Since then the 10-year has climbed roughly 60 to 80 basis points, even after the mid-October pullback. Unless lenders have narrowed their spreads by the same amount, the same loan priced the same way today lands at about 8.1% to 9.3%.

Not every hotel loan is fixed, and for hotels that distinction matters a great deal. Many hotel loans float. Bridge loans, debt fund loans, construction loans and much of the large single-asset hotel CMBS market are priced off SOFR, the Secured Overnight Financing Rate, which tracks the Fed's benchmark closely. According to Trepp, roughly 70% of the $18.7 billion in hotel CMBS loans maturing in 2026 carries a floating rate.

That creates two very different situations for hotel owners right now. SOFR was about 3.89% on October 15, according to New York Fed data, with a 30-day average of 3.87%. A year ago, before the Fed's cuts in late 2025, SOFR was running around 4.1% to 4.3%. A hotel owner on a floating-rate loan is actually paying a lower base rate than a year ago, even after September's increase. Bridge put debt fund hotel spreads at SOFR plus 350 to 500 basis points, which today comes to roughly 7.4% to 8.9%. Floating-rate lenders also typically require the borrower to buy an interest rate cap, which protects against SOFR rising above a set level, and the cost of that cap rises when markets expect more Fed increases.

A hotel owner looking to lock a fixed rate, on the other hand, is pricing off a benchmark that has moved 60 to 80 basis points against them since spring, and that dropped more than 20 basis points in about a day and a half in mid-October. The same hotel, on the same day, can face very different financing math depending on which side of that line its debt falls.

Why has the 10-year moved so much if the Fed has raised only once this year? Forbes, in its October 7 analysis, pointed to forces the Fed does not control: energy prices and inflation expectations tied to the conflict involving Iran, a projected $1.9 trillion federal deficit with net interest costs topping $1 trillion, an estimated $489 billion of AI-related corporate bonds competing for the same buyers, according to Goldman Sachs, and bond selloffs in Japan, Britain and France. Inflation is still running hot. The Bureau of Labor Statistics reported on October 14 that consumer prices rose 3.7% in the year through September, up from 3.4% in August. That is why a Fed pause would not necessarily bring the 10-year down. After that report, futures briefly priced about even odds of another Fed increase at the October meeting. By October 16 they had fallen to about 15%, and Goldman Sachs now expects a hold in October and one more increase in December.

Hotel Loans Are Sized on Three Tests, and This Fall the Binding One Flipped

The rate is only half of it. The rate also helps decide how much a lender will give you, and hotel lenders run three tests on every loan. The smallest answer wins.

The first is debt service coverage. The hotel's net operating income has to cover the annual mortgage payment, including principal, by a set margin. In our experience, hotel lenders commonly look for something between 1.35 and 1.50 times. Every time the rate goes up, the payment on a given loan goes up, so the loan has to shrink to keep the same coverage.

The second is debt yield, which is net operating income divided by the loan amount. It does not care what the interest rate is. It tells the lender how much income stands behind each dollar of debt, and it is the test hotel lenders lean on hardest. Bridge reported conduit lenders requiring debt yields of roughly 9% to 10% for limited-service hotels and 10% to 11% for full-service and resort hotels. Below about 10.5%, fewer lenders quote.

The third is loan to value. Hotel lenders keep leverage modest. Bridge expects most hotel loans to land between the high 50s and mid 60s, and CRED iQ data it cited showed large CMBS loans running 57.7% to 59.6% loan to value in recent deals. 60% to 65% is a fair working range for a stabilized hotel.

Here is how those tests play out on the same composite we used in our last issue. A 150-key branded select-service hotel producing about $2.35 million of net operating income, or $15,600 per key. At an 8.5% cap rate, close to the 8.4% average HVS recorded on hotel sales in the third quarter through mid-September, it is worth about $27.6 million, or $184,000 per key.

Start with coverage. We assume a 1.40 times requirement and a 25-year amortization. At a 6.5% rate, that hotel supports a loan of about $20.7 million. At 7.5%, about $18.9 million. At 8.5%, about $17.3 million. Each full point of rate cuts the loan the hotel can carry by roughly 8% to 9%.

Now debt yield. At a 10.5% requirement, the same hotel supports about $22.3 million, no matter what the rate is.

Now value. At 65% of $27.6 million, the loan tops out around $17.9 million. At 60%, about $16.6 million.

Which test binds depends on the rate, and that is the part most hotel owners miss. Assume the lender goes to 65% of value and the hotel is valued at the 8.5% cap rate. At 7.5% to 8.0%, the lower half of what lenders were quoting in the second quarter, value was the tighter limit on this hotel. Hotel lenders keep leverage low, so the cap rate, not the payment, set the loan. Above about 8.1%, coverage takes over. Today's range starts right at that line and runs to about 9.3%, so across nearly all of it, coverage is the binding test. That line moves with the cap rate. If the cap rate rises to 9.0%, value stays the tighter test up to about 8.8%. A lender holding to 60% would keep value as the tighter test up to about 9.1%, but at that leverage the loan is only about $16.6 million to begin with. This fall's move did not just make hotel debt more expensive. It changed which number decides the size of the loan, and it now hits owners directly through the payment. If cap rates keep rising, as HVS's third-quarter numbers suggest they are starting to, value tightens at the same time, and owners get squeezed from both sides.

Now put an existing loan on it. Suppose this hotel carries a $20 million interest-only loan at 4.75%, placed a few years ago when the hotel was valued higher. Today it is performing well. The annual payment is $950,000, coverage is about 2.5 times and the debt yield is 11.7%. By every measure the owner sees each month, the loan is fine.

At maturity, the owner needs a new loan of $20 million. At an 8.5% rate, in the lower half of today's range, coverage limits the new loan to about $17.3 million. The gap is about $2.7 million, or roughly $17,700 per key, and the owner has to bring it in cash, sell or negotiate. At 9.0%, the loan drops to about $16.6 million and the gap grows to about $3.4 million, or $22,400 per key. Even at 8.1%, the bottom of the range, where coverage and value give about the same answer, the gap is about $2.1 million. And when coverage sets the loan, the new annual payment is the full amount the hotel's income can carry at 1.40 times, about $1.68 million, roughly $726,000 more than the owner pays today. That comes straight out of cash flow after debt. If the cap rate also moves to 9.0%, 65% of the lower value is about $16.9 million. At an 8.5% rate, that becomes the limit, and the gap is about $3.1 million. Value and payment both work against the owner.

A loan that performs every month can still fail on the day it comes due. Current on payments and able to refinance are two different tests, and only the second one matters at maturity.

That is the situation across the hotel CMBS market. As of midyear, Trepp counted 596 hotel CMBS loans totaling $18.7 billion scheduled to mature in 2026. The law firm FBT Gibbons, which analyzed the Trepp data, noted that the group includes fixed-rate loans with coupons below 6% and no extension options, and that loans originated in 2016 or 2021 may carry rates of 4% to 6%. Trepp's lodging CMBS delinquency rate rose 34 basis points in September to 6.18%.

Many floating-rate hotel loans come with extension options, which buy time. But an extension often requires the borrower to buy a new rate cap and sometimes to pay the loan down, and time only helps if rates or income improve while the clock runs. With the 10-year above 5%, waiting for rates to fall is a harder bet than it was a year ago.

Hotel Cap Rates Have Started to Move, but Not as Far as the 10-Year

A cap rate is net operating income divided by price. It is the return a buyer earns on the hotel before any debt. A higher cap rate means a lower price.

Every buyer has an alternative. If the 10-year pays about 5.1% with no operating risk, a buyer needs meaningfully more than that from a hotel, which carries nightly rate risk, labor, franchise requirements and capital needs. The gap between a hotel's cap rate and the 10-year is that extra return.

Hotel cap rates have already started to rise. In its September 30 report, HVS said hotels sold in the first half of 2026 traded at an average 8.2% cap rate, and deals in the third quarter through mid-September averaged 8.4%. But the 10-year moved faster. At the end of June, with the 10-year at 4.44%, the 8.2% first-half average sat about 375 basis points above it. Against the 8.4% third-quarter average and a 10-year near 5.1% today, the cushion is about 330 basis points. Cap rates went up about 20 basis points. The cushion still shrank by about 45.

The more immediate problem is leverage. In January, Kevin Davis, who leads JLL's hotels group in the Americas, said the overall cost of debt had decreased by almost 300 basis points, which enabled hotel investors to get positive leverage when acquiring an asset. Positive leverage means the loan costs less than the hotel yields, so borrowing raises the buyer's return. JLL reported $24 billion of U.S. hotel transaction volume for 2025, up 17.5%, and credited strong private equity activity and improving debt markets.

Today a stabilized hotel trading at an 8.0% to 8.5% cap rate, financed with fixed-rate debt somewhere between the low 8s and the low 9s, has little or no positive leverage left even on an interest-only basis, and once amortization is counted, the leverage is negative. When the loan costs as much as the hotel earns, debt stops helping the buyer's return. Buyers respond in one of three ways. They pay less, they put in more equity and accept a lower return, or they wait.

Cap rates do not move in lockstep with Treasuries, and they move slowly. Sellers take time to accept a new number, appraisals trail the market, and income growth can offset part of a rate increase. That last point matters for hotels in particular. CoStar and Tourism Economics raised their national forecast in August, projecting RevPAR growth of 4.4% for 2026 and 2.1% for 2027, while warning that expenses are rising faster than inflation. Demand is still holding up. CoStar's latest weekly data showed U.S. RevPAR up 6.5% for the week ending October 10. A hotel growing its net operating income can hold its value through a rate increase. A hotel with flat income cannot.

HVS said in August that it expected cap rates to move modestly higher in the second half of 2026, and its September numbers show that starting, before most of the September rate move could reach closed deals. Our read is that the direction is not in question for most select-service and older full-service hotels. The question is how far and how fast, and that depends on whether the 10-year settles or keeps moving.

Deals Stop When Rates Move Fast, Not When Rates Are High

The clearest effect of a rate move on the hotel market shows up in volume before it shows up in price.

When rates jump quickly, the buyer's math changes the same week. Their loan costs more and sizes smaller, so they can pay less. The seller's sense of value does not change the same week. It is anchored to the last appraisal, the last broker opinion or the last offer they turned down. The gap between those two numbers is where deals stall.

Coming into September, the hotel market was moving the right way. HVS reported that almost 1,000 hotels sold in the first half of 2026, up nearly 14% from the first half of 2025, at an average of $137,000 per key, and said the gap between buyer and seller expectations was narrowing. That progress was built on a 10-year that spent the first half of the year between about 4.0% and 4.7%. The test now is whether it holds with the 10-year above 5% and moving more than 20 basis points in a day and a half.

Stability, not low rates, is what brings volume back. Hotel buyers can underwrite a 7.5% or 8% loan. Hotel investment recovered in 2025 on debt that still cost far more than it did in 2021. What buyers cannot do is commit to a price when their financing cost can move 20 basis points in a day and a half.

One caution for anyone reading the next round of sales data. In our experience, most hotels closing in October and November went under contract, and in many cases locked their financing, before the September run-up. The trades that reflect today's rates will mostly close in the first quarter of 2027. Comparable sales from this fall will look better than the market they are closing into.

Where We Stand

At Strands Realty Group, we work with hotel owners, operators and investors to advise on transactions, evaluate strategic options and position assets for the best possible outcome.

Treasuries set the floor for every fixed-rate hotel loan, and for a ten-year loan that floor is now above 5%. Spreads decide how much of that reaches the owner, and it would take an unusually large narrowing in hotel spreads to absorb most of this year's move. For hotels, today's rates now bind through the payment, and rising cap rates add a second squeeze through value. And the market's real enemy is speed. If the 10-year settles, even at today's level, buyers will underwrite it and deals will clear.

If your hotel has a loan maturing in the next 6 to 24 months, the time to run the numbers is before the lender asks. Know what the hotel is worth at today's cap rates, what a new loan would size to at today's rates and at 50 basis points higher, and whether a refinance, an extension or a sale gives you the best outcome.

If you own a hotel in California or Arizona, reply with the address and your loan maturity date, and we will send you a value range and what a refinance would look like at today's rates. No listing agreement, no obligation.

Thank you for your continued trust. We look forward to working with you through the rest of 2026.

The composite hotel in this piece is illustrative and does not represent any specific property. All composite figures are calculated on its exact net operating income of $2,345,918, carried over from our last issue, and rounded in the text. Loan sizing assumptions (1.40 times coverage, 25-year amortization, 10.5% debt yield, 60% to 65% loan to value) are our working assumptions; actual terms vary by lender, asset and sponsor. Market figures are drawn from published sources as of mid-October 2026 and may change. This newsletter is for informational purposes and is not financial, lending or investment advice.