Two Thirds of Your Equity Growth Came From the Amortization Table: The Number Almost No Hotel Owner Tracks, and Why 2026 Is When It Gets Asked

By Erik Ransdell and Mike Annunziata

Strands Realty Group

September 2026

Ask a hotel owner how the asset is performing and you will usually get a RevPAR number, a RevPAR index, or an NOI figure. All three are useful. None of them answers the question that matters most if you are deciding what to do with the property over the next five years. What is the money you have tied up in this hotel earning you right now?

Plenty of owners track it. The ones who do not are usually the ones who have held longest without a capital event forcing the question, because every reporting tool in the business was built to measure operating performance and this is not an operating question. It is a capital question, and it tends to go unasked until something makes it unavoidable.

This year something does. The Mortgage Bankers Association reported in February that 30 percent of outstanding hotel mortgage balances mature in 2026, the highest share of any property type it publishes, against 23 percent for industrial, 17 percent for office and 13 percent for multifamily. If you bought in 2015 on ten-year paper, your loan came due last year or comes due this one.

We want to be clear at the outset about what this is not. It is not a distress story. According to KBRA, lodging loans paid off at 91.1 percent by loan count among 2025 CMBS maturities, essentially level with retail at 91.7, behind industrial and multifamily, and twenty-one points ahead of office. Most select-service owners reading this will refinance without difficulty. That is precisely why the number is worth running now, while there are still options on the table, rather than in eighteen months when there are fewer.

If you read nothing else here, run this one. Divide your trailing twelve month net operating income by your current loan balance. That is your debt yield, and Trepp’s Spring 2026 review of seasoned loans coming due found that those at 13 to 14 percent typically refinanced without trouble while those averaging around 9 percent needed extensions or fell delinquent. Run it a second time against the loan you would be taking out, not the one you are paying off, because that is the number a lender will actually test. It takes a minute and it tells you which conversation you are in.

Most of What Your Equity Gained Came From Paying Down the Loan, Not From the Hotel Getting More Valuable

The arithmetic is not complicated. Take your cash flow after debt service and divide it by the equity you would actually walk away with if you sold today, meaning current value less selling costs less your remaining loan balance. The trap is that both halves of that fraction move over a hold period, and they move at very different speeds.

Consider a composite. It is not a real property, but every input sits inside a published range from a named source, and we will state all of them so you can argue with any one you like.

A 130-key branded select-service hotel in California, bought in 2015 for $18,200,000, or $140,000 per key. It runs 72 percent occupancy at a $135 average daily rate, so RevPAR of about $97, with rooms at 92 percent of a $5,005,000 top line. Net operating income of $1,501,500 after a four percent reserve, a 30 percent margin, an 8.25 percent going-in cap rate. Atlas Hospitality’s California survey of that era would have put that cap rate at the top of “A” product and the bottom of “B.”

The debt is a $11,830,000 conduit loan at 65 percent of value, 4.75 percent, ten-year term on a thirty-year amortization. Those terms are not our estimate. Across four Wells Fargo conduit securitizations filed with the SEC in 2015, the limited-service hotel rows priced between 4.586 and 4.942 percent at 65 to 69 percent leverage, and the weighted average amortization across that vintage was 359 months, which we round to thirty years. Debt service of $740,531. Equity in, including acquisition costs, $6,734,000. Cash flow of $760,969, an 11.30 percent cash-on-cash return. A good deal, competently financed, in a market the buyer knew.

The loan matured in 2025. Like a meaningful share of that vintage, this owner took a short extension rather than transacting into a market they did not like, so eleven years in they are deciding now.

Run the operations forward. US RevPAR rose 27.1 percent between 2015 and 2025 according to STR, and we apply that growth rate as a proxy, which takes the composite from $97 to about $123. Revenue reaches $6,363,291. Then compress the margin from 30 percent to 27 percent, because CBRE’s Trends survey of 2,216 hotels found total hotel expenses growing 3.1 percent in 2025 against revenue growth of 2.6 percent, and 2024 was wider still. That leaves net operating income of $1,718,089, up 14.4 percent over eleven years.

Value it at 8.75 percent. HVS puts stabilized hotels at 8.0 to 8.5 percent and notes that older select-service assets facing a large renovation trade above that band. The hotel is worth about $19,635,000, or $151,000 per key, which sits at the bottom of the $150,000 to $250,000 range HVS identifies as where buyers are targeting existing assets. Take off two percent for selling costs and the $9,256,000 remaining balance and the owner’s equity is $9,986,000, up from $6,734,000. Cash flow is $977,558. The return on that equity is 9.79 percent, down from 11.30 percent.

Now the part worth sitting with. Be precise about what moved: the equity position grew by $3,252,000 over eleven years, and two things built that growth. Principal paydown of $2,574,000 and value of $1,435,000, less $757,000 of acquisition and selling costs. Amortization is 64 percent of the growth. It is 26 percent of the equity itself, because the largest single piece of what this owner has in the deal is still the check they wrote in 2015.

That three-point margin compression is the assumption carrying the most weight here, so test it rather than take our word for it. Hold margins flat instead and the hotel is worth $21,817,000, the value gain is two and a half times larger, and amortization drops to 42 percent of the equity gain. Give back one point instead of three and it is 47 percent. Two points, 54 percent. The finding is real across that range but its size moves a lot, and you should know that.

What should push you the other way is that the composite is already generous to appreciation. Green Street’s lodging index sits 10 percent below its 2022 peak, though up 3 percent in the last year. MSCI reported US hotel prices down 9.3 percent year over year in June. Atlas Hospitality put California’s median at $138,409 per room in 2025. LW Hospitality Advisors had price per key on transactions above $10 million at $211,000 in 2025, down 13 percent in that single year on a rising trade count, which is the signature of a shift in what is trading more than a repricing of what is held. Take the indices at face value and this hotel is worth no more than it cost, and amortization accounts for all of the growth rather than most of it. Our 7.9 percent nominal gain is the friendly version.

The debt was 65 percent of the price the day they bought it. Today it is 47 percent of value, and about four fifths of that move is money they paid in.

The Honest Counterargument, and What Survives It

If you are reading this thinking that cash yield is not your whole return, you are right, and any broker who presents 9.79 percent in isolation is selling you something.

Total return includes the principal you amortize each year and whatever the asset appreciates. On this composite the coming year’s principal is $307,498. The appreciation assumption is doing the rest of the work. At two percent, the number that tends to appear in pro formas, total return on equity is 16.80 percent. At one percent, 14.83 percent. And at flat, 12.87 percent. Flat is the conservative end rather than the indicated one: Green Street’s lodging index is 10 percent below its 2022 peak but up 3 percent over the last twelve months, while MSCI’s June reading was down 9.3 percent year over year. The two disagree on direction right now, which is itself worth knowing.

So the calculation does not tell you to sell. Thirteen percent on a stabilized asset in a market you know, held through a cycle, is a defensible place for capital to sit, and we would say so to your face.

What it does tell you is where your return comes from. Strip out the appreciation assumption and the total falls, but the share of it that is spendable cash rises from 58 percent to 76 percent. The honest version of this owner’s position is a smaller return that is mostly real, rather than a larger one resting on an assumption the indices do not currently support. Appreciation is a forecast. Amortization is real but illiquid until you sell or refinance.

The Refinance Is the Decision, and It Is Not About the Rate

Start with what everyone expects to be the problem, because it mostly is not. A 2015 fixed-rate borrower is refinancing out of roughly 4.75 percent into something near CRED iQ’s 6.78 percent weighted average coupon on 2026 hotel CMBS issuance, so about 200 basis points. That is a real increase and it is still smaller than what office and retail borrowers face, because hotel paper was priced high to begin with.

There is better news underneath it, with one caveat that matters. CRED iQ puts that 6.78 percent coupon against an 8.02 percent weighted average cap rate on the same loans and calls it 124 basis points of positive leverage. Read carefully, because positive leverage is properly measured against the loan constant, not the coupon. At 6.78 percent on a thirty-year amortization the constant is 7.81 percent, which is still inside an 8.02 percent cap by 21 basis points. Shorten to a twenty-five year schedule and the constant rises to 8.31 percent and the leverage turns negative. Interest-only, which is 56 percent of 2026 issuance, is where the full 124 points live. Hotel debt is accretive again, but how accretive depends entirely on how fast you are paying it back.

For independent owners the SBA 504 program is worth pricing, with three caveats the headline rate hides. The 6.27 percent quoted for August is the effective rate on the CDC piece, already loaded with servicing and guaranty fees, fixed and fully amortizing for twenty-five years. A hotel is special-purpose property, so the structure is roughly half bank first, thirty-five percent CDC second, and fifteen percent borrower injection rather than the ten percent people expect. And the debenture caps at $5 million, which at that proportion tops out around a $14 million project, so on a deal the size of our composite it is a partial answer at best. Where it fits, it is frequently the cheapest long-term fixed money an owner-operator can get, and it is the option most often left unpriced.

Now the constraint that actually binds, and it is leverage rather than coverage. Those 2015 conduit loans went out at 65 to 69 percent of value. HVS puts stabilized hotel loan-to-value at 55 to 65 percent today. On debt yield the picture is less dramatic than the industry narrative suggests: the 2015 term sheets show limited-service loans originated at 12.3 to 13.2 percent on a net operating income basis, against 12.69 percent from Trepp and 13.8 percent from CRED iQ for 2026, neither of which states its basis. Flat on one reading, modestly tighter on the other. The standard did not collapse.

Our composite owner clears it comfortably either way: 18.6 percent against the balance they are paying off, 14.6 percent against a new loan at 60 percent of value. They refinance without trouble. Which is exactly why the interesting part is not whether they can, but what it costs them.

In 2015 this owner borrowed $11,830,000 against the hotel. Today, at 60 percent leverage, the midpoint of what HVS says lenders are doing, the same hotel supports $11,781,000. Eleven years of operating it well and it carries the same loan it carried in 2015, at a coupon roughly 200 basis points higher. Worth being precise about why, because it is not the reason most people assume. At the 65 percent leverage of 2015 this hotel would support $12,763,000 today, nearly a million more, so appreciation did buy some borrowing capacity. The five-point cut in what lenders will advance took slightly more than that back. The proceeds are flat because the tightening and the appreciation cancelled each other out.

Re-levering there puts about $2,525,000 in their pocket at closing, less financing costs, which is real money and we will not pretend otherwise. It also drops cash flow from $977,558 to $798,318 and hands back most of what eleven years of amortization built. Whether that trade is worth making depends on what the $2,525,000 goes into, which is a conversation and not a formula.

Then there is the cost nobody models. Refinancing resets the amortization clock. On the existing schedule this loan pays $307,498 of principal in the coming year. Refinance the same $9,256,000 balance onto a fresh thirty-year schedule at 6.78 percent and the first year pays $98,083, a reduction of 68 percent, because a new loan is almost all interest again. Over five years the old schedule builds $1,694,000 of equity and the new one builds $564,000. Full-term interest-only builds nothing.

The engine that built 64 percent of this owner’s equity growth is about to be throttled for the life of the new loan, and almost no pro forma we see accounts for it.

What Nobody Puts in the Pro Forma

The reserve is not a capital plan. The conventional four percent of revenue funds routine replacement and nothing else. The International Society of Hospitality Consultants studied more than 700 US hotels and found select-service properties actually spending 7.3 percent of revenue on capital. Neil Flavin, chief operating officer of HVS Asset and Hotel Management, put it plainly: four percent “is not enough unless an owner has the wherewithal to write a very large check when a renovation is due,” and the number “needs to be a minimum of 8 percent these days.” On our composite that gap is about $210,000 a year, quietly unfunded.

Then the check arrives. A property improvement plan on a mid-market select-service hotel runs $35,000 to $40,000 per key according to CoStar’s reporting, though scope and brand move that considerably and plenty of owners have done them for less. On 130 keys the low end is $4,550,000. Add that to the equity in the ground and hold cash flow flat and the return on cash falls from 9.79 percent to 6.72 percent. Two caveats, in fairness. Holding net operating income flat after a renovation that size is deliberately conservative, and a PIP that produces no lift is one you should be arguing with your brand about. And our 8.75 percent cap already prices some renovation risk, so read the PIP as an alternative view of the same problem rather than a second deduction stacked on the first.

One timing point worth acting on. Section 232 tariffs currently impose a 25 percent duty on upholstered wooden furniture, kitchen cabinets and vanities, and the scheduled increase to 50 percent on cabinets and vanities has been deferred to January 1, 2027. If bathroom scope is in your plan, that is a window. Also worth checking before anything else: your franchise license expiration. For most 2015-vintage branded assets it is the license renewal, not the loan, that actually triggers the PIP.

The cap rate is doing more work than you think. Fifty basis points is worth $1,166,000 of equity on this composite, more than eleven percent of it. Cap rate assumptions are sticky, anchored to the last time somebody told you what your hotel was worth. The Residence Inn San Diego Sorrento Mesa is a useful illustration: Ashford’s disclosed sale carried a 7.9 percent cap rate on its face and 5.7 percent once $16 million of anticipated capital spending was accounted for. A cap rate quoted without its basis is close to meaningless.

And a note on property tax, because the two states work in opposite directions. Arizona does not treat a sale as a reassessment event. Under A.R.S. 42-13301 limited property value grows at five percent a year, capped at full cash value, and sale and change of ownership appear nowhere in the Rule B trigger list at A.R.S. 42-13302. California, under Proposition 13, reassesses to market on change of ownership, so a California buyer inherits a tax bill reset to what they just paid while an Arizona buyer inherits the seller’s basis. But read that alongside the paragraph above, because the same Arizona statute does send a property to Rule B when construction reaches 15 percent of full cash value, or when the use changes. A buyer who closes and immediately executes a brand-mandated renovation can cross that line. The sale did not trigger it. The capital plan did.

Two pieces of genuine good news, because the picture is not uniformly grim. Hotel insurance premiums fell 5.3 percent in 2025 on CBRE’s Trends data, the first decline since 2017, after rising 17.4 percent in 2024. And US supply growth is running at 0.4 percent for 2026 against a long-term average of 1.6 percent, and against 1.1 percent in 2015. For an owner of an existing, well-located select-service hotel that is the best structural fact available. Phoenix is the exception, leading every US market in forecast 2026 openings at 26 projects and 3,615 rooms per Lodging Econometrics.

Where We Stand

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

What the equity in a 2015-vintage select-service hotel gained was built mostly by an amortization schedule rather than by the market. It is now roughly half the asset, it is earning less than it did, and the refinance decides whether it keeps building or largely stops. The calculation is not a sell signal. It is the input that turns a default into a decision.

There are four things to do with the answer, and we are going to be straight about which ones pay us. Hold, which pays us nothing today and is the right call more often than a broker will admit, and which is a materially different position to be in when someone calls with an unsolicited offer if you are holding deliberately rather than by inertia. Recapitalize, if the problem is that too much of the return is trapped and illiquid. Redeploy. Or sell.

On redeploying, the honest math is worse than the pitch, and it fails before tax. Put this composite’s equity into a replacement at an 8.75 percent cap and 60 percent leverage and it produces about 10.16 percent cash-on-cash against 9.79 percent holding. But charge the same two percent of acquisition costs we charged the 2015 buyer and it is 9.68 percent, already behind. Buy something stabilized at HVS’s actual 8.5 percent band rather than the above-band cap we used for a tired asset and it is 9.09 percent. The 37 basis points only exist if you sell a renovation-facing hotel and buy another one for free.

Then the tax. Eleven years of straight-line depreciation here is roughly $4.1 million of unrecaptured Section 1250 gain, taxed at up to 25 percent federal, before capital gains, before the net investment income tax where it applies, and before California taxes the entire gain as ordinary income at up to 13.3 percent. Close to two million dollars on this asset. A straight sale and repurchase is not a close call.

Which leaves the arguments a yield comparison never shows: a fresh brand term, no capital cliff behind you, trading one asset for three. Those survive inside a 1031. One thing does not, and it is the one most often cited: a 1031 carries your basis over, so you stay on the old depreciation schedule. A reset depreciation schedule is only available on a taxable sale, which is the trade the tax line just told you not to make.

The market is clearing for the right assets. Atlas Hospitality reported California hotel sales of $1.63 billion across 128 transactions in the first half of 2026, up 17.2 percent on the same period last year. Read the composition carefully: 36 of those involved lender action, 28 percent of transactions but 37 percent of dollar volume, which means the distressed trades are running larger than average. The headline repricings have been full-service and urban, where the Westin Long Beach traded at $42 million against $85 million nine years earlier with a $25 million improvement plan attached. Select-service has held up materially better, which is the same split the delinquency data shows.

If you own a hotel in California or Arizona, reply with the address and we will run this analysis on your property and walk you through it. No listing agreement, no obligation, no pitch. And if the answer comes back that you should hold, we will tell you that.

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