Maturing Debt Triggers Wave of Distressed Hotel Sales Across California

Hotel sales are surging in California, but not for reasons that signal a healthy market.

A sharp year‑over‑year jump in deal volume masks a more sobering trend: An unusually large share of those trades involve distressed sellers unloading properties ahead of looming debt maturities, costly upgrades and an unattractive refinancing environment.

Brokerage data shows that lender‑led and troubled transactions now make up more than a quarter of all hotel sales statewide, reshaping who is buying and why. Public REITs, once reliable acquirers, have largely stepped back, replaced by owner‑operators, private equity groups and investors pursuing hotel‑to‑housing conversions. 

“You’re seeing a rotation into these traditional markets from an investor standpoint,” JLL Hotels & Hospitality President Dan Peek said. “California, with the exception of Los Angeles, is kind of back in favor from an investor point of view. People are definitely looking at it with a fresh set of eyes.” 

With 30% of U.S. hotel loans coming due in 2026 and many financed in a bygone, low‑rate era, industry leaders expect distress to deepen through the second half of the year, setting the stage for even more forced sales as owners struggle to bridge the gap between today’s costs and yesterday’s capital structures.

Sales volume in California was up 17.2% year-over-year, from $1.4B in the first half of 2025 to $1.63B in the same period this year, according to Atlas Hospitality Group, a Newport Beach-based firm specializing in hotel sales. 

In 36 of the 128 transactions, Atlas Hospitality Group identified a lender action — a foreclosure, notice of default, notice of sale, deed-in-lieu-of-foreclosure transaction or bankruptcy — in the period preceding the sale. These types of transactions accounted for 28% of sales and 37% of dollar volume statewide in the first half of 2026, according to Atlas Hospitality.

In Southern California, the Edition West Hollywood Hotel traded hands in a deed-in-lieu-of-foreclosure sale in April to real estate billionaire brothers Simon and David Reuben. There was $211M in debt on the hotel, The Real Deal reported at the time. In February, the 469-room Westin Long Beach sold for $42M in a distressed sale, less than half the $85M it sold for nine years ago. 

Similar sales occurred in Northern California, with the Stanley Ranch hotel in Napa selling to Blackstone after a $220M default. In March, the Barnes San Francisco hotel in Union Square sold in a debt-distressed deal for an undisclosed amount estimated to be a roughly $20M discount from its last sale price. 

That level of distressed or underperforming properties transacting is high, and Atlas Hospitality Group President Alan Reay expects it will increase in the second half of this year as a wave of maturing hotel debt washes in. 

Of loans backed by hotel or motel properties nationally, 30% will come due in 2026, the Mortgage Bankers Association said in March. 

Many of these loans were financed in an era of 4% interest rates, but refinancing won’t be in that range, Reay said. 

The discrepancy means most owners seeking to refinance would have to come out of pocket to pay down loans. Many hotel owners are either unwilling or unable to bring in more cash to do that, Reay said.

Compounding the financing challenge is that some hotel owners are facing costly upgrades they are required to perform as part of their brand agreement. In the case of the Westin Long Beach, the hotel’s sellers were facing a $25M property improvement plan, The Real Deal reported in February. 

The cost of construction and renovations, along with the cost of labor, has also dogged hotel owners, likely motivating many of the sales so far this year, experts who spoke with Bisnow said. 

Owners looking to sell are more plentiful than buyers, Reay said. And the makeup of the buyer pool has changed. Public REITs, which once did the buying, are on the seller end of transactions more often these days. The buyer group has diversified. 

“You do have a pretty diverse buyer base, but I would say, the market’s dominated by owner-operators, private equity, high net worth [individuals],” Peek said. “Generally speaking, you’re not seeing the public market investors invest in California. As of yet, they’re net sellers.” 

The sales activity skewed heavily toward Southern California, where dollar volume rose 57% to $989.6M on 60 sales in the first half, while Northern California fell 15.7% to $641.8M on 68 sales, according to Atlas Hospitality Group.  

The bifurcation in the state is driven largely by the biggest cities in both regions: San Francisco and Los Angeles.

San Francisco, once a hard-hit office market clawing its way back from the pandemic doldrums, is seeing office leasing take off, thanks to AI, and multifamily is following suit. 

“San Francisco is a recovery story. Silicon Valley is a recovery story,” Peek said. “Think about all of the venture capital that’s flowing into those markets. That’s a big part of it. That generates office activity and employment activity. That generates travel. LA doesn’t have the same dynamic.” 

Los Angeles is not on the same trajectory. 

“LA has struggled from an economic recovery standpoint,” Peek said. “The production business isn’t back to the volume it was. [LA] did OK during the World Cup but underperformed some of the other markets.” 

One new hotel owner that is hitching its wagon to the upward-bound Bay Area is Singerman Real Estate. SRE bought the Fremont Marriott Silicon Valley from REIT Ashford Hospitality Trust in July for $53M – not much more than the $50M that Ashford paid for it in 2014.

Singerman owns several hotels, including other properties in California, and had been looking at the San Francisco market for the right deal when the Fremont Marriott hit the market. 

Singerman wasn’t daunted by the REIT seeking to get out of the property without much price appreciation. 

“RevPAR in the San Francisco market in general has not recovered to what it was pre-pandemic, while costs have soared,” Singerman Real Estate Managing Partner Rebecca Cocchiola said. “In order to just make deals work, they’re not, in today’s environment, going to be worth as much as they were previously.” 

REITs often have motivating factors that are unrelated to any specific property, Cocchiola said.

Ashford Hospitality Trust framed the sale of the hotel as part of its strategy to lower debt. It has sold 13 hotels in transactions totaling more than $510M since the beginning of 2026, Traded reported at the time of sale. 

“The market’s better than it was a year ago, and they’ve been in it for a while, so at some point, you see that rising market, it becomes easier to liquidate, and so you decide to do that,” said Cocchiola, who oversees hospitality for Singerman. 

The hotel purchase was a vote of confidence in San Francisco’s rebound and confidence that demand to visit the city, once a tourism powerhouse, will return too. Not much new stock is being built, in part because California is a hard place to build. So when that demand returns, Singerman will be well positioned in a recently updated asset to reap the benefits. 

Ashford redid the hotel’s rooms in 2022, and Singerman plans to upgrade the public food and beverage outlets at the hotel soon. 

“We do feel like demand will be strong for the next couple of years because it has making up to do,” Cocchiola said.