Driftwood Capital: Hotel Credit Outperforms Office and Multifamily

Driftwood Capital concludes that hotel credit offers distinct stability compared to corporate direct lending, even as public alternative-asset managers absorb a reported $265 billion selloff [1]. According to Lodging Magazine, lodging loans show lower delinquency rates than office and multifamily assets, supported by constrained supply and brand-level financial backing [1].

Why are investors misjudging real estate credit risk?

Current market stress affects corporate direct lending far more than real estate credit, though investors often group them together [1]. Driftwood Capital published an analysis titled The New Shape of Risk: Private Credit, Real Estate, and the Case for Hotel Credit to clarify this distinction [1]. The Miami-based hospitality investment and credit platform points out that private credit funds, including BCRED and Apollo Debt Solutions, have restricted or gated redemptions [1]. However, Driftwood argues this reflects investor categorization rather than underlying real estate credit fundamentals [1].

Brookfield return data spanning a decade shows real estate credit carries only a 0.18 correlation to corporate direct lending [1]. Furthermore, Federal Reserve data indicates that commercial real estate charge-off rates run roughly a fifth of those seen in commercial and industrial loans [1]. David Steiner, partner and chief investment officer at Driftwood, noted that real estate credit and corporate direct lending share a label but do not behave the same way [1].

How do hotel CMBS repayment rates compare to other asset classes?

Lodging CMBS loans have achieved higher on-time repayment rates than both office and mixed-use properties between 2020 and 2025 [1]. Despite a 47.5 percent drop in revenue per available room (RevPAR) during 2020, 76 percent of maturing lodging CMBS loans were repaid on time, according to Trepp data cited by Lodging Magazine [1]. This performance outpaced office properties, which saw a 60 percent repayment rate, and mixed-use properties at 54 percent [1].

Trepp data also shows current lodging delinquency sits at 6.5 percent [1]. This falls below the multifamily delinquency rate of 7.7 percent and the record-high office delinquency rate of 11.7 percent [1]. Driftwood concludes that hotels defy their historical reputation as the most volatile commercial real estate asset [1].

What role does new hotel supply play in credit stability?

Structurally constrained new supply protects existing hotel assets from over-saturation and supports credit performance [1]. According to LARC Market Intelligence and Green Street, top-50 market hotel supply growth has fallen dramatically [1]. Before the pandemic, supply growth in these markets ranged from 2.0 to 2.5 percent [1]. Today, that growth sits at roughly 1.0 to 1.3 percent [1].

How do major hotel brands influence loan recovery?

Major hotel brand families possess an ongoing financial stake in keeping flagged properties open, providing a unique layer of support during workouts [1]. Companies like Marriott, Hilton, Hyatt, and IHG have incentives to assist borrowers when deals face challenges [1]. This structural characteristic gives lenders additional recovery options that office and industrial lenders do not share with their tenants [1].

Pranav R. Bhakta, senior vice president of corporate business development at Driftwood, explained that hotels combine the asset, the demand, and the operating business in a single place [1]. He compared the asset class to a luxury cruise ship, representing a high-touch, consumer-facing operating business, as opposed to a bulk oil tanker [1].