Structuring Mezzanine and Preferred Equity in Hotel Capital Stacks

By RadCRE Research · 2026-11-07 · Industry Insights

With Florida driving $7.2B in hotel transactions despite rising borrowing costs, sponsors turn to structured equity and mezzanine debt to close capital gaps.

Navigating Capital Dislocation in Hospitality Transactions

Hospitality acquisitions are navigating a bifurcated market characterized by robust transaction appetite alongside challenging credit conditions. According to data from MSCI Real Capital Analytics, Florida alone generated $7.2 billion in hotel sales over the latest four-quarter period, accounting for more than one-fifth of total U.S. hotel transaction activity [1]. However, this transaction volume persists even as hospitality owners confront higher borrowing costs and mounting operating expenses [1].

As conventional senior lenders maintain conservative loan-to-value parameters, sponsors face significant capital shortfalls when underwriting acquisitions. Industry discussions, such as the Kabani Group forum held in downtown Miami featuring Kabani Group’s Ahmed Kabani and HVS Senior Managing Director John Lancet, have centered on evaluating solutions to these elevated debt costs and operational hurdles [1]. In an environment where market dislocation has created distinct opportunistic investment windows [3], mezzanine loans and preferred equity have transitioned from supplemental financing tools into essential capital stack components.

The Role of Mezzanine and Preferred Equity in Modern Capital Stacks

With traditional lenders tightening leverage thresholds across CMBS and balance-sheet originations—a central theme examined by market leaders including Larry J. Kravetz, Managing Director & Head of U.S. CRE/CMBS at the National Finance Forum [2]—the spread between senior debt proceeds and purchase prices has expanded. To complete acquisitions of marquee assets, such as those contextualized by prominent properties like the JW Marriott Marquis Miami at 255 Biscayne Boulevard Way [1], buyers must assemble multi-tiered financing packages.

Preferred equity structures allow buyers to insert flexible subordinate capital that functions senior to common equity while satisfying senior lenders' strict intercreditor and leverage guidelines. Concurrently, mezzanine debt fills the subordinate debt tranche directly behind first mortgages, secured by pledges of equity interests rather than fee-simple real property. For opportunistic capital pursuing mispriced or cash-flowing hotel opportunities created by broader market dislocation [3], these subordinate instruments provide the required yield profiles while allowing common equity sponsors to preserve upside potential.

RadCRE Perspective

As debt service hurdles challenge hotel underwriting, structuring structured subordinate capital has become the primary differentiator between executed acquisitions and stalled transactions.

"When single-state markets like Florida capture over 20 percent of national transaction activity despite severe borrowing and operational headwinds, it underscores that capital is active but requires surgical structuring. First-mortgage lenders are maintaining disciplined leverage targets, which leaves mezzanine debt and structured preferred equity as the definitive bridges to close transactions. Sponsors who understand how to negotiate intercreditor covenants and align preferred return hurdles can capitalize on this window of market dislocation before the lending landscape resets."

— Majid Radaei, Founder & Principal Broker, RadCRE

Strategic Outlook for Hotel Sponsors

The window for deploying opportunistic capital amid ongoing market dislocation requires careful evaluation of financing terms [3]. While hotel asset performance continues to attract multi-billion-dollar volumes in prime geographic corridors [1], the ongoing pressure from elevated interest rates and day-to-day operational expenses means senior debt alone cannot solve acquisition needs. Sponsors and asset managers must increasingly collaborate with institutional structured finance providers to design capital stacks that withstand debt service variability while capitalizing on long-term hospitality fundamentals.

Tags: hotel capital stack strategies, preferred equity hospitality financing, mezzanine debt hotel acquisitions, commercial real estate structured finance