Higher borrowing and construction costs are strengthening the case for conversions, giving hotel owners and international brands an alternative route to expansion.
The US hotel conversion pipeline hit a record 1,567 projects in the second quarter of 2026, as high borrowing and construction costs strengthened the case for upgrading existing properties rather than building from scratch.
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The projects, representing 152,044 rooms, were up 15% by number and 18% by room count year on year, according to Lodging Econometrics. The figures cover planned conversions, not completed hotel openings.
The growth comes as owners face mounting refinancing obligations and tighter lending conditions, prompting hotel groups to seek alternative routes to expansion.
For international brands, conversions offer opportunities to grow through franchise and management agreements without purchasing the underlying properties.
Refinancing pressures constrain investment
Access Point Financial (APF), a US hospitality lender, estimates that approximately US$48bn in hotel loans fall within the 2025–2026 maturity period.
Refinancing can involve debt-service costs around 40% higher than those associated with the original financing, putting additional pressure on owners’ cash flow.
The estimate covers the two-year period and does not specify how much of the debt remains to mature.
APF also puts US hotel construction and bridge financing at roughly 8% to more than 10%, depending on loan structure and leverage.
Higher repayments can leave owners with less capital for refurbishment, expansion and new development. Some may need to contribute additional equity, renegotiate borrowing terms or sell properties before committing to further investment.
Conversions do not eliminate these financial pressures. Owners must still fund refurbishment, acquisition costs where applicable and any disruption to trading while work takes place.
The potential advantage lies in avoiding some of the expenditure and lead time associated with developing an entirely new building.
Conversions support international brand growth
Conversions are already an established part of international hotel groups’ expansion strategies.
Hilton reported that conversions accounted for nearly 40% of its hotel openings worldwide in 2025. Its Outset Collection, launched in October that year to target independent hotels, had more than 60 properties under development when Hilton announced its annual growth figures in January 2026.
For independent owners, joining an established brand can provide access to reservation systems, loyalty programmes, marketing and international distribution.
Owners of already branded hotels may also seek a different affiliation if they believe another operator would better suit their property’s market or customer base.
The financial benefits differ for brands and owners.
Franchise and management agreements enable hotel groups to add properties without necessarily investing in the underlying real estate, while owners generally remain responsible for funding the asset and meeting the agreement’s investment requirements.
Owners must therefore weigh the expected revenue benefits against brand fees, refurbishment obligations and potential losses during renovation. Existing layouts and building systems may also require substantial work to meet brand standards, accessibility requirements and energy-efficiency expectations.
A conversion’s financial appeal ultimately depends on whether the additional business generated through the new affiliation justifies the costs of repositioning the property.
Acquisition opportunities depend on price
Buying an operating hotel offers another alternative to new development, potentially allowing investors to improve earnings through refurbishment, repositioning or a change of brand.
However, APF says differences between buyers’ and sellers’ price expectations continue to complicate transactions.
Refinancing pressure may encourage owners to consider selling, but buyers still need valuations that support their projected returns. A property purchased at a discount can prove expensive if extensive improvements are required before it can compete effectively.
Investors must assess the full cost of acquisition, refurbishment and financing against realistic expectations for future earnings. The availability of motivated sellers alone does not guarantee an attractive investment.
New construction remains viable
Growth in conversions is occurring alongside continued new-build activity in the US hotel market.
Lodging Econometrics recorded 1,081 US hotel projects, comprising 133,216 rooms, under construction at the end of June 2026. Construction starts during the second quarter reached 176 projects, up 14% year on year.
The luxury development pipeline also reached a record 103 projects and 25,496 rooms. This figure includes projects at different stages of development, rather than only properties already under construction.
The continued activity demonstrates that financing pressures are influencing development decisions rather than bringing new construction to a halt.
Markets with strong demand and limited suitable accommodation may still support new hotels, particularly where existing properties cannot meet the requirements of the intended market.
Elsewhere, converting an existing property may offer a more attractive route to serving the same customers.
For hotel owners and investors, the decision comes down to the total capital required and the earnings it can realistically support.
Conversions broaden the options available to both owners and brands, but their success depends on the property’s condition, refurbishment costs, the terms of the brand agreement and demand in the local market.
