6 days ago
Interest In Experiential Hotels: Up For Consumers, Down For Financing
Rafi Golberstein, CEO, founded PACE Loan Group (PLG) in 2017, providing direct C-PACE financing to commercial real estate property owners.
Nontraditional hospitality is seeing growing traveler interest but is constrained by a lack of interest from financing sources.
In my observation, since 2020, leisure travel has migrated away from traditional hotels to a more eco-friendly, unique and often rural category of lodging within the boutique hotel category called experiential lodging. This includes treehouses, campgrounds, cabins in the woods and even boathouses. The Global Wellness Institute predicts a related category, wellness tourism, will average annual expenditure growth of 16.6% to 2027, noting travel trends that include travel for mental health, sleep and recovery.
While hospitality loans have been a significant part of my C-PACE lending business since we started, the new experiential lodging properties are increasing in popularity among developers because they are finding fewer traditional financing sources. C-PACE financing also fits the 'vibe' of these properties, which tend to be more environmentally friendly and sustainable.
Our experience is echoed industry research. According to one boutique hotel trend report, the boutique hotel market grew from $87.95 billion in 2023 to $93.79 billion in 2024 at a compounding annual growth rate (CAGR) of 6.6%. According to the report, 'The market is projected to grow to $121.90 billion by 2028 at a CAGR of 6.8%, supported by the adoption of sustainable practices, advanced technology for personalized guest experiences, a shift towards experiential hospitality, investment in property refurbishment, and the expansion of boutique chains into emerging markets.'
Growth comes from leisure travelers looking for unique experiences they don't find in traditional hotels. They often conduct their research on social media and book directly with the property. The increase in this category was noted nearly 10 years ago in a report from CoStar, a research platform covering commercial real estate. The new category of boutique, unflagged hotels is expected to continue to increase, with projections of a nearly 50% growth by 2034, according to a market research and consulting firm based in New York.
Why Financing Sources Tend To Stay Away
While many travelers like these nontraditional, experiential properties, banks or other financing sources often don't. These unique, unconventional properties don't fit a traditional financing model. With construction costs continuing to increase, I've observed that many of these properties are using nonstandard materials. In addition, they may have a rural location that makes underwriting from a traditional bank difficult. Even when banks are willing to provide a loan, in my experience and transactions with unflagged hotel loans, they often max out at 60% loan-to-value. That can leave 40% of the costs remaining, ending the hopes of some new hoteliers targeting this space.
C-PACE financing, a property tax assessment tool that finances energy-efficient and resilient construction or renovation over 30 years, has become a strong fit to solve the financing challenge and provide strong returns for efficient operations. That 30-year longer window brings down the overall cost of capital for the hotel entrepreneur, and in most cases, is the final piece of the project's financing, allowing it to go forward.
Three Examples Of Successful Nontraditional Hospitality
My company is a direct C-PACE lender to several experiential hotels. In the case of one retreat, recently named to Condé Nast's Best Places to go in the Midwest, my company was able to finance the building envelope, high efficiency windows, HVAC, LED lighting and plumbing systems, which enabled the developers to continue building their dream vacation campus in the woods. Now in their fourth year of operation, the project is consistently booked with visitors interested in an unplugged stay in the woods.
Another shining example of the unique approach of an experiential hotel is a hotel bordering Joshua Tree National Park in California. Made from recycled shipping containers, the hotel, with sprawling views, will include 65 guestrooms with private outdoor patios, an outdoor swimming pool overlooking the park, a gift shop and a poolside cocktail bar serving small bites.
The independent, design-forward hotel qualified for C-PACE improvements, from a building envelope to seismic measures. The $11.2 million, 30-year loan used modular construction to reduce construction time by nearly half.
And finally, an experiential lodging experience that had little permanent structure also qualified for a C-PACE loan that paved the way for operations for years to come. A family-owned campground in northern California expanded by adding cottages in addition to campsites and needed to update its wastewater treatment system to avoid costly transportation of waste storage and hauling.
C-PACE provided $4.2 million to finance a new wastewater treatment and reuse system, electrical work, insulation and a solar panel system, which are expected to save $1.1 million annually throughout the four-year payback period. The project, completed in December 2024, was able to double their occupancy and begin to attract new guests and set the property up for the future.
Caveats To C-PACE Loans
C-PACE does have limitations, which vary by state and program. There are three major loan constraints:
1. C-PACE lenders cannot lend more than 100% of C-PACE eligible proceeds. This varies, but generally eligible proceeds are any improvement that relatively impacts the utility spend of the property.
2. C-PACE lenders cannot lend more than a certain percentage of a property's appraised stabilized value. Certain states and C-PACE programs set these guidelines themselves. In my experience, these generally range from 20% to 35% of stabilized appraised value.
3. C-PACE lenders cannot lend more than what any mortgage or lienholder on the property will consent to. This is most commonly the limiting factor to the C-PACE loan size. The senior lender will underwrite each sponsor and project on its own accord to evaluate the loan-to-value (LTV) ratios, debt service coverage ratios (DSCRs) and loan structure to determine the amount of C-PACE financing they will consent to in each deal.
Big Chains: Paying Attention And Shifting The Market
Nontraditional hospitality types have gained popularity from traditional hospitality chains, with both Marriott and Hilton acquiring boutique brands. In 2025, Marriott acquired two experiential travel brands—Postcard Cabins and Trailborn—to boost their offerings in the experiential category. Hilton is focused more on the 'small luxury' market, but in their announcement of the acquisition of more than 400 properties, the company cites the nontraditional, off-the-beaten-path options as a new way to complement their traditional urban and vacation destinations.
As these experiential hotel chains continue to attract the interest of the mainstream hotel platforms, it's likely that more banks and traditional financing sources will offer more competitive pricing for financing, pushing C-PACE financing out of the lead position. However, C-PACE can still benefit the owner with its long payback period and flexible prepayment terms. And importantly, C-PACE rewards developers for the efficient use of resources and materials that lead to lower operational costs.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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