Why Lenders Require Comfort Letters for Branded Hotel Financing
Investing in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Finding the right hotel financing options can make this acquisition even more profitable. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts ever investor should know about comfort letters.
What are Comfort Letters?
Comfort letters are documents that allow lenders to assume franchise rights if the original franchisee defaults on the loan. These letters include provisions that ensure that lenders can continue to operate the hotel in the event of default or foreclosure on franchise hotel loans.
Benefits of Comfort Letters
Comfort letters offer several benefits for all parties involved in the transaction, including the following:
- Borrowers are more likely to find the most attractive hotel lending arrangements if the lenders have greater certainty that they will be able to recoup their investment even if the borrower defaults. This can improve the terms of these loans and can make it easier to obtain the financing needed to acquire franchise properties.
- Lenders can more effectively collateralize their loans by ensuring the ability to maintain the profitability of the properties they finance.
- Franchise companies can protect their brand name by continuing operations and maintain a presence even when franchisees fail to meet their financial obligations and go into default on their hotel loans.
Many lenders require comfort letters before they will finalize loans for franchise hotel properties.
Crafted by the Franchise Company
In most cases, the comfort letter is drawn up by the franchise company as part of the franchising process. These legal documents may follow a standardized template or may be customized to suit the needs of the borrower and the lender. The contents of the letter may include some or all of the following provisions:
- A provision that ensures the ability of the lender to appoint a receiver to operate the hotel for a short period of time during foreclosure proceedings.
- A clause that allows the lender to cure any default of the franchise agreement before it is terminated.
- A provision that allows for the resale of the property and the transfer of the franchise agreement to a third party if the hotel goes into default.
These provisions are designed to protect the lender if the hotel financing loan goes into default.
About Peachtree Group
Peachtree Group is a direct lender with a specialty in hospitality lending. Our originators work with investors across the US to provide the most practical hotel financing arrangements for their specific needs. Contact us today to discuss your financial needs with one of our expert loan originators. We work with you to provide the best options for your hotel financing requirements.
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Article Originally Featured in HotelBusiness.com
Private credit lenders have increasingly stepped into the void left by traditional banks, but not all are built the same, especially when it comes to hospitality. For sponsors like ARK Holdings, a seasoned hotel operator with a Florida-focused portfolio, finding a capital partner who understands the nuances of hotel operations and the complexities of today's capital markets is critical.
Customized Loan Structuring
Peachtree Group recently demonstrated its ability to structure flexible, sponsor-aligned financing solutions through two bridge loans in Tallahassee, Florida: a $17.4 million floating-rate bridge loan for the 122-room Hampton Inn & Suites and a $12.75 million fixed-rate bridge loan for the 99-room Hilton Garden Inn. ARK Holdings owns both properties and these transactions are a case study of how Peachtree's multiple capital buckets allow customized structuring based on business plans, market conditions and sponsor objectives.
Case Study: Hampton Inn & Suites
For the Hampton Inn & Suites, Peachtree provided a three-year floating-rate loan with two 12-month extension options, an ideal fit for a property that recently completed a multi-million-dollar PIP in September 2024. The Sponsor will use the term to stabilize performance, with plans to refinance into permanent financing. The floating structure offers flexibility to benefit from market rate movement and aligns with the short-term nature of the repositioning strategy.
Case Study: Hilton Garden Inn
In contrast, the Hilton Garden Inn received a five-year fixed-rate loan, a structure designed to support longer-term asset management and cash flow certainty following its more substantial renovation completed in August 2024. With both assets operating under the same Sponsor and adjacent to each other, ARK Holdings will benefit from cost savings through shared management and operations, enhancing overall performance.
Why Experience Matters
Both loans reflect Peachtree's conviction in the Tallahassee market, which is poised to benefit from renewed government-related travel and corporate demand. Market ADR is expected to grow in line with inflation, and both hotels are projected to outperform their comp sets, a testament to the Sponsor's operational strength and capital investment.
More importantly, these deals reflect a deeper truth about hospitality-focused private credit: experience matters. Peachtree's deep roots in hotel ownership and operations allow it to underwrite beyond the spreadsheet, taking into account brand standards, PIP timelines and market seasonality. This understanding results in greater alignment with sponsors and better execution throughout the loan lifecycle.
At a time when capital markets remain selective, it is invaluable to have a lender who not only provides capital but also understands how hotels actually run. For sponsors navigating renovation-heavy business plans or managing complex portfolios, working with a lender like Peachtree Group, who brings operational know-how and flexible capital, is a strategic advantage. In a market where one-size-fits-all financing no longer works, Peachtree's approach proves that tailoring capital to the business plan is not just smart; it's essential.
Peachtree Group
Peachtree Group is a direct balance sheet lender focused on funding first mortgage bridge loans, mezzanine loans, preferred equity investments, and commercial property assessed clean energy (CPACE) financing. Jared Schlosser is responsible for Peachtree's hotel originations platform and its CPACE program.

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