More Hotel Owners In Need Of Cash Are Getting It From The Big Brands

Hotel brands and third-party operators are leaning on a previously obscure tool known as key money to boost their capital stacks in a sluggish hospitality real estate market.

Key money is an up-front, forgivable loan that a brand, like Hyatt Hotels Corp. or Marriott International, or a third-party operator offers to a developer or hotel owner to lock in franchise and management deals. It has become a common bargaining chip, helping owners bridge financing gaps, offset renovation costs and justify conversions that otherwise wouldn’t pencil.

But the payoff isn’t uniform: Some owners say the funding is essential to making deals work, while others see only marginal benefit, and the long‑term value remains difficult to measure as occupancy stagnates and sale prices slip.

“The conversation has become very collaborative as the markets have started to become tighter and more difficult to develop,” WalshDupart principal Grant Dupart said at a Bisnow event. “Developing in 2025 and 2026 is very difficult. It’s hard to raise equity, it’s hard to get debt, it’s hard to make deals, where key money definitely bridges the gap, but the reality is it doesn’t fix deals.”

For brands and management companies, key money is a way to differentiate themselves and can help secure market share, an increasingly important metric for brands like Marriott and Hilton.

For owners, it is a way to recoup up-front costs or show a lender that a brand has faith in the project, adding a little extra incentive to deals in a market that saw sale prices slide by 9.3% year-over-year in June.

Payments are typically no more than 5% of the total deal cost, according to New York-based business consultant Getzler Henrich & Associates.

The funding is used for ground-up developments, management changes, property improvement plans and rebranding. It can also be used to retain properties nearing the end of franchise or management contracts.

“Owners all know about key money now,” HVS Asset Management and Advisory Chief Operating Officer Neil Flavin said. “There was a time when not everybody knew about key money or even what key money was, but everyone that’s going into this business now knows what key money is, and they’re all asking for it.”

Of the five new Marriott hotels that hospitality real estate investment company WalshDupart is working on in the Rocky Mountain region, each is receiving key money. Without the funding, the projects would not happen, Dupart said.

Earlier this year, New York’s Bonacio Development also received key money from Marriott to convert Brookmere, an independent hotel in Saratoga Springs it renovated from 2023 to 2024, into a Tribute Portfolio Hotel. 

Bonacio spent $37.6M renovating the 88-room hotel in Saratoga Springs. It received $1.5M in key money, about half of what Marriott originally offered, for a 30-year franchise agreement, according to Bonacio executives. 

The payment may only be a small fraction of what the company spent, but converting the hotel would have been a “much harder decision” without key money, Bonacio Project Manager Amber Mathias said.

The majority of the key money also went toward furniture, fixtures and equipment upgrades, Mathias said. A small portion was used to recoup renovation costs and make up for the “gap in performance,” Bonacio Development President Larry Novik said. 

“The key money really allowed for a sense of [cost] neutrality,” Novik said. “We were creating a better business model and not having to make a major capital investment to do it.”

Bonacio saw an “immediate, measurable uptick” once its hotel took the Marriott name, but because the increase in bookings corresponded with Saratoga Springs’ busy summer season, the firm needs more time to determine what caused the surge.

“We can see Marriott loyalty numbers, so we know that a certain percentage of that uptick is coming from Marriott, but we won’t really be able to measure it until the fall when the seasonal traffic would normally die down,” Novik said.

Marriott has noticed an increase in key money spending, but the amount of key money per deal signed has been lower than it was in 2019 and flat in 2024 and 2025, Marriott CEO Anthony Capuano said on a Q4 earnings call.

“I wouldn’t say every deal would get key money, but it is certainly becoming a more and more critical part of the stack,” Marriott U.S. West Region Vice President Anne Bertsch said at a Bisnow event. “In general, we are getting a lot of pressure to provide bigger key money checks.”

Hyatt has boosted its key money spending as well, reporting $49M in payments in the first quarter of the year, a 172% increase year-over-year. The company also listed $1.125B in key money assets in Q1 of 2026, up from $1.095B at the end of 2025, according to its quarterly Securities and Exchange Commission filing.

For some, key money is more of a cherry on top of their capital stack than a deal differentiator.

For two Moxy hotels in Denver and Boulder, Colorado, the contribution of key money was a “small, small, small fraction” of the total costs to develop and run the properties, according to Matt Joblon, CEO of developer BMC Investment. 

The projects would still have happened. They would simply have brought lower returns, he said. 

Even a small boost to returns can help get a deal across the finish line in a hotel market that is in the midst of an underwhelming year as it attempts to recover from the pandemic. Nationwide occupancy increased by 0.8% year-over-year in the second quarter but is still below Q2 2019. 

While pandemic fallout is in the rearview mirror, new challenges have cropped up, including a drop-off in international tourism and a challenging economy that has hit more affordably priced properties harder than their luxury counterparts.

The World Cup was predicted to be a boon for hotels in host markets and offered a bump, but overall hotel occupancy rates did not increase as much as was forecast. 

Key money payments can help fill out a capital stack in a tough market and typically bring longer management deals.

Independent hotel management deals with no key money typically sign a three- to five-year contract. Deals with key money can extend up to 10 years, Brownstein Hyatt Farber Schreck shareholder Reid Galbraith said.

Luxury properties are outperforming the segment overall, drawing bigger shares of key money because of their ability to offer returns more quickly, HVS' Flavin said.

Key money is used for about 9% of the rooms Hilton has under construction, Hilton President and CEO Christopher Nassetta said on an earnings call in February. 

About 85% to 90% of the key money Hilton deploys goes to upscale or luxury hotels, Nassetta said on the fourth-quarter call. This number has been consistent since at least the second quarter of last year, according to Hilton earnings calls. 

“In the higher end, when you get into luxury and conversions of larger hotels, it does get competitive because you just have more brands chasing it,” Chief Financial Officer and President of Global Development Kevin Jacobs said in the earnings call. 

More than 50% of IHG’s key money spending went to premium, luxury and lifestyle hotels in 2024 and 2025, and the chain’s overall use is expected to pick up, Chief Financial Officer Michael Glover said on a February investor check-in.

This year, the company lists key money and maintenance capex as part of IHG’s “free cash flow,” which accounts for about $200M to $250M. 

“We get a very high return on the key money we invest,” Glover said. “While the rate achieved will vary from project to project, we of course target and expect to exceed our cost of capital and often do so by a significant margin.”