Starwood Capital Group is battling a looming default on a hotel portfolio spanning nearly 3,000 keys across 12 states.

A 2018 CMBS loan for a 22-property hotel portfolio was transferred to special servicer K-Star Asset Management in January for “imminent monetary default,” The Real Deal reported.

The portfolio contains 2,943 doors across 12 states and 17 cities. The hotels are largely Marriott, Hilton and IHG-branded locations, concentrated in the Midwest, including three in the Chicago area.

The $265M loan doesn't mature until 2027, and the borrower, a Starwood affiliate, is current through April on interest payments, but default alarm was sounded due to the portfolio's fundamentals, which have weakened considerably compared to the time of underwriting.

Occupancy at the hotels averages around 63%. The portfolio was generating less than 65% of the revenue it needed to cover the cost of the loan's interest as of mid-2025. At the time of origination, it was underwritten as generating more than double the cost to cover loan interest, according to TRD.

Starwood has had issues with other large portfolio loans coming due. Last spring, a $577.3M Starwood CMBS loan secured by 65 hotels across 21 states was transferred to special servicing, also due to cash flow problems.

Starwood found a way forward for that portfolio. It secured a loan modification, and as of the end of March, it had sold off 21 of the portfolio's lower-performing hotels and was able to contribute $122.6M to paying down the debt, TRD reported.

The hotel market is grappling with revenue that's flat or declining as international tourism numbers remain down. Events like the FIFA World Cup, which were anticipated windfalls for hotel owners, have failed to make good on the promise of bringing in waves of bookings.

Nevertheless, with record levels of debt available, there are still lots of investors eager to buy hotels, and transactions are expected to rise this year, Bisnow has reported.