In the ever-evolving landscape of hospitality finance, where capital flows dictate the rhythm of development and survival, a quiet revolution has unfolded over the past decade. Private credit funds—those nimble, non-bank lenders offering bespoke debt solutions—have stepped into the void left by retreating traditional banks. But as we stand on the cusp of potential market turbulence, it’s time to question whether this savior is now faltering, leaving hotels vulnerable once more.
Understanding Private Credit Funds and Their Meteoric Rise
Private credit funds are essentially pools of capital managed by investment firms that provide loans directly to borrowers, bypassing the rigid structures of commercial banks. These funds draw from institutional investors, pension funds, and high-net-worth individuals, offering flexible terms like interest-only periods, higher loan-to-value ratios, and quicker closings—often in weeks rather than months. Their appeal lies in filling the gaps where banks fear to tread, particularly in sectors like hospitality, which are perceived as cyclical and risky.
The stellar rise of private credit can be traced to the aftermath of the 2008 Global Financial Crisis. Stricter regulations, such as Dodd-Frank in the US and Basel III/IV globally, imposed higher capital requirements on banks, making them wary of leveraged lending. In Europe, banks’ retreat accelerated post-Brexit and amid economic fragmentation, while in the US, regional bank crises further curtailed traditional financing. Globally, private credit assets under management (AUM) ballooned from around $250 billion in 2010 to nearly $2 trillion by late 2025, growing at a compound annual rate of over 15%. This expansion was fueled by low-interest environments pre-2022, where investors chased yields beyond bonds and equities.
For hotels, this shift proved lifesaving. Amid pandemic-induced shutdowns and recovery uncertainties, many properties faced refinancing walls or development halts. Private credit stepped in with tailored solutions: floating-rate loans pegged to benchmarks like SOFR, often at spreads of 400-600 basis points, which seemed reasonable against banks’ vanishing appetite. These funds offered covenant-lite structures, allowing operators to weather cash flow dips without immediate defaults.
How Private Credit “Saved” Hotel Assets: Real-World Examples
Countless hotel assets owe their revival to private credit’s intervention. Take Peachtree Group, which by September 2025 had originated over $2 billion in private credit transactions, with $1.1 billion directed at hotels. This included a $114.6 million loan for Hyatt properties, enabling renovations and expansions in a market where banks balked at hospitality’s volatility. Similarly, KSL Capital Partners closed its fourth private credit fund at $1.26 billion in 2024, exclusively targeting travel and leisure, including hotels in high-barrier urban and resort markets. Their investments have supported acquisitions and capex for branded properties, providing certainty in uncertain times.
In Europe, NorthWall Capital and BlueWater Capital refinanced London’s BoTree Hotel with £310 million in February 2025, blending senior and mezzanine debt for upgrades— a deal banks might have deemed too speculative amid rising rates. Fortress Investment Group’s $260 million refinancing of the Sheraton New York Times Square in 2023 exemplifies US deals, where private credit’s speed (closing in under a month) outpaced banks’ four-to-five-month processes. Even in emerging markets, funds like AVANA have reshaped hospitality by offering bridge loans for boutique hotels, emphasizing flexibility over bureaucracy.
These examples underscore private credit’s role as a “savior” over the last four years: reasonable rates (often 7-10% all-in, versus banks’ 5-7% but with stricter terms), and adaptability that kept doors open during recovery. Without this influx, many mid-market hotels might have defaulted or sold at distress prices.
Blue Owl’s Troubles: A Harbinger of Broader Woes?
Yet, cracks are emerging. Enter Blue Owl Capital, a behemoth with over $307 billion in AUM as of December 31, 2025, predominantly in credit platforms. On February 18, 2026, Blue Owl announced the permanent halt of redemptions in its retail-focused Blue Owl Capital Corp II (OBDC II), a $1.7 billion fund. This followed a $1.4 billion asset sale across three funds to North American pensions and insurers, fetching 99.7% of par value—proceeds earmarked for capital returns and debt reduction.
Redemptions work like this: Investors in semi-liquid funds like OBDC II could request up to 5% of assets quarterly, but surges—driven by fears over software exposure (8% of Blue Owl’s portfolio amid AI disruptions)—exceeded caps. Halting them signals liquidity mismatches: promising easy exits from inherently illiquid loans. It’s a bad omen, echoing pre-2008 gated funds, where forced sales exposed overvaluations.
Blue Owl’s direct hotel exposure appears limited; searches yield no major disclosures, with their credit arm diversified across 27 industries and 128 companies in the sold portfolio. Estimates suggest hospitality comprises under 5% of their $157.8 billion credit AUM, focused more on tech and industrials. But the ripple effect matters: Blue Owl’s shares plunged 6-7% post-announcement, dragging peers like Apollo and KKR. This could mark a “2007 moment”—the subprime precursor to the Global Financial Crisis (GFC)—where isolated issues cascade into systemic distrust.
Mounting Concerns from Commentators and Regulators
Financial commentators and regulators echo these fears. Mohamed El-Erian questioned Blue Owl’s moves as potential “canaries in the coal mine,” highlighting liquidity risks in a $2 trillion market. The New York Times noted fresh alarms over private credit’s opacity, with investors worried about gated funds leading to broader redemption freezes. Regulators like the Bank of England plan stress tests on private credit, citing interconnections with banks via leverage. US SEC Chair Paul Atkins downplays systemic risks, but others, including Apollo’s CEO, call concerns “hysteria”—yet defaults like First Brands and Tricolor amplify warnings of over-risky lending at compressed yields (spreads narrowed to 400 bps from 600 in 2022).
Commentators at Reuters and Bloomberg warn of a bubble: high dry powder ($500 billion+) chasing deals, leading to aggressive underwriting, looser covenants, and potential defaults as rates linger. If this boils over, private credit could contract, mirroring 2008’s credit crunch.
The Fallout for Hotels: Losing a Savior, and What Comes Next?
If private credit collapses—triggered by redemptions, defaults, or a GFC-like event—hotels lose their lifeline of the past four years. Refinancings could dry up, forcing sales or bankruptcies in a sector still recovering from COVID scars. Replacement? Banks might return, but with stricter terms amid their own pressures. Hybrid models—banks lending to funds—could persist, but at higher costs. In a full-blown crisis, government interventions (like 2008 bailouts) might stabilize, but hospitality’s cyclical nature makes it peripheral.
Hotels should act now: Lock in financing before spreads widen. For those eyeing Fed rate cuts (expected 50 bps in H2 2026), a stern warning—actual borrowing costs may rise. Risk premiums could surge 100-200 bps, outweighing policy easing, as lenders demand compensation for perceived dangers. In this shifting paradigm, proactive treasury management isn’t optional—it’s survival.
As the hospitality sector navigates these waters, the lesson is clear: Saviors are fleeting. Diversify funding sources, bolster balance sheets, and prepare for volatility. The private credit era transformed hotel finance, but its potential unwind demands vigilance.
P.S. Beware that this article was written with the help of AI. I set up the entire idea about the connection of Blue Owl, private credit, the hospitality sector and the GFC. The possible consequences coming from this were also provided by me. Then I prompted AI to expand on it, provide examples with sources, while also allowing and mentioning dissenting opinions on this matter. All of this in proper English. I can recommend this way of working with AI, but it also shows potential problems if things are prompted without knowledge. The whole set-up can only be made, if one has an inkling of what is happening in financial markets, and make the proper connections. Then prompting correctly, and checking what AI has provided, is key. The paradox of AI is that without expert knowledge, AI is dangerous to use; one needs to be able to prompt it correctly and check the validity and accuracy of what is provided. Beside that, AI (still?) needed my imagination and the ability to combine tidbits of information and knowledge to be able to come with what it provided to me. This will be a comfort to read for most of you; your knowledge and creativity are key. But this presents us with something to think about, as AI seems to be affecting starting positions and mid-level positions the most; what are we supposed to do if these positions are hardly offered anymore? How can a junior become a senior, if there are no juniors anymore due to use of AI? How can they ever become experts, with the corresponding unlocking of their creativity? For now, companies can hire at senior level, but once this group retires, what then? Will we have unknowledgeable people completely trusting the AI at the wheel, without the ability to properly judge its actions and ideas? This might be the subject of my next column; let me know what you think.