Starwood Capital Faces Default on $265M Hotel Portfolio

Barry Sternlicht’s Starwood Capital Group is staring down the barrel of another major commercial real estate default.

A $265 million loan taken out in 2018 by a Starwood affiliate against a 22-property hotel portfolio has been shipped to special servicing as the landlord struggles to keep its head above water, according to public loan data.

The commercial mortgage-backed securities debt was transferred into special servicer K-Star Asset Management’s control in January due to an “imminent monetary default,” according to loan data from Morningstar Credit. The portfolio spans properties totaling 2,943 keys across 12 states and 17 cities, with a concentration in the Midwest including three in the Chicago area, as well as one in West Palm Beach, Florida. The hotels operate primarily under the Marriott, Hilton and IHG brand families.

While the loan doesn’t mature until 2027 and interest payments have been made through April, the portfolio’s underlying financials have deteriorated significantly.

By mid-2025, its debt service coverage ratio based on net cash flow plummeted to a dismal 0.64, meaning it was generating less than 65 percent of the revenue needed to cover the cost of loan interest. That marks a steep drop from the robust 2.07 ratio underwritten at origination. Occupancy at the hotels has remained sluggish, hovering at just 63 percent. Servicer commentary attributes the distressed metrics to the portfolio’s protracted recovery from the initial impacts of the pandemic.

Starwood has already submitted a modification proposal to the loan’s noteholders in hopes of avoiding a worst-case scenario, although the terms haven’t been made public. Both K-Star Asset Management and Starwood both declined to comment.

This isn’t Sternlicht’s first rodeo with distressed hospitality debt. Starwood’s massive commercial real estate empire is still grappling with a potent cocktail of post-pandemic market realities and the crushing weight of capital costs due to interest rate hikes that kicked off in 2022.

Case in point: A $577 million loan for another large Starwood lodging portfolio — comprising 65 mixed-service hotels and 6,366 keys — was also forced into special servicing in early 2025 due to payment default. By September 2025, Starwood inked a modification agreement to aggressively sell off underperforming assets and adjust cash-management provisions to salvage the rest of the portfolio. As of the end of March, the firm had successfully dumped 21 of those hotels, resulting in a cumulative debt paydown of $122.6 million.

While K-Star is also the special servicer for the $577 million debt package, it’s unclear if the two will work out a similar plan for this more recent distressed debt package.