The federal funds rate sits at 3.50%-3.75%. The January FOMC minutes revealed something worse than a pause: some committee members discussed raising rates if inflation stays elevated. That's not a hold. That's a threat. And for hotel owners carrying $875 billion in maturing commercial real estate debt this year, threats have basis-point consequences.

Let's decompose what "50-100 basis points higher" actually means for a hotel owner. Take a $30M refinancing on a 200-key select-service property. At a 6.5% rate, annual debt service runs roughly $2.27M. At 7.5%, it's $2.51M. That's $240K per year in additional cost... on the same asset, generating the same NOI. For context, $240K is roughly what that property spends on its entire engineering department. A 100-basis-point move doesn't show up as a rounding error. It shows up as a position you can't fill, a renovation you defer, or a distribution you skip.

The floating-rate exposure is where this gets dangerous. One publicly traded hotel REIT ended 2025 with 95% of its $2.6 billion debt portfolio in floating-rate instruments at a blended 7.7%. Compare that to a larger peer carrying 80% fixed-rate debt at 4.8% blended. Same industry, same macro environment, completely different risk profiles. The spread between those two debt structures is the difference between a manageable year and a fire sale. I audited a management company once that reported "strong portfolio performance" while three of its owners were quietly marketing properties because their floating-rate debt service had consumed their entire margin cushion. The P&L looked fine at the NOI line. Below that line was a different story.

The development pipeline math is even less forgiving. A ground-up select-service project underwritten at a 6% construction loan rate with a 7.5% stabilized cap rate had maybe 150 basis points of spread to absorb cost overruns and lease-up risk. Push that construction loan to 7% and the spread compresses to a level where the project only works in the base case. Projects that only work in the base case don't work. Every developer knows this. The ones who proceed anyway are the ones I end up seeing in disposition models two years later.

Here's what the headline doesn't tell you. The Fed isn't the only variable. Over $57 billion in CMBS loans maturing in 2026 are projected to default. That's not a forecast from a pessimist... that's the market pricing in what happens when assets underwritten at 2021 rates meet 2026 realities. Secondary markets with high leisure concentration face a compounding problem: consumer credit costs rise, leisure demand softens, RevPAR flattens, and the refinancing gap widens simultaneously. The real number to watch isn't the fed funds rate. It's the 10-year Treasury, because historically a 100-basis-point increase there has produced a 28-basis-point uptick in hotel cap rates. Cap rate expansion on flat NOI means asset values decline. Asset values decline, loan-to-value covenants trigger. Then the phone calls start.