BBC News NI south west reporter Julian Fowler said on Wednesday that the fire was a very sad sight for the town.
He added the hotel meant a lot to many people and was a local landmark.
The hotel closed in 2015 and, since then, it has been boarded up and derelict and has been the subject of anti-social behaviour and previous fires.
Detectives are asking anyone with information or who saw or captured footage of any suspicious activity in the area to contact them.
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