In 2021 and 2022, the hospitality sector in the United States saw a surge in hotel deals
In a significant shift, deal activity in the hospitality sector in the United States is experiencing a steady recovery after a slower start in 2024, with forecasts for continued growth into 2025.
In a press statement, CoStar, a hospitality industry tracking agency, says that while high interest rates and tighter financing constrained activity in 2023, the market is gaining momentum as capital costs decrease. Experts expect increased competition, particularly in full-service and resort hotels, making 2025 a promising year for US hotel transactions.
According to the statement, this rebound comes after several years of a quieter deals environment, primarily due to high interest rates and a more selective lending landscape.
It adds that in 2021 and 2022, the hospitality sector saw a surge in hotel deals, driven by investors seeking out coastal and resort destinations. However, as capital became more expensive and financing options tightened, transaction activity cooled in 2023, with total deal volume down 13.1 pc from 2023 and 21.4 pc compared to 2019.
According to JLL research, by the third quarter of 2024, total hotel transaction volume reached USD 15.4 billion, down 13.1 pc from 2023 and 21.4 pc from 2019.
It adds that single-asset sales totalled USD 14 billion, 8.1 pc lower than 2023 but 3.1 pc higher than 2019, marking the fifth-highest year-to-date third-quarter total in US history.
“In terms of hotel type, 2024 was a bit of a barbell market. There was liquidity for smaller assets, those below USD 50 million. Investors in this segment were able to get financing locally or regionally and had stable cash flow. The bigger hotel deals, those above USD 250 million, drove the highest portion of liquidity in three years. Real estate investment trusts, institutional investors and hotel-focused funds were among the most frequent entities involved in transactions,” says Dan Peek, President of Americas for JLL Hotels & Hospitality.
According to Peek, there has been a gap, the traditional full-service hotels made up the smallest percentage of sales in 15 years, which is as far back as JLL tracks that, so it could be even longer. This segment of the market is sensitive to leverage, and it is the part that attracts the most private equity.
It adds that quarterly surveys of hotel transactions over USD 10 million by LW Hospitality Advisors show a weaker deals environment in the first quarter of 2024 compared to the same period in 2023.
The report adds that the second quarter improved over both the first quarter of 2024 and the same period in 2023, while the third quarter saw further growth in deals and dollar volume compared to the previous quarter and year.
According to the survey, the first quarter saw 66 single-asset sales over USD 10 million, totalling USD 2.5 billion for 10,700 rooms, with an average price per key of USD 230,000. Deals dropped 20 pc year-over-year, total volume fell 30 pc, and price per key declined 18 pc.
It adds that the second-quarter survey recorded 90 hotel deals totalling over USD 4 billion for 14,350 rooms, marking a 7 pc year-over-year rise in deals, a 29 pc increase in total volume, and a 9 pc growth in price per key while as the third-quarter survey noted 97 sales worth over USD 4.4 billion for 16,600 rooms, with a 10 pc rise in deals, a 39 pc increase in dollar volume, and a 17 pc jump in average price per room.
“Momentum is definitely building. Hotels have become a mainstream asset class. Before, the major food groups of commercial real estate were office, retail, industrial and residential, but hotels are now an accepted option. They are not sort of a stepchild of commercial real estate. They are there. They are highly desirable because of the ability to continuously change rates, which affects revenue. There is a tremendous amount of capital that is already been raised domestically and internationally for hotel deals. This capital perceives hotels as a desirable investment asset class. I think we are only going to see more and more of that occur,” says Daniel Lesser, President and CEO, LW Hospitality Advisors.
“Hotel financing has picked up through a combination of two factors,” says Kevin Davis, CEO of the Americas at JLL Hotels & Hospitality.
The statement adds that the SOFR index, the benchmark for most borrower loans, dropped 75 basis points since September, while spreads narrowed 50 to 75 basis points in the second half of 2024, lowering debt costs by 100 to 150 basis points.
“That absolutely changes the math, which means that buyers theoretically will be able to pay more, and we could potentially see that getting a bit more aggressive, which could reduce the bid-ask spread gap that has persisted in the market,” Davis adds.
“Of course, 2021 and 2022 were big trade years, but only in select markets. Hotel investors were interested in coastal markets and resort markets in the Sun Belt. They generally stayed away from urban markets, such as New York, Chicago and Seattle, because those markets hadn’t recovered from the slow pandemic months. But in 2025, for the first time in years, the hotel market will be more broadly liquid and Private equity owners typically have three- to five-year horizons on their properties, and it has been nearly six years since 2019. That assumes people bought hotels in 2019. Many bought during the years leading up to 2020 and haven’t had the opportunity to sell yet. You have a lot of folks that have been in these deals for six, seven, eight years, and they need liquidity, and this will be the first time that there is broad-based liquidity since pre-Covid,” he adds.
“If he were to chart out hotel deals in 2025 and 2026, it would hopefully be a more normal chart. The percentage of deals will smooth out the middle piece that is been missing in recent years. When cities such as New York, Chicago and San Francisco are not liquid, overall transaction volume comes down,” Peek adds.
According to Lesser, many hotel owners hoped for faster interest rate cuts, though future declines remain uncertain. While rates are much higher than five years ago, they are not high long-term. He noted that while hotels may seem starved for capital, debt remains widely available, albeit at a cost.
Lesser says that interest rates alone don’t dictate buyer decisions. Buyers assess equity return rates, the deal’s story, capital needs, and market potential. Timing depends on multiple factors and is highly deal-specific.
Expectations for 2025
As 2025 approaches, Lesser expects an active year for US hotel transactions due to slightly lower interest rates, significant debt coming due, and a need for renovations. Brands are tightening standards, forcing owners to either bring in new partners, restructure, or sell. Peek adds that full-service hotels will gain attention, as many are still recovering, with more corporate and group guests returning. Debt pressure is increasing, and some sellers are lowering prices while grappling with long-term ownership and costly capital expenditures.
“Maybe I don’t love the price, but I can transact at a reasonable number. Maybe I’ll just go ahead and pull the trigger,” Lesser adds.
CoStar quotes Davis as saying that private equity firms, traditionally the largest buyers, have been less active due to the high cost of leverage. As debt costs decrease, private equity activity is expected to rise, particularly for deals between USD 50 million and USD 250 million. He adds that a SOFR index between 300 and 350 would be ideal, as further reductions would help stimulate the market.
“Looking back at 2024, it was an interesting year as a buyer. There are some years where the company focuses mostly on acquisitions, recapitalisation of assets or somewhat of a mix. If there is been any year in my 17 years with Gencom that is been like a complete cross section of everything we do, it was 2024, listing off roughly a billion dollars in financing transactions, including the Thompson Central Park, buying a majority stake in its legacy asset the Ritz-Carlton Key Biscayne, and financing the USD 550 million redevelopment of the Fairmont Southampton in Bermuda. We touched on every pillar of what we do in 2024, so it was a really, really fun year to go through,” says Alessandro Colantonio, Executive Vice Presedent & Chief Investment Officer, Gencom.
As the year progressed, Colantonio noted that competition for deals increased. The Thompson deal, which was heavily marketed, attracted numerous bids. Throughout the year, Gencom pursued several opportunities but was often priced out, reinforcing the importance of strong relationships with brands and lenders.
“As debt markets improved, competition on the buy side grew, making it harder to win deals. We can find little pockets within the deal process that maybe it’s not always pricing that sets us apart, but there’s other areas where we can be a little more efficient,” he adds.
Despite this, Gencom remains confident in its ability to execute and close deals. Many of the hotels they bid on involved multiple bidding rounds, which made the process less efficient. However, in more complex transactions with fewer bidders, Gencom’s expertise stands out. For the Thompson deal, their strong relationship with Hyatt Hotels was a key factor in securing the win.
Looking ahead, Colantonio expects many sellers will list their hotels at high prices to gauge interest from aggressive buyers. If they don’t receive the desired offers, they may consider refinancing as the cost of capital decreases and wait to sell later, aiming to create more value in the meantime.
“It will be interesting now, as the debt markets get a little bit more aggressive and are opening up a bit more, how willing are sellers to come off of their ask, because that’s a real viable alternative now go refinance and try again in a year,” he adds.
According to Colantonio, Gencom will remain aggressive next year, aiming to be a net buyer. The team will be more selective due to anticipated increased competition focusing on deals where they can win with the right resources. Gencom has a property under contract, expected to close in January, which aligns with the luxury segment of their portfolio and is an exciting way to start the year.
It adds that the company is preparing to open its newest luxury resort, the Ritz-Reserve Nekajui in Costa Rica, in the first quarter of 2025. The property is in its final stages, and its opening is almost like an acquisition. Later in the year, the Ritz-Carlton Key Biscayne will close for a significant renovation and repositioning. Colantonio emphasises that regardless of where owners are in the capital cycle, property improvements are essential as technology advances and guests expect experiences to match rising rates.
“We believe that if you are improving your asset, you are adding amenities golf and padel and whatever the new trend is you are adding technology, I think you are going to have happy customers, and they are willing to pay more, but it has to go hand in hand,” he adds.