Nolan Hecht has spent three decades investing in hotels, and he can’t remember a development drought quite like this one.
For Certares, that’s exactly what makes acquiring existing hotels — especially roughly 50 per cent of replacement cost — so attractive right now.
“We are in probably one of the longest development droughts for hotels, in my career, and I don’t see that changing,” said Hecht, senior managing director and head of real estate at New York City-based Certares. “I don’t see banks really having an appetite to lend on hotel development, and until the cost of construction comes down meaningfully, I really don’t see that as a viable option.”
While the lack of new hotel supply, particularly in high-barrier-to-entry markets, has received plenty of attention in recent years, Hecht thinks the industry still underestimates its significance.
He said that over 30- or even 50-year periods, new hotel delivery has typically represented 2 per cent to 3 per cent of overall supply. In central business districts today, he estimates construction starts at less than 0.5 per cent of existing supply. Hecht is focused on actual construction starts, rather than the much larger number of projects included in industry pipelines that remain in planning or are slated to start construction.
“People aren’t focusing enough on that. When you can buy well-located hotels at 50 per cent of replacement cost in a market where you really aren’t going to see new supply… you’ve probably got a five-year window of depressed activity,” he said. “I haven’t seen this in 30 years in this business.”
Hecht describes the target as “fortress locations” — well-located hotels that can’t easily be rebuilt but whose owners haven’t invested enough capital. Certares wants assets where it can create value through renovations, reflags and other improvements.
Why Certares bought in Savannah
The 351-key Hyatt Regency Savannah, which Certares and Newport Beach, California-based Clearview Hotel Capital acquired in July from Dallas-based REIT Ashford Hospitality Trust for $158 million, is a good case study in that strategy.
Most Savannah hotels have fewer than 150 rooms, Hecht said, making the Hyatt difficult to replicate at more than twice that size. It also has more than 40,000 square feet of meeting space — the most of any hotel currently in the city — and runs at roughly 90 per cent occupancy despite guestrooms that haven’t been renovated in 15 to 20 years.
Certares plans to renovate, with the investment thesis centered primarily on pushing rate rather than occupancy.
Hecht said when Certares started its platform in late 2020, Savannah was on his hit list of markets he wanted to buy in.
“It’s an area of population growth and it’s always been a strong leisure market, especially drive-to leisure,” he said. “We focus on diversity of demand and Savannah has business coming from all different areas, both business and leisure oriented.”
REITs return to the buying pool
Hecht has candidly said in the past he likes the market better when it’s harder to sell hotels, because it tends to work in Certares’ favor. There are certainly more buyers in the market these days, with some hotel REITs notably reentering the acquisition market (he noted several other REITs were competing with Ryman for Trinity’s recently announced $1.38 billion sale of the dual-branded Grande Lakes Orlando Resort in Florida).
“The REITs… have started to get more active, and you’re going to hear about a couple transactions where REITs are acquiring hotels over the next coming months in the fourth quarter,” he said. “You’re starting to see a little bit of an evolution of more folks diving into the bidding field, which makes it more crowded for us.”
That increased buyer pool has lessened the bid-ask spread for deals. Hecht estimates it has moved from roughly 20 per cent a year ago to 10-15 per cent today.
Better-than-expected hotel performance since February, combined with supply-demand fundamentals Hecht considers the strongest of his three-decade career, is adding to that transaction momentum. He expects that momentum to continue.
“The fourth quarter will finish pretty strong because there are large deals in the works,” he said. “I expect Q1 2027 deal volume to be up because people are going to look back at the overall performance of 2026 and say, ‘We missed out.’”
Chasing diversity of demand
Coming out of COVID, Certares deliberately emphasized leisure markets because it expected leisure demand to recover first. Now the emphasis has shifted to what Hecht calls “diversity of demand,” pulling the company toward more traditional urban markets.
Hecht points to Boston, San Diego and Savannah as examples of markets supported by multiple demand generators.
“That has led us into more central business district investing,” he said. “These markets that can draw upon a lot of different demand sources are really holding up best.”
Certares also has a number of travel-related investments in companies like Hertz, American Express Global Business Travel, Tripadvisor, airlines and travel companies. The company uses that market knowledge to find demand patterns others don’t see.
That kind of knowledge led to Certares being an early investor in Miami’s red-hot Brickell district with its acquisition, along with Trinity Investments, of the EAST Miami hotel. The JV bought the hotel for approximately $174 million in 2021 and sold it to Blackstone last September for close to $300 million.
“Nobody knew what was going on in Brickell. We spent days there talking to the local office brokers,” he said. “When we really started understanding the depth of what was getting delivered from an office and residential standpoint, we said, ‘Wow, this is one of the pockets that we have to be in.’”
The exit from the EAST Miami was earlier than expected, Hecht said, because the business plan was already executed and the offer was too good to pass up. But he said Certares would love to get back in the Miami market again.
“It’s my favorite hotel market. I don’t think the genie’s going back in the bottle,” he said. “It’s just that other folks have caught on, and the pricing has sure moved up.”
Certares’ pipeline
So what are Certares’ favorite “pockets” right now? The Savannah acquisition from earlier this year offers some good clues.
“We’re trying to find similar assets that are well-located hotels — fortress locations. You can’t rebuild them. For some reason they tend to have main and main locations… but they need capital.”
Hecht said it’s less market-specific, but Certares tends to be focused more on locations East of the Mississippi.
“We’re hunting for assets where we think we can create value within the envelope… and that tends to be up and down the East Coast.”
So what’s in Certares’ pipeline? Hecht said the company has bandwidth for more acquisitions, but they usually take time (most of the 17 hotels Certares has bought over the past five years weren’t fully brokered or marketed.)
“We’re nimble,” he said. “We’re hunters and we try to source acquisitions that fit our guidelines.”