The US hospitality sales market is undergoing a transition, marked by a massive reset in hotel pricing. As a result, sales volume is nearly at a standstill because the bid-ask spread has stayed wide.
“It’s really hard to narrow that because the seller is dreaming about six caps, and the buyer, who's very disciplined and knows the math, has to fit into the math, which is an eight or nine cap,” said Robert Webster, vice chairman and president CBRE Hotels at NYU IHIF earlier this year. “That transition is taking a long time—going on four years now, and it's going to continue to take a long time, because it doesn't seem like any data inputs on either side are changing anytime soon.”
Good fundamentals but uncertainty impeding sales momentum
“We are in a supply-demand perfect storm” said Mark Schoenholtz, vice chairman and co-head of the Lodging Capital Markets group at Newmark, pointing out that the current lack of construction is generating positive investment momentum, but investors are looking for some clarity in terms of market fundamentals. “There's a lot of noise in terms of tariffs, interest rates, revpar growth, labor costs and things like that, so everyone's looking for a little bit of conviction,” he added.
“Conviction is the most complicated and important word we're dealing with today,” added Daniel Peek, president of Hotels & Hospitality at JLL. “There's plenty of capital, there's more equity than we've ever seen in real estate that could potentially be deployed in hotel real estate,” he contended. “But conviction is the big question.”
Peek noted that the fundamentals suggest really strong growth, but there’s still a big question mark. As a result, people are playing in certain pockets, he continued, with more of the private equity traditionally deployed in the United States is now being deployed in Europe.
“I think the fundamentals are actually better than we assume,” Peek continued, noting that there's a bit of a psychological problem in the market. He pointed out that the debt markets are quite strong. “And while “we don’t like the pricing, the liquidity is very strong.”
“There's a ton of capital out there on the debt and equity side,” agreed Jennifer Dakin, managing director of Hotels & Hospitality Mortgage Banking at Berkadia. “There’s plenty of liquidity in the market, and some banks are getting back into the real estate lending business, so there’s reasonably priced loans in terms of spreads, but interest rates are relatively high compared to what people are accustomed to,” she added, noting that investors are eager for transactions, but they are very selective as to how they put their capital to use.
“There’s a plethora of debt funds out there that are looking to get pretty creative, but they're yield driven, so that makes it a little difficult,” Dakin continued. “People need yields, so the equity side is not necessarily fitting perfectly together, and the time to put deals together takes so much longer than historically.” In addition, she noted a disconnect between buyers and sellers, who are unable to come to agreement on price or get the appropriate financing in place.
Why the lull in hotel transaction velocity
On the other hand, Jeffrey Davis, managing director at Eastdil Secured, a global real estate investment bank, pointed out, “We have liquidity in the debt markets. We just don't have a lot of buyers or the capital allocation to our sector that we had over the last 10 years.”
He said for example, “REITs aren’t buying because they're impacted by other market forces that have nothing to do with our business. They have a massive legacy of equity that hasn't yet been marked to market, and so it's difficult for them, the traditional legacy investors, to actually invest,” he explained, noting that in times like this, it takes time for that capital void to be filled.
Webster attributed the slowdown in capital investment to a typical market fiduciary rollover. “When you think about the aggregation of capital, the source of that capital is always the same: it’s individuals who feed their investment dollars up through fiduciaries.”
Davis noted that over the last 12 to 18 months, hotel transactions involved between seven and 10 organizations that bought and sold hotels to each other. “What we're seeing is a diminishing amount of capital allocated to our sector. And not only are we fighting with lenders now to refinance hotels to allow investors to take out equity and get a free option on the back end, we’re competing with data centers and industrial and other hotels,” Davis continued, suggesting that “the shine of hotels has come off,” which is unfortunate because the fundamentals have never been stronger.
Davis noted that some of the international capital that once flowed to U.S. assets has been focused on high-quality, unique assets in Europe. One reason is the desire to own European trophy properties, which historically are not often available for sale.
“The nature of that international capital coming to the United States is coming through fund allocations versus direct investment into deals,” he continued, “so the trophy assets that had an appeal for a certain buyer is no longer there.
All quotes taken from the NYU IHIF 2025 panel: ‘Seal the deal: Managing transactions in a changing market' in June