LOS ANGELES — For many hotel owners and investors, 2024 was a year defined by uncertainty — with pricing, interest rates and the regulatory environment all up during a presidential election year.
Now with the political side of the equation settled, hotel owners hope 2025 is a year of more clarity. The core belief is that the bid-ask spread and cost of debt issues are the next hurdles to overcome.
Speaking during the "Boardroom Outlook: Hotel Real Estate" session at the 2025 Americas Lodging Investment Summit, Benjamin Rowe, managing partner of KHP Capital Partners, said there's increasing pressure on hotel owners to sell.
"That could be true distress where they're not covering debt service and they're facing loan maturities," he said. "That could be a function of a pending [property improvement plan] or other renovation needs or maybe a need for liquidity for other assets. All of that's becoming a somewhat bigger factor or catalyst for dispositions."
Russell Urban, principal and managing partner for Electra America Hospitality Group, said he expected more hotel deals to happen in 2024.
"I play in the luxury and upper-upscale segments, and I would say 2024 was disappointing," he said. "If you take a look at the amount of capital in the marketplace, there was lot of it and a lot of debt availability, albeit primarily expensive debt. It's kind of surprising to see fewer transactions than I think people anticipated."
Urban anticipates a more stable environment in 2025, but the U.S. Federal Reserve will continue to have an outsize role in how many deals get done.
"I think it's largely down to interest rates, which have obviously come down, but not down enough," he said. "It still makes it difficult for financially motivated buyers — which is most of them — to make a deal."
Stephen Zsigray, president and CEO of Ashford Hospitality Trust, agreed, noting the other major hurdle remaining is pricing expectations between buyers and sellers. He said more aggressive property-improvement plans from hotel brands and increasing debt maturities could close that gap more from the seller side of the equation.
"I think we'll see that bid-ask spread come in quite a bit here in 2025 and find a point in the middle that makes sense," Zsigray said.
Greg Juceam, CEO of Extended Stay America, said the transactions environment didn't come to a complete halt in 2024, with lower-end properties much more likely to trade, but also less likely to get broad attention.
"Highgate, for example, sold a big chunk of their CorePoint LaQuinta portfolio and some other select-service" assets, he said. "And even for my shop, we sold 30 hotels last year and a billion dollars in real estate over the last couple of years, but our thesis in selling is different."
While there are expectations of improved deals pace, Urban said it's unlikely to feel like the floodgates are opening.
"We have no timeline in our funds, so we're not anxious to get our money out necessarily," he said. "Certainly, we'd like to deploy it, but I think a lot of capital is going to be reasonably patient."
Urban and Juceam agreed that hotel brands' increased demands on renovations are going to be a primary driver of deals in 2025 as more owners look at their existing portfolios and don't see the returns they need from sinking more capital into certain hotels.
From the brand perspective, the hotel industry is past the crisis of the COVID-19 pandemic and guests are also losing patience with the decreasing quality of product, Juceam said.
"I think that guests notice" that the industry has deferred renovations, he said. "You can generally read this across all the social sentiment: They feel like they're paying more and maybe getting less in services and in terms of product. So, it's got to swing back."
And Rowe said financial institutions are similarly running out of patience.
"I think there's real distress, and I think it's growing," he said. "It takes awhile for this stuff to play out, and of course it varies from market to market. There are markets that are stronger and where there's very little [distress], but there are a lot of these urban markets that are far from fully recovered where the distress is real where both individual owners as well as institutional owners have underperforming assets facing loan maturities."