After a slow start to the year, U.S. hotel deals pace grew throughout 2024, a trend industry experts expect to continue.
This comes after a few years of a slower deals environment, caused by higher interest rates and a more selective lending community. The hospitality industry saw a hotter transaction market in 2021 and 2022 when owners chased after resorts and beach locations, but that cooled when capital became more expensive and the bid-ask gap widened.
The U.S. hotel transaction market in 2024 was off from 2023, and in 2023 it was off from 2022, said Dan Peek, president of Americas for JLL Hotels & Hospitality.
“This is going to change,” he said.
Reviewing the numbers
JLL research shows that year to date through the third quarter, total transaction volume was $15.4 billion, down 13.1% compared to 2023 and down 21.4% to 2019. Single-asset volume was $14 billion, down 8.1% compared to 2023 and up 3.1% to 2019. It was the fifth-highest year-to-date third-quarter total in U.S. history.
In terms of hotel type, 2024 was a bit of a “barbell market,” Peek said. There was liquidity for smaller assets, those below $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 $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, he said.
In the middle, there’s been a gap, Peek said. 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’s the part that attracts the most private equity.
A review of quarterly surveys of individual hotel transactions valued at over $10 million from LW Hospitality Advisors helps to further fill in the picture. During the first quarter of 2024, the deals environment was weaker compared to the same period of 2023. The second quarter, however, saw improvement when compared to both the first quarter of 2024 as well as the second quarter of 2023. The third quarter showed further growth in deals and dollar volume when compared to the previous quarter as well as the prior year.
The survey of first-quarter deals shows 66 single-asset sales over $10 million, totaling almost $2.5 billion with approximately 10,700 rooms. The average price per key was $230,000. The number of deals dropped year over year by 20% while total dollar volume fell 30% and price per key decreased by 18%.
The second-quarter survey reports 90 individual hotel deals, totaling more than $4 billion with about 14,350 keys. This was a 7% year-over-year increase in the number of deals as well as a 29% increase in total dollar volume. Price per key grew by about 9%.
For the third quarter, the sales survey reported 97 single-property sale transactions, totaling more than $4.4 billion with approximately 16,600 hotel rooms. That amounts to a 10% year-over-year increase in number of deals and a 39% increase in total dollar volume. The average sale price per room grew by almost 17%.
“Momentum is definitely building,” said Daniel Lesser, president and CEO of LW Hospitality Advisors.
Hotels have become a mainstream asset class, Lesser said. Before, the major food groups of commercial real estate were office, retail, industrial and residential, but hotels are now an accepted option.
“They’re not sort of a stepchild of commercial real estate,” he said. “They’re there. They’re highly desirable because of the ability to continuously change rates, which affects revenue.”
There’s a tremendous amount of capital that’s already been raised domestically and internationally for hotel deals, Lesser said. This capital perceives hotels as a desirable investment asset class.
“I think we’re only going to see more and more of that occur,” he said.
Turning the market around
Hotel financing has picked up through a combination of two factors, said Kevin Davis, CEO of the Americas at JLL Hotels & Hospitality. The SOFR index — the floating rate index most borrower loans are pegged to — has come down approximately 75 basis points since September.
Over the course of the second half of 2024, spreads have come in 50 to 75 basis points, and that’s roughly 100 to 150 basis points in lowered cost of debt relative to earlier this year.
“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,” he said.
Of course, 2021 and 2022 were big trade years, but only in select markets, Davis said. 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.
Private equity owners typically have three- to five-year horizons on their properties, and it’s been nearly six years since 2019, Davis said. 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’s broad-based liquidity since pre-COVID,” he said.
If he were to chart out hotel deals in 2025 and 2026, it would hopefully be a more normal chart, Peek said. The percentage of deals will smooth out the middle piece that’s been missing in recent years. When cities such as New York, Chicago and San Francisco aren’t liquid, overall transaction volume comes down.
A lot of hotel owners were hoping interest rates would come down faster and sooner, and there’s a big question mark whether and how fast they’ll continue to drop, Lesser said. Compared to a five years ago, rates are much higher, but on a long-term basis, they’re not that high. There’s the thought that hotels are starved for capital, but there’s no shortage of debt available.
“There’s tons of money out there, just now you have to pay a return on that money,” he said.
Interest rates alone aren’t determining when a buyer is going to act, though, Lesser said. Buyers are looking at their equity requirements in terms of a rate of return. They’re also looking at the story behind the deal and whether the hotel needs a lot of capital and if the market has more ways to ramp up.
“It depends on so many factors, not just interest rates,” he said. “It's very deal specific as to when the right time is to pull the trigger.”
Expectations for 2025
There’s little question 2025 will be an active year for U.S. hotel transactions, Lesser said. Interest rates have ticked down a bit, and there’s a tremendous amount of existing debt that’s coming due that will need to be paid off or refinanced. There’s no shortage of hotels in the country in need of renovation, and the brands are clamping down on standards.
“There’s no more playing nicely in the sandbox,” he said. “If a hotel needs a renovation, it’s got to get done.”
The combination of these factors will force many existing sponsors and owners to either bring in a new capital partner and restructure their deal or sell off a property, he said.
Full-service hotels should receive more attention going forward, Peek said. Many of these hotels are still in recovery mode, and there’s continued performance recovery by corporate transient and group guests. There’s more downward pressure on debt. Some sellers are also capitulating on price.
Many sellers are looking at their portfolios and seeing hotels they’ve owned for a long time, he said. In some cases, they’re also looking at expensive capital expenditure requirements.
“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,” he said.
Private equity firms are historically the largest cohort of buyers, but they’ve been less active because they rely on leverage, and leverage is expensive, Davis said. As the cost of debt comes down, private equity should increase the number of deals between $50 million and $250 million.
Having the SOFR index settle somewhere between 300 and 350 is the sweet spot, Davis said. It won’t take that much to get the market going because the reductions so far have helped.
“I think every incremental 25 basis points will help, but the question is, what’s the rate at which the market is wide open?” he said. “I think it’s somewhere around 350 on SOFR, which is about 100 basis points inside of where we are today.”
An owner’s perspective
Looking back at 2024, it was an interesting year as a buyer, said Alessandro Colantonio, executive vice president and chief investment officer at hospitality real estate firm Gencom. There are some years where the company focuses mostly on acquisitions, recapitalization of assets or somewhat of a mix.
“If there’s been any year in my 17 years with Gencom that’s been like a complete cross section of everything we do, it was 2024,” he said, 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 $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.”
As the year progressed, deals started to become more competitive, Colantonio said. The Thompson deal was a heavily marketed and received a lot of bids. Through the year, Gencom chased a number of opportunities but was priced out as the year went on. That reinforced executives' belief that strong relationships with brands and lenders make a big difference when bidding.
“As the debt markets got better throughout the course of the year, we saw a lot more competition on the buy side,” he said. “So, that makes our job a little more difficult to win deals, but I think we continue to stand behind the relationships we have and our certainty in executing deals and getting things to the finish line.”
Thinking of the hotels Gencom bid on this year, Colantonio said several had multiple rounds of bidding. They start with a field of 10 to 12 bidders, narrowing it down over several rounds until the final two. In this situation, the company is less efficient because it means chasing pricing, and it's not a “retail buyer.”
In opportunities where it’s a narrower field because it’s a more complex transaction, that’s where Gencom can set itself apart, he said.
For the Thompson deal, Gencom has a good relationship with Hyatt Hotels Corp., and that went a long way in winning the bid.
“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 said.
Looking ahead, Colantonio said he expects many sellers are going to put their hotels on the market with a big number to see where the aggressive buyers are. If the sellers don’t get that number, they may look at refinancing opportunities as the cost of capital comes down and wait to put it up for sale later after trying to create a bit more value.
“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 said.
Next year, Gencom will continue to be aggressive as the team wants to be a net buyer, Colantonio said. When looking for the right opportunities, it will be more selective because of the anticipated increase in competition.
“We're not going to be chasing a multiple-round bidding process,” he said. “We're going to be very, very careful to find the right opportunities that we know we can put the resources on because we can win the bid. We don't want our team spending time on deals where you just know you're going to have 10 or 12 other buyers that can just price it more efficiently than you.”
Gencom has one property put under contract recently, and the deal should close in January, he said. It fits in the luxury end of the company’s portfolio, and Colantonio added it’s exciting to kick off the year with such a deal.
The company is preparing to open one of its newest luxury resorts in its portfolio, the Ritz-Reserve Nekajui in Costa Rica, he said. The property is in the late stages now and should open in the first quarter of 2025, and opening that resort is almost like an acquisition. Later in the year, it will close the Ritz-Carlton Key Biscayne for a significant renovation and repositioning.
Regardless of where owners are in the capital cycle, they have to continue to improve their properties, Colantonio said. Technology is improving, guests are expecting experiences to match growing rates.
“We believe that if you’re improving your asset, you’re adding [food and beverage], you’re adding amenities — golf and padel and whatever the new trend is — you’re adding technology, I think you’re going to have happy customers, and they’re willing to pay more, but it has to go hand in hand,” he said.