ATLANTA — Large private equity investors in hotels are confident they’ll return in force to hospitality — just not right now.
“Uncertainty” is the sentiment of the day, according to investors from Blackstone, Brookfield and Noble Investment Group, and that uncertainty is keeping hotel deals largely on the sidelines for now until the cost of capital comes down.
Private equity investors said on the "Wall Street Talks" panel at the Hunter Hotel Investment Conference this week that they like the resilient hotel demand and operating performance they see here in the U.S., and they do see some opportunity for deals this year, but by and large they’re happy to hold for now.
“This time last year we were optimistic the transactions market would pick up,” said Mit Shah, CEO of Noble Investment Group. “As we look at this year, it’s … a really wonky environment.”
Shah said he’s “not ready to give up” on Noble’s original 2025 plan to sell more than $1 billion in hotel assets this year and buy about $2 billion, but he said “transaction activity is just very interesting right now,” as policies from President Donald Trump's administration will have "cloudy" near-term effects on the travel industry.
Scott Trebilco, senior managing director, real estate, for Blackstone, put it simply: The cost of capital in the hotel sector is just too high right now.
Although hotel supply is still low and hotel demand is resilient, larger forces are at play keeping Blackstone less interested in U.S. hotel investment right now.
“The cost of capital in totality, between equity and debt, is still elevated,” he said. “There’s not a lot of core capital. There’s not a lot of international capital coming into the U.S. hotel market today. The combination of that, coupled with a moderating growth environment and revenue that hasn’t outpaced inflation, really translates to a more difficult environment.”
For Blackstone, that has meant investing in hotels in Japan and Europe as of late instead of the U.S. And more locally, the company has been very active outside of hospitality, in data centers, multi-unit housing and retail.
This current uncertain environment doesn’t come as too much of a surprise, Trebilco said. The past two years posted the lowest hotel investment levels in a decade. It’ll come down to first movers jump-starting hotel transactions.
Shai Zelering, managing partner, real estate, at Brookfield, said his firm is perfectly comfortable holding right now. Last year, Brookfield sold the 434-room Conrad Seoul to Singapore real estate investment trust ARA Asset Management for 400 billion South Korean won ($292 million).
Brookfield will be net buyers this year, Zelering said, but he feels no pressure to sell right now.
“I would argue that every day we choose not to transact is a day we say, ‘I like what’s in front of me and I’m going to hold on to it,’” he said. “Why would I buy something else when I love what’s in front of me?”
If this year isn’t poised to be active on a U.S. hotel transactions front, Zelering said it’s a good year to “get back into the playbook and anchor down collectively” with brand partners to ensure that costs to owners are as under control as they can be.
He acknowledged the rising costs of labor and insurance, but said that for him, “the challenge is execution.”
“We’re getting away from hospitality, and I would like to see a refocus on that craft,” he said. “That builds the business.”
Trebilco came back to expense management, saying that the status of consumer confidence is the factor that “will drive confidence to make bold bets.”
“We see stats on the rapid decline of consumer confidence. We haven’t seen it play out yet in terms of data and performance, but we all know it is a leading indicator of what’s to come," he said. "Is this a moment in time when the volatility in policy is impacting confidence in a way that it will lead to different behaviors?”
Shah reminded the audience that “every time there is an impact on consumer confidence and demand, that consumer comes back faster and exceeds prior peak because travel is aspirational.”