LOS ANGELES — After years of splitting the hotel business into its constituent parts — between ownership, operations and brand, primarily — some experts believe we could be in store for a move in the opposite direction, with a new era of "vertical integration" among hotel investors.
Lawrence Kwon, managing director of investment bank Moelis & Company, said he sees a reversal of the two-decade trend coming.
"A word that you're going to hear a lot about from a lot of real estate investors is this concept of vertical integration," he said during the Industry Real Estate Financing Advisory Committee panel at the 2025 Americas Lodging Investment Summit. "I think we've gone through a 20-year cycle of vertical disintegration, but we have a lot of clients who are on the real estate capital formation side who are saying, 'Our [limited partners] want us to be doing more than just allocating capital.' And I think that's going to create opportunities for a lot of real estate investors to think about strategic partnerships, whether it's brands or management companies, to really think about how they can deliver a better return opportunity for their LPs."
He said more real estate investors are waking up to the fact that "you can have it all" when you invest in hospitality.
"You get to have yield. You get to have growth," he said. "One of the things that we're hearing fairly significantly from a lot of investors we are speaking with is that they're looking for opportunities to get both. If I'm out there pitching a deal, or if I'm a company and trying to raise capital, I think you need to tell both stories."
Leeny Oberg, chief financial officer and executive vice president of development for Marriott International, noted the key challenge for her company and other hotel brands is recognizing they have to serve the needs of both consumers and investors.
"One of the most important parts for all of us in our industry to recognize is the way investors think about their assets — their entrance, their exit, their horizons," she said. "How [investors] are looking for it, for yield versus growth ... is critical for me to understand to make sure that I can grow."
She said more and more hotel brands have to deliver better technology for improved customer experience and to deliver better results for owners.
"At the end of the day, if we aren't critically focused on making sure we're addressing what [Kwon] talked about and understanding our real estate investors' perspectives, the whole thing falls apart," Oberg said.
Panelists were asked if the current economic climate will lead to more merger and acquisition activity among hotel-focused real estate investment trusts, but Pebblebrook Hotel Trust Chairman and CEO Jon Bortz said there aren't as many advantages in the REIT space of added size and scale.
"There's no economies to scale in a meaningful way, and the bigger companies don't trade at higher values. ... The only real savings are corporate [general and administrative expenses], and that gets wiped out with transactions costs," he said.
While that reality makes deal activity between publicly traded REITs less likely, he said it's more likely the industry will see more public REITs taken private. That's in part because REITs don't have many other vehicles to drive shareholder value right now.
"Our stocks are trading at half price, so the way to create the most value for our shareholders is to sell assets and buy our stock back," he said. "It doesn't matter that the asset values today are low because our stock price is lower."
Shai Zelering, managing partner at Brookfield, noted his company purchased hotel REIT Watermark Lodging Trust in 2022. He said the fragmented nature of the hotel industry continues to be a challenge, along with the high capital requirements. That makes the ownership side of the business fundamentally different from the brand side.
"It is becoming an uber-specialized business, and I think that it's not for the faint of heart," he said. "I think we need to reward [hotel] investors for that risk."
He noted, though, that across the spectrum of commercial real estate, hotels remain "in great shape."
"We're not in the craze of data centers. We're not in the craze of logistics. We have been in the very middle relative to other investments. I think hotels are fantastic. They're difficult operationally, but present a lot of opportunities," he said.