Transaction activity was down for most of the year, but the recent interest rate cuts from the Federal Reserve could mean an increase in 2025. Hotel Business spoke with Spencer Davidson, SVP, Hunter Hotel Advisors, and Eddy Nevarez, first VP, investments/director, national hospitality division, The Nevarez Group, Marcus & Millichap, to gather their thoughts on the market.
—Gregg Wallis
Did 2024 live up to your expectations? Why or why not?
Davidson: 2024 has indeed lived up to our expectations with a year marked by a combination of anticipation, excitement, volatility and significant change. We have witnessed the first interest rate cut in four years, a dynamic stock market and a major election cycle. Despite these challenges, hotel fundamentals have remained relatively resilient.
The transactional landscape has been shaped by the pressures on regional owners and institutional groups dealing with debt maturities and capital expenditure needs across their portfolios. Throughout this period, Hunter has continued to expand its market share, positioning ourselves to outperform 2023 with nearly $1 billion in transaction volume, along with an additional $345 million under contract.
Spencer Davidson , Hunter Hotel Advisors
Nevarez: 2024 has been a year of both recovery and recalibration for the hotel industry. On the positive side, there has been a continued rebound in travel demand, particularly in leisure and some urban markets. Consumers have largely adjusted to post-pandemic travel patterns, with pent-up demand for both domestic and international travel. This has been especially evident in markets that saw early recovery signs in 2023 and have continued to perform strongly in 2024. Destination hotels, resorts and leisure-driven markets have seen particularly strong demand, driven by a mix of both domestic travel and international tourists returning in greater numbers.
However, rising operational costs and staffing challenges have remained significant hurdles for many operators. The labor market has not fully stabilized in 2024, leading to persistent staffing shortages and increased wage pressures. This has made it challenging for operators to maintain service standards while managing profitability. Additionally, rising interest rates earlier in the year created a more cautious investment environment, with higher borrowing costs impacting deal flow and slowing new developments.
On the investment side, while transaction volume has improved compared to the lows of 2023, it has not fully returned to pre-pandemic levels. Investors have been selective, focusing on value-add opportunities, operational efficiencies, and properties with strong recovery potential. The market has also seen growing interest in alternative uses, such as hotel-to-multifamily or senior living conversions, as investors adapt to changing demand dynamics.
With the Fed lowering interest rates towards the end of the year, how do you expect that to affect what was a slow transaction market?
Davidson: We anticipate that the Fed’s decision to lower interest rates will stimulate transaction activity by improving both the availability and cost of debt. However, it is important to note that, despite the initial rate cuts, we have not yet seen a significant impact on SOFR. That being said, we are finding that market perception and reality can sometimes differ.
At Hunter, we have observed a notable increase in activity during the latter part of the third quarter and into the fourth quarter, with a strong pipeline building as we approach 2025. As we move into the new year, we remain optimistic and bullish about the market outlook.
Navarez: The Fed’s recent interest rate adjustments—first raising rates and then slightly lowering them—have introduced a mix of challenges and opportunities for the transaction market. Earlier rate hikes significantly slowed deal activity as higher borrowing costs made achieving favorable returns more difficult, causing a valuation gap between buyers and sellers.
However, the recent slight rate reduction offers some relief, potentially improving financing conditions. While this isn’t a dramatic shift, it may encourage cautious optimism among buyers reliant on debt financing. Sellers still adjusting to the realities of a higher-rate environment might find it easier to align on pricing with buyers as borrowing costs stabilize.
The market is likely to remain measured in the short term as participants adapt, but this recalibration could pave the way for renewed activity in 2025. Buyers seeking value opportunities and sellers willing to meet market-driven valuations could find the current environment more conducive to closing deals.
What types of hotels are desirable from an acquisition standpoint right now?
Davidson: Limited-service, midscale hotels are the most sought-after assets and are likely to remain in high demand as we move into 2025. Additionally, there is a strong interest in hotels located in prime urban areas, particularly those supported by high-quality real estate. These assets can range from full-service hotels in need of repositioning to limited-service properties being sold by servicers, lenders or those facing “end-of-fund” criteria, which align well with current market pricing expectations.
While the Sun Belt will always be in demand, it is noteworthy that we are also seeing significant interest in high-growth markets in the Northeast and New England. These areas are experiencing a notable rebound in corporate and mid-week travel, coupled with limited supply growth due to extremely high construction costs. This combination is driving strong, double-digit RevPAR growth in many of these markets.
Nevarez: In today’s market, investors are focusing on hotels that offer a combination of stability and growth potential. Prime assets are those in high-demand, prime locations—especially urban centers with strong corporate and leisure travel demand. These locations are often seen as safer bets for steady income, even in uncertain economic times. In particular, upscale and select-service hotels are attracting attention because they tend to be more resilient across economic cycles. These properties generally have more efficient operations, and their appeal to both business and leisure travelers makes them a safe investment in a competitive environment.
Additionally, resorts and leisure-focused properties in regions with strong year-round demand are highly desirable. Investors are looking at destinations that attract both weekend travelers and those seeking extended stays, such as popular vacation spots with strong inbound tourism or destinations tied to specific events or conferences. Resorts in destinations with sustainable demand—whether through family vacations, corporate retreats, or eco-tourism—are seen as more insulated from short-term market fluctuations.
Another growing trend is the demand for underperforming assets with repositioning or redevelopment potential. This could be a hotel in a secondary or emerging market that has untapped value. Investors are looking for properties that they can transform through renovations, upgrades, or even rebranding efforts. This could include converting older, full-service hotels into select-service properties; repositioning distressed assets to target a different demographic; or repositioning a property to cater to a niche market, such as boutique or lifestyle travelers. These niche markets often command higher rates and stronger loyalty among specific demographics, such as millennials or eco-conscious travelers. Additionally, converting properties to alternative uses, like multifamily housing or senior living, is gaining traction as investors seek to capitalize on shifting market demands and address housing shortages in certain regions.
Lastly, extended-stay hotels are particularly attractive due to their operational efficiency and ability to cater to both short-term and long-term guests. These properties have proven resilient during economic downturns, making them a favored asset class for investors seeking stability and consistent cash flow.
