Hotel investment activity is being shaped by high interest rates, rising costs and a wave of owners motivated by debt maturities and renovation requirements. Hotel Business caught up with Eric Guerrero, senior managing director, partner, brokerage and advisory, HVS; Brent A. Jaynes, managing partner, Leisure Real Estate Advisors LLC; and Yatish M. Nathraj, Southwest managing director, HTL Hospitality Advisors.
—Gregg Wallis
What’s driving hotel sales and acquisitions right now?
Guerrero: On the seller side, two main factors are driving activity: 1) pending PIPs or mandatory franchise renovations, and 2) looming debt maturities. It’s not an ideal time to sell from a valuation standpoint, so most sellers are motivated by necessity rather than choice. On the buyer side, valuations have adjusted downward as sellers become more realistic on pricing. There’s also a growing perception that the market has bottomed out, making this an attractive entry point for investors.
Jaynes: One aspect of the brokerage business that never will change is that the main driver of deals is cash flow. Top-tier flags and newer properties (15 years or less) always garner a lot of the interest, but even independents with cash flow get attention. With the advent of higher rates, we have seen proforma deals tougher to get done, because the higher rates have curtailed more aggressive risk taking. Naturally, increased rates along with increased expenses have affected cash-on-cash returns. Recently, tariffs have been brought into the picture, especially pertaining to the costs of PIP completion.
Nathraj: Owners are trading in their B- and C-class hotel and resort assets for A-class investments with a value-added approach in management and operations. Many new hotels and resorts were constructed by speculative developers that encumbered the property with cheap, short-term bridge loans, but as interest rates increased substantially, their underwriting fundamentals went out the window. This has created investment opportunities for seasoned owners and investors who can make substantial down payments with proceeds generated from the sale of older properties that they may be able to use as a real property 1031 exchange. The deal works because instead of putting 10%-20% down like most developers, these operators and investors can put down 30%-50%. Finding these types of deals may be especially difficult during crunch time, but when using a licensed off-market real estate specialist, these properties can be identified.
How are rising costs and interest rates affecting deals?
Guerrero: Overall, they’re pushing valuations lower. Change-of-ownership PIP quotes remain elevated due to high labor and material costs, which is where we see the most buyer pushback. While interest rates are still relatively high, they’ve begun to ease in recent months, so financing objections have quieted. The bigger hurdle right now is renovation pricing, not debt costs.
Jaynes: Interest rates, costs of goods, employee costs, insurance and real estate taxes have all played a role in squeezing annualized returns and cash-on-cash returns, with insurance and wages leading the pack. However, since the fourth quarter of 2024, investors have begun to squeeze the price points. Until mid-year 2024, the bid/ask gap was fairly wide, but has recently begun to narrow. Our activity has picked up markedly since August, for reasons I can’t explain. Declining rates will always help, but a quarter point here or there has not impacted negotiations much, so far. As interest rates rise, the market will tighten and there will be fewer lenders willing to fulfill the borrowers’ requests to finance acquisitions that are riskier because of the asset type.
Where do you see the biggest opportunities for hotel transactions in 2026?
Guerrero: We expect to see a meaningful uptick in distressed deal activity, based on our BOV pipeline and owner conversations. In addition, we anticipate continued “institutional-to-private capital” trades, as larger owners shed non-core assets. Both segments should create compelling value-add opportunities for buyers.
Jaynes: From observing investment cycles over the years, especially here in the Midwest where Leisure Real Estate Advisors is the most active, we tend to be a bit more immune to large fluctuations in markets. For instance, international travel has been curtailed recently, but the central U.S. has not seen any impact from this decline. The regional investment marketplace has re-balanced from last year, and I believe 2026 will provide an increase in deal numbers and in deal size.
Nathraj: The best opportunities for hotel and resort transactions in the next year will be lender-owned. Many capital markets and third-party bridge lenders provided loans recently on deals that did not make economic sense for their own shop or for the borrower. These were usually the B- and C-class asset that were bought or refinanced using A-class underwriting because of cheap money. The wave of economic cycles from COVID, high interest rates as well as political and global economic instabilities have crippled over-leveraged assets with poor initial investment fundamentals, resulting in these REO properties being placed at rock-bottom pricing. Current lenders and owners will most likely take the biggest haircuts on those assets because of the deferred maintenance, age of asset, location and poor cash flow.
