ATLANTA — “It’s the economy, stupid” is an aphorism that stretches beyond the American voter. It also impacts the way hotel investors invest, the way hotel operators operate. In this current economy, both are tight as a drum and seeking out a softer cloud in which to cozy into.
At the Hunter Hotel Investment Conference, a gathering of dealmakers, large and small, sounded deathly similar: 2025 was positioned to be a year of growth; it could end up being a year of reckoning. The jury remains out.
Consider two of the biggest in global asset management, Blackstone and Brookfield, with a combined AUM of $2 trillion between them. These are bold investors, but, of late, have been less intrepid on the acquisition side and more game on the sell side. Blackstone last September agreed to sell the Motel 6 chain to India’s Oyo and is rumored to be looking to sell Spain-based Hotel Investment Partners. Brookfield has recently sold hotels, including The Diplomat Beach Resort in Hollywood, Fla., Hyatt Regency Sonoma Wine Country in Santa Rosa, Calif., and Conrad Seoul. Scott Trebilco, senior managing director in Blackstone’s real estate group, said it sold $2 billion in assets last year.
Buying is where they’ve been reluctant—especially in the U.S. Recent Blackstone deals focused on the East: In December 2024, Blackstone added three hotels in Japan, The Ritz-Carlton, Okinawa, Kise Beach Palace and Nest Hotel Osaka. Shortly before this trio of pickups, it acquired Grand Hyatt Athens. “We see more opportunity outside the U.S.,” Trebilco said.
Part of Blackstone’s hesitance to buy is tied to interest rates. Private equity traditionally uses leverage to buy up real estate and when interest rates are high, it lowers deal values and overall returns. Trebilco said Blackstone expected seven rate cuts last year; they got three and the expectation is for rates to stay higher for longer. He remains optimistic that deals could pick up this year as credit spreads narrow, but bemoaned the still-elevated cost of capital. “It’s a different environment to get returns,” he said, partly why Blackstone, a thematic investor, has made a concerted push into other asset sectors, including data centers and multifamily housing.
Though Brookfield made some high-profile trades in 2024, Shai Zelering, its managing partner of real estate, said the company doesn’t feel any pressure to sell and, instead, will be a net buyer in 2025. “We are optimistic that the deal market will pick up,” he said, noting that Brookfield looked at around $6 billion in assets last year and pulled the trigger on $800 million of it, about half of what it initially planned to deploy. Low supply is giving owners the impetus to not divest assets as readily as they might: Why sell when cash flow is strong and new competition is depressed? “Transactions are not being done because people are holding,” Zelering said. “Why would I buy something else when I love what’s in front of me?” And while Zelering may be delighted with Brookfield’s current stance, he is not a full-on Pollyanna, pointing to government policies that are making the near-term cloudy. “It seems self-inflicted,” he said, “businesses want to invest and secular demand trends persist. Travel is recognized as a necessity.”
A Country of Consumption
It’s a sentiment shared by Mit Shah, founder and CEO of Noble Investment Group. “What we’ve learned is every time that there is an impact on consumer confidence or demand, the consumer comes back faster and exceeds prior peak,” he said. “Travel is aspirational, and we know that to be true, even when we think the world is ending.”
But the nebulous near-term effects outlined by Zelering are making it hard on investors to do what they do best: buy and sell assets. It’s certainly impacted Shah, who said he still wasn’t relenting on the company’s plan to sell some $1 billion in assets this year and buy $2 billion. “It’s a wonky environment,” he said.
Hotel investors commanded the dais, but it was populated by a lone hotel brand executive (and sacrificial lamb), Kevin Jacobs, CFO and president of global development for Hilton, who, while not hounded, was put to the test, especially on how brands can be better aligned with owners, as Trebilco suggested.
“When I look at how much Hilton and the other brands have grown over the last decade in multiples in terms of size of the system, size of the revenue pool and all of you [franchisees and owners] still pay the 4% marketing fund, which is clearly much bigger today,” he said. “What I would ask is: Where is the partnership in that? Why are we not transferring some of that growth and scale and economies of scale and efficiencies to the owners who are feeling the pain when revenue isn’t growing the way they want them to and expense ratios are all over the board? It feels like the best position is to try and help us make this a little bit better.”
For his part, Jacobs wasn’t defensive but understanding, telling the audience that Hilton was currently working on some things internally to drive cost savings to owners and franchisees. “It’s the ultimate symbiotic relationship,” he said. “One hundred percent of our business comes from real estate investors, who need to choose us if we have a premium growth rate. We need to drive returns so [owners continue to] allocate capital to us.”
Expense Lane
Brands, however, are not a panacea to profit-margin ills. It’s no surprise that the largest expense line is still the hardest to overcome. “Labor is labor,” Zelering said. “People need to get paid. You need labor and you need to motivate people to work in our industry.”
The quest to make it more efficient is perpetual. “We continue to find ways to be more efficient with the actual labor that exists in our hotels,” said Shah. “Whether it’s a mid-scale hotel with one full-time employee for every 10 rooms to a [full-service hotel], the model continues to get more efficient and allows hotels to be more profitable.”
Added Jacobs, “If you want to have fewer people in the building, which we all do, then those people need to be empowered to make on-the-spot decisions about the service they’re going to provide; they need to be empowered to make decisions about problem resolution and recovery. You drive more loyalty from a customer having a problem and that problem being resolved to their satisfaction than you do if there never was a problem in the first place.”
Labor discussion is customarily complemented by talk of artificial intelligence and how it can be used to lower costs and manpower through automating some processes. AI is still, however, in its infancy in addressing some of these issues. Hilton’s Jacobs said early on AI’s usefulness has been in back-office practices related to finance, HR, “transactional type stuff,” he called it. It’s also becoming much more prevalent in the way customers interact with hotels in the research and bookings processes. Jacobs said that around 60% of outbound communication with customers is with chat bots. “There’s a lot of efficiencies there,” he said, adding that AI will also revolutionize search.
Hilton has gone through a complete technology overhaul in the past few years, rolling out its Property Engagement Platform (PEP), a cloud-based system designed to streamline hotel operations and improve efficiency. The technology replaces OnQ, Hilton’s previous on-premise technology. “We redid our whole tech stack,” Jacobs said, but came short of calling it a new-and-improved property management system, referring to PMSs as “monolithic systems” that no longer run the entire property. “It’s not that anymore,” he said. “It’s a housekeeping API, it’s a check-in API, it’s a messaging API… it’s all these tools that you use to run the hotel and communicate with customers.” Hilton’s last tech piece is its connected room that runs the entire interface between the hotel and the guest through the TV. “Once we’re done with that, our tech stack is completely modernized,” Jacobs said.
On Brand
One of the chief complaints leveled against hotel brands is saturation related to the launch of new brands that some believe are similar to present brands in amenities, services and price points, a way to increase net unit growth and even circumvent areas of protection. At one point during the discussion, Jacobs was challenged about the hospitality business and the notion that hotels were getting away from the true craft of hostelry. And though he didn’t directly address the idea of brand saturation, his response was revealing. “People ask us, ‘What’s the biggest threat to your business?’ It’s commoditization. If there is no difference between a branded hotel and an unbranded hotel, or which brand it is, if it’s just about your bot that knows the price that you’re willing to pay to get close enough to where you want to be, then it’s game over for us.”
Like any industry, without customers, there is no business. Consumer confidence across the U.S. and globally is waning over recession worries. “[It] matters now,” said Jacobs, allowing that there will be near-term choppiness and a recession, which he said are actually supposed to happen from time to time, isn’t out of the realm of possibility. “But I wouldn’t bet against lodging in the long-term and I wouldn’t bet against the U.S. consumer over any period of time.”
