ATLANTA — Lee Hunter, chairman of the Hunter Hotel Investment Conference, walked on stage to “Highway to the Danger Zone,” a song popularized in “Top Gun,” a film about a maverick fighter pilot flying on the edge of peril. The hotel industry hopes its flight path forward is less precarious. And while it’s not pulling the eject cord yet, a smooth landing won’t come easy.
“We’ve never had this much uncertainty thrown at us,” said Robert Webster, vice chairman of CBRE, during a market overview session at the conference, here at the Marriott Marquis Atlanta. But that doesn’t mean there isn’t opportunity for investors if, noted Dan Peek, president of JLL Americas Hotels & Hospitality group, they show conviction to buy. It’s been a slog to now: Global hotel investment volume reached $57.4 billion in 2024 and while an increase of 7% relative to 2023, it was the third-lowest total since 2012.
Many believe the hotel industry and the broader economy are or are close to bottoming out, which can present buy opportunities, but higher interest rates and a still-wide bid/ask spread present difficulties. Asset values are off some 20%, said Teague Hunter, president and CEO of Hunter Hotel Advisors. “It’s been a tough last two years,” he said, with interest rates a headwind to hotels transacting. Still, he noted, there are dynamics in the market that could prove propitious for eager buyers. “The sellers are the institutions that are, for example, at the end of a fund,” he said, citing Blackstone and Brookfield. “They are at capitulation. Our book of business is thick and the capital is out there.”
Blackstone, as example, except in rare cases has pivoted away from hotel investment into areas including data centers and housing. “They like those products better,” said Peek.
Drying Up
Hotels have always been a risky asset class and the potential of recession would stunt travel demand, on both the corporate and leisure sides. GDP has a high correlation to hotel demand and according to a recent CNBC Fed survey, the average GDP forecast for 2025 declined to 1.7% from 2.4%, a sharp markdown that ended consecutive increases in three prior surveys dating back to September. “The risks to consumers’ spending are skewed to the downside,” said Neil Dutta, head of economic research at Renaissance Macro Research. “GDP is likely to come down, not go up,” said Webster.
At the same time is a stock market that is in correction territory, upsetting retirement funds and stock portfolios. Credit card data recently released by Citi showed U.S. spending on top luxury brands dropped 5% in February compared with a year ago, following two months of positive growth in December and January. It could be a harbinger of gloom for luxury hotels. A recent Wall Street Journal headline summed it up: Consumer spending is highly dependent on the affluent, who are highly dependent on the stock market.
Higher interest rates have proved a stumbling block to getting deals done. “There will be higher rates for a while,” said Greg Friedman, CEO of Peachtree Group, but believes there are buying opportunities, as owners decide whether to renovate or sell or sell due to loan maturities. “People are forced to sell assets and owners get more realistic on the value of their asset,” he said, which is helping bridge the bid/ask gap.
Though interest rates remain elevated, they are far from their highest peaks and, and as Hunter pointed out, people are getting more comfortable with 6% rates. “It’s where we spent much of our careers and that’s where we are,” he said.
“The ask is still remembering those low-interest-rate days,” Webster added. “Buyers are asking the ask to change their thinking.”
Friedman’s advice for investors is to be proactive because, in this environment, it’s taking longer to transact. “Banks have pulled back on commercial real estate,” he said.
Build Down
Travel is a fluid business. Real estate, the steel and brick and mortar, is not. New hotel development has tracked similarly with hotel transactions: It’s muted. “Demand is transitory; supply is structural,” Webster said, noting that supply growth is well of its historical levels of around 2% per annum. “It doesn’t make sense to build today,” especially in the upper end of the market, which is supply restrained because the math doesn’t add up. The math, he said: For every $100,000 a key in a new hotel, you have to get to $10,000 per year by year three of operating income per room to make it work at today’s borrowing costs.
Added Friedman, “It’s hard to develop in any market,” which is why some owners might be better off keeping what they have, as Webster noted. “Owning an asset where there is supply constraint leads to a run up in net asset value,” said.
And though building new hotels is a challenge in today’s environment, Hunter opined that hotels longer in the tooth might need to step aside for new ones. “The life of a box is 30 years,” he said. “Don’t fool yourself that a hotel that is 30 years old has value.”
