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The recently sold Candlewood Suites Jacksonville-Mayport, FL – Image Credit IHG Hotels & Resorts
Hotel transactions under $50 million are leading the U.S. market, driven by economic factors and investor strategies.
In a recent article, Bryan Wroten of CoStar writes that the U.S. hotel transaction market has seen a notable trend in 2025, with deals under $50 million becoming a significant focus. Despite economic uncertainties and a slowed transaction pace earlier in the year, investors continue to pursue opportunities in this segment.
Market Trends and Dynamics
According to JLL Hotels & Hospitality’s May 2025 investment trends report, hotel deals under $50 million accounted for 47% of the investment volume in the first quarter. This segment, often overlooked in the headlines, represents a substantial portion of the transaction market and the overall hotel industry. Hospitality Real Estate Counselors (HREC) reported selling over 50 hotels by mid-June, all within this mid-market space. The typical marketing period for hotels is approximately six months, with closures typically expected within five months.
Investors face a market with limitations, as the anticipated hotel distress from the pandemic did not materialize. Lenders and brands have shown patience and cooperation with property owners. Elliott Estes of Woodmont Lodging notes a 10% to 20% gap between sellers’ expectations and valuations, often due to property improvement plans and increased debt costs.
Investor Strategies and Challenges
Sellers’ expectations often clash with buyers’ valuations, primarily due to the costs associated with property improvement plans and the higher cost of debt. This bid-ask gap complicates transactions. Some owners prefer selling individual properties rather than portfolios to achieve better pricing. Macroeconomic factors, such as U.S. tariffs, add complexity to value-add strategies, impacting renovation costs and procurement.
The Peachtree Group, which actively renovates hotels, considers multiple factors when evaluating acquisitions, including the timing of renovations and procurement sources. The firm emphasizes a holistic approach, assessing purchase prices, net operating income, and capitalization rates.
The Players in the Market
The market features a mix of established hotel owners and operators, as well as new entrants. Many sellers are looking to recycle capital by divesting older properties and investing in higher-return opportunities. Baby boomers nearing retirement are also exploring the market value of their hotels. Some deals are motivated by fund life cycles, impending renovations, or debt maturity.
New players, referred to as “non-digital buyers,” are entering the market, often wealthy individuals with backgrounds in other real estate sectors. These buyers prefer to stay under the radar and are exploring opportunities in the hospitality sector. Another category includes “hometown heroes,” local business figures investing in hotels for returns.
Financial Environment and Expectations
For hotel deals under $50 million, financing options include fixed-rate loans at around 7% interest for stabilized properties and floating-rate loans for more extensive renovations. Regional banks are active but often require full-recourse loans, which some buyers avoid. Larger buyers focus on overall debt costs, influencing their willingness to pay for hotels.
Interest rates are a critical factor, with hopes for reductions to stimulate more activity. A strong relationship with lenders can provide advantages in securing financing, especially in smaller markets. Larger buyers may face challenges due to increased financing costs, but deals remain possible.
Outlook for the Year
The outlook for the second half of 2025 suggests continued activity in the sub-$50 million hotel segment. While initial expectations for increased transaction volume have not been met, some signs indicate potential growth. The market requires greater policy certainty, and any Federal Funds Rate cuts could boost transactions.
The recent tax bill may also influence activity, as family offices and high-net-worth individuals seek returns. These investors have the financial capacity to engage in deals ranging from $5 million to $20 million, which are attractive due to their size and potential returns. As smaller players grow and larger ones explore smaller deals, the market remains dynamic.
Discover more at CoStar.
