U.S. Hotel Real Estate Market Predicted to See Steady Increase in Transactions and Financing

• U.S. hotel brokers anticipate a gradual, consistent increase in transactions over the next few years, particularly in the $10 million to $20 million segment.
• Financing for these transactions is becoming more accessible, with small banks becoming more active and non-bank lenders thriving in the commercial mortgage-backed securities market.

According to hotel brokers, the U.S. hotel market is expected to experience steady growth in transactions and financing over the next several years. Mike Cahill, the CEO of Hospitality Real Estate Counselors (HREC), reported a year-on-year increase of approximately 30% in closed deals. The firm’s brokers in the Midwest have been particularly active, successfully negotiating pricing agreements between buyers and sellers.

Cahill revealed that most of the deals are being made by owner-operators in the $10 million to $20 million segment, whom he termed “non-digital buyers.” These buyers, often wealthy first—or second-time hotel buyers, operate under the radar and lack a strong online presence. The deal values of these transactions fall within the scope of the Small Business Administration, making financing more attainable.

On the lending front, small banks have been more active, following the lead of larger banks. Gregory Porter, the Managing Director at HREC, noted that non-bank lenders, particularly those involved in commercial mortgage-backed securities (CMBS), have been thriving. He predicts that these non-bank bridge lenders will continue to play a significant role in the market and that the overall trend on the debt side will be positive.

Porter also mentioned that the spread of loan rates is likely to be influenced by the appetite of bond buyers, such as pension funds and institutions. Despite some pullbacks, the appetite for CMBS remains strong, and the volume of such securities has significantly increased this year. However, he also pointed out that B-piece buyers in the CMBS market are reaching their risk limits for the year, which he hopes is a temporary, seasonal occurrence.

In conclusion, barring any unforeseen circumstances, the U.S. hotel market is poised for steady growth in transactions and financing over the next few years, with a particular emphasis on the $10 million to $20 million market segment. The lending environment is also expected to become more normalized, with both small and large banks and non-bank lenders playing a critical role.

Discover more at CoStar.