U.S. Hotel Transactions Revival: A Foresight into 2025

• The pace of U.S. hotel deals grew throughout 2024 despite a slower start, and industry experts predict this growth will continue.
• Factors such as lower cost of debt, pent-up capital, and overdue renovations are expected to spur sales in 2025.

According to an analysis by Bryan Wroten of CoStar, the U.S. hotel industry experienced a surge in deals in 2024 following a slow start. This upward shift comes after several years of a slower deal environment due to higher interest rates and a selective lending community. However, the trend is expected to continue, spurred by a lower cost of debt, pent-up capital, and overdue renovations.

The U.S. hotel transaction market in 2024 was less active compared to 2023 and 2022. As per Dan Peek, President of Americas for JLL Hotels & Hospitality, this trend is expected to change. JLL research indicates that through the third quarter of 2024, total transaction volume amounted to $15.4 billion, a decrease of 13.1% compared to 2023 and 21.4% to 2019. However, single-asset volume reached $14 billion, marking an 8.1% decrease from 2023 and a 3.1% increase from 2019, making it the fifth-highest year-to-date third-quarter total in U.S. history.

The 2024 hotel market saw liquidity for smaller assets, those below $50 million, and larger hotel deals, those above $250 million, driving the highest portion of liquidity in the last three years. The most frequent entities involved in transactions were real estate investment trusts, institutional investors, and hotel-focused funds. However, there was a noticeable gap in the middle, with traditional full-service hotels constituting the smallest percentage of sales in 15 years.

A review of quarterly surveys of individual hotel transactions valued at over $10 million from LW Hospitality Advisors provides additional insights. While the first quarter of 2024 saw a weaker deals environment compared to the same period of 2023, the second and third quarters saw quarterly and year-over-year improvements. President and CEO of LW Hospitality Advisors, Daniel Lesser noted that hotels have become a mainstream asset class, attracting significant domestic and international capital.

In terms of hotel financing, Kevin Davis, CEO of the Americas at JLL Hotels & Hospitality, highlighted a combination of factors that contributed to its pick-up. The SOFR index, which most borrower loans are pegged to, has decreased by approximately 75 basis points since September. This reduction in the cost of debt has influenced the market significantly, enabling buyers to potentially pay more, thereby reducing the bid-ask spread gap that has persisted in the market.

Industry experts predict an increase in hotel transactions in 2025. Factors such as lower interest rates, a significant amount of existing debt that needs to be paid off or refinanced, and many hotels needing renovation are expected to drive this trend. Full-service hotels, in particular, are anticipated to receive more attention moving forward, with sellers capitulating on price due to continued performance recovery by corporate transient and group guests and more downward pressure on debt.

From an owner’s perspective, 2024 was an interesting year, highlighted by Alessandro Colantonio, Executive Vice President and Chief Investment Officer at hospitality real estate firm Gencom. As the year progressed, deals became more competitive, with increased bids and competition on the buy side. Looking ahead to 2025, Colantonio expects many sellers to put their hotels on the market with a high asking price to see where the aggressive buyers are.

2024 marked a significant shift in the U.S. hotel market, with the pace of hotel deals picking up despite a slow start. This trend is anticipated to continue into 2025, driven by a lower cost of debt, pent-up capital, and overdue renovations.