Amid Economic Uncertainty, Hoteliers Scrutinize Acquisitions More Closely
By Nick Fortuna
Fears of a recession, concerns over U.S. tariff policy, high interest rates, and rising costs have many investors tapping the brakes in the second quarter of 2025, but the long-term outlook for the hospitality industry remains bullish, especially in fast-growing markets.
According to Lodging Econometrics, the U.S. hotel construction pipeline consisted of 6,376 projects and 749,561 rooms at the end of the first quarter. Those figures represent a five percent increase in projects and a six percent increase in rooms when compared with the first quarter of 2024. Not surprisingly, growing cities in the Sunbelt have the largest hotel pipelines, led by Dallas, Atlanta, Nashville, Phoenix, and Austin.
This year, about 740 new hotels with 83,548 rooms will open across the country, raising room supply by 1.5 percent, according to LE. Next year likely will see another 1.6 percent increase as about 848 new hotels with 92,892 rooms open.
Hotel construction activity was robust in the first quarter, indicating an “upbeat approach to development,” LE said in its most recent report. The number of projects starting construction in the first quarter rose 21 percent when compared to the fourth quarter of 2024, while the number of rooms beginning construction spiked 41 percent.
To navigate short-term turbulence, however, many hoteliers are building up their rainy-day funds and scrutinizing deals more closely, according to Aarti Soma, an attorney at San Diego-based DPA Attorneys at Law, which specializes in hospitality-related issues. She said a possible recession, high borrowing costs, rising wages, and sky-high insurance premiums are fueling concerns. In addition, international travel has dropped sharply as other countries bristle at U.S. foreign policy.
“We are seeing people holding onto cash as much as possible because there’s a lot of uncertainty at this time, and no one knows how long it will last,” Soma said. “Usually, when people don’t know which direction the economy is going to go in, they become a lot more conservative in their spending, so hoteliers are taking a wait-and-see approach, but there are deals out there.”
Despite the uncertainty, MCR Hotels, the third-largest hotel owner/operator in the United States, has “a lot of dry powder to put to work over the next 12 to 24 months” and is “focused on continuing to grow our portfolio,” according to Joe Delli Santi, the New York-based company’s chief investment officer.
Many hoteliers are seeing shrinking margins as operating expenses increase and revenue per available room remains flat or increases slightly, Delli Santi said. Complicating matters, many hotels are overdue for property improvements that are required to meet brand standards, and with borrowing costs elevated, hoteliers are having difficulty refinancing their loans.
“We think there are going to be deals out there because of the refi issue,” Delli Santi said. “I think a lot of owners with near-term maturities are going to take a hard look at things and say, ‘Do I really want to put in place this expensive kind of debt for the next three to five years, or do I just want to sell my asset now and move on?’ I think a lot of owners will opt for the latter, to be candid.”
Varying Valuations
Soma said in the current market, there’s a disconnect between hotel owners, who are expecting top dollar for high-performing assets, and buyers, who want a discount of 10 percent to 20 percent due to economic uncertainty. She advised buyers to target motivated sellers, focus on regions where new hotel construction has been limited, and to “stress test” hotels before signing off on purchases.
That means taking current revenue figures, reducing them by anywhere from 10 percent to 50 percent, and evaluating whether they could still operate the business in that environment, and for how long.
“In today’s highly competitive and uncertain investment environment, successful investors must adopt a disciplined and cautious approach,” Soma said. “Many are prioritizing liquidity and maintaining strong cash reserves to weather unforeseen challenges. To navigate this landscape, investors must underwrite conservatively, factor in shrinking margins, and stress test every potential deal.”
Extended-stay hotels likely will remain in demand because they provide remote workers and families with flexibility and affordability, according to Ahmed Kabani, founder and chief executive of Kobani Hotel Group, a boutique brokerage firm based in Miami. Likewise, hotels offering high-quality wellness and recreational amenities are more attractive to potential buyers, as are hotels that provide a differentiated customer experience, he said.
In terms of valuation, the market favors hotels that have embraced automation and artificial intelligence to enhance guest satisfaction and control costs. A proven management team also makes a property more attractive to investors.
“For many hoteliers, net operating income is low right now because operating costs are high, so investors are looking at properties that are leveraging automation, such as mobile check-in and digital keys, and have strong management in place to reduce overhead,” Kabani said.
Many lenders are reticent to approve loans for new construction, so hoteliers are weighing other options, according to Rohit Mathur, co-founder and CEO of Bridge, a New York-based company that helps hoteliers obtain financing. Bridge is a Club Blue Industry Partner.
Some hoteliers are looking to “up-flag,” taking their properties upscale to increase their margins, while others are executing property improvement plans to join a brand, Mathur said. With office space in less demand due to remote work, hoteliers also are looking at converting office buildings into hotels.
“We’re seeing a lot more demand for acquisition and rehab, and that’s being driven by the fact that there’s less ground-up capital available now,” Mathur said. “Hoteliers are looking at existing properties that can be improved instead of building something new. Lenders perceive ground-up construction as more risky because you’re literally starting from nothing, so acquisitions and rehabs are perceived as less risky.”
Evaluating What’s Available
Delli Santi said some large hotel brands are “buying the pipeline” by acquiring existing properties instead of absorbing the high costs of new construction. Although financing for acquisitions isn’t cheap, it’s typically less expensive than financing for new construction and is more readily available. In addition to banks, hoteliers are looking at private credit markets, including debt funds and life insurance companies, for financing options.
Until the economic picture becomes clearer, there likely will be relatively few largescale transactions, but deals for single properties will continue, Delli Santi said.
“People are still getting deals done, but bigger might not be better right now,” he said. “New construction is expensive, it takes a long time, and it’s difficult and expensive to finance, which makes construction quite tough. That’s why you’re not going to see a lot of new hotels over the next few years. I do think that’s good for the acquisition market because people would rather buy than build.”
While large brands take a step back from major investments, smaller players have an opportunity to pounce on attractive deals, Mathur said. Individual hoteliers who know what they’re looking for can evaluate properties and make decisions faster than companies with large C-suites, and that gives them a leg up.
“I think there are a lot of opportunities for individual owners, especially AAHOA Members, because many of them are owner/operators and not large funds,” Mathur said. “Speed is your number one advantage here.”
Despite economic headwinds and uncertainty, Delli Santi said hoteliers who target the right properties are well positioned for success, which is why MCR Hotels is on the hunt for attractive hotels. The company currently owns and operates 150 properties scattered throughout 37 states.
“You have to be selective, but you also have to have conviction in your markets,” he said. “Fundamentally, we’re still bullish on travel. Over the long term, RevPAR has basically grown at a three percent or four percent rate, so the medium- to long-term trends in hospitality are very good. If you find the right market, the right hotel, and the right leverage, I think you can do really well in the hotel space.”
New Strategic Partnership Streamlines Borrowing Process
Hotel owners today are facing tighter lending conditions and increased financial pressures, which is why AAHOA recently unveiled a new initiative aimed at helping members obtain financing. At AAHOACON25 in April, the association announced a partnership with Bridge to streamline the process of applying for loans, giving members more options and faster access to capital.
At AAHOALending.com, powered by Bridge, hoteliers simply input information about their loan request, and they’ll receive offers from lenders to compare. No documents are required to submit a loan request, it’s free to apply, and hoteliers are under no obligation to accept an offer, according to Rohit Mathur, co-founder and CEO of Bridge. Applying for a loan also won’t impact your credit score.
If members accept a loan, the fee for the service is less than one percent of the amount borrowed, which typically is less than the cost of hiring a broker, he said. Through AAHOALending.com, Bridge will produce a digital offering memorandum to submit to the approximately 200 lenders on the platform that specialize in ground-up construction, acquisitions, and renovations. Applicants may receive term sheets in as little as 48 hours, shaving months off the typical application process.
Mathur said strategic partnerships such as AAHOALending.com provide meaningful benefits to AAHOA Members, impacting their bottom line.
“Hotel owners will tell you this is probably the most challenging financing environment they’ve seen in 20 years,” Mathur said. “There’s just a lack of lending appetite among banks. The bar is higher, so you have to have the best [loan application] materials out there. You have to share all the right data points with lenders and put your best foot forward. That’s why we’ve partnered with AAHOA to help members build those materials and get access to capital.”
Visit AAHOALending.com to get matched with lenders today.
Image: Hammad/stock.adobe.com
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