Tariffs, slow pace of interest rate cuts among the biggest obstacles to 2025 US hotel deals

For a year with major macroeconomic uncertainty, rising geopolitical tensions and other significant headwinds, the U.S. hotel transaction market did well, all things considered.

Hopes started out high in January with a second Trump administration and the promise of a new tax bill. The U.S. Federal Reserve started cutting rates at the end of 2024 and indicated further cuts could happen this year if inflation continued to moderate. Renovation requirements were coming due, and more debt was reaching maturity deadlines.

So, what happened? The One Big Beautiful Bill Act became law in July, but it came after a flurry of tariffs raising the prices of imported goods and lowered inbound travel demand. The Fed cut rates another three times in 2025, but it took until September to start over concerns about the labor force while inflation remained sticky. Hotel owners did sell, but many found workarounds and were also able to refinance.

Even so, 2025 wasn’t a year without hotel deals. In fact, the available numbers show lots of similarities to previous years.

The third-quarter report from JLL Hotels & Hospitality shows that overall, U.S. hotel transactions over $5 billion excluding casinos year to date lined up mostly with 2024. Transactions dollar volume reached $9.7 billion in the first half of the year, mostly in line with 2024, but more deals closed in the first quarter of 2025 than in the second quarter, opposite of last year’s results. In the third quarter of 2025, dollar volume was about $6 billion, again in line with last year.

As in previous years, smaller hotels were responsible for a significant portion of the deals volume through the third quarter, with transactions of less than $50 million making up 44% of investment volume. Deals ranging between $50 million and $199 million made up 37%, while $200 million to $499 million made up 10% and $500 million-plus made up 9%.

The hotel industry came into 2025 with high expectations, said Kevin Davis, Americas CEO at JLL Hotels & Hospitality.

“When we were at conferences in the early part of the year, there was a lot of boundless optimism, I would say. And so, that resulted in a significant uptick in listings, and then we ran into the buzzsaw that was Liberation Day, which put, unfortunately, a temporary pause on the market,” Davis said.

Starting April 1 with all of the tariff announcements, there was a period of 60 to 90 days when investors “literally put their pencils down,” he said. While that took off a bit of the optimism, it was short-lived; once the furor settled down, investors started actively underwriting hotel deals.

The public equity markets started to run meaningfully, and there was a significant uptick in liquidity in the private markets, Davis said. The second half of 2025 has seen a stronger transaction market based on the deals JLL took to market which have received bids.

“We’re seeing the strongest amount of liquidity that we’ve seen at any point since 2022 since the Fed started raising interest rates, and that has continued to run into the fall as we start having conversations about taking deals to market in 2026,” he said.

Looking back to pre-pandemic years helps tell the current story, said Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors. His company tracks individual transactions of $10 million or more.

In 2017, there were 182 sales meeting this criteria with a total dollar volume of $13.6 billion and an average deal size of $75 million, according to his research. Total dollar volume reached $18.3 billion and $17.7 billion in 2018 and 2019, respectively, but unsurprisingly, that dropped to $5.3 billion and only 79 transactions in 2020 due to the pandemic.

That rebounded quickly in 2021 with total dollar volume of $36.2 billion and 308 transactions with an average deal size of $118 million. By the next year, though, the total volume dropped to $19.9 billion from 481 sales and an average deal size of $41 million. That trend continued through the following years, and preliminary 2025 numbers as of Dec. 22 show 333 individual transactions with a total dollar volume of $14.5 billion and an average deal size of $44 million.

The peak in 2021 was an anomaly with all the pent-up capital, and conditions have leveled out somewhat since then, Lesser said. By taking out some of the more extreme years, there’s a relatively tight range of dollar volume of $14 billion to $18 billion.

While the year didn’t go as hotel owners and investors initially hoped, it was not necessarily a down year for transactions, he said. Both the number of transactions this year so far and the average deal size is in line with the $41 million in 2022, $38 million in 2023 and $40 million in 2024.

“The sales volume is up there, but the average deal size has shrunk,” he said.

Interest rates are down 150 basis points since the Fed started lowering rates in late 2024, Davis said. That has had a direct impact on the cost of debt. Most of JLL’s clients are floating-rate borrowers. The SOFR index, which most of its clients use for loans, has come in about 150 basis points since its peak.

The interest rate and credit spreads have compressed, so the interest rate environment and cost of debt environment are materially better today than 12 to 15 months ago, he said. That’s coupled with the fact that there’s so much capital sitting on the sidelines the past three to four years. Some investors have hotels they bought before the pandemic and need to trade because they need liquidity.

“We're seeing a lot of those investors come off the sidelines, both as sellers and buyers as a result of the passage of time,” he said.

Owners may have loans reaching maturity, so they’ll either have to refinance or sell, he said. Renovation requirements are also driving investors to sell because, in many cases, they’ve owned the property for a while and don’t want to invest further. In other cases, equity partners may have been invested for a long time are now demanding a repatriation of their capital.

There’s no shortage of debt or equity out there, Lesser said. It’s more expensive than it was three years ago, but interest rates have been ticking down.

The market is showing some price discovery now, and hotel owners are coming to the realization they may end up having to take some kind of hit to exit a transaction, he said. Whether it’s the end of a fund's life or a property improvement plan or refinancing is too expensive, all factors will spur hotel transaction activity.

The bid-ask spread is narrowing, and both sides are coming closer to each other, Lesser said. That happens during every cycle. Buyers know there may be more competition for deals now, and sellers are facing some kind of pressure to sell.

“Not everything is an unprofitable exit by any means,” he said. “Generally speaking, new supply is fairly in check.”

Construction money is out there, both debt and equity as well, but it’s for deals that make sense, Lesser said. The market is only going to get more active heading into the next couple of years, and while pricing is specific to the market, generally hotels are trading below replacement cost.

“That's also why new supply is fairly muted, because if you could buy below replacement cost, why are you going to build? It doesn't make any sense,” he said.

The financing market should continue to improve, and buyers will see fundamentals bounce back after being a headwind in 2025, said Dan Peek, president Americas at JLL Hotels & Hospitality. Even with fundamentals as they are now, a buyer with a three- to five-year hold can acquire a property, refinance it and sell it into an expanding market at lower rates.

“So as a result, they get today's purchase metrics, and they can print a good profit over the next three to five years,” he said.

While he was unable to share any specific numbers about JLL’s deals pipeline, Peek said JLL has more deals it’s brokering that are both pending and on the market compared to the same time last year.

“In other words, deals that could either transact or likely come to market in the first half, that statistic is substantially higher than it was last year,” he said.

There’s a growing interest in global capital as well, Peek said. Investors from the Middle East and Europe are looking around more, starting with hotels in the U.S. gateway cities. More foreign capital should re-engage next year.

“There's a bit of an affinity for branded residential development or projects that have branded residential development, because they see a lot of that in their regions of the world,” he said.

As more capital comes off the sidelines and investors make more bids — which will likely happen more in the second half of 2026 — there will be more cap rate compression, Davis said. The current delta isn’t sustainable. There will be an initial rush for deals in the first half of the year, and cap rates will hold the line and rates will come in.

“But all of a sudden, people are going to get the memo that they’re able to buy at really attractive rates, and then you end up having a food fight in the bidding process,” he said. “And next thing you know, you’re incrementally seeing cap rates coming in 25 or 50 basis points.”

Major urban cores will continue to draw interest from buyers, Lesser said. These are the markets that took a little longer to recover after the pandemic. San Francisco is coming back, and New York, Chicago, Boston and Washington, D.C., are all potential targets for capital.

“These downtown urban cores are where — listen, at the end of the day, young people want to live in major urban areas. They don’t want to live in suburbia,” he said. “They don’t necessarily want to go to the office, that’s a different story, but they want to live in walkable urban cores, and that notion is not going away.”

Washington, D.C., for example, has had a tough year due to federal agency cuts and the government shutdown, but there’s not much new construction going on in the market and aside from the occasional shutdown, the federal government never goes out of business, Lesser said. The long-term view is that D.C. is as steady as any market assuming no dramatic, negative changes.

“I’m a big fan of urban markets,” he said. “That’s where I think the smart money goes. Again, it’s no different than San Francisco. To me, that is the poster child of it.”

Real estate investment firm Gencom was busy evaluating deals all through 2025, closing on two major transactions. In March, it acquired the interconnected 528-key Ritz-Carlton New Orleans and 230-key Courtyard New Orleans French Quarter Iberville for $195 million. In early December, it bought the 607-key InterContinental New York Times Square for $230 million with partners Highgate and Argent Ventures.

From a hospitality standpoint, Gencom’s team feels positive about New York City, said Alessandro Colantonio, executive vice president and chief investment officer at Gencom. It bought the 587-room Thompson Central Park hotel in September 2024, making the InterContinental Times Square property its second in New York City.

“I didn’t think we would move this quickly to do more in New York, but it’s a market we continue to like,” he said. “We think there’s great long-term trends going on here: supply, demand, tourism numbers.”

When the deal opportunity arose, the Gencom team decided to jump on it, Colantonio said. It’s quality real estate at a good basis, and it opens a relationship with IHG Hotels & Resorts as it hasn’t worked with the brand company in the upper-upscale or luxury segments. Being able to partner with Highgate and Argent only added to the attractiveness of the deal.

In any given year, Gencom is probably signing about 75 to 100 confidentiality agreements on potential deals, Colantonio said. Most of those, the team can pre-screen quickly, determining which ones aren’t the right fit, the right asset class or the right market. Of those initial opportunities, roughly 20% make it to the next level to receive deeper due diligence. From that point, Gencom will usually end up closing on two to four deals out of that batch.

“It’s a low hit rate, but we want that by design,” he said. “More specific, more targeted. We are looking at everything because you obviously get a good all-around knowledge of the market as you’re looking at different opportunities. But, we want to be very targeted. We want to stick with our main focus, which is the upper-upscale/luxury segment and just try to stay disciplined.

“Although we love doing deals, you have to stay disciplined somewhere along the way,” he said.

Gencom has some possible deals lined up for the first quarter of 2026 that may come to the finish line, Colantonio said. Gencom executives hope to start the year the same as 2025, with some big closings, and continue to find deals through the rest of the year.

“We tend to be opportunistic regardless of the capital cycle,” he said. “There's always ways to either find distress or find opportunity if you really trust your team and trust your business plan.”

There was a period when there was a pretty wide gap between what buyers and sellers expected, Colantonio said. Much of that was the result of the cost of debt and capital, but as debt pricing has become more favorable to buyers, that gap has narrowed. As Gencom has evaluated and closed on deals, the pricing discussion has not been as challenging as it was over the past couple of years.

With every deal, the players get smarter about where they should price risk and how to focus on their business plan and the upside, he said. Gencom is getting better at quickly knowing where it can value a property and determine its best position.

What helps is that Gencom can close, and that’s part of why it has been so active, Colantonio said. It has a track record that brings certainty of execution, and that is a factor at play when putting numbers out and doing the due diligence. As much as sellers want a higher price, they want a buyer who can close so the deal doesn’t fall apart.

“The last thing you want is to pick the wrong buyer and go through a process, have a deal fall out, and you basically wasted three, three to six months,” he said.

Looking ahead, Gencom will continue to grow but in a targeted way, Colantonio said. The goal is to grow not just in terms of assets but also with capital partners, brand relationships and lender relationships. It will stick with the asset classes it knows, and it’ll still focus on quality real estate.

The company will continue to be active on the buy side and explore other jurisdictions, he said. Gencom is looking at the U.S., Europe, Latin America and the Caribbean to expand its presence or gain a foothold.

Along with new deals, Gencom will continue to reinvest in its own portfolio, he said, pointing to the company’s $110 million renovation of its Ritz-Carlton Key Biscayne in Miami.

“Aside from being aggressive on the buy side, we want to make sure we're taking care of our assets that are already in the portfolio,” he said. “I think that's another continued theme of where can we renovate, where can we reposition, and how can we continue to create value beyond just buy, buy, buy? That's pretty exciting, equally as exciting as looking for new opportunities.”

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