No matter what the conditions, deal-making in the hotel industry never fully stops.
Despite a number of factors, particularly recent economic uncertainty and slowed U.S. hotel transaction pace during the first half of the year, there were hotel owners and investors who still tried to find and close deals, particularly for hotels priced at under $50 million.
During the first quarter, hotel deals with a price tag under $50 million made up 47% of investment volume, according to JLL Hotels & Hospitality’s May 2025 investment trends report. This segment of hotel deals doesn’t grab headlines often, but it makes up a significant portion of both the transaction market as well as the overall hotel industry.
As of mid-June, nationwide brokerage firm Hospitality Real Estate Counselors has sold more than 50 hotels, HREC founder and CEO Mike Cahill said.
“All of them were in that mid-market space,” he said. “That’s well over 50 closed deals, and that market is moving. Those people are buying and selling.”
The typical hotel marketing period is six months with the hope to close in five, Cahill said. Some of those deals HREC closed in the first half of the year were holdovers from 2024 because timing or pricing weren’t right, but many of them began in 2025. When talking with sellers about new deals, HREC brokers are still quoting about six months.
Deal dynamics
Investors looking to do hotel deals are staring down a market with limitations, said Elliott Estes, principal at hotel ownership and asset management firm Woodmont Lodging. The hotel distress predicted to emerge during the pandemic did not materialize, and lenders and brands have proven to be more patient and cooperative with property owners figuring out their situations.
Woodmont Lodging is always open to deal opportunities, but it has found sellers' expectations to be a little off from the valuations it presents to the tune of about 10% to 20%, Estes said.
“It’s just large enough that we can’t bridge that gap and find a transaction point, and I think that’s consistent across the market,” he said.
One of the main drivers of this bid-ask gap is the property improvement plan the hotel's buyer has to conduct, both from a cost perspective as well as the scope of the work required, Estes said. Every dollar spent on a renovation is a dollar less to the bottom line.
Similarly, the cost of debt is more expensive, and the higher price of interest expenses affects return expectations, he said.
Sellers have an understandable position on what they own as it’s valuable to them, but for a deal to work, it’s helpful for the seller to know the perspective of the buyer, Estes said.
There are some owners who are looking to sell off a portfolio of properties, but buyers generally aren’t looking for portfolio deals, Cahill said. That means these larger portfolios are broken up into one-off deals or a handful of properties at a time, such as when there are a group of hotels within the portfolio located within the same market.
“We tell them we’ll take on the 20 hotels, we’ll try to find someone to buy all 20, but you’re probably going to get better pricing by selling them as one-offs or as smaller packages,” he said.
Currently, macroeconomic headwinds add varying levels of uncertainty to the hospitality market, said Michael Bernath, senior vice president of acquisitions and dispositions at investment firm Peachtree Group. For example, when looking at a value-add strategy in which the buyer looks at properties that need some level of renovation, the U.S. tariff situation adds to the complexity of the deal.
Peachtree is in the process of renovating a handful of hotels, both existing properties and newly acquired ones, and there has been an increase in costs, which Bernath said depend on where a company procures its soft goods and case goods.
Peachtree looks at every acquisition holistically, Bernath said. It’s not simply stating a purchase price and the net operating income to figure out the capitalization rate going in.
“We look at the deal, how we're going to capitalize the asset, when we're going to have to execute the renovation, if we have to execute a renovation,” he said. “The reality is costs have increased, therefore our ability to pay up for an asset is solely dependent on the timing of those renovations, and again, where we're actually procuring those items from what country.”
The players
Many of the sellers on the market are hotel owner-operators who are looking to recycle capital, Cahill said. They’re reviewing their portfolio and getting rid of older product so they can invest in other hotels they think will get them a better return.
There are a lot of baby boomers who are aging and want to retire, so they’re exploring their hotels’ market value, he said. Many owners are realizing they don’t want to put additional capital into their properties to pay for the property improvement plans coming due.
Bernath said Peachtree has seen deals motivated by the end of a fund life while others come from an impending renovation or debt maturity. Often there’s some form of stress pushing the owner or partnership to trade.
“The assets that are trading seem to either have outsized cashflow that makes sense on a going-in cap rate basis or they’ve got some form of stress that forces them to be market sellers,” he said.
Alongside the established owners and investors, there are also a lot of new players coming to the hotel industry as buyers, Cahill said.
“We call them non-digital buyers,” he said. “They’re just below the radar stream. They don’t want the press. They don’t have a website, but they’re wealthy. They have money, and they may have had real estate investments in retail or office or they may have owned an HVAC company.”
While moving into hospitality, these new buyers are still exploring it, so they’re not putting everything in hotels, he said.
Another category of buyers is what Cahill called “the hometown heroes” who are well-known in their cities for their local businesses and want to put money into hotels for a return.
“It's not unusual when we go the seller and we present a group of buyers, and the seller's like, ‘I don't recognize any of these names,’” he said. “So we go, ‘Yeah, let us show you how rich they are.’ These are really the new profile, the people that are coming in and saying, ‘Hey, I'm worth $300 million. I'm going to invest in one hotel in my in my town.’”
The finance environment
For hotel deals coming in less than $50 million, there are two main pots of money, said Peter Berk, president and co-CEO of investment banking firm PMZ Realty Capital. For a stabilized property, there are fixed-rate loans with an interest rate of about 7% that can do 70% of the capital stack.
For a hotel with a price tag of $15 million and a change-of-ownership PIP of $3 million, the borrower should be able to get 70% of that $18 million with a 7% rate at five years interest-only, he said.
For hotels that need a more involved renovation, such as those with a larger PIP or change of flag, there are floating rate loans, Berk said. They’re more expensive and are generally 75% of the total cost. They’re priced at about 475 basis points over the secured overnight financing rate — SOFR — with a three-year term and two, one-year extensions.
“Those are the two big pots that we’re using,” he said. “There’s also higher cost of money capital for closed hotels and really, really big renovations, and that’s around 10%.”
The regional banks are active, but some buyers don’t want to use them because they’re almost always full-recourse, Berk said. Some owners are just against that as they want to keep their business separate from their personal finances. Others are happy to sign a recourse loan and offer that upfront. The larger the owner, the more they tend to avoid recourse loans.
The regional banks tend to tap out around 65% of the full cost, and most aren’t going to get “super aggressive on that,” he said.
Berk said he’s hopeful interest rates will come down this year so loans come in at about 6%.
“I think there’ll be a tremendous amount of activity,” he said. “People are just waiting to jump in to make the returns work better.”
Having a relationship with a lender and being able to become a repeat customer provides an advantage in this price segment in the smaller markets, Estes said.
“You're looking for a local lender, a local partner that understands the sponsorship group, that understands the specific opportunity, and they will have a conviction about the deal, to figure it out and get it across the finish line,” he said.
The larger buyers may have less concern about whether they can get financing but focus more on the overall cost of the debt. Once they know the cost, that will influence the price they’re willing to pay for a hotel.
Woodmont fits in the middle ground, seeking deals in some top markets where there’s availability of financing, Estes said. When there are five to 10 other interested parties, the cost of financing has increased a bit.
“It’s tougher to negotiate them down to more favorable term because they know there’s not as many people in that space, but you can get a deal done,” he said.
Expectations for the year
There are some signs there could be more of the same for the hotel deals market in the second half of 2025, which is a disappointment compared to earlier expectations.
“If you asked me that question in January, I think myself and a lot of our peers in the industry would have thought we would have seen a meaningful increase in transaction volume,” Bernath said.
Since the tariff announcements, the the U.S. hotel industry has seen more volume than Bernath would have anticipated in the following weeks. Even so, the full year’s deal volume will likely be relatively muted. Any meaningful increase in U.S. hotel transaction volume is probably still a year out.
The markets need greater certainty from a policy perspective, he said. Any incremental cuts in the Federal Funds Rate will help juice transactions a bit, but it will still take more time.
“We’ll find our pockets where we’re opportunistic,” he said. “This uncertainty creates additional stress, which invariably will force some transactions. But I do think in general it’s going to be somewhat of a muted transaction here for the balance of the year.”
Certainty breeds confidence, which leads to a more favorable transaction environment, Estes said. Setting aside his thoughts on the contents of the bill, he said Congress passing and President Donald Trump signing the major tax bill will inherently push the industry toward a clearer transaction environment.
There should be more hotel deals in the sub-$50 million segment for a number of reasons, he said. The smaller, regional hotel owners are growing, and they’ll have the opportunity to move to the next big deal. Because the transaction environment has been throttled, the larger players are looking downstream at hotels they previously hadn’t considered, such as those in secondary and tertiary markets.
Another reason ties back to the recent tax bill, Estes said. Family offices and high-net-worth individuals waiting on the sidelines have been looking for returns.
“They have the balance sheets. They have the liquidity,” he said. “Writing a $5 million to $15 million to $20 million check is kind of a sweet spot.”
These are generally too small of a deal for the larger equity shops, so these $5 million to $15 million deals are attractive to the family offices.
“The smaller guys get bigger, the bigger guys look at smaller. Then you just have the family offices that have the banking relationships that access the capital and just transact opportunistically,” he said.