March 3, 2024


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Investors Check Back Into Hotel Market as Travel Picks Up

Hotels were hit harder than any other type of real estate during the early months of the pandemic. Now, investors seemingly can’t get enough of them.

More than $12.5 billion worth of hotels were sold in the first three months of 2022, according to

CoStar Group,

the highest first-quarter figure since 2016. The prices of hotels for sale are surging and the share of delinquent hotel mortgages recently fell to a new pandemic low.

Many investors, flush with cash but struggling to find things to buy, consider hotels less overpriced than stocks or bonds. They are also betting that hotels will have an easier time recovering from the pandemic than offices or malls, which are struggling with rising vacancies that may take years to fill.

While hotels face rising labor costs, they are among the property types most able to adjust for inflation because they can reprice room rates every day. This is especially true for limited-service or extended-stay hotels, which have smaller staffs.

Hotel values increased 18% in March compared with a year earlier, according to Real Capital Analytics. Property prices rose much faster than hotel profits, signaling that investors are bullish about future demand from travelers.

Hotels catering to vacationers are in high demand, particularly in the Sunbelt, said

Mark Schoenholtz,

co-head of lodging at brokerage Newmark. Rising wages and savings have allowed more Americans to splurge on trips.

That has pushed up hotel revenue in cities like Miami; Orlando, Fla.; and Nashville, Tenn., drawing investors.

Xenia Hotels & Resorts Inc.

last month paid $329 million for the W Nashville hotel, which was the priciest hotel sale in the city’s history at $950,000 a room, according to CoStar.

Still, business travel is well off its prepandemic levels, as more Americans get used to virtual meetings. That has hurt hotels in cities like New York and Chicago. Hotel owners in New York also face competition from new construction. U.S. hotels are far less profitable on average than before the pandemic, according to STR, a hospitality data and analytics company.

Economic troubles could delay the recovery. Rising prices and home-mortgage rates may leave Americans with less money to spend on trips, said

Jim Costello,

chief economist of MSCI Real Estate.

Rising interest rates are also bound to make hotels less appealing to investors, pushing down property values. Cheap debt was a big reason why investors were willing to pay higher prices for hotels over the past year. Higher yields on bonds may also make hotels look less attractive in comparison, reducing demand from investors.

Some hoteliers are looking for new sources of demand to make up for lost business travelers. CitizenM Hotels, for example, wants to attract freelancers, long-distance commuters and remote workers who visit their corporate offices regularly and need a place to stay. The company recently launched a subscription that guarantees customers a room for one night a month, said chief growth officer

Ernest Lee.

It is also looking to add more office and meeting space.

With the average 30-year mortgage rate rising to 5%, home ownership may now be out of reach for millions more Americans. WSJ’s Dion Rabouin explains the impact for potential buyers, sellers and the housing market. Illustration: Adele Morgan

Write to Konrad Putzier at [email protected]

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Appeared in the April 20, 2022, print edition as ‘Investors Return to Hotel Market.’