First-quarter US hotel asset sales declined by 30% from a year ago

Article originally posted on CoStar on April 3, 2025

At the Americas Lodging Investment Summit in January and the Hunter Hotel Investment Conference in March, brokers and lenders were optimistic that 2025 would see healthy growth in asset trades.

If the first quarter is an indication of the year to come, industry optimism may have been premature, as only $2.8 billion in U.S. hotel assets changed hands.

The $1.2 billion decline from last year equates to a drop of roughly 30% in asset sales. Of the traded assets, nearly half of the volume, or $1.4 billion, involved upscale and upper-midscale classes. This is further evidence of the continued interest from owners and investors in assets that can attract corporate and leisure travelers in the middle of the room rate spectrum.

Twenty percent of trades, or around $576 million, involved hotels in the luxury and upper-upscale class. Market participants expect this segment to see continued interest from funds and real estate investment trusts when attractively priced assets come on the market. The remaining 27% of trades involved hotels in the midscale and economy segments. As performance in these segments has lagged national growth rates of late, investors are watching properties in this sector for signs of distress.

At industry events, a new catalyst for stronger sales is getting more and more attention from attendees. Conversations now center around limited partners, so-called LPs, in closed-end funds, those with a lifetime of five to seven years, who want their money back. General partners may now have to sell assets even though they may not have seen the asset-price appreciation they had underwritten in 2018 or 2019. General partners make money on the exit through the so-called ”promote,” often a 20% share of remaining profits above a certain return threshold to the LPs.

General partners may not see that promote, despite having worked very hard for the last few years just to keep the hotel running. And now LPs are looking to deploy their capital elsewhere. General partners are in a tough spot because they must maintain a positive reputation to raise their next fund. So industry participants expect that funds may have to sell their assets and give the LP back their funds.

However, it is possible that general partners will then immediately turn around and ask LPs for money for a new fund because, in their opinion, many markets present favorable opportunities to acquire hotel assets at an attractive basis. According to some investors, asset sales could increase throughout the coming quarters if this trend takes hold.

In the months ahead, macroeconomic uncertainty will likely influence consumer and corporate buying behavior, affecting hotel bottom lines, which in turn could affect valuations. Uncertain market conditions will likely keep some buyers on the sidelines until there is more clarity in the credit markets. Despite the possible increase in trading activity by funds, as laid out above, there will not likely be a strong catalyst for a sharp increase in deal flow in 2025.