Real Capital Analytics’ Q2 numbers for hotel transactions would be cause for alarm, on the surface. There was $6.5B sold—a 50% drop over the same period last year. But that’s an improvement over Q1’s 60% year-over-year decrease. And prices are starting to rebound after a late 2015 decline that carried over into the new year.

But these figures are skewed because 2015 was the year of the hotel megadeal. Portfolio sales accounted for 42% of all transaction activity in the first half of 2015, compared to only 13% in the first six months of 2016. Waterton hospitality CIO Nir Liebling (pictured) and AVP Joe Langley say three factors are behind the compressed hotel market.

First, Nir says it’s no secret public REITs have been on the transaction sideline for quite some time now, recovering from a horrid start to 2016. This has resulted in reduced competition for assets in prime markets. Second, there are supply concerns in some major markets; NYC, for example. Third, investors—mainly private entrepreneurs—are looking at the current stage of the recovery cycle, trying to determine the amount of remaining growth to be realized prior to the next downturn.

To date, Chicago has seen an 8% rise in hotel transaction volume over 2015, the second-highest of major markets to NYC. But Nir and Joe say the overview here is rosier than in the Big Apple. That said, Chicago’s hotel market has softened, especially within the lower-priced boutique hotel segments (pictured, the Hotel Burnham, which was put up for sale last month). This isn’t a recent trend. Joe says there was a .5% supply decrease among lower-priced hotels over the last five years, while higher-priced hotels saw a 1.2% increase. Joe believes this is because higher-priced brand names have national cachet behind them, while the boutiques rely more heavily on location, pricing and image. And the major chains are fast encroaching on the boutique market with brands like Curio, Canopy Cambria and Autograph leading the charge. Nir says there is a big push for soft branding playing out in the market aimed at marrying the distribution channels of the macro hoteliers while still appealing to a customer base looking for more local flair and personality in their travel experience.

Aries Capital chairman/CEO Neil Freeman (pictured on a recent vacation in Prague) says he was surprised that financing for hotels was robust until early 2016, which he says was the result of less stringent credit underwriting. Loan amounts, Neil tells us, were getting too high at this point of the cycle, and loan-to-value ratios started to drop. Credit buyers and the CMBS market began to tighten accordingly as underwriting compressed.

Neil adds that the Fed’s tightening regulations on bank lenders focused mainly on construction loans because there’s no revenue being generated. Neil believes this is a prudent move because there’s been limited supply.

Even the EB-5 market has compressed. Neil says some of Aries’ clients are still active in the EB-5 market, and channeling that revenue toward the mezzanine space. Senior loans have dropped from 65% to 50% to 55%, and EB-5 income is filling that gap.

But Neil says there are opportunities for entrepreneurs in the sector, particularly with value-add transactions. Buyers are looking for assets to stabilize and reposition and are shifting to more affordable brand hotels.