'You've Got To Watch Your Pennies': Hoteliers Navigate Choppy Waters
Hotel investors are waiting on the sidelines as policy uncertainty and operational costs mount and interest rates have failed to come down as many hoped.
Rather than chasing new deals, many hoteliers are focused on making sure their existing properties can weather rising costs and a potential slowdown in visitors, they said at Bisnow’s South Florida and Caribbean Hotel and Hospitality event Tuesday.
“Our view on the very environment is being a moment of caution, meaning there's a lot of uncertainty at the macro level,” Driftwood Capital Managing Director Alinio Azevedo said onstage at the Marriott Biscayne Bay. “That certainly affects people's perception of the economy. That becomes reality, and that ultimately translates to demand and what we're seeing across the portfolio that we operate.”
U.S. transaction volumes for hotel assets fell by 22% in the first half of 2025 compared to last year, according to a CoStar report cited by Hotel Investment Today. Second-quarter transactions totaled $3.7B, down from the $6B-plus in the second quarter of 2024
“I think the challenge has been that we continually sit in these panels and say, ‘Now is almost about to be the good time to invest again,’” TMGOC Ventures co-founder and managing partner Glenn Alba said at the event. “That all-clear signal hasn't hit.”
Hotel values slipped 4% year-over-year at the beginning of 2025, the only major real estate asset to decline, according to a Q1 Colliers report. While some are searching for deals in South Florida in particular, panelists said, the market remains clouded as hotels brace for a broader industry downturn through the end of the year.
“I think the challenge was the seller mindset finally came down on what their values should be [and was] getting closer to what buyers are looking for,” Alba said. “Not great for stuff that we own today, necessarily. We're watching our paper value perhaps eroding a bit.”
President Donald Trump's whipsawing tariff declarations and rhetoric — specifically his comments about annexing Canada — have made an impact on tourism, and consumer confidence sank to a nearly five-year low in April. But the hoteliers on the panels said the impact has been less than many predicted.
“We manage 85 hotels across the entire country. We're seeing softening across, but it's 5%, 8%, 6%,” Azevedo said. “I think what gives us comfort is, when you look at where the consumer sentiment index is and all that, it's pretty low. Yet the impact, again, hasn't been that dramatic.”
But a bigger source of pressure on owners is rising operating costs, panelists said.
Labor costs, insurance premiums and franchise-related fees are outpacing revenue growth, while maintenance and upgrades continue to climb. In 2024, hotel labor expenses grew 4.8%, maintenance costs jumped 5%, technology expenses rose 5.1%, and insurance premiums surged 17.4%, according to a CBRE report.
Total hotel revenue grew by just 2.3% at the same time.
“Regardless of what happens to the top line, your operating costs will continue to increase if you don't manage that well,” Azevedo said.
The mounting caution is pushing investors to weather the storm by sticking to selective markets and building in buffers for potential risks, Alba said. Driftwood is focused on making sure its hotels have differentiating factors from its competitors so it can grab a bigger piece of a shrinking market, Azevedo said.
“You’ve got to buy, right? You've got to watch your pennies, you've got to really focus on the cost and the scope of your renovations and keep your basis down,” Electra America Hospitality Group CEO Russell Urban said.
