Tourism is back, and hotel owners are happily flipping the ‘Vacancy’ sign to ‘No’ — but as guests return with higher expectations, debt deadlines are also closing in.
During the pandemic, many hotel owners hit pause on property upgrades as revenues cratered.
Now that deferred maintenance is coming due, panelists at Bisnow’s National Hospitality Conference warned.
“The franchise companies are putting pressure on owners to complete PIPs that have been delayed for four, five, six, seven years coming through Covid, and the cost of those PIPs, which used to be $25K a key for soft goods, is now $50K,” Wheelock Street Capital Managing Director and Head of Hotel Acquisitions Timothy Hodes said.
“A lot of owners who would double down on an asset and own for a while, they’ll rather force the end of fund life or, at the debt maturity, throw in the towel and decide, ‘I’m going to trade the assets today at whatever the market value is.’”
Nationally, revenue per available room first exceeded prepandemic levels in 2022 and has continued to improve since, according to a report by the American Hotel and Lodging Association. Last year, it reached $100.19 — up from a 2020 low of $45.34 and 2019’s $86.56.
In some areas, 2024’s tourism rebound shattered records. New York City counted 65 million visitors, the second most in the city’s history. Tourism is booming in unexpected places, too — Alabama visitors spent a record $24B last year, the most in state history.
Bisnow/Sasha Jones
Herrick’s Yariv Ben-Ari, Aimbridge Hospitality’s Eric Jacobs, New Castle Hotels & Resorts’ Julian Buffam, HEI Hotels’ Clark Hanrattie, Wheelock Street Capital’s Timothy Hodes and LW Hospitality Advisors’ Daniel Lesser
To keep the dollars flowing, hotel operators need to invest, panelists said at the Marriott Marquis in Times Square. After years of pandemic-era nesting, guests now expect elevated levels of comfort and service.
That could mean anything from swapping out bedside lamps and shower heads to full-scale overhauls — complete with room redesigns, new amenities and upgraded staff training, Rebel Hotel Co. President and CEO Brian Sparacino said.
“You can’t forecast what’s going to happen or how these trends are going to emerge, but nonetheless, it’s getting faster,” Sparacino said. “Looking at the guest experience piece, I think that’s a part of an uncharted terrain at the moment.”
Millennial and Generation Z travelers are driving much of the shift, as they make up a growing share of the market and demand more personalized experiences — even from their hotels. For 76% of them, tailoring a trip to their expectations matters more than the cost, according to an AHLA report.
Those upgrades don’t come cheap, especially on top of pandemic-delayed maintenance. But with debt maturities looming, high interest rates and persistent inflation, investing in improvements is becoming less optional.
“Lenders in the hotel space have been really under no regulatory pressure and really under no pressure with respect to their own balance sheet internally to focus on trying to deal with hotel loans that are undercapitalized,” HEI Hotels partner Clark Hanrattie said.
“That’s mainly been because of this huge distress halo provided by the office sector.”
Bisnow/Sasha Jones
Lutron’s Ana Maria Huertas Iragorri, IHG Hotels & Resorts’ Alex Kuhl, Morris Adjmi Architects’ Becca Roderick, Crown Creative’s David Carofano, Tishman Realty’s Michelle Reiss and Rebel Hotel Co.’s Brian Sparacino
But the tides may turn once more, with another shift in the tourism cycle on the horizon.
Travel is already cooling as consumer confidence slips. By April, year-to-date occupancy had fallen to 59.8%, down from 63% in December, according to STR data shared with Bisnow. RevPAR also dropped to $94.86, down from $100.24.
Labor remains a major hurdle, with hotels still struggling to attract and retain talent. As of February, industry employment was nearly 10% below prepandemic levels, and 65% of hotels reported staffing shortages, according to AHLA.
Some owners have already felt the pain.
CMBS delinquencies for lodging properties reached 7.85% in April after climbing for four consecutive months, hitting a three-year high, according to Trepp.
Still, more amenitized hotels have felt that impact less than their counterparts.
“The higher-end travel of the luxury hotel space has seen revPAR growth this year,” Hodes said. “Whereas some of the midscale and lower chain scales, those consumers have been a little more pinched by inflationary pressures.”
