Will market optimism lead to more M&A in 2025?

Note: Over the next few weeks, Hotel Investment Today will publish 2025 outlook stories about development, management, deals and finance. Click here for Part 1 on the state of the hotel refinance market in 2025.  

NATIONAL REPORT — Those waiting for interest rate cuts to open up the hotel acquisition market and for more sellers to “jump back into the pool” are still waiting as the calendar flips to January 2025. But deal experts say there’s more optimism in the marketplace right now.

Jared Kelso

“On the acquisition front, there’s a growing sentiment that the economy is going to keep ripping. So, we are seeing buyers more comfortable underwriting broad-based economic growth than they were in Q3 of 2024, when there was just a lot of uncertainty,” said Jared Kelso, senior managing director for Berkadia’s hotels and hospitality platform in New York City. “There’s a wave of optimism around deregulation from the incoming administration, and we think that’s going to yield a bump in asset value.”

Speaking of “jumping back into the pool,” Kelso says the timing might not be better for investors who want to bring their assets to market.

“For many would-be sellers, the decision is really to sell now or wait another three-plus years because there’s not an obvious catalyst in front of us in the back half of 2025,” he said. “We believe, in short, that consumer confidence is up, lender confidence is up and the prospect of deregulation excites a lot of real estate investors.” 

Slow 2024 for deals

Experts said, without a doubt, that 2024 was a slow year for acquisition financing, especially compared to the refinancing market. Michael Straw, executive vice president for capital markets for CBRE, gives a perspective by the numbers.

Michael Straw

“Just to give you a sense, year to date [near the end of 2024], we’ve closed about $4.5 billion in debt and less than $200 million of that has been acquisition financing. It’s heavily weighted towards refi activity, with a sprinkling of development as well,” he said. “The acquisition market has just been more muted overall, with some exceptions, on an ongoing basis.”

Straw said he anticipates that proportion to change in 2025, but “it’s just much slower to react than refi opportunities.”

“My expectation is that it doesn’t happen all at once, but that it does improve,” he said. “There’s been so much capital that’s been sidelined for really two or three years at this point that needs to transact and has to put that capital to work in one respect or another, and acquisition opportunities are going to be part of that.”

Straw said he expects equity opportunities to reemerge in 2025, especially now that interest rates are coming down.

“You’ve seen so much private equity capital pivot to credit opportunities, or at least pursuing credit opportunities, but they know that there’s only so much of that exists where you can still manufacture your IRR (internal rate of return) targets,” he said. “Those equity opportunities will reemerge meaningfully, but they won’t happen all at once. Rate cuts should help that, which will help make those deals pencil again, which has been one of the hardest things. As long as interest rates have been going up, that’s what’s been sidelining the equity market for acquisitions.” 

More deals on the way

Kevin Davis, Americas CEO for JLL Hotels & Hospitality, anticipates seeing many more meaningful deals on the market in the first quarter.

Kevin Davis

“Those deals will likely go hard and start to close in the second quarter, and that activity in Q1 and Q2 will be a trigger for additional activity in Q3 and Q4,” he said. “I expect that transaction volume will pick up over the course of the year, and as more deals close, more capital will come to market to buy, and more sellers will come to market to sell.”

Davis said that much of the increased activity will be caused by sellers seeking to repatriate capital.

“I’d say a lot of sellers we’re seeing are realistic and are motivated to trade… The majority of the things that we are selling now are primarily driven by LPs who want a return of their capital,” he said. “It’s less driven by lenders and less driven by PIPs. Those certainly play into it a little bit, but this is primarily sellers seeing the first broad-based open window to transact in every market around the country, and they are taking advantage of that.” 

“Haves” vs. “have nots”

In May 2024, when Hotel Investment Today talked to Jared Schlosser, executive vice president of hotel lending and head of CPACE, credit for Atlanta-based Peachtree Group, he said the hotel finance market was a story of “haves” versus “have nots.”

Jared Schlosser

Schlosser said not much has changed in the past six months.

“There certainly might be a little bit more liquidity today than there was in May, but I think that liquidity is for really good deals, and if you have really good cash flow, then there’s a plethora of options for you,” he said. “If you don’t, then you’re looking at a few lenders that understand hospitality and are willing to roll their sleeves up and figure it out.”

Schlosser said the acquisition market data he sees doesn’t reflect a wide-open market.

“In a normal market, we’re seeing dozens of acquisition requests a week, but we’re not seeing that,” he said. “I’m just not seeing enough data to be able to tell you confidently that we’re going do a lot more acquisition financing [in 2025] because we’re not seeing that. Most of what we’re seeing is refi and construction requests.”