The case for hotel investment

ATLANTA — When I walk into a hotel lobby, I see two things at once. To the guest, it’s a place of welcome. To investors, it’s something more: an operating business wrapped inside a hard real estate asset. That is what makes hotels one of the most compelling – and misunderstood – asset classes in commercial real estate.

There’s a perception by some that investing in hotels is volatile and risky. But time and again through economic cycles, savvy owners and operators have demonstrated resilience and created opportunities to outperform.
Hotels reset pricing daily, capture upside as demand shifts, and offer more levers to drive returns than any other asset type. Add to that secular demand for travel, plus underbuilding in many markets, and the allocator’s case is clear: hotels deserve a closer look.

Driving alpha in hotel investing happens in three key areas: improving operational efficiency, growing the topline, and building predictable performance through culture.

Returns Driver #1: Operational Efficiency

Labor is the largest controllable operating expense in hotels, and right-sizing staffing each day to match demand is the most immediate lever for performance. It’s also the area where discipline, or the lack of it, shows up quickly.

At Actabl, more than 150,000 hoteliers use our technology each day, and we see this play out again and again. One operator unplugged labor management software in an effort to cut costs and ended up seeing labor costs spike fivefold above what they paid to run the program. On the flip side, another hotel operator targeted a 1% overtime reduction across their portfolio of dozens of hotels, and the impact on the bottom line was material.

Operational efficiency doesn’t stop with scheduling. Things such as housekeeping productivity and engineering response times all impact the P&L. Incremental improvements in each category add up, and the compounding is powerful when executed across a portfolio.

Equally important is stewarding the physical building. A hotel is really a portfolio of assets: HVAC, elevators, roofs, plumbing, kitchens, and IT systems. Deferred maintenance is the silent killer of returns. Proactive stewardship reduces CapEx shocks, extends the useful life of assets, and preserves profits.

Operational efficiency often doesn’t make headlines. But it compounds into durable profitability, the kind investors can bank on, whether they intend to hold and cash flow or sell with a story that can be supported.

Returns Driver #2: Topline Growth

Efficiency matters, but you can’t just cut your way to the best returns. Hotels also offer a unique opportunity to grow the top line through smart strategy and execution. While some segments of commercial real estate rely entirely on tenant leases that renew infrequently, hotels reprice their rooms many times each day. It’s an unmatched opportunity.

Guest Experience Driving Pricing Power

Guest experience is the first topline lever. Thoughtful investments into the property, combined with better service, translate into repeat guests, word of mouth, lower customer acquisition costs, and more pricing power.

Commercial Strategy With Demand Diversification

Commercial strategy is the second topline lever. Hotels can diversify demand in ways most other asset classes cannot. Leisure, group, corporate, government, and extended-stay business can all flow into the same property. Managing mix and channels dynamically enables hotel owners and operators to capitalize on whichever segment is strongest at any given point in the cycle.

For example, when corporate travel is soft, a well-run sales team can pivot toward small group events, such as sports tournaments. When inbound international lags, drive-to leisure demand can fill the gap.

Renovation and Repositioning as Revenue Catalysts

Finally, strategic renovation or repositioning can unlock new topline growth. Reflagging to a stronger brand, reconfiguring room mix, or upgrading amenities all expand profit potential. Investors who time CapEx well, providing a refreshed product as demand recovers, capture greater market share.

Together, guest experience, commercial strategy, and smart capital deployment show why hotels are capable of delivering returns even when the macro picture is weak.

Returns Driver #3: Performance Through Culture

Finally, the most overlooked lever: culture. In the beginning, I mentioned the perspective among some investors that hotel investing is risky, but culture, along with technology to support it, mitigates this risk.

Culture supported by technology delivers predictable execution at scale.

Steven Moore

Performance happens on property, from housekeeping productivity to upselling at the front desk, and that depends on how people are led and equipped. From the housekeeper to the GM to the above-property team supporting them, every role has the potential to make a difference.

The best-performing operators create cultures of performance.

• Transparency: real-time visibility into goals and results at every level.

• Accountability: clear ownership of outcomes, with role-level metrics each team uses daily.

• Recognition: simple ways to reward consistency and reinforce the right behaviors.

Technology amplifies performance. People don’t usually join the hotel industry to stare at screens; they join to serve. When technology takes the administrative burden off their plate and delivers actionable insights, two things happen.

1. Guest-facing time increases, improving service and satisfaction.

2. Variability decreases, creating more consistent results and returns.

For investors, this combination of culture supported by technology delivers predictable execution at scale. And predictable execution helps turn hotels from “volatile assets” into reliable, cash-flowing businesses.

Hotels Can Provide a Path to Durable Profitability

So how do you achieve above-average returns with hotels? You do the small things well. You create an environment where an engineer catches a $500 fix before it becomes a $50,000 failure. The associate upsells a guest to a better room, driving more profits, at check-in. The general manager who cuts overtime spending because they have the tools to do so. Each action may be small, but together they compound into higher and more durable profits.

And that creates options for capital allocators. Hotels cash flow in a way that lets you hold and harvest profits year after year. Or, you can sell with a strong story backed by performance, not just an arbitrage flip. Either way, the hotel investor wins.

Hotels remain one of the most compelling investments in commercial real estate. They are both hard assets and operating businesses. They carry volatility, but that volatility can be the source of flexibility, adaptability, and opportunity. For capital allocators willing to engage, the returns can be worth the work.

Steven Moore is CEO, Actabl.

The views and opinions expressed in this content do not necessarily reflect the opinions of Hotel Investment Today by Northstar or Northstar Travel Group and its affiliated companies.