At a fundamental level, hospitality economics have been out of alignment: interest rates remain elevated, cap rates stubbornly low and RevPAR growth anemic. Those conditions made it difficult to justify new investment, let alone generate attractive riskadjusted returns. That said, I believe 2026 may mark an inflection point.
For more than a year, rates have moved meaningfully off their peaks. Debt constants remain high, often in the 7 % to 9 % range depending on structure, but the door to positive leverage is beginning to reopen. The remaining challenge lies with sellers. Caprate
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expectations have yet to adjust meaningfully, reflecting a lingering attachment to the era of ultra-low interest rates. These two realities cannot coexist indefinitely. Transaction volume will remain constrained unless interest rates continue to ease or sellers accept modestly higher cap rates.
In other words, the math is improving but pricing hasn’ t. Where does that leave investors?
Given today’ s construction costs, which generally require RevPAR north of $ 150 to pencil, few markets can support new supply. As a result, there are three viable investment paths for private capital:
➊ Develop a well-located,
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soft-branded hotel capable of sustaining RevPAR above $ 250
➋ Reposition a neglected or obsolete hotel
➌ Reinvest in an existing asset to drive higher ADR and RevPAR
Each path requires a different kind of skill and a different tolerance for uncertainty.
DEVELOPMENT: HIGH RISK, HIGH REWARD High-end, small-scale development is not for the faint of heart. It demands exceptional design, thoughtful branding and operational precision. When executed well, these projects can command meaningful rate premiums that offset higher development costs.
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The challenge lies in finding the right location and calibrating the finish level precisely. Success requires a strong design team, a disciplined operator and, above all, patient capital.
REPOSITIONING: COMPELLING, BUT RARE Repositioning a“ forgotten” hotel may be even more compelling, but it’ s akin to hunting unicorns. Most markets have been thoroughly scrubbed for underutilized assets in acceptable locations. Still, when such opportunities do surface, they can generate significant value.
While the physical plant may require extensive reinvestment, you’ re starting with two
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40 hotelsmag. com Mar / Apr 2026 |