Hotel Investors Target Luxury, Upscale Leisure Properties

Hotel investors are concentrating capital in luxury and upscale leisure properties while new development remains difficult as financing costs remain elevated and underwriting standards tighten, Walker & Dunlop says in its inaugural Hospitality Outlook, “Capital, Divergence, and the Search for Durable Returns.” The outlook finds a widening divide across the lodging sector with performance increasingly determined by asset quality, location and traveler demographics rather than broader market trends.

“Hospitality is no longer a market where broad assumptions drive performance; however, U.S. Q1 RevPAR growth of 3.8% was well above expectations,” said Jay Morrow, senior managing director of Capital Markets Hospitality Advisory at Walker & Dunlop. “Investors today are looking beyond broad market narratives and focusing on the fundamentals of individual neighborhoods, submarkets and demand drivers.”

The report argues that broad-based assumptions about hotel performance are becoming less reliable as activated capital and demand concentrate into a smaller group of submarkets and assets. “Two assets in the same city can produce very different outcomes,” said managing director Evan Hurd. “The ability to identify resilient micro-locations and align capital accordingly is becoming a key differentiator for investors.”

Pictured: Aman New York; Walker & Dunlop arranged $754 million in 2022 for construction of the project on the top 20 floors of New York’s historic Crown Building.