After years of uncertainty and repricing, the hospitality real estate market is finally showing signs of positive movement. Buyers and sellers are converging on valuations. Deals that were off the table 12-18 months ago are resurfacing at prices originally underwritten. The message is clear: seller capitulation is real, and it may be accelerating. But the story isn't just about prices coming down—it's about a market structure that's creating opportunities for strategic investors who know where to look.
The Convergence Is Real (But Not Everywhere)
Make no mistake: the valuation gap between buyers and sellers is narrowing. We're witnessing what happens when market realities finally align with underwriting. However, this convergence tells only part of the story. In the middle market, financing costs remain stubbornly high, and the gap persists for leveraged transactions. Sellers expecting returns that require cheap capital are meeting buyers who are pricing in realistic borrowing costs. Until lenders further absorb losses on bad loans and accept lower leverage multiples, this disconnect will persist. Among the $18.7 billion in hotel CMBS loans maturing in 2026, nearly 70% carry floating-rates according to Trepp. These loans originated at meaningfully lower rates and add material pressure to their capital stack.
What's changing is lender behavior. As interest rates stabilize and property capital needs grow, lender appetite for taking losses is increasing. This shift is quietly reshaping market dynamics—and it favors prepared capital.
Where Capital Is Concentrating
Capital flows can tell you where opportunity truly exists. We started seeing progress in 2025 when global hotel transaction volumes were up 22% from the 2023 trough, with the Americas leading at +27%, according to JLL. Now over the last few quarters, we've seen a clear bifurcation: trophy luxury assets and well cash-flowing assets are attracting significant interest, while value-add projects remain largely unloved. This concentration isn't random—it reflects lender and equity investor risk aversion in an uncertain environment.
Geographically, there’s a focus on markets with proven growth trajectories, durable demand drivers, and high barriers to new supply. We're deliberately avoiding markets reliant on a single demand driver or where supply continues to outpace demand. This market environment isn’t simply a rising tide benefiting all boats.
Two Major Distress Categories—And Two Opportunities
The real opportunity lies in recognizing distress where it's genuine and affecting an otherwise valuable asset – and we see two categories where these will exist.
The first area is straightforward: assets carrying floating-rate debt or pandemic-era bridge financing that can no longer be refinanced at reasonable coverage ratios or that require significant equity for refinancing. We're tracking a significant number of these situations—operationally sound assets with impaired capital structures. For the right buyer with in-house management and development capabilities, this mirrors 2010–2014: the opportunity to underwrite to achievable numbers and achieve real returns.
The second area is equally compelling: larger assets requiring significant capital improvements due to many years of owners delaying/foregoing re-investments. High interest rates and rising construction costs have created an environment where investors demand a high-risk premium for these transactions, and as a buyer, the premium must be priced in up front. Those with conviction around growth in the right markets, will be rewarded. Patient capital with operational capabilities will outperform.
What Happens Next
Transaction activity will pick up meaningfully in the second half of 2026 if either or both of two things break in the right direction: First, the Federal Reserve must not raise rates and discuss the possibility of lower rates down the road. We see this as a real possibility towards the end of the year. Second, lenders must finally force resolution on troubled loans. If both occur, we expect substantial acceleration.
We will continue to operate in an uncertain geopolitical environment which will disproportionately impact certain submarkets and their reliance on international travel or energy-related businesses, just to name a few. The best investors aren't betting on a single macro scenario; they're building portfolios that perform across multiple outcomes
The hospitality real estate market isn't recovering uniformly. It's rewarding discipline, operational expertise, and the ability to distinguish between real distress and speculative timing. The second half of 2026 will separate those who are ready from those who are simply reactive.
