Buying a hotel isn’t just a transaction—it’s a journey. From the moment you start searching for the right property to the day you cut the ribbon at the grand opening, hotel acquisitions are a high-stakes game filled with hurdles. In this article, we break down the toughest challenges you’ll face—and how to overcome them—when finding, closing and developing hotel deals.
The Reality: Hotels Are Hard to Find
Let’s start with the hunt. One of the biggest misconceptions about hotel investing is that there are plenty of great properties waiting for buyers. The reality is very different: hotel deals that combine strong cash flow, good location and solid condition are rare. Competition is fierce and many opportunities are never publicly listed.
Key difficulties in finding deals include:
- Off-market dominance: Many attractive deals are shared privately among brokers and investors, never hitting public listing platforms.
- Market opacity: Unlike residential real estate, there’s no single database with all hotel listings. You must check with brokers, CRE platforms and word of mouth.
- Valuation complexity: Hotels are operating businesses with unique metrics like RevPAR and ADR. Analyzing these properly is essential but can be daunting for new buyers.
How to break through:
- Network intentionally. Build relationships with hotel brokers, owners, lenders and brand representatives. Attend industry events where deals and contacts are made.
- Specialize. Focus on a specific region or hotel type. This makes you more credible to brokers and helps you find deals faster.
- Use market data tools. Hotel data platforms can help you identify distressed properties or undervalued markets before others do.
The Gauntlet: Why Closing a Hotel Deal is So Hard
Once you find a deal, it’s not smooth sailing. Closing on a hotel is very different from buying residential or many other types of commercial properties. Deals often drag on for months and the process can be filled with pitfalls.
Here’s what makes closing so challenging:
- Franchise approvals: Most hotels are affiliated with major brands. Buyers must be vetted and approved by the franchise, which involves detailed financial reviews and agreement on improvement plans. Failing to get approval can kill a deal.
- Financing hurdles: Lenders consider hotels riskier than other real estate. Hotel loans require more equity and have stricter underwriting standards. This means buyers must be prepared with strong financials and experience to reassure lenders.
- Due diligence surprises: Hotels carry unique risks. Issues like deferred maintenance, outdated systems, labor disputes and undisclosed agreements with vendors can derail a deal if uncovered late in diligence.
- Operational transition planning: A hotel is a 24/7 business. If you don’t plan carefully for the management transition, it can lead to lost revenue, bad guest experiences or staff turnover right after you take over.
How to improve your odds:
- Line up your lender and equity early. Have your business plan and projections ready before making offers.
- Hire experienced advisors. A lawyer and accountant who specialize in hotels can catch issues that generalists would miss.
- Involve a professional management company. They can support due diligence, plan for operational transition and reassure lenders.
The Opportunity: Development Can Make or Break Your Empire
When deals are scarce or overpriced, some buyers consider hotel development. While building new hotels offers the chance to customize the property and maximize value, it comes with significant risks and complexities.
Challenges in development include:
- Rising costs: Construction expenses, labor shortages and delays can lead to budgets spiraling out of control.
- Entitlement and zoning: Getting approvals to build a hotel can involve complex processes with local governments, neighborhood groups and planning boards.
- Brand requirements: Major hotel brands have strict standards on everything from room design to amenities. Failing to meet these requirements can lead to loss of brand support, which can devastate your ability to attract guests.
How to stack the odds in your favor:
- Pick the right markets. Focus on areas with demand but limited competition.
- Work with experienced partners. Engage architects, contractors and project managers who specialize in hotels. Their expertise can save time and money.
- Secure brand alignment early. Major hotel brands will review your plans, location and financials before agreeing to a franchise. Getting brand approval early avoids costly redesigns or rejections later.
Why It’s Worth the Effort
Despite the challenges, hotel ownership can be one of the most rewarding paths in commercial real estate. Hotels generate daily revenue, which allows for more dynamic pricing and the potential for higher income compared to properties with monthly leases. A well-run hotel in the right market can also appreciate quickly, creating opportunities for significant gains upon sale or refinance.
In addition, hotel ownership offers tax advantages and unique opportunities to build community and legacy. Hotels can create jobs, become landmarks in their areas and serve as tangible symbols of your success.
Perhaps most importantly, owning a hotel gives you the chance to create generational wealth. Unlike many investments, a hotel can provide both steady income and long-term appreciation. By overcoming the hurdles of finding, closing and developing hotel deals, you can build an empire that lasts far beyond a single project.
Bottom Line
Finding, closing and developing hotel deals isn’t easy—but with education, relationships and preparation, the process becomes manageable and rewarding. Are you ready to start your journey? Continue exploring our “How to Buy a Hotel” series and turn your dream of hotel ownership into a profitable reality.
This article was originally published in the July/August edition of Hotel Management magazine. Subscribe here.