Multifamily Investors Should Consider Hospitality Too

For multifamily investors navigating compressed yields, slower transaction velocity and peak apartment pricing in certain markets, hospitality is increasingly being evaluated as a tactical allocation rather than a permanent pivot. Hotels offer a different risk-return profile, defined by faster repricing, operational control, and entry points created by market dislocation.

This shift is driven by basis, not yield chasing. 

As pricing across commercial real estate adjusts unevenly, hotel values tend to reset faster than other property types. Over the last two years, hospitality cap rates have increased more than 250 basis points, creating acquisition opportunities at operational troughs. For investors who understand they are acquiring operating businesses, not just real estate, hospitality then can offer compelling, cycle-aware opportunities.

Unlike multifamily assets, hotels operate on a one-night lease structure, with rates resetting daily. This makes them highly responsive to demand shifts, inflation, seasonality and local events. Metrics like average daily rate (ADR) and revenue per available room (RevPAR) can recover faster than apartment rents following downturns, but declines also flow through immediately, with no lease cushion.

As of late 2025, RevPAR in many markets remained roughly 9 percent below budget expectations, while new hotel development is limited through at least 2027. This combination has pushed some assets to market at pricing that reflects near-term volatility rather than long-term fundamentals, creating hospitality real estate investment opportunities that are increasingly scarce in stabilized multifamily portfolios.

Importantly, forward demand indicators remain constructive. Recent commentary from Hilton Worldwide reinforces this outlook, with CEO Christopher Nassetta noting improved expectations for 2026. The company now forecasts RevPAR growth of 2 to 3 percent for fiscal 2026, an increase from its prior outlook of 1 to 2 percent, signaling strengthening pricing power and occupancy trends across the sector. 

This revised guidance, alongside major global demand catalysts such as the FIFA World Cup and the Olympics, reinforces hospitality’s historical position as both the first asset class to bottom in a downturn and one of the first to recover.

Although multifamily and hospitality share underwriting fundamentals, their operating dynamics differ in ways that materially impact valuation and risk. Multifamily rents typically reset annually, producing stable cash flow, while hotels reprice continuously based on demand. In strong markets, ADR can increase rapidly within months, compared to more gradual rent growth in apartments, but downside risk accelerates just as quickly.

Expense structures also diverge. Hotels operate with higher expense ratios, driven largely by labor-intensive operations, while multifamily assets typically benefit from more stable and lower-cost structures. Hotels are evaluated using RevPAR, ADR and gross operating profit per available room (GOPPAR), and are underwritten to earnings before interest, taxes, depreciation and amortization rather than net operating income. Management fees and ongoing capital reserves further reduce cash flow before debt service, reinforcing the importance of disciplined underwriting.  

Despite these differences, multifamily investors bring transferable skills to hospitality, including market selection, basis discipline, physical due diligence and renovation analysis. Evaluating assets below replacement cost and identifying operational upside translates directly. 

However, hospitality introduces greater volatility and operating leverage. Revenue can fluctuate significantly by season and day of the week, with some assets generating a disproportionate share of annual revenue in a limited window, which directly impacts cash flow timing, debt sizing and reserve planning.

Transaction dynamics are also evolving. Hotels have increasingly traded through auction channels, where broad market reach across local, regional and national buyers drives transparent price discovery, certainty of close, and a 96 percent trade rate following executed purchase and sale agreements and earnest money deposit delivery. 

These transactions are not inherently distressed, but often reflect ownership transitions, loan maturities or strategic decisions in a market where traditional valuation processes have slowed. For buyers who can quickly assess operational complexity, auctions can offer efficient access to opportunities.

Hospitality carries real risks. Revenue is closely tied to demand, and when demand turns volatile, occupancy is typically the first casualty followed by rate compression that can be difficult to reverse. Seasonality creates uneven cash flow, while labor challenges and elevated insurance costs continue to pressure margins. Buyers who have entered the market over the past 18 months, however, are positioned to benefit as conditions strengthen and pricing becomes more predictable.

Brand and franchise requirements can introduce new financial obligations, and management quality plays a significant role in performance outcomes. These risks do not eliminate opportunity, but they must be reflected in pricing, leverage and reserves.

Hospitality is not a passive alternative to multifamily. It is a tactical, cycle-sensitive allocation that offers portfolio balance. Cap rate expansion, limited new supply, and assets trading below long-term fundamentals have created compelling entry points. 

Buyers entering now are positioned to benefit first as demand stabilizes and pricing strengthens, earning returns grounded in basis rather than speculation.

Anthony Falor is the senior managing director of hospitality at Crexi Auctions.