‘Sets Up A Great 2025’: Hotel Investment In DFW Poised To Rebound Following Rate Cuts

While hotel investment in Texas’ three largest metros was up during the first half of 2024, analysts say there’s still enough caution in the market that transactions aren’t likely to explode this year. 

Next year, however, could be a different story.

The combined hotel investment of $167M in Dallas, Houston and Austin during the first half of 2024 outpaced prepandemic levels in 2019 by nearly 20%, according to JLL research.

While that's a positive trend, industry insiders said travel spending hasn’t yet rebounded enough for hotel performance projections to truly excite the market. 

But an analysis of CoStar Group data for the DFW market by Matthews Real Estate Investment Services found that 41 DFW hotel properties with active CMBS loans this year are set to mature in the next year. That could help propel trade activity due to more stable lending and the Federal Reserve’s projection of another 50-basis-point-cut to the federal funds rate. 

“Considering that more cuts are supposed to come this year [and] considering we have an election in November, people are saying we really don't have to do much in 2024,” CBRE Hotels Executive Vice President Brian Nordahl told Bisnow. “But it does set us up for a great 2025 if everything comes together the way that we think, which is primarily the cuts acting as the catalyst.”

In the short term, rate cuts will benefit REITs as their cost of capital will go down, Nordahl said. As that happens, their dividends become more enticing to investors, who look to the REITs to determine whether they should be in the markets. 

“The REITs are going to get back into the market because they have the ability to do so,” Nordahl said. “That's going to lead to other investors getting back in private equity.”

The market is primed for a boost. Matthews Real Estate Investment Services' analysis found that the Metroplex hotel market saw its revenue per available room drop by nearly 4% from Q3 of 2023 to the beginning of the same quarter this year. Occupancy rates have struggled to keep up with hotel supply increases over the last five years. 

As consumers move past the revenge travel that characterized the end of lockdowns, Nordahl said travel patterns have largely returned to normal, though the amount of leisure travel the industry sees has dropped off compared to a couple years ago.

While some of that surge was related to pent-up demand to get out, JLL Americas Hotels & Hospitality President Dan Peek said a host of leisure options between Airbnb, VRBO and similar services are cushioning the blow, giving travelers alternatives at lower price points than traditional hotel bookings.

“There's some great hotel concepts that have been created,” Peek said. “The reason that people have comfortably invested in [those models] is that Americans view vacation as a right, not a privilege. Even if they're tightening their belt on something else .. they are going to take a vacation.” 

Hotel Association of North Texas officials said they are expecting slower travel growth for the rest of 2024. Executive Director Traci Mayer said the organization’s membership believes the next 18 months could be challenging for hotel performance, though they are projecting 4% growth among corporate travelers and nearly 5% from those traveling for leisure over 2023. 

“The opportunity for opportunistic buyers to acquire well-located properties at favorable prices is growing,” Mayer said via email. “Deferred maintenance, property improvement plans (PIPs), and the need for cash through refinancing will continue to push more sellers to the market. Buyers stand to benefit, especially in a lower, long-term supply growth environment.”

With its central location in the country and an airport that flies direct to nearly any destination, DFW is a hot spot for hotel development. Mayer said another rate cut could move some sidelined projects into active development.

Peek said that spending $50K per room on renovations could mean higher returns on rates and food and beverage, which would spur transactions.

“There's a lot of assets that have not been renovated that need renovation,” Peek said. “That's also going to spur some of the activity, because the brands are going to lean hard on the ownership, and the market will be willing to underwrite.”

Nordahl said Texas, and DFW in particular, is the No. 1 target in the nation for hotel investment.

San Antonio has also been a hot commodity, but Austin investment has struggled a bit, he said.

“Fort Worth … is absolutely having a moment,” Nordahl said. “Fort Worth has just absolutely exploded in terms of desirability. Hotel development there has been incredible with The Crescent [and] The Bowie House, which is a three-key Michelin star hotel.”