In my year-end missive following 2023, I reviewed the hotel transaction market dynamics comparing contrarian buyers to downhill skiers who don't want to follow in other's tracks and "wanna-be's" to cross country skiers who predominantly follow the leader's tracks. I simply could not understand why more investors were not placing bets on the inefficiency created by market noise when market stakeholders intuitively know that you should always buy when others are not. Well, other than one huge investor in the market, SQ Capital, Inc., 2024 logged in another down transaction year, as hotel transaction volume fell more than 10% after last year's calamitous 40% decline. For the second year in a row, SQ Capital was by far the largest investor in the market.

Overall, for those of us in the transaction market, this year was another challenging year. As I look back to 2024, several of the foundational issues that were causing the risk-off sentiment have changed while others remain. Let's first review the status of a confluence of nagging pressures that caused the risk-off behavior that created 2023's massive transaction decline and 2024's further decline:

  1. Legacy Investments - Same - Since there were fewer transactions this year than last, the nagging legacy investment issues still prevail.
  2. Real Estate Industry Turmoil - Same - The stress on real estate portfolio balance sheets caused by the unprecedented increases in interest rates in 2022 and 2023 still exists. While a combined 100 bps decline in short-term rates should help, this has been offset by increases in long-term rates.
  3. Two Wars - Different - While the end is not yet in sight for Ukraine, a long-awaited cease-fire in Gaza was announced in early January 2025. Fingers crossed!
  4. The Threat of Recession - Different - A recession never materialized in 2023 nor 2024 despite the high probability placed by market prognosticators.
  5. Presidential Election - Split Decision - The election is now in the rear-view mirror as the results pointed toward a clear presidential mandate that resulted in an orderly transfer of power. However, uncertainties remain about policies that may be implemented by the incoming administration, such as tariffs, economic austerity of future government spending and immigration.
  6. Debt-driven Friction - Different - The hotel debt markets this year were significantly more liquid than in 2023 as our Hotel Debt and Structured Finance team (the best in the business) transacted a record volume of debt placements this year.

Now let's talk about the top hotel buyer for two years running - SQ Capital, Inc. The legendary real estate investor Sam Zell once said that "Any time you don't sell, you buy" referencing the fact that if you choose not to sell for a certain price, you are in essence making the decision to buy the asset at that price. And that is exactly what SQ Capital has done for the last two years, as approximately $20 billion of hotels were taken to market but not sold. In essence, Status Quo (SQ / legacy ownership) purchased each of these hotels at the price at which they would have cleared the market. The lack of visibility into true market value is part of the cause of this dynamic, and we suspect that unless the investment inputs change this year, SQ Capital will continue to prevail as the top buyer in the market.