The Opportunity in Underinvested Hotels

Years of deferred renovations, rising construction costs and more expensive debt are putting pressure on hotel owners. At the same time, limited new supply can make well-located existing properties difficult to replace.

The resulting opportunity is not simply to buy rundown hotels at a discount. It is to find hotels where underlying demand remains strong but the property, ownership structure or financing needs to be reset.

Greg Friedman, CEO of Peachtree Group, and Michael Bernath, SVP of Acquisitions and Dispositions, discussed how investors can distinguish those opportunities from hotels suffering more fundamental impairment.

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Why Are Underinvested Hotels Coming to Market?

Several pressures are converging.

Many hotels deferred renovations during and after COVID. Those improvements are increasingly difficult to postpone as brands enforce property improvement requirements and hotels compete for guests.

Renovations have also become more expensive. Bernath estimates that a soft-goods renovation costing roughly $7,000 to $10,000 per key before COVID could cost approximately $20,000 to $25,000 today.

Financing adds another layer.

Limited-service hotel transaction volume reached $23.2 billion in 2021 and $26 billion in 2022, according to figures Bernath cited in the podcast. Some three- to five-year bridge loans associated with that acquisition period are now maturing or have already been extended.

Refinancing into a higher-rate market while simultaneously funding a PIP can require owners to contribute significant additional equity.

As Bernath explains, the distress may therefore reside in the capital stack rather than the hotel.

What Makes an Aging Hotel an Attractive Investment?

Physical condition alone does not determine whether a hotel offers value.

Investors need to understand why the hotel is underperforming.

One useful measure is RevPAR index, which compares a hotel’s revenue per available room with its competitive set.

If a hotel historically should outperform its competitive set but has fallen behind because its rooms or common areas are dated, renovation may offer an opportunity to recover market share.

If the hotel and its competitive set are both deteriorating, however, renovations may not solve the underlying problem.

Bernath summarizes the distinction simply: “Not all renovations are created equal from an ROI perspective.”

Why Does the Type of Hotel CapEx Matter?

Hotel capital expenditures can address very different problems.

Guest-facing investments may include rooms, furniture, finishes and other visible improvements. Deferred maintenance may involve mechanical, electrical, plumbing, roofing or other building systems.

Both can be necessary. They do not necessarily offer the same potential return.

As Bernath explains, spending $40,000 per key behind the walls presents a different investment calculation than putting the same amount into cosmetic, guest-facing improvements that may support improved pricing or competitive performance.

Investors therefore need to determine whether CapEx is expected to restore lost competitive position, support higher room rates, meet brand requirements, address deferred maintenance or protect existing performance rather than increase it.

Why Does Limited Hotel Supply Matter?

The opportunity in existing hotels is occurring while new supply remains unusually constrained.

Bernath says the current pipeline of actual deliverable hotel assets is below 1%.

High construction and financing costs are part of the reason. As Bernath puts it, “Low supply and high construction costs are the same fact viewed from different directions.”

That environment can benefit existing hotels in markets with durable demand because fewer new properties are entering their competitive sets.

It also helps explain why acquisitions may currently offer a more attractive path than development in many markets, although Bernath continues to see selective development opportunities where demand and supply conditions support new construction.

Is Hotel Transaction Activity Recovering?

The Wall Street Journal data referenced Friedman cited showed nationwide hotel sales increasing 28% during the first half of 2026 compared with the same period in 2025.

Bernath, however, cautions that the recovery is uneven.

Luxury and urban full-service hotels have driven much of the increase, while select- and limited-service transaction volume remained down approximately 11% to 12% through the second quarter.

He nevertheless sees catalysts for a more active transaction market as debt maturities, renovations, lender pressure and investor fatigue push more owners toward decisions.

Three Key Takeaways

1. Capital-stack distress can create opportunity without asset-level distress.

An owner facing expensive refinancing and substantial renovation requirements may sell even when the hotel continues to serve a healthy market.

2. Renovation spending must have an investment thesis.

The amount of CapEx matters less than what it fixes and whether the spending can improve competitive performance.

3. Demand matters more than a cheap purchase price.

Buying below replacement cost is useful only in context. Investors still need sustainable demand, an attractive basis and a credible path to improving the property.

Frequently Asked Questions

What is an underinvested hotel?

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An underinvested hotel is a property where renovations, maintenance or other capital expenditures have lagged what is needed to maintain its physical condition, brand standards or competitive position.

What is a hotel PIP?

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A property improvement plan, or PIP, specifies renovations and upgrades required by a hotel brand, often in connection with an ownership change or as part of maintaining franchise standards.

Why are hotel owners facing more renovation pressure?

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Renovations deferred during and after COVID are becoming harder to postpone, while renovation costs have risen and brands are becoming more assertive about quality requirements.

Is buying an existing hotel better than developing one?

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It depends on the market. Bernath currently sees acquisitions as more compelling broadly because high construction costs and limited financing make many developments difficult to justify. Select markets with limited supply and strong demand can still support new development.

What should investors look for in a hotel renovation opportunity?

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The episode emphasizes durable local demand, competitive-set performance, the nature and cost of required CapEx, acquisition basis and whether distress stems from the hotel itself or its capital structure.

Listen to Peachtree Point of View for Greg Friedman and Michael Bernath’s full discussion of hotel acquisitions, deferred CapEx, limited new supply and how they evaluate value-add opportunities in today’s hospitality market.