Hospitality demand rises as fundraising falls

Private capital continues trending down from pre-pandemic peak.

The debt environment for hotel investors and owners remains weak, despite a rise in key performance indicators across the global hospitality market. In late May, global hotel weekly occupancy reached its highest level of the year – and since the onset of the global pandemic – according to hospitality analytics firm STR.

In STR’s top 10 countries based on hotel inventory, occupancy reached 72.4 percent, also its highest level since the start of the pandemic and an increase over last year. The gain in occupancy was largely driven by China with year-over-year gains of 22.4 percentage points. The UK retained its presence in the top 10 with occupancy at 82.6 percent. Ireland’s smaller hospitality market was top overall, with nearly 89 percent occupancy.

In China, revenue per available room (RevPAR) grew 116 percent compared with a year ago, with Japan closely behind at a 93 percent premium over 2022.

Turning a profit amid inflation

Now that fundamentals are returning to some normalcy amid pent-up travel demand, rising interest rates and fewer traditional banks offering new or refinancing debt are further hindering a property sector devastated during the global pandemic by lockdowns and travel restrictions. So how can sophisticated hotel owners and investors continue making money in this inflationary environment?

One way is operations. Properties that can deliver the experiences that attract pandemic-weary business and leisure travelers should see continued success. Owners and operators of ultra-luxury and luxury-class properties are poised to see returns in the coming months.

Sustainability is another issue that more travelers are taking notice of. Third-party reservation site recently surveyed 29,000 potential guests and found 64 percent preferred a sustainable accommodation when given the choice. In another survey, travel group Expedia showed 70 percent of travelers surveyed said they avoided certain hotels because of sustainability concerns.

Aside from labor, owners report that utilities and maintenance costs represent the largest share of variable costs. The implementation of sustainability measures can help operating costs and boost bottom lines across a property or portfolio. And at the end of the investor’s hold period, green buildings have time and again proven to sell for higher prices when compared with similar properties in the market without sustainable improvements.


Another way for hospitality investors to continue turning a profit is diversification. This applies to portfolio location and class, but also in the services and amenities offered. More hoteliers and investors are beefing up amenities in the way of experience-driven ‘stay-and-play’ offerings and in utilization of unsold rooms.

Unheard of nearly a decade ago, student housing has also become a popular model for hotels near college campuses. Remaining flexible is key; being able to adapt a property and offerings to meet changing demand will allow owners to fill more rooms. Younger travelers are increasingly willing to pay a premium for properties addressing ESG concerns or offering on-site restaurants, extended stay options, wellness facilities, unique experiences and remote working space.

In addition to the drop in available financing, the number of hospitality-focused private funds closing continued its downward trend since the onset of the global pandemic, declining from 21 funds in 2019 to 16 in 2022, according to PERE data. There are still plenty of active buyers in the market though, and 2021 saw a small jump, with 19 funds closed.

The total amount of capital raised for hospitality funds dropped sharply last year, from $4.5 billion to just $2.2 billion, on par with totals seen during the height of the pandemic in 2020. However, total capital raised in the first quarter of each year has been steadily climbing each year since 2019, nearly tripling over that period.

On average, over the past five years more than half of all fundraising has focused on the North American region. Roughly 80 percent of private capital raised in 2018 for funds that were focused on the hospitality industry was deployed in that region, though that number dropped to 19 percent in 2019 before climbing back up to 67 percent of annual totals last year.

Last year also saw the return of hospitality funds being invested in Asia-Pacific in a big way. More than a quarter of total capital raised for hospitality-focused private real estate vehicles was for the region, while European targets made up just 7 percent of total capital.

Two of the top 10 largest funds that closed in 2022 are focused exclusively on Asia-Pacific: SC Capital Partners’ Japan Hospitality Fund raised nearly $500 million in the second quarter last year, and MetLife Investment Management’s MetLife Japan GHV (Hotel) Fund closed with $80 million by the end of 2022. The largest fund to close last year was Electra America Hospitality Fund I, which reached its target of $500 million in the first quarter.

Going back a few years, KSL Capital Partners was the largest hospitality-specific private real estate vehicle of all time to close. The multi-region, closed-end fund met its targeted $2.7 billion in the first half of 2019. Azure Capital Partners’ Azure Hospitality Fund I raised $970 million for Asia-Pacific regional investment in 2020 and Azora’s European Hotel & Lodging fund surpassed its target and closed on $960 million in the second half of 2021.

So far this year, a mix of value-add and opportunistic funds focused on hospitality investment in North America, Asia-Pacific and Europe have targeted closes in 2023. The largest among them are Noble Hospitality Fund V, MCR Hospitality Fund IV and CGI Hospitality Opportunity Fund I, which combined are looking to raise $2.25 billion targeting North American investment.