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Hospitality investments offer a compelling diversification strategy for business owners and individuals. While many may first think of luxury resorts or full-service hotels, the hospitality sector is far more diverse. From highway motels to expansive destination properties, each category carries unique investment characteristics.
Before diving into this nuanced investment landscape, it’s important to understand the distinct operations of limited-service hotel investments in today’s market.
Hospitality properties encompass a broad segment of commercial real estate that focuses on temporary lodging and guest services. Investment opportunities in this space vary widely, each demanding different levels of capital and operational expertise. Regardless of the service level, quality hospitality properties generate revenue primarily through room rentals, while adding value through key amenities, strategic locations and brand recognition. Understanding these fundamentals helps investors evaluate opportunities across different property types. This article focuses on limited-service hotels in the United States.
Limited-service hotels, led by brands such as IHG’s Holiday Inn Express and Marriott’s Hampton Inn, emphasize quality rooms and essential amenities. By offering lower nightly rates than full-service hotels and reducing overhead costs associated with food services, these properties often deliver strong returns through efficient operations.
For example, brands like Courtyard by Marriott and Hilton Garden Inn offer a blend of service and targeted amenities that appeal to today’s travelers, with nightly rates typically ranging between $129 and $229. This pricing strategy attracts both business and leisure guests seeking upscale comfort without the premium price tag of full-service offerings.
Upper-midscale and upscale limited-service hotels are currently outperforming in the hospitality market. According to CoStar data, these properties are at the forefront of new hotel development and continue to offer attractive returns due to several factors:
The Sunbelt states with their growing populations and expanding business sectors, have proven favorable for limited-service properties. Strategic locations near business parks, medical centers, and transportation corridors help maintain high occupancy rates and stable revenue streams
Research from Cornell University analyzed over 3,000 hotels between 2015-2020, found that properties between 19 and 22 years achieved profit margins of 47%. In contrast, hotels over 32 years averaged 31%. These findings suggest that established properties with modernized amenities tend to benefit from lower operating costs and more stable revenue, while older properties may incur higher maintenance expenses.
Limited-service hotels shine in their operational simplicity. Without restaurants or extensive meeting spaces, this sub-class typically maintains lower staffing requirements and reduced overhead expenses. Housekeeping, front desk operations, and basic maintenance form the core of daily activities, helping owners maintain predictable cost structures.
As with any real estate investment, location is key. Limited-service hotels near business parks, medical facilities and transportation hubs tend to enjoy steady occupancy. The Sunbelt states, in particular, offer strong fundamentals due to population growth and increasing business activity.
Major hotel brands impose strict quality standards for their limited-service properties. While these standards ensure a consistent guest experience, they also necessitate regular capital investments in upgrades and renovations. Savvy operators plan for these expenses franchise requirements and sustain their market positions.
AVANA Capital, with decades of experience in hospitality lending, is dedicated to supporting limited-service hotel projects. As IHG Hotels & Resorts’ newest lending partner, AVANA Capital is committing $250 million in construction loans—through our partnership with Oaktree Capital—for U.S.-based projects under select IHG brands, including Holiday Inn Express and avid hotels.
For more information, please visit our website at www.avanacompanies.com or contact:
To summarize, limited-service hotels represent a robust investment opportunity within the modern hospitality landscape, combining operational efficiency, cost management and strategic market positioning to deliver strong returns.