The following is a guest post from Russ Flicker, co-founder and managing partner at AWH Partners. Opinions are the author’s own.
Looking back at what shaped hospitality real estate in the first half of 2026, one theme stood out: The market began moving on its own terms, separate from the assumptions investors had carried into the year.
That trend led to a question I’ve heard at nearly every conference, limited partner meeting and board update: How much of this recovery depends on the Federal Reserve cutting rates? Increasingly, the answer appears to be less than many expected.
The recovery isn't waiting on rates
Entering 2026, the consensus was caution. Most forecasters expected modest RevPAR growth, weighed down by softer leisure demand, uneven corporate travel and general economic uncertainty. Instead, performance has been well ahead of plan. CoStar and Tourism Economics upgraded their full-year 2026 U.S. RevPAR growth forecast to 2.8% after national RevPAR rose 4% year over year through the first four months of the year, with the first quarter marking the highest RevPAR on record.
"Hotel operations, occupancy, rate and demand are indifferent to the Fed funds rate. Deal execution is not."
Russ Flicker
Co-founder and managing partner at AWH Partners
That upgrade took place without a single rate cut. The Fed held its benchmark rate at 3.5 to 3.75% through the first half of the year, and in June the committee's median projection moved higher, to 3.8% by year-end, not lower.
What's driving performance is not monetary policy. Rather, it’s demand: resilient leisure travel, an improving group and event calendar, and this summer's World Cup, layered on top of historically constrained new supply. Additionally, luxury and upper-upscale assets are leading, with luxury RevPAR growth outpacing economy hotels by a wide margin, but gains have broadened across chain scales as the year has progressed.
The distinction that matters here is between operating fundamentals and transaction fundamentals. Hotel operations, occupancy, rate and demand are indifferent to the Fed funds rate. Deal execution is not. Cap rates, leverage availability and going-in yields are still a function of the cost of debt, and that is where higher-for-longer really bites.
A hotel can be performing well at the operating level and still represent a difficult transaction if the capital stack behind it was built for a different rate environment. That mismatch, not weak fundamentals, is the actual story of stalled deal flow and forced sales in 2026.
The market has already adjusted
For much of the last two years, commercial real estate pricing carried an implicit assumption: Rate relief was coming, and it was only a question of when. That assumption has largely been discarded. Markets are now predicting roughly a three-in-four chance of zero Fed rate cuts in 2026. Goldman Sachs has pushed its expectation for the first cut out to 2027.
"A hotel in a high-barrier, diversified-demand market with a broken balance sheet is a value opportunity. A hotel in a market with structural oversupply or a single or fading demand driver is cheap for a reason, and it may get cheaper."
Russ Flicker
Co-founder and managing partner at AWH Partners
Hotel cap rates already reflect this recalibration. Stabilized assets are pricing in the 8.0 to 8.5 % range, upscale and upper-midscale are closer to 9.5%, both multiyear highs, according to HVS and CoStar data. That is not a market anticipating relief — that is a market pricing current reality.
This matters because some investors still seem to underwrite and expect cash flows or exit assumptions predicated on 2021-era financing returning. However, the more appropriate posture is to underwrite today's cost of capital with any future rate relief as upside.
Distinguishing good value from cheap
This is where the real skill in today’s market lives, and it is the single most important discipline separating durable returns from value traps in the second half of this year.
Cheap pricing can signal a few different things: a distressed seller, a failed capital structure, or real asset or market impairment. While the first two can be resolved in a sale, the asset or market impairments are different. Value is derived from this mispricing of a fundamentally sound asset in a market with real demand drivers and barriers to new supply. The price may look similar from the outside, but buyer beware.
The playbook comes down to a few key questions:
First, is the underlying real estate high quality? Location, demand generators and barriers to new supply do not change with ownership. A hotel in a high-barrier, diversified-demand market with a broken balance sheet is a value opportunity. A hotel in a market with structural oversupply or a single or fading demand driver is cheap for a reason, and it may get cheaper.
"The hotels worth buying right now are not the ones that are simply cheap. They are the ones where strong real estate and resilient demand are temporarily obscured by a capital structure problem that disciplined, operationally capable investors can actually solve."
Russ Flicker
Co-founder and managing partner at AWH Partners
Second, is the problem controllable? Deferred capital, underperforming operations or a floating-rate loan with an approaching maturity are potentially solvable. A structurally impaired demand base, or a market where supply outpaces demand, is not.
Third, what does the capital stack actually require? Nearly 70% of the $18.7 billion in hotel CMBS loans maturing in 2026 carry floating rates originated in a very different cost-of-capital environment, according to Trepp. That single fact is why so many otherwise sound hotels are trading at what looks like distressed pricing. The real estate did not lose value; the debt did.
Second half predictions
Put together, the outlook for 2026 is fairly clear. Operating performance will likely keep exceeding the cautious forecasts that framed the start of the year. Transaction activity will remain dependent on lender resolutions and realistic seller pricing rather than a Fed pivot. And successful investors will underwrite the market as it exists, not the market preferred.
This is a call for precision. The hotels worth buying right now are not the ones that are simply cheap. They are the ones where strong real estate and resilient demand are temporarily obscured by a capital structure problem that disciplined, operationally capable investors can actually solve.
