Why 2026 Looks Rocky for U.S. Hotels And Where Smart Investors Can Hit Big | Jan Freitag E50

Michael Russell 0:03

Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game. Welcome to the Hotel Investor Playbook. We're Mike and Nate, founders of Malama Capital, and your host. On this podcast, we talk story about everything you need to know to make money investing in hotels and hospitality assets. On today's episode, we're joined by someone who helps shape how investors, lenders, and operators interpret what's actually going on in the market. You've probably seen his name in the Wall Street Journal or heard him speak at NYU or ALIS or the Hotel Data Conference. Jan Freitag is the National Director of Hospitality Analytics at CoStar Group. And if you're serious about hotel investing, chances are you've been relying on Jan's data, whether you knew it or not. What I really admire about Jan is that he has this unique way of separating interesting data from actionable insights. Something that I think a lot of us need right now as we look ahead into 2026. So today, I don't just want to rehash RevPart trans, I want to talk about how investors can make smart, forward-looking decisions in a time of uncertainty. So, what to watch, what to ignore, and how to navigate this weird market with confidence. So, Jan, welcome to the show.

Jan Freitag 1:38

Gentlemen, thank you so much for having me. I appreciate it.

Nathan St Cyr 1:40

Yeah, we're pumped. Excellent.

Michael Russell 1:42

So we're recording this in September 2025, and it feels like the mood in the industry is off. We've got this uncertainty around tariffs and inflation, softening consumer spend, all of it. You've said before that the industry is stuttering. So what's the real story behind the numbers right now?

Jan Freitag 2:04

Yeah, we went very rapidly from a growth environment to a no-growth environment at the Alice Hotel Investment Conference, where everybody gets together late January in LA. It's where the major investors, brokers, lenders, operators get together. We suggested, hey, we have a new administration, gonna be tax cuts, ref poll growth is gonna be 2%-ish, just below for the year. That's all good. Then the NYU conference came around in New York first weekend, first Monday in June, and we're like, oh wow, this tariff conversation is really throwing a wrench into this, but we're still okay. Let's call it 1% RevPal growth. And then three weeks ago, we were at the hotel data conference here in Nashville, Tennessee, and we're like, uh, yeah, actually, we're thinking this year we're going to be minus 0.1%. Call that flat for all intents and purposes. So we went from a growth to a no-growth environment in eight months.

Michael Russell 2:56

All right. So for hotel investors listening, and especially for those that are trying to underrate deals in 2026. So what are the metrics that actually matter right now? What are the actionable data points we should be paying attention to? And what are the things that we should just ignore?

Jan Freitag 3:13

To me, it always comes back down to demand, right? You have to understand your demand drivers in your specific market, in your submarket into the specific property that you're looking at. We traditionally look at three main demand drivers group, corporate transient, and leisure. Group, obviously, if you don't have group demand or group rooms, then if you don't have ballroom space, then that is very small. But still, corporate transient and leisure. So you have to understand how is the American leisure traveler being attracted to your destination, to your hotel, and how can you participate in that? Andor how is corporate America coming to your market, to your submarket, to your hotel, and how can you participate in that? So it all comes back to demand. The quote-unquote good news is that we're not seeing a lot of new supply. The number of rooms under construction has been falling for quite a while now. It's super hard, as you know, to get anything under it and to get construction loans or to find construction workers actually. So new supply is not that big of a deal. So then the question is about rate, rate growth, ADR, average daily rate changes. We are proposing, unfortunately, that the hotel industry this year is seeing ADR below CPI so that the top line revenue growth is below the level of inflation, which is never a good idea because obviously that means as your costs go up and your top line isn't moving, that impacts your margins. So you have to, when you underwrite, be very, very careful about how you think you can drive rate. Because we have this saying, not in our company, but in a prior life, we always said you're only as smart as your dumbest competitor, right? If you get into a rate war and you have somebody who just keeps cutting rate in order to drive occupancy, you need to be very clear in your underwriting. Oh, maybe I can't drive rate as much as as I as I thought. And so managing the PR, managing the the expense line outs is super, super, super critical. So room demand and then ADR and ADR growth or lack thereof, I think are the two things to focus on when you think about 26 going forward.

Nathan St Cyr 5:22

All right, I'm gonna bring that into what I've been seeing from some simple underwriting of people that'll bring us opportunities, ask us to look at their underwriting that that we're networking with. That takes it back to really what you just said. So when you have on an underwriting sheet 4% growth trend, and you have a 2% increase in expenses, that compounding difference over seven years makes for significant growth and really juices returns. But the reality is what we've been cautioning based on what we've been seeing in our own properties is that that is a dangerous recipe right now, especially as what we believe based on what we're seeing in these next couple of years. So you went through that a little bit quickly, but ultimately what you're saying is it's very rare. But what you see potentially occurring is that actually expenses could outpace your actual rent growth. Correct.

Jan Freitag 6:23

So two things, when I grew up in this industry, two things were always, always, always true. GDP, how the American economy grows, drives room demand. That was always true. And because we are in this lucky situation, or not so lucky depending on how you look at it, in the lucky situation that our leases only last one night. We are able to reprice every night. So if we're like, oh, our expenses are up, we should be able to reprice above the level of expenses slash the above the level of inflation. So two things were always true. The hotel industry, GDP drives demand, and CPI drives ADR. Consumer price index should always be below your room rate growth. Those two things are not true anymore. And it sort of blurs my mind and blows my fellow researchers' mind, something changed after COVID. There's a disconnect between the American economy growing and room demand, is actually just flat with 2019. So we're not selling, we're barely selling as many rooms as we did pre-COVID. And we are now, for us this year, we're saying room rate growth is what 0.8% and CPI is what two and a half, three, pick your number. So that is why I'm saying that has to be that has to be the the the focus exactly to what you were saying, Nathan.

Nathan St Cyr 7:50

If we look at GDP, but then we also take in the consideration of what is the data saying about the impact of international tourism coming to the United States? If we separate US economy, but actually what we're bringing in from tourism versus years past, whether it be previous administration, but what are you seeing from a data standpoint there?

Jan Freitag 8:16

The short answer is it's not good. The rhetoric from the current administration has really put a damper on the drive to demand from Canadians coming down or from the Mexicans coming up north. And also, despite the fact that the dollar has weakened and America's quote unquote a bargain is 10% off now from a year ago, we don't see the international inbound numbers accelerate. In fact, they're coming down. There is just a quick plug for a data set. If you really want to go there, there is my favorite non-coaster data set, it's called the I-92 APIS data set. You have to put that in the show notes. It's obviously named by some bureaucrat. It's a terrible name. But what it does is it shows you how many people are flying to America and how many Americans are flying abroad. And you can not only do this by country, but you can do it by city pair. So if you're looking at buying a hotel around LAX or close to the, I don't know, Minnesota airport, you can actually see how many Germans are flying into Minnesota, how many Japanese are flying into LAX. It's super powerful, it's free, it's super recent. It comes out, I think, five weeks after the month ends. So for government data, super quick turnaround. And I love it. We use it all the time. But stepping back high level, the data isn't great. The American international inbound numbers are deteriorating. And our friends from Tourism Economics, Adam Sachs, who runs tourism economics, has been on many, many stages saying, look, we're projecting that the international inbound number is going to be down 5, 6, 7, 8, 9% this year is the projection. Large part of it driven down by the Canadian data.

Michael Russell 10:09

So interesting. I listened to your podcast, and you've got a ton of valuable nuggets in there. So anyone listening to this, if you want to dive into more of the data and the metrics and just nerd out, John, you got awesome stuff on there. But what I heard you recently say in one of your episodes was that interestingly, Canadian travel has increased. And not just Canadian, but international travel. There's a suggestion that people are maybe, in a sense, flying over the United States on their way to Mexico or to the Caribbean. And I'm just curious, do you have any data information about what's going on outside the United States? Is tourism down like across the globe, or is this local to the United States based on their political policies?

Jan Freitag 10:48

No, the traveling tourism is the largest part of the global economy. One in I'm making this up, I think one in 12 jobs is traveling tourism related. We generate more revenues than most other industries or than any other industry. So people are traveling. The emerging middle class in India is absolutely traveling. The Chinese middle class is traveling. They're traveling mostly in China right now, but that might change that they're going to come abroad. The Europeans, you know, I always joke, I'm from Germany, and the Germans love to be anywhere but at home. We get six close to eight weeks of vacation. So we're like, let's go, whatever it is, and we're flying somewhere. My brother is still at home in Germany and he's just always on the road. So this slowing of international inbound is a, I don't want to say unique American story, but right now it's absolutely an American story. And my comment about the Canadians was that the RevPAR revenue prevailable room growth in the US right now is 0.4% for the first seven months. In Canada, it's 4%. 10x. So it's much stronger. Why is that? Because Canadians are staying home. They buy Canadian. And I'm afraid that as the fall winter season comes, and we expect a lot of Canadians traditionally to come to Arizona, to come to the Keys, to come to Florida, that they're going to just fly straight to the Caribbean or fly straight to Mexico. And there's some evidence that the Canadian airlines are shifting their flight plans and their planes, not service as many American airports and service more Latin South and Caribbean, Latin American, South American or Caribbean airports.

Michael Russell 12:36

So you post a lot on LinkedIn, and I I saw you make a post recently too much to what you were describing with this gap between growth and ADR and revenue and inflation, and where inflation or cost really is outpacing what revenue growth is. The graph was was excellent. It gave me a great visual. But I'm wondering, what when was the last time this occurred? Is this the first time it's ever occurred, or how often does something like this occurred?

Jan Freitag 13:02

Yeah, as I said, traditionally we always saw healthy rate growth. And this is just so this is just in we are in this moment right now where we are seeing very, very limited pricing power. This happens at times, and we can go back through the data and pull out exactly as it happens sometimes at the beginning of a recession. It happens when we have a lot more new supply coming and operators don't feel very comfortable driving their rate. But eventually, operators are saying, look, I can reprice this every night. Let me at least outpace what my expenses are, what my expense growth is. So let's see when we're getting there. We're not proposing that to happen this year or next year.

Nathan St Cyr 13:49

Okay, say that last, say that last comment again.

Jan Freitag 13:52

We're not expecting to see this to happen this year or next year. We're expecting that room rate growth will be below your inflation, below your cost increases for this year and for next year.

Nathan St Cyr 14:04

And for next year.

Jan Freitag 14:05

So you're saying, yeah, Yan, but my hotel is different. My street corner is different, and I have this unique value proposition, and I'm like, yes, I'm all for that. I'm all for you doing that. I'm just giving you what we think the industry is going to do. The outlier, I should probably say that, to everything I say is the luxury space. In the luxury space, we have seen really no price sensitivity. The American high net worth traveler, the international high net worth traveler coming to the US is saying, look, I want it when I want it, and I want it now, and I'm willing to pay XYZ in a thousand over a thousand dollars a night because this is the experience that I'm paying for. And if you can participate in that, good for you. The costs are very, very high on the very high end, but the revenues are as well.

Michael Russell 15:02

So for me, listening to this, my takeaways are so we were just in Montana. We were looking at these economy-based motels. And partly due to the research that we performed on CoStar, we we observed holy heck, like rates aren't just stagnating for this economy market, they're plummeting. Like we're talking 25 to 30 percent revenue drops. And so that gave me the heebie jeebies, like, okay, we need to dig in a little bit more and be careful. And so to Nathan's point, in our underwriting model, we got a little critical. We're like, wait a second, we've we've been using just what's standardized, put into the model. Like, okay, expenses are gonna increase 2% on average and revenue is gonna be 4%. But in looking at the data, well, whoa, whoa, whoa, how can we put in 4% if the data is showing that rates are just dropping and there's no end in the foreseeable future, then one has a crystal ball, but we don't know that. So we had to pull back. So the economy hotels right now, at least in that market outside of Bozeman, didn't make sense. We're just being honest, like we were so enthusiastic, we wanted to move forward, but thanks to CoStar and the data, like we got to see that, well, really, it's not that great of an opportunity. So you're describing well, upscale properties or luxury properties, there's still rate growth, people are still spending. So there's an opportunity potentially there. I'm also curious, well, what about markets? I don't imagine every single market is seeing a dip. Are there certain markets in your data source where you've identified maybe there's upside, maybe rates are actually increasing in those specific markets?

Jan Freitag 16:40

Yeah, so poster child exhibit A right now is New York City. Why? Because Airbnbs were banned two years ago, yesterday, I think, with the second anniversary of that. And that has had a huge impact on pricing power in the island of Manhattan. And also have seen a huge increase in Airbnb offerings across the river in Jersey. The fastest growing Airbnb market in America is in Jersey. Because people are like, oh, you know, clearly people still want this offering, they just can't have it right where they want to be. So they just take a subway or take the ferry or whatever. So New York City has had a pretty healthy run. We're pretty optimistic on San Francisco. There was just a huge deal that was announced. There's a very big hotel called the Hilton, the Park 55, run by Hilton, it's like 1400 rooms altogether that's about to get sold. It wasn't receivership for a long, long time. That is sort of an indicator of investor optimism in that market. And that market, it took a while for it to come out of COVID, but clearly with the AI companies moving offices back to downtown, this is now a super interesting market again. Miami continues to do well.

Nathan St Cyr 17:58

No, I was gonna say I can share with you in San Francisco that it's a city that we go to pretty much yearly. And I have seen what you just described on the ground, meaning that each year after COVID, it was slow, it was impacted massively. And then almost to the point where a lot of people were like, don't go. But we went anyway because we really love the city. But each time we've gone, the the area of niceness keeps expanding a few streets outward, a few streets outward. And Mike and I, that's one of the things that we've talked about from a destination place, is we've seen some unbelievable opportunities there in the big picture of whoa, that's what it's selling for in downtown San Francisco. Like, holy crap.

Jan Freitag 18:43

Yeah, the I think we will look back at 2022 and 2023 and say, ah, I wish I've had the wherewithal to invest in San Francisco in in that, because yeah, that they're gonna be a lot of winners.

Michael Russell 18:56

Well, what you're saying is intuitive. I mean, you can see it, you can feel it. And I do believe that intuition plays a big role. Gut feeling, vision, all of that plays a role in being successful in real estate. But from a data perspective, so what are the data metrics that we should be looking at or be watching to validate that a comeback is actually in place?

Jan Freitag 19:20

Goes back to demand. Are people actually putting heads in beds? Are we selling more rooms than we did a month ago, a year ago, more than 2019? You know, we're not quite there yet for San Francisco. But that's really what matters. The interesting thing is that even though people kind of stopped traveling across many, many markets, we didn't stop building. So we have to digest a lot of new supply. And that supply is now also a little bit dated, two, three years old or so. That's going to be in a super interesting conversation five years from now, because we're not seeing a whole lot of markets that are seeing a whole lot of stuff being constructed today. So the new kid on the block is going to be the hotel that gets renovated. You were talking about Montana, economy type properties. Ooh, on the right side, not so sure. It's like, yeah, but if you put some serious money into it and you become the new kid on the block because there's limited new supply coming, can you be the new hotel, quote unquote, with a weight premium question mark? I'm not giving investment advice, but that's just what how a lot of people look at certain markets, and they're saying, look, we can't afford to build, but if we take our existing hotel and make it super nice, we are the new hotel.

Michael Russell 20:37

Yeah, that aligns pretty much with Richard Kessler was speaking about on a on a couple episodes back. So Richard Kessler is one of the co-founders, I guess, of Days In. And then he ultimately went on and built this huge portfolio. He's got the Kessler collection. So it's actually a great list. And the guy's close to 80 years old. He's got tons of life experience, but he was describing how the play right now is the cost to build is so expensive that there's way more advantage in just uh remodeling because the replacement costs, it's just way too high. So if you can go and take an existing building, the renovation costs are significantly lower as a percentage in comparison. So from our perspective, that resonates okay. We can go and potentially purchase some tired hotels, some hotels that are lagging in terms of revenue and just ultimately not as profitable as we envisioned we could make it.

Nathan St Cyr 21:31

Hey guys, if you're excited about investing in hospitality but still have a few question marks in your mind, you're not alone. Maybe you understand the potential, but you're not quite ready to take down your own deal quite yet. Early in our journey, both Mike and I invested passively alongside seasoned operators and gave us the behind-the-scenes view and showed us a playbook while our money worked for us. That's what we offer our capital partners: a chance to be a part of real deals, see how they come together, and start building the confidence to do in yourself without carrying all the risk on your first go. If you'd like to know what that might look like for you, just click on the link in the show notes. Now let's get back to it.

Jan Freitag 22:10

Yeah, I mean, you you want to have a market that has limited new supply, and you have, depending on where you position yourself, what's your competitive set? And is that competitive set driving rate in a way that you're like, oh, we can draft, or we can be part of that, or we can actually get ten dollars more because we have the new hotel, we have the best rooftop, we have the best amenity, whatever you have, the best experience. I would always start with that. Ultimately, the the biggest successes, though, are not the people who look at the data first, but who look at the asset first, and they're like, Ooh, I have a dream. Like Chip Connelly was Gerard of Eve, right? He took these absolute fleabag hotels. But he said, Look, I'm gonna make this cool, and it turned out to be cool. And it turned out to be a brand that people were like, Oh, I want that. And he was able to drive Premier just because of the cachet of who was staying there. Was it the nicest room? No, but you were next door to the model or the punk rocker or the whatever, the the taste makers. So I think that's a little bit in the in the place that that you're in and that your listeners are in. A lot of it comes down to personal conviction because you're not sitting in some office in New York, sort of thinking about asset management. You're on the ground with the GM every day. You are the GM every day. So I think the data helps, but I think your conviction has to drive the deal.

Michael Russell 23:46

Okay, well, shifting gears a little bit here, there's another area where I'm unfamiliar with, but I hear a lot of buzz about. And it has to do with this cycle where people who purchased perhaps in, I don't know, maybe shortly after COVID, they maybe bought an asset. And after a fixed period of time, the mortgage rate goes from being fixed to adjustable. And they could potentially feel the squeeze of the pinch here. So again, I'm not as familiar with the actual fundamentals of what's going on here, but can you provide any insight as it relates to hospitality? Because I hear a lot of this about office space and the gloom and doom of what's happening. But these all it sounds like big Wall Street, private equity. It doesn't really sound like Main Street, like a boots at the ground, folks like us. Like, how do we take that information and say, okay, cool, we're gonna make some tactical decisions based on zoning in on the time? I know I'm I'm just keep circling back on this, but we're trying to find like, okay, when is the strike zone? And so this is one other factor that there's getting a there's a lot of attention, a lot of buzz about is how are these potential loan defaults gonna affect the opportunity to invest?

Jan Freitag 24:52

Yeah, I mean, that was the topic, right? In 2021, everybody was like, wow, the wall of distress. There's no occupancy, everybody's gonna default, and we are just ready on the sideline. So two things happened. One, there were a lot of people who started debt funds, distress debt funds who were like, oh, we're gonna step into this. That of course means you're not the only player in town, right? So if something with distress came up, there were a lot of people bidding on the same thing, which kept the prices that you didn't get the discount that you thought you had. But the other piece was just that the banks were like, look, I don't want this hotel. I don't know anything about hotels. I'm in the credit business. I'm not in the checking people in and out and making beds business. So you, your borrower, even though I hate it, but let's just extend and pretend, right? And kick the can down the road. And you're going to take all the money that is in your FFE reserves, your fixture furniture and equipment reserves, that you put away for one day renovate the ballroom and renovate the rooms and renovate the beds. You're allowed to take that and pay that and pay me my interest. I'm allowing that as the lender. So extend and pretend worked really well, very limited distress. I mean, there was obviously there was stuff in default, but there was not a lot of distress that actually hit the market because lenders allowed the borrowers to just continue to run the business. And both sides said, look, this is like a once-in-a-lifetime event. We're not, this is not going to happen. We're going to be better going forward. So just let's just all sit tight. So that's that's one. And then the the the other piece is that if your interest rate, you know, if your whatever your seven-year loan comes due, you try to refinance, now you're bumping into exactly what you were just saying. Like, okay, so now my interest rate from from whatever you use these terms as well, right? So your interest rate went from six percent to nine percent or something. You're like, whoa, that's that's a lot. So what do you do? Likely is the bank's gonna ask you for a little bit more equity, and you find that through your limited partners, or you're saying, look, we're done, we're out, let's sell it. There's some of that is expected to happen in 2026, but we've said that in 2021 and in 2022 and in 2023 and in 2024, and it never really happened. So I don't know that this idea of the wall of distress is going to continue to come true, comma. Slightly different topic. I have heard that the general partner who raised a fund with their limited partners and said, Hey, you give me money, and seven years from now, I'm going to give you your money back. That a lot of people are coming to the end of that seven-year term. And that the limited partners are saying, Look, man, it's not been the home run that we all thought. It's been okay, but it's not been great. Give me back my money. And so then the GP needs to sell the property, right? And so there are some, and this is not a distress sale per se, right? It's doing okay. It's just that the owner says, Hey, I need to recycle some money. I need to get my limited partners paid back. So there could be some sales like that where you're seeing stuff coming on the market that has a little bit more pressure on it, maybe. But again, the limited partners are not going to say, oh, sell it for whatever rate, whatever price. They're gonna say, Well, give me back my return. Maybe we'll extend you for a year, whatever. But I'm out, I'm I'm done. Give me back my money, give me back a little bit of my return. So the distress part, we've talked about it a lot. We haven't really seen it. I mean, the the conversation that I always had, and this is for the last couple of years, is people come to me and say, Where's the distress? And I'm like, We, yeah, there is some distress. Here, San Francisco, 1500 rooms. And they're like, oh, I don't want that distress. Like, I want the good distress, I don't want the bad distress. And it's like, no, that's not actually not how it works. So I don't think distress is like a big thing. I think this idea of people recycling money out of their partnerships that could drive some sales opportunities.

Michael Russell 29:12

Yeah, I mean, that that aligns with what we're seeing with boots on the ground. We're finding that this idea of, like you said, the distress, it's it's more theory than practice. Like, we haven't seen anyone that is in such a bad position yet. Even though interest rates doubled, we personally haven't encountered any of that. So perhaps to your point, what you said was the banks are working with operators, they'd rather just work with it than foreclose. The other aspect is we're finding that sellers are there's a lag, right? Like the way that the real estate cycle moves is there's a disconnect between where we are in the buying cycle and where sellers are in the selling cycle, and they haven't fully realized that, hey, you're not going to get your price point yet. So this is kind of like a wait and see. All we can do from a buyer's perspective is continue to submit offers, submit offers, submit offers, and then hope eventually we come across it.

Nathan St Cyr 30:02

But Mike, I I can see a world in which this is just from what we've been seeing on the, I guess, boots on the ground. It may not come from distress, but I think that those sellers that are a bit tired just in general, but that have wanted to sell their asset but have been waiting for interest rates to drop, right? They're like, look, if I can just hold, there's not a lot of movement. People can't buy this because then the numbers don't make sense because the interest rates have gone up. So as soon as interest rates drop, then the buyer pool is gonna come alive. And so I think what's what's happening to happen is with the dip and the drop in what we're seeing from rent growth and the increase in expenses. And then on top of that, the where we're gonna start to get competitive with efficiencies with AI and all of these things, I think that there's gonna be a group of the market in the under $10 million range that are like, we can't hold on anymore. And so they're gonna be for a little bit more forced. And because then there's gonna be more inventory, we're gonna have more opportunity. That's that's my feeling is not distressed, but it's a level below. We saw that just in negotiating this deal in in Montana. Then it was like, oh, but then as Mike got to know brokers, all of a sudden, of the five motels there, four of them were having conversations with him. So it's like two of them were off market. I think there's gonna be a lot more movement that's gonna start to occur.

Jan Freitag 31:33

One of the problems is the longer you wait, the longer the seller waits, the more the buyer is gonna say, Oh, my property improvement plan, my pip costs are going up, right? Every six months, every year. Like that, I I used to just do the beds, and now I need to do the carpet too, and the wallpaper and the HVAC. Like you just gotta pull the trigger because that those pips are not are not resting. And the brands, having, according to what what I'm hearing, have gotten a lot more aggressive and enforcing and saying, hey, if there's a change in ownership, by the way, you have to renovate. And here is the book that you will renovate too. Yeah.

Michael Russell 32:17

Hey, speaking of brands, so I've always been curious about this. It's my understanding that CoStar is only getting data from branded resorts or branded hotels. Is that correct? I mean, if you're looking at investing in an independent hotel, are independent hotels reporting to CoStar? Because if not, then there's a disconnect in the information between branded and independent. So I just I need some clarity on that.

Jan Freitag 32:39

It's not quite true, but basically 100% coverage for the brands, right? Any brand you've ever heard of participates with us, not just in the US, but globally. We do get independent property, but that's skews by price point, right? So the Michael Inn five-star, 150 rooms, $1,000 ADR, their GM used to be a Ritz guy or a lady. And on day one, they're like, Where's my star report? I need this in order to do my business. So if they are not, if if the the Michael Inn is not a STR participant, they will be as soon as they get that Ritz GM in. Then as you go further down the food chain, you end up with the Yan in 15 rooms, the middle of Tennessee, no yield management. The yield management is like rooms available, the sign is on or off. That's it. And they have one rate for Saturday and one rate for the rest of the days. Are they participating with STR? No. Do you care? Not really, because we have a really good sense of how all the other limited service economy type brand properties are doing. We can look on the Yanin website and we can make a relationship between what the average economy ADR is and what you're charging. And so we can sort of estimate, or not sort of, we can estimate your performance in terms of demand supply, sorry, how many rooms you have available, how many rooms you sold, and how much money you made. So we make an estimate for every property in the United States.

Michael Russell 34:13

Well, how how reliable though is that data?

Jan Freitag 34:16

Well, it's good data in, good data out, right? So if we are saying, look, this is a I don't know, 58-room limited service hotel next to a Days In, a Super 8, a Motel 6, and really strong comp set that everybody participates, we feel like we have a really good handle on that on that property performance. We're gonna say, look, it's gonna, it's gonna do as well as the market. And you can say, well, that's not quite true. And I get it, but in absence of nothing, you got something.

Michael Russell 34:46

Okay. So we we just recently went to this experience. So we we looked at a variety of STR reports, star reports, Smith travel research reports, and of course, there's no independence on there. And so you're describing, well, and CoStar, we're we're estimating data based on what we know about the market in general. But from what from what I understand, CoStar purchased STR Star Reports. Correct. And so, how now, as an investor, looking at $10 million under hotels, many of which are independent, don't have the sophistication as some of these larger flag branded hotels. How do we interpret the data correctly if we're pulling up star reports and the hotels that we're looking at are not included in that data set? How do we utilize the data that's provided?

Jan Freitag 35:32

Well, they are included in the data set. It's just that we're saying they're not participating with us. So our best estimate is this performance, right? You can never get an individual properties data out of CoStar, out of STR, anyways, right? That's always confidential. You would always get a competitive set, five, six hotels, and you pick whatever you think is competitive with it. Sure, if you have five hotels, the Jan, the Nathan, the Michael, the Peter, Paul, and Mary, and each each hotel is only 10 rooms, are they participating with this? No. So we're probably going to estimate them based on how the submarket is performing and how the economy hotels in that submarket are performing. But if you have a bunch of branded properties right next door, we think we have a very good understanding of how that property is doing, even though they're not participating with us. But then the question is okay, does them not participating change your mind on the investment opportunity if you see that the submarket or the market or the competitive set is driving rate or is driving demand, or wow, the seasonality is really pronounced, but we can totally live with that because we can shut it down for a while. And all the other months that were open were really making bank. Like, I'm not sure that it matters to you that the property participates or not. We hope that you sign up once you buy it, sure. But I think your investment thesis shouldn't stand or fall with the hotel participating with us, or it should stand or fall with how you drive demand.

Michael Russell 37:04

Well, I want to push back a little bit here because yes, you can look at a submarket and you can come to some conclusions about the market in general. But let's go back to this Montana deal, just use it as an example. So our thesis was originally when we were looking at this, we were evaluating well, it's operated right now as a branded hotel, it's Super 8 travel lodge, right? But there's a ceiling cap with those brands because let's face it, people are only going to pay so much for Super 8. And the idea or the thesis, well, if we deflagged and went independent and someone saw our hotel and didn't know the name, they wouldn't associate value with it based on what a Super 8 is worth. They would just associate based on the reviews and the photos and everything that we do to make it special. And so that data set of, well, what would an independent be worth? That doesn't really transfer in what you've described in that sense. There is sure general market sense, but man, adding an extra 10 or 15% to the to the rate over a seven-year period compounded, I mean, that's a huge that the that's a lever that can really drive substantial value. And so I'm torn a little bit. I'll be honest, like using the SDR report and using CoStar, sometimes I'm a natural skeptic. So I'm like, all right, how accurate is this data to this market? I get it as a general submarket, they're getting all the information. But man, how do we really know? Because if we go and have a kick-ass location, it doesn't apply in this Montana thing because these are roadside motels and it just didn't work to do an independent. But let's say I pick XYZ Mountain Lodge, and there's a Marriott and there's a home two in the area, and then I we go open up Mike and Nate's chateau and we make it kick ass. I'm not gonna base the rates on what the threshold is for the home two or the Marriott. I'm gonna base it on what's our true potential. And I don't know that there's a certain data point yet. Unfortunately, maybe I'm wrong, but this is where I'm pushing back. How do I really know what the independence is going to be able to be worth?

Jan Freitag 39:10

But I think you just answered the question, right? Like you're saying, look, Nathan and Mike's property is going to be significantly better than the Hampton Inn. So you're like, look, I don't want to rely on the Hampton Inn. I'm just going to look at the limited service hotels for demand fluctuation by season. That's about as much as I'm going to use this because their ADR is way too low for us. So you're asking me to give you your property performance in the future for a hotel that doesn't exist yet. And I'm like, well, that's not how you're all. Come on, make it easy. You use our data and then say, I will embark from this intelligently. I will outperform this and hear the 17 pages. Why? And my room demand is going to be higher in the high and even higher in the low season. And my ADR is going to be significantly better because what I'm offering in the bar, in the rooftop, in the spa, nobody else has. And therefore, that's my value proposition. So you're using our data as a jumping off point. You're not using our data to compare. You're saying, hey, my competitive set is with Aspen and with Vail and with the keys. That's your comp set for something that's like pretty nice. And so, yeah, then you do that. Right. So sorry, you're pushing, I'm pushing. I'm like, look, what you're what you're asking for doesn't exist because it exists in your mind. Like you're saying, I'm going to be so good. I'm like, yes, you should be. Use our data as the jumping off point.

Michael Russell 40:46

Yeah, because I'm process-oriented, right? I just want to open up the manual and be like, okay, if I put in this input and that input, then I'm going to have this result. And you're saying, it is science, but it's also art. And so depending on how you paint the picture, you're going to see a different result. So I get it. Well, it's investor conviction.

Jan Freitag 41:01

I mean, that's the magic sauce that you provide, right? We provide you with the data with the market. We're saying this is what it is. People are paying $85 a night, and you're saying, uh-uh, uh, you haven't seen my hotel yet. But that's where your conviction comes in. So I think we can both be right. You know, you need us, you want us to understand what an average occupancy, what an average rate is, but you are then going to say, man, we're going to blow this away. And here's why.

Nathan St Cyr 41:28

Yeah. And at the end of the day, Mike, when I think that's one of the things that we found is we have not been in some of these opportunities, we have not been able to find that investor conviction, right? It's like, okay, there's just the data that's there, and that's just what it is. And then there's nothing that we've seen with that asset that we're like, yes, but wait a minute, here's the story, here's the narrative, here's what we're gonna do to differentiate. And that's caused the lack of conviction.

Jan Freitag 41:57

I mean, I heard a couple of your prior guests, right? Who are taking a flyer, you know, that that gentleman who who who built, you know, sort of stuff in the woods. And he was like, This is what I want to do. And it turned out to be a home run just because of what's across the street, right then, whether the BMX trails are across the street. And so that is total conviction. Did our data help with that? Yeah, in terms of seasonality, probably to get a sense of what does an average December occupancy look like versus a June occupancy. But rate-wise, he's like, look, I the your rates don't mean anything to me, Jan, because I am different. And I think that's where you have to convince yourself and your guests that, yeah, if I if I charge $800, this is the value that you're getting in return. And that's nowhere in the star report or in the in the submarket report.

Nathan St Cyr 42:52

Yeah, no, that that makes that makes sense.

Michael Russell 42:55

So, Jan, taking all of this into account, everything you've talked about from the current economic situation, the market, the different particular areas in the country that may provide opportunity for investors. Can you give us maybe a market outlook for what's potentially happening in 2026, what we should look forward to as hotel investors? What should we hope will occur?

Jan Freitag 43:20

We're saying there's REFPPA growth in 26, but it's very muted, you know, maybe even within the margin of error so plus minus zero. So not a whole lot going on. When we talk to operators, we're saying, look, cost control is the name of the game. You got to figure out with tariffs and labor costs and insurance costs and all that jazz, how can you drive margin if your top line revenue line is muted? I think in the in the space that you're most interested in, the sub-10 million dollar space, there's always, there's always a willing buyer, willing seller. That market will continue to be, I think, quite active. If you go like $100 million and up, that's going to continue to be sort of a challenge because there are lots of other factors that impede activity. I think that's when you as a buyer come in with conviction. Yeah, you pay attention to the data, you pay attention to the demand side and the ADR side. But you're really saying, yeah, yeah, blah, blah, but I'm better. And here's why. And that's what you bring to the table, you invest, and then you ride that, you live with that.

Michael Russell 44:26

So for me, my takeaway is like, okay, go back to the you referenced the Brandon Gore episode where he's in Arkansas and he's building these 11-unit micro resort that's going to be on par with it's not exactly like an Amon resort or something like that. But he hired this fancy architect and built this really luxury thing because he's like, look, there's money coming here. And so he's focused on really luxurious, extravagant type of experience, like high cost and infrastructure to build it, but long-term sustainability in terms of the more affluent guest is going to be able to weather the storm in this economy and still continue to pay the rates. So, all that being said, this has been extremely valuable information.

Jan Freitag 45:08

And I don't, I just want to be very clear, I'm not pushing you towards luxury. I think if you are the best operator and you can really manage your costs, there's nothing wrong with getting an economy type ADR, right? But if you really manage the heck out of that PL, you're going to have good flow through. That's the question is where do you want to land? Do you want to really, really, really focus on the cost side, or do you think that you can provide much, much more on the experience side, which probably needs more staff, which needs more infrastructure, which needs more expense on the front end, that then you think you can recoup through higher ADR? There's nothing wrong with either, you know, and people, a lot of people make a lot of money in either. Just who do you want to be?

Michael Russell 45:50

All right, Jan, this has been awesome. What's the best way for our listeners to connect with you?

Jan Freitag 45:55

Hit me up on LinkedIn. You can easily find me there, J-A-N-F-R-E-I-T-A-G, or we have our own podcast called Tell Me More, a hospitality data podcast, where the main data geek for STR, Isaac Calazzo, and myself, with help from Stephanie Ricca, who runs Coastar News Hotels. She wrangles us and keeps us on track. But we have a good time once a month to talk about the data, and there's always something funny happens.

Michael Russell 46:19

So check that out. Definitely. I'm a fan. I listen. So definitely tune into that if you want more information from Jean. So this has been great. This is another episode of the Hotel Investor Playerbook. We are Mike and Nate. He is Jan Freitag, and we are signing out for the week. We'll catch you again next time. Aloha.