No Miracles, No Medals: Hospitality Beyond Endurance

For the last five years, owning hotels has felt like an endurance sport. Every disruption, from pandemic shutdowns to labor shortages, inflation, and rising rates, was another punishing mile marker.

As the steward of a broad mid-market hospitality portfolio in historically strong markets, I adjusted pace, absorbed the hits, and kept running. But endurance alone is not a strategy, and there are no miracles or medals coming for hospitality.

The hard lesson is that a strong balance sheet can carry an otherwise healthy portfolio through volatility, but it cannot rewrite economics. At this juncture in the cycle, one more rate cut will not fix hotels. Rates help, but they don’t fix inbound travel, government demand, wage floors, insurance markets, property taxes, or brand-mandated renovations. Nor do they collapse the bid–ask gap on their own. Now is the time to be honest about what it takes for hotels to actually do well today, and why the math has changed.

Shiny Markets Mask Softer Fundamentals

Open the business pages and the market looks unstoppable. AI-driven tech keeps pushing indexes to new highs while headlines celebrate trillion-dollar milestones.¹ That glow hides a colder reality for the parts of the economy that fill hotel rooms. It is a great stock market for a handful of sectors, but not a great economy for most travelers.

For the last few years, I was optimistic that hospitality performance would normalize after the black swan event that upended the rules of travel. Holding our assets felt like the prudent choice for our investors and for ourselves. We were able to do that because Encore entered this period with a strong balance sheet and the discipline to carry assets through volatility.

But now in 2025, the prospects look different. Across the public markets, lodging REITs are in freefall. Sunstone is facing activist pressure to sell or liquidate, and Braemar has announced plans to sell off its entire portfolio. Trading at persistent discounts to net asset value, many REITs are now pursuing fire-sales to unlock value for shareholders.^2,3

The Demand Story: Flatter Than Flat

The post-pandemic hospitality rebound never fully materialized. While leisure travel spiked in pockets, business travel remained structurally weaker than many expected, and troubling signs have edged toward permanence.

Industry surveys now point to weaker expectations for 2025. By July, revenue per available room (RevPAR), the industry’s core measure of profitability, had slipped –1.1% year-over-year nationwide.⁴ This is the clearest signal yet that top-line momentum has flattened. Forecasts followed suit: CoStar/STR cut their 2025 outlook twice this summer, most recently lowering demand, average daily rate, and RevPAR growth assumptions, the latter by over a full percentage point.⁵

In addition, international arrivals fell by 3.1% in July year-over-year, with Tourism Economics now projecting ~8% fewer overseas visitors in 2025 than initially expected. Fewer international guests, empty business centers, and a reduced government travel footprint hit exactly where mid-market hotels make their living.⁶

The Cost Reality: Margins Don’t Heal Themselves

Before COVID, line-level roles were $8–$15 an hour. Today it is closer to $18, and in some jurisdictions more. San Diego just locked in a $25/hour hospitality wage floor, and others are watching closely.⁷ I’m not complaining about wages; I’m acknowledging math. The quality and availability of labor remain stretched, and we must pay up to secure consistency.

Meanwhile, insurance has stepped up and stayed elevated. CBRE pegged increases at +15% through late-2024, with midscale/economy closer to +20%. These are structural resets, not temporary spikes.⁸ Property taxes add insult to injury and then there’s debt. Even with some recent rate relief, many loans that matured between 2023 and 2025 did not clear lender DSCR tests without additional equity or creative structures.⁹

Owners also face the bill for deferred capex. During the pandemic many properties received extensions on their franchise-mandated property improvement plans (PIPs). Those multi-million-dollar obligations are back, and they are more expensive to execute because labor and materials cost more now. And while new construction is modest at the national level, brand conversions now comprise ~31% of the pipeline, and they show up locally, across the street, just when you try to recapture rate.¹⁰

The Vicious Cycle Owners Feel Every Day

Put these pieces together and the loop is familiar. Lower cash flow → higher cap rates → lower values → tighter credit → more cash trapped to protect lenders → less flexibility to invest into demand. That’s the loop.

It doesn’t mean the industry is broken; it means time and capital discipline matter more than ever. If you are a fresh buyer at a true 2025 basis you can make that math work. If you are a long-time owner with a legacy capital stack and a looming PIP, the path is narrower, and every month you wait without true evidence of improvement is a month that consumes optionality.

Why Sell a Good Portfolio in a Tough Market?

Hospitality owners don’t wake up one morning and decide to sell good assets for sport. We make that decision only when the market and the opportunity cost align in a way that places stewardship above sentiment.

For Encore, our mid-market business-travel hospitality portfolio has been the foundation of 25 years of investing success. Taking this portfolio to market is no small decision; it comes only after exhaustive deliberation. My responsibility is to weigh the value the market offers us today against the value we could create by holding for another three to four years while carrying additional obligations. And if the market response falls short, Encore will continue to operate the assets with discipline, backed by its strong balance sheet, until the right window opens.

The question at the heart of this decision is simple: Will the dollars we put in today come back to us? If the answer is no, then holding on serves no one, and it is better to exit deliberately. If today’s bids meet or exceed the risk-adjusted outcome of continuing the journey, then the responsible path is to let the market decide and redeploy capital into better-positioned opportunities. In that case, selling is not capitulation—it is stewardship.

Abandoning Endurance to Endure

Would I buy hotels again? Yes, but only at a true 2025 basis that bakes in flat demand and higher expense floors. I still believe fresh capital will do well in 2026 and 2027. But to be in position for that upside, the smart move may be to conserve resources instead of running them into the ground.

My father’s advice has always been simple: there are no miracles, and we should not hope for them. We prepare, we do the work, and we make our own luck. The owners and investors who recognize the world as it is, not as they wish it to be, will be the ones with enough capital and stamina to truly endure.

References

1) MarketWatch. “Alphabet’s Stock Just Had Its Best Quarter in Two Decades Thanks to AI.” MarketWatch, 30 Sept. 2025, https://www.marketwatch.com/story/alphabets-stock-just-had-its-best-quarter-in-two-decades-thanks-to-ai-8a8f1273.

2) “Tarsadia Capital Sends Letter to Board of Sunstone Hotel Investors, Inc.” GlobeNewswire, 12 Sept. 2025, https://www.globenewswire.com/news-release/2025/09/12/3149221/0/en/Tarsadia-Capital-Sends-Letter-to-Board-of-Sunstone-Hotel-Investors-Inc.html.

3) “Braemar Hotels & Resorts Announces Initiation of Sale Process.” Braemar Hotels & Resorts, 26 Aug. 2025, https://www.bhrreit.com/files/5654/BHR_Announces_Initiation_Of_Sale_Process_Release.pdf.

4) “U.S. Hotel Performance for July 2025.” STR, 28 Aug. 2025, https://str.com/press-release/us-hotel-performance-july-2025.

5) CoStar, Tourism Economics Lower U.S. Hotel Growth Forecast.” STR, 7 Aug. 2025, https://str.com/press-release/costar-tourism-economics-lower-us-hotel-growth-forecast.

6) “International Travel for July 2025.” National Travel and Tourism Office via U.S. Travel Association, 2025, https://www.inboundtravel.org/news/ntto-international-travel-for-july. Also: “U.S. International Inbound Travel Remains Weak in 2025.” Tourism Economics, 2025, https://www.tourismeconomics.com/press/latest-research/us-international-inbound-travel-remains-weak-in-2025/.

7) City of San Diego. “Hospitality Minimum Wage Ordinance, Staff Report.” 17 June 2025, https://www.sandiego.gov/sites/default/files/2025-06/staff_report-hospitality-minimum-wage-ordinance.pdf.

8) CBRE. “2025 Global Hotel Outlook.” CBRE, 2025, https://www.cbre.com/insights/reports/2025-global-hotel-outlook.

9) Trepp. “CMBS Delinquency Rate Climbs Again in July 2025.” TreppTalk, July 2025, https://www.trepp.com/trepptalk/cmbs-delinquency-rate-climbs-again-in-july-2025-multifamily-drives-uptick.

10) Lodging Econometrics. “U.S. Hotel Construction Pipeline Stands at 6,280 Projects at the End of Q2 2025.” Lodging Econometrics, 2025, https://lodgingeconometrics.com/u-s-hotel-construction-pipeline-stands-at-6280-projects-at-the-end-of-q2-2025-early-planning-shows-strong-growth/.

Growing Pains: America and the Burden of Exceptionalism

As a businessman and immigrant who chose America as my home and professional foundation, my relationship with American exceptionalism runs especially deep. It is more than a theory to me, it is the foundation upon which I’ve built my career, my family’s future, and the businesses that support our communities. America offered me opportunities unparalleled elsewhere, and that belief continues to fuel my optimism for our nation’s enduring role as a global leader, even as today’s geopolitical realities force us to confront uncomfortable questions about that future.

American exceptionalism is often discussed in the language of economics and geopolitics. But I’ve found a more intuitive way to understand it: the relationship between a parent and a child. One that must mature to remain healthy.

For much of the modern era, the United States has been viewed by the world as the ultimate safe haven—a reliable, stabilizing force in times of uncertainty. Global markets instinctively turned to America for security: investing in Treasury bonds, purchasing American defense equipment, and reinforcing the strength of the dollar. This trust allowed the U.S. to print money with relative freedom, manage its debt without penalty, and sustain prosperity without compromising its global standing.

The Waning Illusion of American Invincibility

Just as children gradually come to understand that their parents are not infallible, the world is beginning to recognize the limitations of American dominance. Ideally, this awareness would emerge gradually, allowing time for adjustment and recalibration. In recent months, however, that shift has felt abrupt, exposing the U.S. to a level of scrutiny it has long avoided. Once that sense of unquestioned credibility is disrupted, it becomes difficult to restore.

Economist Ruchir Sharma and author of The Rise and Fall of Nations and What Went Wrong with Capitalism recently argued that the “overdue rebalancing of global markets has just begun, and is likely to be playing out for a long time.”

Recent developments make this shift unmistakable. America’s national debt is projected to surpass $40 trillion, driven in part by sweeping fiscal policies informally known as “The One, Big, Beautiful Bill.” Credit rating agencies have responded with downgrades. Meanwhile, the dollar’s once-unquestioned role as the world’s reserve currency is eroding. And unsurprisingly, the price of gold is soaring, with intensified interest coming from central banks and individual investors alike. Today’s rising interest rates now reflect global markets’ growing concern over U.S. debt sustainability.

We also see this redefinition taking shape in various corners of policy and trade. President Trump’s erratic approach to tariffs, which Financial Times columnist Robert Armstrong coined the TACO doctrine (Trump Always Chickens Out), captures a growing unpredictability in American policy. And it is likely to embolden other nations to pursue their own trade agreements without Washington’s involvement. The recent “Anywhere But USA” (ABUSA) trading strategies adopted by hedge funds and intrepid investors have brought this trend into sharper focus: the gravitational pull of the U.S. is weakening.

Flying the Nest

However, these are not signs of imminent collapse, as many sensationalist headlines might suggest. But they do mark a turning point. The world is beginning to treat America not as the exception, but as a peer in a more balanced global order. This evolving equilibrium empowers other nations to chart their own economic and diplomatic courses without defaulting to U.S. leadership and stewardship. The transition from exceptionalism to economic normalcy may be subtle, but it is significant.

Take NATO, for example, which has historically relied on U.S. defense spending. As American commitments have become less consistent, many allies have responded by strengthening their own capabilities. Germany, for instance, has made significant increases to its defense budget, fostering greater economic and strategic autonomy within Europe. This shift is not a rejection of the alliance, but a natural progression. The “children” are growing more independent, and the “parent” is no longer required in the same role.

Some interpret this as a signal of American decline. They point to rising debt, downgraded credit, and the softening dollar. These concerns are valid, but they don’t tell the full story. Yes, the markets are demanding higher yields. Yes, faith is being tested. But beneath the surface, America’s economic infrastructure remains strong, its innovative capacity unmatched. The U.S. continues to serve as a cornerstone of global stability—still essential, even if no longer infallible.

If Not America, Then Who?

If America were to meaningfully step back, who would take its place?

Within Europe, Germany is an economic powerhouse but struggles with domestic political fragmentation. Russia, isolated by global sanctions and deep mistrust, lacks the credibility to lead. China has grown rapidly and can handle money better than most, but as a communist government it faces transparency and trust concerns. Japan maintains influence but is still hampered by long-term deflationary cycles and an aging demographic. Australia and New Zealand are respected but lack scale and global centrality.

India emerges as the most promising contender. Its democratic structure, economic dynamism, and demographic advantage make it a rising force, and it is soon to become the world’s third-largest economy. But India’s democratic institutions are a mere 75 years young, its infrastructure still evolving, and its political continuity remains uncertain. Its path to global leadership is promising, but not yet fully formed.

So, for all the shifts underway, America remains uniquely positioned. Temporary disruptions don’t dismantle foundational strength. Innovation, democratic stability, and a deeply rooted entrepreneurial culture continue to define the U.S. economy. The current challenges are real, but they resemble family tensions: uncomfortable, yet navigable.

In the Meantime

The world still seeks steady leadership, and no alternative has yet emerged with the credibility, capacity, and cohesion to take America’s place. Despite moments of retreat and recalibration, the U.S. remains indispensable. Just as a family thrives under wise, steady guidance, global economies still look to America, even if the relationship is maturing.

Could another nation eventually lead? Perhaps. But if the U.S. were to step back dramatically, the global transition to a new leader would take decades, and much can happen in the interim.

As for me, I remain focused on where I know my dollars will work hardest: building American homes, shopping centers, gas stations, and hotels; running medical clinics, dental offices, and coffee shops; and funding the small businesses that form the backbone of Main Street. My confidence in America is not blind, it is earned. And while the illusion of American invincibility may be gone, its exceptionalism remains.

At least for now.

From the Desk of Dr. Sangani

As I reflect on the past year, I’m struck by how even the smallest decisions can profoundly shape our future. The forces driving change today—AI, elections, geopolitics, medical advancements, inflation, and even wildfires—affect how we work, lead, and live our daily lives. For a CEO, every big decision is built on countless micro-decisions, each one laying the foundation for what comes next. In my roles as a business owner, physician, real estate developer, and mentor, I’ve seen how these choices come together—often in surprising ways.

What I want to share isn’t a polished success story. It’s a candid look at the realities of staying adaptable and seizing opportunities in a world where the goalposts are always shifting. Whether you’re an investor, entrepreneur, or simply curious about how big decisions take shape, this is a glimpse into the mindset it takes to keep moving forward.

Let me tell you—it’s a mix of opportunity, risk, and a constant flow of decisions, from tactical to transformational. Here are the weightiest topics that have been on my mind these past few months, in no particular order:

How Rising Rates are Shaping Commercial Real Estate
The commercial real estate sector has been pressed on multiple fronts. Interest rates remain elevated, limiting both the availability and affordability of credit. As a result, transaction volume has slowed across the board, with buyers and sellers often struggling to see eye-to-eye on asset valuations. Despite the reduced deal flow, underlying property values have held relatively steady—which speaks to the continued long-term appeal of quality assets. Still, these values are undermined by an increasingly illiquid market. Simply put, fewer transactions are taking place, and the ones that do make it over the finish line are often characterized by lengthy negotiations and conservative financing terms.

As a commercial real estate developer, navigating these conditions requires deliberate choices—choices about which assets to hold, how to structure financing, and where to direct resources. This year has served as a powerful reminder that when the waters get rough, your balance sheet becomes your lifeboat, and cash flow is your guiding compass. We may not be able to control whether interest rates rise or fall, but we can control our internal financial posture and the way we direct resources.

Cash Flow: Our Financial North Star
In an environment where credit is constrained and operating costs are on the rise, having healthy cash flow is more than just a financial metric—it’s the bedrock of adaptability and choice. One of the lessons I’ve learned through the last 25 years of navigating market cycles is that it’s not enough to simply track what comes in and goes out. I need to think strategically about vendor relationships, negotiate when possible, and maintain the right mix of debt so as not to hamper long-term growth.

I’m reminded of Warren Buffett’s insight: “Only when the tide goes out do you discover who’s been swimming naked.” In other words, when credit becomes expensive, those without a careful grip on their cash flow can find themselves exposed. I have no intention of being caught off-guard.

Building a Defensive Balance Sheet
If cash flow is the compass, then a defensive balance sheet is the sturdy hull of the ship. At my firm, Encore, we’ve spent years cultivating a stable foundation—one built on prudent leverage ratios, diversified revenue streams, and a careful eye on maturities. While we pride ourselves on making bold moves when opportunities arise, we do so with an eye toward defending what we’ve already built.

In practical terms in 2024 and through 2025, this means reevaluating debt maturities and ensuring we’re not caught by surprise if financing options tighten further. It’s no secret that rising rates translate into higher interest expenses for those with floating-rate debt, so we’ve been exploring opportunities to lock in fixed rates or refinance on favorable terms. The objective is simple: to stay several steps ahead of any potential storm, and to preserve the flexibility to act quickly if (and when) those strategic opportunities present themselves.

A Word on Healthcare Costs
Resilience doesn’t just apply to balance sheet; it applies to the well-being of employees, too. As a leader, one of my most pressing concerns is the rise in healthcare costs—a challenge that extends well beyond our own industry. Providing quality healthcare to my companies isn’t just an ethical imperative; it’s integral to sustaining a motivated, productive workforce, and deeply personal to me as a physician.

The question, then, is how to keep premiums and out-of-pocket expenses in check during a period of inflation. This challenge required a series of deliberate decisions. First, we focused on negotiating better terms with insurance providers wherever possible. Next, we accepted that, in some cases, the company would need to absorb a portion of the costs to shield employees from the full impact. Finally, we encouraged the use of generic medications, which offer the same efficacy as brand-name drugs but at a fraction of the price. Each of these choices played a role in managing rising expenses while maintaining a commitment to robust, accessible healthcare for our team.

Emerging Healthcare Solutions: GLP-1
The healthcare landscape is also on the cusp of significant transformation. One particularly exciting development is the rise of GLP-1 medications—drugs that have shown remarkable promise in treating diabetes, assisting with weight loss, and potentially reducing various metabolic risk factors. I believe we’re just beginning to grasp the broader implications these treatments may have across the healthcare ecosystem. From lowering long-term costs associated with chronic conditions to improving overall employee wellness, the opportunities are vast. It’s too early to predict all the downstream benefits, but I see a future where GLP-1s could revolutionize how we treat (and even prevent) some of the most common health challenges we face. The individual and business decisions that stem for this potential overhaul remain to be seen. But I am open, curious, and closely watching this space.

Looking Ahead
As I look toward 2025, I see a world that still holds a fair share of unpredictability—capital can suddenly become scarce and market sentiment can flip on a dime. No one can promise a smooth ride in this business, but I’ve also been at this for more than 25 years, so I know the key is carefully considered incremental decisions. For my business that means focusing on maintaining a strong cash position, a defensive balance sheet, and healthy happy employees.

The thoughts I’ve shared here aren’t about perfection or a guaranteed path to success. It’s about embracing adaptability, remaining open to innovation, and recognizing that progress often comes one decision at a time. Thank you for joining me in this reflection—and for being part of a shared pursuit of progress, resilience, and success.

Wishing you and your families a prosperous new year.
With gratitude,
Dr. Bharat Sangani