SOUTHWEST U.S. HOSPITALITY MARKET REPORT – Q1 2026

The Southwest is the largest and most diverse hospitality region in the United States by total room count, anchored by three of the country's top hospitality economies: Texas (Dallas, Houston, Austin, San Antonio, Fort Worth-Arlington), Las Vegas, and Phoenix. U.S. hotel transaction volume reached $24 billion in 2025, a 17.5% year-over-year increase, with Phoenix recording the largest single-market H1 2025 transaction volume in the U.S. at approximately $1 billion (up 4% year-over-year), led by Trinity Investments' $865 million sale of the JW Marriott Phoenix Desert Ridge Resort & Spa. Transaction volume gains are projected to continue in 2026, supported by approximately 300 basis points of cumulative debt-cost reduction since the Federal Reserve began easing in September 2024, returning sponsors to positive-leverage acquisition economics for the first time since 2022.

Within the Southwest, Q1 2026 performance is defined by sharp contrast between markets navigating cyclical absorption and those entering recovery. Las Vegas, after its weakest 2025 in 30 years (excluding crisis periods), began Q1 2026 with February RevPAR up 23%, ADR up 8%, and occupancy up 13% year-over-year, with the week of February 15–21 producing 83.3% occupancy (+20% YoY) and RevPAR of $152.79 (+28.6% YoY) on a calendar including the WVC Annual Conference, MAGIC Las Vegas, and PROJECT Las Vegas. CONEXPO-CON/AGG, hosted in Las Vegas in March 2026, drove a 90.5% RevPAR gain on 60% ADR growth and 85% occupancy across the market.

Texas markets, by contrast, continue to absorb the impact of two major convention-center disruptions: the Austin Convention Center closed in April 2025 for a $1.6 billion redevelopment, and Dallas's Kay Bailey Hutchison Convention Center is in the midst of a $3.7 billion renovation while remaining partially operational. Combined with elevated supply growth in Austin and ongoing absorption pressure in Houston and San Antonio, these dynamics produced negative trailing-three-quarter 2025 RevPAR across all five top Texas markets. Phoenix's softening reflects elevated supply (4,200 rooms under construction at year-end 2025, representing 5.7% of inventory and a 10-year high), with RevPAR declines concentrated in Black Canyon, Mesa, and Southeast/Chandler-Phoenix Airport submarkets, while Scottsdale and Tempe remain steady.

Capital markets remain selective but functional. The Federal Reserve held the federal funds rate at 3.50%–3.75% at its April 28–29, 2026 meeting, the third consecutive hold following three rate cuts in late 2025. CMBS hospitality delinquencies fell 73 basis points to 5.81% in September 2025 and stood at 6.17% by November 2025, with the lodging segment outperforming office and retail on a delinquency basis. However, approximately $18.7 billion of hotel CMBS is scheduled to mature through 2026–2027, of which roughly 70% carries floating-rate exposure. In Phoenix specifically, 11 hotel CMBS loans mature within two years and nine properties have been identified as at-risk for distress, creating a meaningful refinancing pipeline that will continue to drive acquisition opportunities and structured-debt demand throughout the year.

For experienced Southwest hospitality sponsors, Q1 2026 represents a markedly different capital environment than the one that defined 2023–2024. Conventional bank rates for hotel acquisitions and refinancings stabilized in the 6.25%–7.25% range through Q1 2026, CMBS hospitality spreads of 150 basis points over Treasuries for branded properties and 180 basis points for non-flagged assets re-engaged the institutional bid, and SBA 7(a) and 504 executions remain the most accessible high-leverage path for owner-operators acquiring or recapitalizing hotels in the under-$30 million range.

Capital markets remain selective but functional. The Federal Reserve held the federal funds rate at 3.50%–3.75% at its April 28–29, 2026 meeting, the third consecutive hold following three rate cuts in late 2025. CMBS hospitality delinquencies fell 73 basis points to 5.81% in September 2025 and stood at 6.17% by November 2025, with the lodging segment outperforming office and retail on a delinquency basis. However, approximately $18.7 billion of hotel CMBS is scheduled to mature through 2026–2027, of which roughly 70% carries floating-rate exposure, creating a meaningful refinancing pipeline that will continue to drive acquisition opportunities and structured-debt demand throughout the year.

For experienced Southwest hospitality sponsors, Q1 2026 represents a markedly different capital environment than the one that defined 2023–2024. Conventional bank rates for hotel acquisitions and refinancings stabilized in the 6.25%–7.25% range through Q1 2026, CMBS hospitality spreads of 150 basis points over Treasuries for branded properties and 180 basis points for non-flagged assets re-engaged the institutional bid, and SBA 7(a) and 504 executions remain the most accessible high-leverage path for owner-operators acquiring or recapitalizing hotels in the under-$30 million range.

The Southwest's Q1 2026 hospitality performance is supported by a combination of structural drivers and event-driven catalysts that vary materially by market. Texas continues to lead the U.S. in population in-migration, corporate headquarters relocations, and energy and technology employment, anchoring corporate transient and extended-stay demand across the major metros. Phoenix benefits from the Taiwan Semiconductor Manufacturing Company's $40 billion North Phoenix fabrication expansion, which continues to import workers requiring extended-stay accommodation, alongside healthcare, financial-services, and aerospace employment growth. Las Vegas, despite cyclical leisure softness, remains the country's largest convention and group market, and the most resilient destination for compression-night ADR through major trade shows.

Leisure travel performance is more bifurcated across the Southwest than in any other U.S. region. Las Vegas's 2025 visitor volume declined 7.5% year-over-year to 38.5 million, with the bottom one-third of the market (budget hotels) driving most of the decline, while the top one-third of luxury hotels maintained occupancy in the 90s. Phoenix's resort and luxury submarkets, including Scottsdale, Paradise Valley, and North Scottsdale, continue to support strong ADR through leisure and high-net-worth travel, while drive-to Texas leisure (Hill Country, Gulf Coast, and Big Bend) and Sedona/Northern Arizona have remained more durable than urban-core leisure. Aggregate U.S. hotel guest spending is projected at approximately $805 billion in 2026, a 1.7% increase over 2025, a growth rate that barely outpaces inflation and underscores continuing margin pressures across all Southwest leisure markets.

Group and convention demand remains the primary swing variable across Southwest markets. Las Vegas's recovering convention calendar drove the country's largest weekly RevPAR gains during the WVC, MAGIC, AHR Expo (53,300 attendees, weekday RevPAR +57.5%), and CONEXPO-CON/AGG (140,000 attendees, RevPAR +90.5%) events between January and March 2026. Convention attendance in Las Vegas was up 7% in January 2026 year-over-year. By contrast, the Austin and Dallas convention-center disruptions are expected to suppress group demand in those markets through 2026, with Austin shifting to a 'mini-wide' campus-style approach using meeting space across downtown hotels for SXSW and other large events. The new 2.1 million-square-foot Kay Bailey Hutchison Convention Center Dallas, which broke ground in June 2024, will not deliver until later in the cycle.

On the supply side, approximately 95,000 hotel rooms are scheduled to deliver across the United States in 2026, representing a five-year high in deliveries. The Southwest dominates the national pipeline: Dallas leads all U.S. markets at the close of Q1 2026 with 184 hotel projects totaling 22,861 rooms, with 37 projects (4,111 rooms) in active construction. Phoenix ranks third nationally with 123 projects (16,111 rooms), and is forecast to lead all U.S. markets in 2026 hotel openings with 27 new hotels (3,640 rooms). Phoenix posted a 19% year-over-year increase in projects under construction and an 11% rise in rooms underway, the strongest growth trajectory of any major U.S. hotel market. Austin ranks fifth nationally in pipeline, with approximately 1,600 new rooms expected to deliver in 2026 (concentrated downtown). Houston led nationally in renovation and brand-conversion activity in Q1 2026 with 35 active projects, followed by Dallas, Atlanta, Washington D.C., and San Antonio.

The 2026 FIFA World Cup, hosted across 11 U.S. cities including Dallas (nine matches at AT&T Stadium) and Houston (seven matches at NRG Stadium) in the Southwest, provides a meaningful but contained Q2–Q3 catalyst. ADR premiums in host markets are projected to range from +5% to +25% during the tournament window. However, recent host-market surveys indicate that nearly 80% of hoteliers reported booking pace below initial expectations, with FIFA room block releases (cancellations of 70%–95% of contracted rooms in some markets) and slower-than-anticipated international booking pace tempering early projections. Dallas was specifically identified among the most affected markets, alongside Boston, Los Angeles, Philadelphia, and Seattle. Houston has performed somewhat better, supported by team base camps and strong air connectivity. The national RevPAR uplift from the World Cup is now expected to approximate 40 basis points, with June 2026 RevPAR projected up 1.2% and July up 1.5%, meaningful for Dallas and Houston specifically but materially below initial 2026 projections.

Texas — Convention Disruption, Continued Investor Demand, and FIFA Catalyst

Texas remains the top investor-pick market in the South Central U.S. despite trailing-three-quarter 2025 RevPAR declines across all five major metros. Q3 2025 trailing data showed Austin RevPAR down 6.3% year-over-year, Houston down 9.6%, San Antonio down 3.6%, Dallas down 1.5%, and Fort Worth-Arlington down 0.8%. Houston's September 2025 occupancy declined to 55.6% (down from 62.1% in September 2024), with ADR slipping 4.9% to $117.59 and RevPAR dropping 14.8% to $65.43. Despite the cyclical softness, institutional capital continues to view Texas as the preferred long-term hospitality destination, supported by population in-migration, energy and technology corporate expansion, and structural demand drivers across all five major metros.

Dallas leads the U.S. in hotel pipeline activity at the close of Q1 2026 with 184 projects totaling 22,861 rooms, including 37 active construction projects (4,111 rooms). The 2.1 million-square-foot Kay Bailey Hutchison Convention Center Dallas, currently undergoing a $3.7 billion redevelopment that has limited its ability to host large events, will not deliver until later in the cycle. Dallas hosts nine FIFA World Cup matches at AT&T Stadium in summer 2026, with the Dallas FIFA Fan Festival running 34 days at Fair Park. The state's 2023 Senate Bill 1057 enabling municipalities to allocate hotel occupancy tax revenue from a three-mile radius surrounding convention centers has provided structural funding for the Dallas, Houston, and San Antonio convention rebuilds, supporting longer-term group demand.

Houston's 2026 outlook projects occupancy rising 10 basis points to 59.0%, ADR growing to $123.82, and RevPAR increasing 3.0% to $72.99, approximately 15% above 2019 levels. Supply growth will remain limited, concentrated in the CBD and southern submarkets, while elevated construction costs and financing challenges constrain new development. Houston hosts seven FIFA World Cup matches at NRG Stadium (including a Round of 16 match on July 4), with the Houston FIFA Fan Festival in EaDo for 34 days. Houston led the U.S. in renovation and brand-conversion activity in Q1 2026 with 35 active projects, reflecting strong sponsor demand for value-add repositioning of the existing inventory base.

Austin's 2026 outlook projects approximately 1,600 new rooms delivered (concentrated downtown), with occupancy declining modestly due to elevated supply, ADR softening to $163.34, and RevPAR declining to $101.33. Austin remains the highest-RevPAR Texas market despite the cyclical adjustment, supported by long-term population growth (the metro grew 10.9% from 2020 to 2024, the fastest-growing large U.S. metro), strong corporate travel, and continued tech-sector employment expansion. The Austin Convention Center closure in April 2025 for a $1.6 billion redevelopment represents the most significant disruption to any single Texas market, with reopening targeted for 2029. Notable 2026 luxury openings include the 1 Hotel Austin (251 rooms, August 2026 opening, anchoring the 74-story Waterline tower) and Hotel Trinity (258 rooms, downtown Austin), reflecting continued institutional capital allocation to the upper-end of the market.

San Antonio is positioned for meaningful 2026–2028 capacity expansion through Project Marvel, an estimated $1.3 billion to $4 billion downtown revitalization plan including approximately $900 million for convention-center investment. Over 600 new rooms are scheduled to deliver downtown in 2026, with approximately 2,000 additional rooms planned through 2028. Notable 2026 openings include the 200-room Monarch San Antonio (Curio Collection) and Morgan's Hotel adjacent to Morgan's Wonderland. San Antonio Q3 trailing 2025 RevPAR was down 3.6% year-over-year, with steady supply growth offsetting demand. The Fort Worth-Arlington submarket has been the strongest of the major Texas markets through 2025, with the $700 million Fort Worth Convention Center expansion in two phases (phase one targeting completion in early 2026, phase two by 2030) supporting longer-term group demand. Fort Worth-Arlington benefits from Dallas FIFA spillover demand, with surrounding cities seeing meaningful booking lift as primary host-market hotels recalibrate pricing strategies.

Arizona — Phoenix Pipeline Expansion, TSMC-Driven Extended-Stay, and Resort Bifurcation

Phoenix entered 2026 as the third-largest hotel pipeline in the U.S. (123 projects / 16,111 rooms), the fastest-growing major U.S. hotel construction market by year-over-year project count, and the forecast leader in 2026 hotel openings nationwide (27 new hotels / 3,640 rooms). Phoenix's 36 active construction projects (5,096 rooms) ranked just behind Dallas's 37 (4,111 rooms) at the close of Q1 2026, and the market's pipeline reached a 10-year high in 2025 with 4,200 rooms under construction representing 5.7% of existing inventory. Despite the elevated pipeline, Phoenix recorded the largest single-market H1 2025 hotel transaction volume in the U.S. at approximately $1 billion (up 4% year-over-year), led by Trinity Investments' $865 million sale of the JW Marriott Phoenix Desert Ridge Resort & Spa.

Phoenix's trailing 12-month performance through November 2025 showed occupancy averaging 66.0% (down 3.3 percentage points), modest ADR gains, and RevPAR declining 3.0%. Transient demand fell 2.3%, group demand eased approximately 1%, and weekend occupancy continues to trail weekdays, a leisure-softness pattern. Performance varies sharply by submarket: Scottsdale and Tempe remain steady with RevPAR flat to slightly positive, while Black Canyon, Mesa, and Southeast/Chandler-Phoenix Airport have posted sharper RevPAR declines amid lower ADR and increased supply. The late-2025 acquisition of five Arizona hotels by a Phoenix-based investment group at $72 million reflects continued investor confidence in the longer-term outlook despite cyclical softness.

Phoenix's structural demand drivers remain among the strongest in the U.S. The Cactus League Spring Training generated an estimated $710 million in annual economic impact for Arizona in 2023, anchoring March compression nights across the metro. The 2026 NCAA Women's Final Four and the 2027 NBA All-Star Game provide marquee event catalysts. Taiwan Semiconductor Manufacturing Company's $40 billion North Phoenix semiconductor fabrication facility expansion continues to drive extended-stay demand, with hospitality investors specifically targeting extended-stay assets near the TSMC site to capture longer-term TSMC-related employment growth. Refinancing risk is concentrated: 11 hotel CMBS loans mature in Phoenix within the next two years, and nine properties have been identified as at-risk for distress, creating a meaningful Q2–Q4 acquisition pipeline for well-capitalized sponsors.

Nevada — Las Vegas Convention Recovery and Bifurcated Leisure

Las Vegas hosted 38.5 million visitors in 2025, a 7.5% decline from 2024 (when the market hosted a record 40.8 million visitors). Hotel occupancy averaged 80.3% (down 3.3 percentage points but still well above the 62.3% national average), ADR fell 5.0% to $183.52, and RevPAR dropped 8.8% to $147.30. Las Vegas's 2025 RevPAR decline was the largest observed this century outside of crisis periods. Performance was sharply bifurcated: the top one-third of luxury hotels (Bellagio, Venetian, Wynn) maintained occupancy in the 90s with strong rate integrity, while the bottom one-third of budget hotels drove most of the decline, with some properties offering rates as low as $29 per night. The market continues to operate approximately 150,487 hotel rooms across 303 hotels, with Las Vegas alone offering 164,200 available rooms on a typical night.

Q1 2026 marked a meaningful inflection. February 2026 RevPAR rose 23%, ADR rose 8%, and occupancy rose 13% year-over-year, with January 2026 convention attendance up 7%. The week of February 15–21, 2026 produced 83.3% occupancy (+20% YoY) and RevPAR of $152.79 (+28.6% YoY), driven by the WVC Annual Conference, MAGIC Las Vegas (February 17–19), and PROJECT Las Vegas. The week of February 1–7, 2026 saw weekday RevPAR up 57.5% and full-week RevPAR up 39.2% on the AHR Expo (53,300 attendees), with Las Vegas alone contributing 140 basis points to the U.S. weekly RevPAR gain. CONEXPO-CON/AGG (March 2026, 140,000 attendees) drove a 90.5% market RevPAR gain via a 60% ADR boost on 85% occupancy, marking Las Vegas's highest ADR week since hosting Super Bowl LVIII in February 2024. Late April 2026 saw Las Vegas post the highest ADR growth among the Top 25 U.S. markets at +17.8% to $261.45, supported by the NAB Show.

Las Vegas's forward catalysts remain meaningful. The Sphere continues to drive incremental visitation, with operators including The Venetian reporting first-time guests increasingly tied to Sphere events. Major upcoming demand drivers include CES (January 2027), continued NBA All-Star Weekend group demand, and a recovering international visitor mix. The market's meetings and trade-show calendar from September 2025 through 2026 was characterized as 'very strong' by Las Vegas Convention and Visitors Authority leadership, providing a constructive base case for full-year 2026 RevPAR recovery. The Cal Neva Resort recapitalization and other repositioning transactions reflect continuing investor demand for assets with credible upside narratives.

Secondary Southwest Markets — New Mexico, Oklahoma, and Texas Tertiaries

New Mexico (Albuquerque, Santa Fe), Oklahoma (Oklahoma City, Tulsa), and Texas tertiary markets (El Paso, Lubbock, Amarillo, Corpus Christi, McAllen, Waco, Tyler, and the I-35 corridor between Austin and Dallas) remain meaningful hospitality submarkets within the broader Southwest. These markets are typically tied to logistics, energy, government, healthcare, education, and regional tourism demand, and Q1 2026 performance has generally tracked closer to national averages than the negative trailing-quarter results in the major Texas metros and Phoenix. Frisco (Dallas suburb), Webster (Houston suburb), and New Braunfels have posted notable RevPAR growth tied to corporate expansion (Hall Park's $7 billion Frisco redevelopment), aerospace and medical-driven demand, and regional leisure (New Braunfels added a record 39,000 jobs in 2023 alone).

Lenders continue to focus secondary Southwest hotel underwriting on projects with clearly defined demand generators (energy and logistics corridors, university and medical districts, and regional convention or tourism anchors) and on RevPAR projections that reflect post-COVID normalization rather than the 2021–2022 surge. Select-service and extended-stay assets serving manufacturing, healthcare, and distribution employment have shown more durable performance than urban-core convention-dependent submarkets across the secondary Southwest.

Q1 2026 hospitality capital markets activity in the Southwest reflects a meaningfully more constructive environment than 2023–2024, but selectivity remains the operative word. U.S. hotel transaction volume reached $24 billion in 2025 (up 17.5% year-over-year), with the Americas region leading global growth at 27%. Phoenix recorded the largest single-market H1 2025 transaction volume in the U.S. at approximately $1 billion, led by the $865 million sale of the JW Marriott Phoenix Desert Ridge Resort & Spa. The second-half 2025 acceleration was driven by approximately 300 basis points of cumulative debt-cost reduction since the Federal Reserve began easing in September 2024, returning hotel acquirers to positive-leverage economics. Volume growth is expected to continue in 2026, particularly in transactions exceeding $250 million as the bid-ask spread narrows and additional comparable trades unlock pricing transparency.

The Federal Reserve held the federal funds rate at 3.50%–3.75% at its April 28–29, 2026 meeting, the third consecutive hold following three rate cuts totaling 75 basis points in late 2025. The 10-year Treasury yield was approximately 4.26% as of early May 2026, supporting commercial mortgage rates that started at 5.33%. Consensus market expectations are for the Fed to remain on hold through the balance of 2026, with the next directional move likely a 25-basis-point hike contingent on labor-market and inflation evolution.

Within hospitality lending specifically, conventional bank rates for hotel acquisitions and refinancings stabilized in the 6.25%–7.25% range through Q1 2026. CMBS hospitality spreads have ranged from 150 basis points over comparable Treasuries for flagged/branded properties to 180 basis points for non-flagged or independent assets, with maximum LTVs of 75% and DSCR floors of approximately 1.20x–1.35x for stabilized assets. CMBS issuance broadly was on pace to exceed $120 billion in 2025, the highest level since 2007, providing a depth of liquidity that has continued to support hospitality refinancing executions through Q1 2026.

CMBS hospitality delinquency trends improved through late 2025. The lodging delinquency rate fell 73 basis points to 5.81% in September 2025 (its lowest level since March 2024), edged back to 6.17% in November 2025, and the broader CMBS delinquency rate fell to 7.14% in February 2026 from 7.47% in January 2026. The hospitality segment continued to outperform office (11.20% in February 2026) and retail (7.06% overall, with mall delinquency at 11.2%) on a delinquency basis. However, approximately $18.7 billion of hotel CMBS is scheduled to mature through 2026–2027, with nearly 70% of that maturity book carrying floating-rate exposure and approximately $5.71 billion of fixed-rate loans with sub-6% coupons facing meaningful refinancing-rate widening on takeout, creating a structural source of acquisition opportunity and structured-debt demand throughout 2026.

Across the Southwest specifically, traditional bank lenders are open to new hospitality credit but are prioritizing several criteria:

• Experienced sponsorship with strong global cash flow, verifiable operating history through the 2024–2025 RevPAR softening, and demonstrated ability to maintain margin discipline.
• Assets in markets with diversified demand drivers (corporate, leisure, group, and event-driven) and manageable new-supply pipelines relative to existing inventory.
• Conservative leverage levels (typically 60%–70% on conventional executions) and DSCR cushions of 1.25x–1.40x stress-tested under elevated debt-service scenarios.
• Diversified demand profiles that reduce reliance on any single corporate, group, or leisure segment.

Sponsors unable to meet conventional bank criteria, particularly first-time owner-operators, those acquiring hotels with near-term PIPs, and those with complex partnership-buyout or recapitalization structures, are increasingly turning to alternative debt structures:

• SBA 7(a) and 504 executions for owner-operators acquiring hotels, partnership buyouts, or major renovations. The SBA 7(a) program maximum loan amount remains $5 million, with up to 90% LTV for qualified hotel acquisitions, 25-year amortization on real estate, and the ability to combine operating company and real estate financing. Most SBA hotel loans require 10%–20% borrower equity contribution, with lower-end requirements typically reserved for strong flagged franchise properties with experienced operators.
• Bridge and transitional loans for resolving 2020–2022 vintage maturity exposure, completing brand-mandated PIPs, stabilizing post-renovation assets, and recapitalizing partnership structures ahead of long-term permanent financing. Bridge spreads have tightened modestly in Q1 2026 as debt-fund competition increased and the broader CMBS bid re-engaged.
• CMBS and LifeCo permanent financing for stabilized hotels with proven cash flow, providing non-recourse, longer-term, fixed-rate solutions. Insurance-company executions typically begin at $25 million for primary-market assets with low leverage, while CMBS hotel financing is available starting at approximately $2 million with LTVs up to 75%.
• Structured equity and preferred-equity solutions for larger Southwest portfolios undergoing transformative renovation, brand conversion, or partial recapitalization, particularly where the senior-debt market alone cannot fund the full capital stack at acceptable leverage.

Hotel cap rates show luxury-segment cap rates near 8.1%–8.2% in Q1 2026 with a slight expected improvement to 8.0% by 2028–2029, while economy/midscale cap rates have widened to approximately 9.5% in 2025, with a forecast peak near 9.7% in 2026 before easing to 9.5% by 2027–2029. Trophy and irreplaceable luxury assets continue to trade at materially lower yields, while limited-service and economy hotels in oversupplied submarkets continue to face wider cap-rate dispersion as buyers price in execution risk and PIP exposure.

Private investors accounted for approximately 75% of total hospitality deal volume in 2025, with deal flow up 14% year-over-year. Pricing recalibration, with many hotels trading below replacement cost, has favored acquisition and renovation strategies over ground-up construction, where construction loan costs (currently 6.25%–7.25% conventional) and elevated material/labor costs have pushed many speculative projects out of feasibility. Construction cost benchmarks per room in 2026 approximate $175,000 (midscale), $205,000 (upper-midscale), $225,000 (upscale), $290,000 (upper-upscale), and $550,000+ (luxury), figures that continue to constrain new-supply economics through Q1 2026.

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Operating Cost Pressures and Margin Discipline

Elevated labor, insurance, utility, and tariff-related construction costs remain dominant operating-margin headwinds for Southwest hotel owners. Hotel workforce growth of approximately 30,000 jobs is projected for 2026 (bringing direct hotel operations employment to approximately 2.2 million), but operating costs remain elevated and profitability lags pre-pandemic norms in many markets. National hotel job openings declined to approximately 14 per hotel in February 2026, a 9% year-over-year decline, but staffing remains a structural challenge across Texas, Arizona, and Nevada. Construction costs continue to be elevated by tariffs on imported building materials, with Southwest sponsors increasingly prioritizing renovation, conversion, and repositioning of existing assets over speculative ground-up construction where construction loan costs (currently 6.25%–7.25% conventional) and elevated material and labor costs have pushed many new-build projects out of feasibility.

Insurance pass-throughs and tax-and-insurance escrow stress-testing have intensified across Southwest hotel underwriting. FHA hospitality serious delinquencies rose to 10.62% nationally, a structural cost dynamic that lenders are stress-testing rigorously in Q1 2026 underwriting. Texas property-tax assessments and Arizona's hotel-tax dynamics continue to weigh on Southwest sponsor underwriting in particular. Operators are responding through technology-assisted scheduling, cross-training, and disciplined ADR management, while lenders are scrutinizing historical and projected expense ratios more rigorously than at any point since 2019.

PIP Execution and Brand Repositioning

Brand-mandated property improvement plans (PIPs) remain a defining operational and capital-stack consideration for Southwest hotel owners through 2026. Major brands have each emphasized conversion-led growth, lifestyle-segment expansion, and asset-light development through 2026. Sponsors facing near-term PIP requirements, particularly on 2020–2022 vintage acquisitions where original underwriting assumed lower future debt costs, are increasingly evaluating whether to fund the renovation, refinance through a value-add bridge structure, or sell at a discount.

PIP cost increases in recent years have shifted the cost-benefit calculus for many owners, with forecasted ADR growth often insufficient to support the magnitude of capital required. As a result, debt funds have emerged as a key source of capital for sponsors acquiring hotels with upcoming PIPs, providing flexible structures during periods when conventional banks have reserved most of their hotel capacity for existing customers. SBA and bridge structures, sometimes combined with mezzanine or preferred equity for larger portfolios, have become the dominant Southwest PIP-funding architectures through Q1 2026.

Distress, Workouts, and Opportunistic Acquisitions

Systemic distress has not materialized across the Southwest hospitality landscape, but pockets of stress are visible where elevated debt service, softening demand, deferred maintenance, and near-term maturities have collided. Maturity defaults remain the primary driver of new CMBS hospitality delinquencies, with stress concentrated in weaker assets and oversupplied submarkets. For well-capitalized Southwest investors, the resulting environment is producing selective acquisition opportunities at materially more attractive going-in yields than were available during the 2021–2022 cycle peak.

Bid-ask spreads began to compress in late 2025 and early 2026, with H1 2026 transaction velocity expected to accelerate as debt maturity continues to force sales. Cap rate compression for high-quality assets is not expected to begin meaningfully until H2 2026 as distressed inventory clears. Family offices, high-net-worth individuals, and specialized hospitality funds remain the most active acquirer cohort, while institutional investors have remained largely sidelined pending greater RevPAR clarity and corporate-travel recovery.

Where Experienced Sponsors Create Advantage

Lender, franchisor, and equity-partner emphasis on sponsorship quality has continued to intensify through Q1 2026. Capital providers are differentiating sharply between sponsors who can demonstrate revenue-management discipline, expense control, capital-planning sophistication, and successful execution through the 2024–2025 RevPAR softening, versus sponsors with less demonstrated experience in disciplined Southwest hotel operations. Sponsors who present detailed operational-improvement plans, realistic underwriting (including conservative ADR-growth assumptions and stress-tested DSCR cushions), and clear exit strategies are obtaining materially more competitive terms across SBA, bridge, CMBS, and LifeCo executions.

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Forward indicators for Q2 2026 and the balance of the year suggest a moderate but uneven recovery in Southwest hospitality fundamentals, with performance bifurcation continuing to drive both operating outcomes and capital allocation. Las Vegas's Q1 2026 convention-driven recovery, the FIFA World Cup catalyst in Dallas and Houston, the Phoenix CMBS maturity wave, and the continued absorption of elevated supply across Texas urban cores will be the dominant Q2/Q3 narrative. Several discrete catalysts and structural drivers warrant sponsor attention.

FIFA World Cup Q2/Q3 Catalyst — Dallas and Houston

The 2026 FIFA World Cup runs June 11 through July 19, 2026, with Dallas hosting nine matches at AT&T Stadium and Houston hosting seven matches at NRG Stadium (including a Round of 16 match on July 4). ADR premiums in host markets are projected to range from +5% to +25% during the tournament window, although recent host-market surveys indicate that approximately 80% of hoteliers reported booking pace below initial expectations. Dallas was specifically identified among the most affected markets, alongside Boston, Los Angeles, Philadelphia, and Seattle, with FIFA room block releases (cancellations of 70%–95% of contracted rooms in some markets) and softer-than-anticipated international booking pace tempering the upside. Houston has performed somewhat better, supported by team base camps and strong air connectivity, though Houston-area hotel rates initially surged up to 837% before being walked back as bookings underwhelmed. The national RevPAR uplift from the tournament is now expected to approximate 40 basis points, with June 2026 RevPAR up 1.2% and July up 1.5%, meaningful for Dallas and Houston specifically but more contained than initial projections suggested. Surrounding submarkets including Arlington, Fort Worth, and outlying Houston cities are seeing increased bookings as fans seek lower rates and availability outside primary host-market hotels. Sponsors with Dallas and Houston exposure should expect concentrated June–July compression nights, with shoulder-period performance more dependent on domestic leisure and group-event demand than on international fan travel.

Supply Pipeline Deceleration into 2027

Rooms in active construction declined from 150,000 at year-end 2024 to 136,000 at year-end 2025, with final-planning projects down 7% year-over-year. The 2026 delivery wave (~95,000 keys nationally) represents a five-year peak, but the slowing groundbreaking pace points to materially reduced 2027–2028 deliveries. Phoenix is forecast to lead U.S. hotel openings in 2026 with 27 hotels (3,640 rooms) delivering, with Dallas, Austin, and other Southwest markets also seeing significant openings. By 2027, Dallas is projected to regain the top spot for new U.S. hotel openings. For Southwest markets that have absorbed elevated supply over the last several years, particularly Austin, downtown Houston/San Antonio, and high-development Phoenix submarkets, the supply deceleration beyond 2026 provides a tailwind for occupancy stabilization and ADR re-acceleration in 2027 and beyond.

CMBS Maturity Wave — Continued Acquisition Opportunity

Approximately $18.7 billion of hotel CMBS matures through 2026–2027, with floating-rate loans representing nearly 70% of the maturity book and approximately $5.71 billion of fixed-rate loans with sub-6% coupons facing materially higher refinancing rates. Q2 2026 will see continued acquisition opportunity from owners unable or unwilling to fund the equity-recapitalization or PIP-cost requirements demanded by lenders on takeout. H1 2026 will see accelerating transaction velocity as bid-ask compression continues, with cap-rate compression for high-quality assets unlikely to begin until H2 2026 as distressed inventory clears the market.

Federal Reserve Trajectory and Debt-Cost Outlook

Consensus market expectations are for the Federal Reserve to hold rates at the current 3.50%–3.75% range through 2026, with the next directional move likely a 25-basis-point hike in Q3 2027 contingent on labor-market and inflation evolution. There is potential upside if the Fed moves to additional rate cuts of 75–100 basis points during 2026, which would provide meaningful upside for early 2026 acquirers, though further easing will likely require a meaningful labor-market deterioration. The base case for Q2 2026 hospitality underwriting is that conventional bank rates remain in the 6.25%–7.25% range, CMBS hospitality spreads remain in the 150–180 bps range over Treasuries, and SBA 7(a)/504 executions continue to provide the most accessible high-leverage path for owner-operators.

International Inbound Travel Recovery — A Key Variable

International inbound travel remains below pre-pandemic levels, with World Cup host-city hoteliers reporting that visa barriers and broader geopolitical concerns have suppressed international demand. Approximately 65%–70% of surveyed hoteliers in host markets identified visa and geopolitical issues as the top constraint on World Cup-driven travel. International recovery represents a meaningful Q3/Q4 2026 upside variable for Las Vegas (where international visitors historically represent a significant share of high-end ADR), Phoenix luxury resorts, and Texas urban markets, particularly if visa-processing constraints and air-travel cost pressures ease through the balance of the year. Las Vegas's recovery has also been impacted by reduced Canadian visitation; any meaningful normalization of cross-border travel would represent additional upside.

Operating Cost and Insurance Environment

Operating cost pressures will remain a dominant Q2/Q3 underwriting variable. Wage growth, insurance, utility costs, and tariff-impacted construction expenses continue to weigh on operating margins across the Southwest. The elevated FHA hospitality serious-delinquency rate (10.62% nationally) requires that Southwest hotel underwriters apply more rigorous expense stress-testing than at any point since 2019. Texas property-tax dynamics, Arizona insurance assessments, and Las Vegas labor-cost pressures all warrant submarket-specific stress-testing in Q1 2026 underwriting. Sponsors with disciplined revenue management, technology-enabled operating efficiency, and credible cost-control execution histories will continue to differentiate on lender pricing and on equity-partner appetite.

Cornovus View — Capital Strategy Implications

For Southwest hospitality sponsors evaluating Q2 2026 capital deployment, four strategic considerations remain central. First, the CMBS maturity wave continues to produce acquisition opportunities at acceptable going-in yields, particularly across Phoenix's at-risk loan book and the broader Southwest, but underwriting must reflect post-rebound RevPAR norms rather than 2021–2022 surge assumptions. Second, PIP-driven debt restructuring will continue to dominate refinancing flow through 2026, favoring bridge, mezzanine, and SBA 504 structures for capital-intensive renovations across Texas, Arizona, and Nevada. Third, well-located full-service and upper-upscale assets in Las Vegas (luxury Strip), Phoenix (Scottsdale, North Scottsdale, Paradise Valley), and Texas (Dallas, Houston, Austin downtown) continue to attract the most aggressive lender competition, while limited-service assets in oversupplied submarkets require additional sponsor equity and more creative debt structures. Fourth, sponsors with diversified Southwest portfolios are well-positioned to execute portfolio-level recapitalizations during H2 2026 as cap rates compress and the institutional bid re-engages following Las Vegas's convention-driven recovery and the post-FIFA shoulder period.