Phoenix’s hotel investment landscape split in Q3 2025, with smaller properties under 150 rooms changing hands at a brisk pace amid caution for larger assets. Transaction data revealed a pronounced divide: midscale and boutique hotels attracted local buyers and private capital, while institutional investors remained largely on the sidelines. This divergence is shaping pricing, capital access, and underwriting discipline across the metro’s hospitality sector.

Throughout Q3, transaction volumes for sub-150 room hotels in Phoenix ranged from $8 million to $22 million (CoStar). Private buyers and local operators led activity, capitalizing on relatively stable occupancy (68% per STR, September) and manageable operational footprints. By contrast, institutional buyers largely refrained from acquisitions in this tranche. “There’s a confidence in smaller, locally managed assets that doesn’t translate to the big-box segment right now,” noted one Phoenix hospitality lender. This pattern signals targeted risk acceptance by local capital.

Full-service hotels and those above 200 rooms saw only one notable sale above $50 million in Q3, underscoring institutional caution (CoStar). Broader transaction volume in this segment stalled, as national lenders and funds opted to wait out market uncertainties. Tighter credit and underwriting standards compounded the inertia, with spreads for new hotel loans running 50–75 basis points higher than last year (CRE360 analysis). On balance, this has widened the gap between core and non-core asset liquidity.

Cap rates for smaller Phoenix hotels remained within the 7–8% range (CBRE, Q3 2025), notably higher than the pre-pandemic average. The risk premium reflects lender caution and selective underwriting anchored to local demand. Meanwhile, cap rates for larger, institutional-grade properties were harder to benchmark due to limited trades, but anecdotal evidence suggests even wider risk spreads. In turn, this divergence emphasizes the importance of sponsor strength and deal size in current pricing.

Hospitality lending in Phoenix remains conservative, with new loan spreads up 50–75 bps year-over-year. Lenders are prioritizing established operators, strong cash flows, and lower leverage. Debt costs are shaping deal structures: smaller deals with local backers close, while larger assets struggle to clear underwriting hurdles. If lending standards hold, liquidity will remain segmented by asset size and sponsor profile.

The two-speed market in Phoenix hospitality is poised to persist if current lending and capital allocation patterns continue. Local buyers and private capital could remain active in the sub-150 room segment, especially if occupancy trends remain near 68% and debt costs stabilize. Conversely, large asset transactions are unlikely to regain momentum without a reset in institutional risk appetite or a shift in underwriting. Monitoring cap rate spreads, debt costs, and sponsor composition will be critical for lenders and investors assessing risk transfer across the sector.

Liquidity divides aren’t just risk signals—they’re maps to where capital is still willing to move.