Unlocking Value in a Dislocated Market: Braemar's Sale as a Blueprint for REIT Premiums

The public real estate market has long been a theater of mispricing, where liquidity constraints, investor sentiment, and macroeconomic volatility create fertile ground for dislocation. Nowhere is this more evident than in the case of Braemar Hotels & Resorts, a luxury REIT whose decision to initiate a sale process underscores the growing opportunity for private buyers to capitalize on undervalued assets in a fractured public market.

Braemar's journey reflects a broader trend: the persistent gap between public REIT valuations and private market premiums. For years, the company's shares traded at a discount to its net asset value (NAV), a common plight for lodging REITs in an environment where rising interest rates and economic uncertainty have eroded investor confidence. Yet its underlying portfolio—14 high-end properties across the U.S. and the U.S. Virgin Islands—has consistently outperformed industry benchmarks. In the first half of 2025, Braemar's RevPAR (revenue per available room) grew 2.9%, dwarfing the 0.8% industry average. This disconnect between asset performance and market valuation is not unique to Braemar but is emblematic of a sector where public investors have lost sight of intrinsic value.

The sale process Braemar has launched is a masterclass in strategic capital structuring. By negotiating a $480 million termination fee with its external advisor, Ashford Inc.—a 16% reduction from the original $574.83 million—it has created a financial incentive for a swift transaction. The company has also introduced flexibility for buyers, allowing them to either assume legacy management agreements or pay an additional $25 million to terminate them. This structure balances the interests of stakeholders while preserving the portfolio's operational integrity.

The broader market context is equally compelling. As of Q1 2025, public REITs trade at an average implied cap rate of 5.77%, while private appraisal cap rates hover at 4.57%, a 120-basis-point spread. This divergence, as highlighted by the National Council of Real Estate Investment Fiduciaries (NCREIF), reflects structural advantages for private buyers. Public REITs, constrained by liquidity demands and short-term earnings pressures, often underprice assets during downturns. Private buyers, with longer time horizons and access to bespoke financing, can step in to acquire these assets at a discount.

History offers precedent. During the 2000–2004 and 2010–2014 periods, REITs traded at premiums to NAVs and leveraged their access to capital markets to acquire undervalued private assets. For example, in 2010, Host Hotels & Resorts (now part of Ventas) sold its portfolio to private equity firms at a 20% premium to book value. Similarly, Strategic Hotel & Resorts' 2019 sale to a private equity consortium unlocked a 35% premium for shareholders. These cases illustrate a recurring pattern: when public REITs are undervalued, private buyers can exploit the gap to secure assets at a discount to their intrinsic worth.

Braemar's situation mirrors these historical opportunities. Its portfolio includes excess land at properties like The Ritz-Carlton Sarasota and Four Seasons Scottsdale, valued at $45.9 million, and a pending $115 million sale of The Clancy in San Francisco. These assets, combined with $68 million in positive net working capital, create a compelling case for a premium transaction. The company's $1.172 billion in debt and $473 million in preferred stock liquidation value further highlight the need for a capital structure reset—a challenge private buyers are uniquely positioned to address.

For investors, the lesson is clear: dislocation in public markets creates asymmetric opportunities for private buyers. Braemar's sale process is not an anomaly but a symptom of a larger trend. As interest rates stabilize and the Fed's rate-cutting cycle gains momentum, the public-private valuation gap is likely to narrow. However, the path to convergence will be uneven, with luxury real estate—given its bespoke nature and resilience to macroeconomic shocks—offering the most compelling arbitrage.

The key for investors is to identify REITs with strong asset fundamentals but weak public valuations. These companies, often under pressure from activist investors or facing structural challenges, are prime candidates for private buyouts. The optimal strategy is to engage early, as Braemar has done, to structure transactions that balance stakeholder interests while maximizing shareholder value.

In the end, Braemar's story is a reminder that markets are not always rational. When public investors lose sight of value, private buyers can step in to correct the mispricing—and profit handsomely in the process. For those with the patience and capital to navigate the complexities of REIT sales, the rewards are substantial. The question is not whether the opportunity exists, but whether the market is ready to recognize it.