Unlocking Yield in Secondary U.S. Hotel Markets: Strategic Acquisitions and Undervalued Assets in 2025

The U.S. hotel sector in 2025 is undergoing a profound realignment, driven by macroeconomic pressures and shifting investor priorities. As cap rates climb to multi-year highs and primary markets face valuation compression, secondary cities are emerging as fertile ground for yield-driven opportunities. Strategic acquisitions in these markets-such as A&R Group's recent purchase of Hotel Indigo in Baton Rouge, Louisiana-highlight a broader trend of capital flowing toward undervalued assets with strong operational and geographic fundamentals.

The Case for Secondary Markets: Cap Rates and Yield Arbitrage

According to the CBRE report, U.S. hotel cap rates have surged to 7.3% in 2025, with secondary markets averaging 7.5%–9% compared to 5.5%–6% in primary cities like New York and Los Angeles. This 300–400 basis point spread reflects both the risk premium demanded by investors and the relative undervaluation of secondary assets. For instance, the luxury segment in secondary markets is outperforming, with RevPAR growth of 4.2% year-over-year in early 2025, compared to 1.9% for economy properties, according to the MMCG Invest outlook. This bifurcation underscores the importance of targeting high-quality assets in dynamic secondary markets.

A&R Group's acquisition of Hotel Indigo Baton Rouge exemplifies this strategy. The $93-room property, located in downtown Baton Rouge, was acquired at a significant discount to prior capital invested, as noted by Cushman & Wakefield, the transaction's facilitator. The hotel's proximity to government offices, cultural attractions, and major highways positions it to capitalize on the city's economic pillars-petrochemical refining, healthcare, and logistics-while A&R's planned capital improvements aim to enhance guest experience without diluting the Hotel Indigo brand, as described in an A&R Group announcement.

Strategic Acquisitions in Secondary Markets: Case Studies

Columbus, Ohio
Whitestone Capital's acquisition of the 189-room Westin Great Southern Hotel in Columbus illustrates the appeal of historic, full-service properties in growing secondary markets. The $10.2 million purchase, part of Whitestone's 14th acquisition in 24 months, leverages Columbus's 24% GDP growth since 2015, driven by technology and healthcare expansions, according to an Asian Hospitality report. The hotel's National Register status and 10,000 square feet of event space align with demand from corporate and leisure travelers, while its downtown location benefits from proximity to Intel's $20 billion semiconductor project.

Charlotte, NC
Maya Hotels' $10.2 million purchase of the Courtyard Charlotte Gastonia highlights the secondary market's focus on midscale and extended-stay properties. With Charlotte's airport reporting a 10% passenger increase in 2024 and over 900 new hotel rooms expected in 2025, the acquisition taps into the city's status as a fintech and banking hub, as reported in an Asian Hospitality piece. The planned $2 million renovation underscores the value of repositioning assets to meet evolving demand, particularly in submarkets like Ballantyne and Uptown.

Boise, ID
Hilton's development of LivSmart Studios by Hilton in Boise-a 121-room extended-stay property-targets the surge in remote work and outdoor tourism. With Boise's population growth outpacing the national average and over 1,600 hotel rooms added downtown since 2020, the project aligns with a 70%+ occupancy threshold, signaling a healthy market, as noted in a BoiseDev article. Modular construction techniques aim to reduce costs, while the focus on long-stay travelers reflects adaptability to post-pandemic trends.

Market Dynamics and Investor Sentiment

The shift toward secondary markets is further fueled by macroeconomic factors. Rising interest rates (projected to end 2025 at 3.5%–3.75%) and elevated insurance costs (up 15.3% through October 2024) have pressured primary market valuations, according to an MMCG Invest analysis. Meanwhile, secondary markets benefit from lower operational costs, favorable tax environments (e.g., North Carolina's phasing out corporate income tax by 2030), and diversified economic bases. For example, Baton Rouge's petrochemical industry and Charlotte's fintech sector provide stable demand drivers, reducing exposure to cyclical downturns.

Conclusion: A New Era of Yield-Driven Opportunities

The A&R Group's acquisition of Hotel Indigo Baton Rouge, alongside transactions in Columbus, Charlotte, and Boise, underscores a strategic pivot toward secondary markets. These deals capitalize on undervalued assets, favorable cap rates, and localized economic strengths to generate resilient returns. For investors, the key lies in identifying properties with strong operational potential, aligning with market-specific demand drivers, and leveraging disciplined capital improvements. As the sector consolidates, secondary markets will remain a cornerstone of yield-driven investment in 2025 and beyond.