Recent industry studies put the reality at closer to 8% of annual revenue for capex, with older full-service assets requiring even more. For FF&E, the new guidance is 15–25% reserves — a staggering recalibration that changes underwriting math and exit timing alike.
From Bay Street’s quantamental lens, these numbers aren’t just maintenance budgets — they’re forward indicators of yield resilience. An asset under-invested in physical condition is an asset on the brink of performance compression, particularly in competitive markets flush with newer supply or recent renovations.
The post-pandemic reset between brands and owners is a double-edged sword. On one hand, PIP (property improvement plan) timelines have softened, giving breathing room to operators balancing liquidity constraints. On the other, prolonged deferment means that competitive gaps can widen beyond repair — a scenario where market positioning erodes faster than the savings on deferred capital.
This is the “spend or stagnate” fork Scott Hammons of Ground Level references. Owners who resist reinvestment face two unattractive options: sell into a market with compressed multiples or compete head-to-head against newer product without the physical upgrades to justify ADR premiums.
In our recent conversations with prominent art families considering licensing their collections to hospitality partners, a parallel emerged. In Art Collecting Today, Alan Bamberger writes:
“Condition and presentation can elevate or depress value out of proportion to the underlying work itself.”
A hotel, like a major work in a private collection, might have intrinsic merit — location, layout, historical significance — but without the right upkeep and framing, its marketability diminishes sharply. Just as an art collector invests in conservation, proper framing, and curated lighting to command top-tier bids, hotel investors must view capex as a curatorial act that safeguards asset provenance and yield capacity.
In Management of Art Galleries, Magnus Resch notes:
“Your gallery’s walls, lighting, and display are not overhead — they are part of the product.”
For hotels, FF&E upgrades, lobby redesigns, and guestroom refurbishments are not cosmetic frills; they are embedded in the product’s perceived and actual value. The capex conversation is not about delaying cost but about protecting the premium multiple at exit.
From a quantamental standpoint, the optimal timing of major renovations — especially in an inflationary construction market — can generate alpha by:
Hotel investors who integrate renovation strategy with market timing can transform what appears as a cost burden into a performance lever — particularly in segments where marginal physical improvements translate directly into pricing power.
The art families we’ve met understand this intuitively. They won’t license works into a poorly lit, tired space — not because the art changes, but because the context changes the yield. The same principle applies to hospitality: a hotel’s brand equity, guest mix, and RevPAR potential are all contextual outputs of capital input.
Bottom line: In 2025, capex is no longer an optional refresh; it is a primary driver of both competitive defense and valuation offense. Owners who treat it as such will preserve their ability to outperform in a cycle where holding back is the fastest route to obsolescence.
...
Bay Street Hospitality is a diversified hotel fund series for allocators seeking quant-driven exposure across top countries, operators, and hotel tiers. The fund targets a diversified portfolio in both high-growth emerging markets and stable developed markets, optimizing risk-adjusted returns. The leadership provides structured equity and pivotal strategic guidance to hotel-related investments. The fund establishes joint ventures with best-in-class partners, focusing on deal flexibility, currency considerations, tax efficiency, and clear exit strategies.
