Cities and towns scattered throughout the Rocky Mountains have become a year-round playground for tourists coming to enjoy the scenic beauty and outdoor recreation ranging from skiing and snowboarding to hiking and mountain biking. And that strong tourism industry helps to support a thriving hotel market.

The U.S. hotel has been on a strong bull run over the past several years. Recent data shows that demand is pushing the industry to new highs for occupancies and revenues. In October, U.S. occupancy averaged 69.9%, which was the highest monthly occupancy ever recorded in October. ADR and RevPAR also hit new records in October with RevPAR that increased 3.5% and ADR growth of 2.7%, according to STR (the leading hotel market data and benchmarking company). And the latest industry forecast released by STR and Tourism Economics points to a lower, but still positive forecast ahead for 2019 with occupancies that are expected to hold steady amid new supply and ADR and RevPAR that will both grow at 2.3% and 2.4% respectively.

Against that backdrop, hotel investors are working harder to find viable investment opportunities that generate favorable yields. One area of the country that is attracting attention is the Rocky Mountain region where acquisition opportunities run the gamut from luxury resorts to boutique hotels. Colorado, Montana, Wyoming and Idaho are home to four of the top 10 most visited national parks in the country with Rocky Mountain, Yellowstone, Grand Teton and Glacier. Cities such as Denver, Jackson Hole, and Boise serve as gateway markets for visitors exploring the region.

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According to Reonomy, hotel sales in Denver have been choppy in recent years with some large deals boosting volume in both 2015 and 2018 and more subdued sales volumes sandwiched in between in 2016 and 2017.

  • 2015 – 11 properties traded for $352.8 million
  • 2016 – 9 properties for $95.7 million
  • 2017 – 7 properties for $54.9 million
  • 2018 – 21 properties sold for $245.1 million

Across all property types, Boise has been posting steady sales activity with sales that have exceeded $1 billion for the past few years, including $1.9 billion in 2017 and $1.2 billion year-to-date 2018 through November. Sales are tougher to track in Jackson Hole, but according to Reonomy, the town of Jackson has reported three sales over the past two years that sold for a combined price of $21.8 million.

  • 215 N Cache St, Jackson, WY 83001 – $561,563
  • 930 W Broadway Ave, Jackson, WY 83001 – $18,125,000
  • 265 N Millward St, Jackson, WY 83001 – $3,125,000

Denver Attracts Investment

A significant volume of capital has been focused on Denver with tourism and business growth that has been fueling demand for hotel rooms. That interest also has resulted in a spike in development activity. According to Marcus & Millichap, Denver had an estimated 4,100 units underway at the start of 2018 and an equal amount that was expected to break ground by year-end.

The hotel industry has been booming in Denver with an estimated 46,000 hotel rooms in the greater metro – 10,000 of which are within walking distance of the Colorado Convention Center and more projects that are under construction or proposed. Other states in the region are benefiting from increased demand and more limited supply increases. Some of the notable new projects that are under construction or proposed in the region include:

  • A new 233-room Hilton Garden Inn Union Station is under construction in the heart of Denver’s LoDo neighborhood near Union Station and Coors Field. The project is set to open in February 2019.
  • A new 157-unit Element Hotel by Marriott is under construction at 13th Avenue & Elati Street in Denver. The project will feature one- and two-bedroom guest rooms with full kitchenettes and is set to open in spring 2019.
  • Denver has several more projects that have been proposed that include two projects proposed by Stonebridge Companies. One is a new 200-room, seven-story hotel in Downtown Denver at 17th & Blake, while the second is a 382-room, 21-story hotel at 15th & Stout that will be dual branded by Home2 Suites and Tru Hotels by Hilton.
  • One major project that broke ground in Montana in 2018 is the $400 million Montage Big Sky, an ultra-luxury resort in Big Sky that will open in 2021. The resort is located about 45-minutes from Yellowstone and expects to serve visitors to the park with 150 guestrooms and suites, 39 Montage Residences and a variety of resort amenities that include restaurants, swimming pools, spa and ski services.
  • Boise has been experiencing its own smaller scale building boom. In July, the Boise City Council approved a new hotel development on Front Street between 5th and 6th Streets. The seven-story, 138-room Home2 Suites by Hilton will be the fifth new hotel built in the last year.

Although Denver has been a strong performer in recent years, the weight of new supply being added to the market has created a dip in occupancies and room rates. For example, among the top 25 markets that STR tracks, Denver was in the bottom five for fundamentals in October with occupancies that dropped 1.7% along with ADR and RevPAR that fell by -0.9% and -2.6% respectively.

Despite that softening, Denver continues to offer the biggest potential for investment opportunities in the region simply due to the size of the market and still active development pipeline. The broader hospitality market remains highly fragmented with a variety of tourist towns scattered through the region. From the likes of Colorado’s Aspen, Breckenridge and Estes Park, to cities such as Laramie, Wyo. and Boseman, Mont. The latter two are home to colleges and bigger business bases that fuel demand for hotel rooms beyond just tourism. Investors also need to be mindful of the late-cycle risks that exist relative to demand drivers in the smaller secondary and tertiary markets in this region.

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