The Myth of the California Buyer (and the Rise of the Zombie Hotel Listing)

For years, hotel owners in secondary markets have heard some version of the same pitch:

“We’ll take this to California buyers. They’re used to paying much higher prices than local investors.”

The implication is simple: somewhere out there is a coastal investor who sees Midwestern hotels as cheap—and who will pay a premium that local buyers won’t.

Occasionally, that buyer exists. But in most cases, the premise misunderstands how hotel acquisitions are actually financed.

A California investor buying a hotel in Ohio does not bring a different lending environment with them. They still face the same interest rates, underwriting standards, and debt-service coverage requirements as any local buyer. In today’s market, lenders size hotel loans primarily around the debt service coverage ratio (DSCR). That constraint determines the maximum loan proceeds on a deal—and, by extension, the amount of equity a buyer must contribute.

Once the capital stack is laid out, the buyer’s ZIP code becomes largely irrelevant.

Consider a simple example. A hotel generating $900,000 in net operating income might support roughly $6–7 million in loan proceeds, depending on the rate environment and lender assumptions. If the property is marketed at $11 million on the theory that a “California buyer” will pay more, the acquisition requires $4–5 million in equity.

At that point, the investor faces a straightforward capital allocation decision: deploy that equity into an underperforming hotel with limited upside, or allocate it to another opportunity with stronger risk-adjusted returns.

Most buyers—whether they live in Cleveland or Los Angeles—make the same decision.

The result is a growing population of what might be called zombie listings: hotels that remain actively marketed but are economically untradeable at the asking price. Buyers review the offering memorandum, run underwriting, and quietly disengage. Months pass. Sometimes years. The property continues to circulate through broker databases while both sides of the market feel increasingly frustrated.

These listings rarely emerge from bad intentions. Instead, they are often the product of a familiar dynamic in brokerage markets.

When multiple brokers compete for an assignment, valuations tend to drift upward. Suggesting access to a unique pool of out-of-state investors—particularly the mythical California buyer—can easily become part of the pitch. Sellers, understandably, gravitate toward the broker who promises the highest price and the widest buyer universe. Once that price anchor is established, adjusting expectations later becomes difficult.

The irony is that out-of-market buyers do play an important role in hotel transactions. Investors frequently enter new markets seeking operational upside or portfolio diversification. But those buyers are not looking to suspend underwriting discipline: they are looking for deals where they can derive value.

In the end, hotel transactions are rarely limited by the geography of the buyer. They are limited by the economics of the deal.

And in a market governed by DSCR, it is debt markets—not coastal mythology—that ultimately determine what a hotel is actually worth.