The U.S. hostel market is poised for significant growth, according to Nathan St Cyr, Co-founder of Howzit Hostels and Malama Capital, pointing to Generator’s recent $400 million acquisition of Freehand’s four U.S. properties as a watershed moment for the industry.
Institutional Capital Recognizes Untapped Potential
“If one of the biggest, baddest players in the European market sees value in this, in the U.S., and they’re willing to go invest $400 million, we’re on to something,” St Cyr says, noting that Generator itself was recently valued at nearly $900 million in a pending acquisition.
According to St Cyr, this institutional interest reflects a broader recognition that the U.S. hostel market significantly lags behind global counterparts, creating unique opportunities for early movers. The formation of the North American Hostel Association (NAHA) in its second year further signals the industry’s growing maturity and standardization.
Revenue Optimization Through Space Innovation
St Cyr argues that hostels offer compelling financial advantages compared to traditional economy hotels when properly optimized. “If we maximize and optimize the space, we can put three bunks or six beds in that room at $50 per bunk, we’ve turned that room into an average daily rate of $300,” he explains, describing how a typical $100-per-night hotel room can generate triple the revenue when converted to hostel space.
However, St Cyr emphasizes that successful execution requires more than simple space reconfiguration. “If it was that easy, everybody would do that, and every economy-based hotel would turn into a hostel,” he notes, highlighting the importance of operational expertise.
Market Evolution Creates New Investment Category
The emerging U.S. hostel market represents a distinct investment opportunity, according to St Cyr. His firm targets properties in the $3-10 million range, above typical independent hostel operators but below most institutional hotel investors.
“We’re in the sweet spot where boutique hotel investors maybe look at these assets that we’re diving into as not as interesting to them, because there’s a lot more infrastructure cost to remodel and renovate,” St Cyr explains. “But at the same time, the everyday hostel owners probably not competing with us at this level.”
Building Professional Operations
St Cyr notes a key distinction between traditional hostel operators and the emerging institutional approach. “A lot of times what happened was somebody went traveling, they fall in love with this experience, this hosteling experience. They come back to the US, and they’re like, ‘I got a dream,’” he explains.
While these passion projects often create great guest experiences, St Cyr says his team approaches the opportunity differently: “We came into it from the business mindset first, and then we fell in love with the guest experience and the impact that it was having.”
Looking ahead, St Cyr sees continued opportunity for institutional investment in the U.S. hostel market, particularly in high-volume travel destinations. His firm, Malama Capital, continues to actively pursue acquisitions, having evaluated multiple properties in the past eight months.
