International investors expand Canadian hotel footprint

In 2013, not only did the volume of trades increase for this buyer group, they also completed some of the most substantial or “game-changing” trades across the nation.

By Luke Scheer, CBRE Toronto

International investors continue to leave their expanding footprint on the Canadian hotel market. In 2013, not only did the volume of trades increase for this buyer group, they also completed some of the most substantial or “game-changing” trades across the nation. 

These transactions included the $765 million Canadian Westin Hotel portfolio (with hotels located in Toronto, Ottawa, Calgary, Vancouver and Edmonton) which sold to U.S.-based Starwood Capital Group in September; the 711-room Delta Centreville in Montreal, purchased by European-based Beaumont Partners and U.S.-based Campus Crest Communities in June for $51.25 million; and the 337-room Harrison Hot Springs Resort and Spa in Harrison Hot Springs, BC, which sold in April to China-based G&Q International Trading Group Ltd. for $32.3 million.

It is important to note that since the Westin portfolio represented approximately 40 per cent of total transaction volume in 2013, it had a meaningful impact on trending. With this portfolio included, non-Canadian buyers accounted for 55 per cent of total transaction volume for the year, compared to just six per cent in 2012.

When the Westin portfolio is excluded, foreign buyers represent 14 per cent of total transaction volume, which is still a significant increase year over year.

Momentum in 2014

International interest in Canada’s hotel space is expected to gain momentum in 2014 for a myriad of reasons that have extended beyond Canada’s currency value to that of the U.S. dollar and perception [of Canada] as a cost effective place to allocate resources.  

Investors are turning attention to the country’s strong economic fundamentals and “safe” investment reputation across the globe. Although higher returns may be available in other, higher-risk markets, Canada continues to be viewed as a place where stable returns can be achieved, growth is anticipated and there are sound opportunities for brand expansion, locational diversification and mitigation of geographical risk.

International investors now view many Canadian markets as key targets in their long term growth strategies and consequently, willing to pay market pricing to be here.  

‘Hockey markets’ favoured

From a target market standpoint, foreign investors will continue to gravitate towards the “hockey markets,” particularly Toronto, Montreal, Calgary and Vancouver as these are internationally the most visible and most understood markets in the country given their size and economic profile.

Tertiary markets in BC

However, with a limited number of acquisition opportunities in major urban centres, tertiary markets, particularly in British Columbia, will continue to be of strong interest for foreign investment, specifically Asian-based groups.
This was evident in 2013 by the previously mentioned Harrison Hot Springs Resort and Spa transaction, as well as the Comfort Inn Richmond and Brentwood Bay Resort trades which were also purchased by Asian investors.

Future of this buying segment

Although there are many reasons to remain optimistic regarding the future of foreign investment in the Canadian hotel market, there are, of course, many questions to reflect upon when considering the future of this buyer segment.
Availability of domestic financing—Is there enough of an appetite from domestic lenders to work with groups without a proven track-record in Canada?

Rising interest rates—How much of the existing foreign investment momentum and interest can be attributed to our low interest rate environment?

Repatriation of funds—Can foreign investors forecast and execute exit strategies with relative ease?

The door remains open for international investment in Canadian hotels. Although the mechanics for completing transactions are generally more complex for foreign groups, especially when it’s their first foray into the country, the trailblazing efforts we’ve seen over the last 12 months from non-domestic groups will no doubt swing the door open a little wider allowing for a more diverse buyer pool moving forward.

DELTA CENTREVILLE
(Montreal, QC)

Rooms: 711
Purchase Price: $51.25M
$/room: $72,000

Seller: InnVest REIT
Buyer: Beaumont Partners and     Campus Crest

WESTIN PORTFOLIO
(Vancouver, Calgary, Edmonton, Toronto and Ottawa)

Rooms: 2,925
Purchase Price: $765M
$/room: $262,000

Seller: PSP Investments

Buyer: Starwood Capital Group

HARRISON HOT SPRINGS RESORT & SPA
(Harrison Hot Springs, BC)

Rooms: 337
Purchase Price: $32.3M
$/room: $96,000

Seller: Delaware North Companies Parks& Resorts

Buyer: G&Q International Trading Group Ltd.

Luke  Scheer is director of hotels, Eastern Canada for CBRE. He joined CBRE in 2011 as a consultant to the hotel brokerage and advisory teams. He comes from Delta Hotels & Resorts where he was director of development. Scheer has also worked for Legacy Hotels REIT, InnVest REIT, Coast Hotels & Resorts and PKF Consulting. Contact: luke.scheer@cbre.com.