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By Colleen Isherwood, editor
TORONTO—Airbnb, the pace of change, irrational exuberance and crises like Ebola keep top hotel executives awake at night according to a panel at Hotel Capital Connection held Nov. 18 at St. Andrew's Club & Conference Centre in Toronto. Financially, however, the situation looks promising.
George Kosziwka, chief financial officer for InnVest REIT, told more than 100 registrants that the Canadian hotel industry has traditionally had 60 to 65 per cent occupancy. This economic cycle was a little different as it is taking longer to recover. Canada should reach 65 per cent occupancy next year, and in 2016/17 will exceed 65 per cent. Kosziwka sees 2017 as the peak, provided the supply/demand situation continues to keep pace. He pointed out that 2017 will mark celebration of the 150th anniversary of Confederation—which should help hotel business.
The last two economic cycles ended dramatically, with a loss of more than five per cent occupancy. Kosziwka expects 2018 occupancy to be lower than in 2017, but he doesn't see a five per cent drop. “There will be a mild dip in 2018 and a slight rise in 2019,” he predicted.
Craig Shannon, managing director of Trimaven Capital Advisors Inc., said that Canada has less competition and better investment opportunities than the U.S., albeit fewer transactions. As for economic outlook, he made a baseball comparison. “Canada is in the third inning; the U.S. is in the seventh inning,” he said.
Vinnie Patel, president of Northampton Group Inc., said that he currently feels comfortable with raising rates as the industry has had two years of good solid growth in terms of net operating income (NOI).
Hotels high risk but higher returns too
If you're investing in hotels, the targeted returns have to be higher, Shannon said. “If you can manage the risk, you get a higher return from the hotel sector,” he added.
Koziwka agreed. “Our hotels have an eight or nine per cent return. If you're smart, you can make a higher return.”
To brand or not to brand
When Vinnie Patel is looking at investing in a hotel, the top three things he looks for are a good location, the newness of the property and whether it has a “solid skeleton,” and brand availabililty. “Brands are saturating every market, but there's no reason why you can't make good money with an independent.”
Koziwka echoes his sentiments. “Brands matter a lot. People are point junkies. Those people will pay more and stay more often.” On the other hand, he gives the example of Les Suites Ottawa as a high-margin, well-located apartment hotel, which has the second highest RevPAR in the city, just behind the Chateau Laurier.
Jean-Yves Germain, co-president of Groupe Germain Hospitality, says his company has the Le Germain and ALT brands, and that they focus on the entire experience for the client. They don't have any loyalty program; nor do they belong to Aeroplan or any other points company—they have to compete with those programs by being different.
What keeps you awake at night?
Panel member Germain said that on the marketing side Airbnb keeps him awake at night, and on the marketing side it is their lenders. “I'm a very optimistic guy; the market in the country is very good, but it's not easy.”
Kosziwka said workload and the pace of change are the two things that prevent him from sleeping.
For Shannon, it is “irrational exuberance,” as opposed to a look at the complexity of a problem. “I'd rather live through a difficult time and find a solution,” he said.
Patel stresses about events like Ebola—”You can't even plan around those events,” he said.
At a reception following the event, attendees said that the event was very useful, and pitched at a level suitable for the audience, which included hotel, owners, lenders and lawyers.