What’s driving development in 2014 and beyond?

Erin O'Brien, Robin McCluskie, Ian Ricci and Brian Leon

Erin O'Brien, Robin McCluskie, Ian Ricci and Brian Leon

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TORONTO—Pockets of growth, the continuing switch from new
builds to conversions, a record year for transactions and
continued aggressive growth on the part of Choice Hotels Canada are all on the
horizon according to an industry panel at the Choice Development Forum held
last week at the Beer Academy in Toronto.

Erin O’Brien of PKF pointed to Regina, Calgary and St.
John’s as areas that have recently experienced a lot of growth in room
supply—with Regina leading the pack with 16 per cent growth, St. John’s at 6
per cent and Calgary with 5 per cent. Halifax will have 9 per cent more available
rooms next year, but has seen subdued demand. Winnipeg has had a lot of new
supply since 2012 and more is in the pipe for next year.

Robin McCluskie of Colliers International Hotels said that
2013 should be a record year, with $1.06 billion worth of transactions to date,
due in large part to the $765 million Westin portfolio deal, and the sale of
the Chateau Laurier for $120 million.

Her presentation included a look at specific sales, such as
Stage West Mississauga to Northland Properties in August. The 224-room
property sold for $13.8 million with a price per room of $61,000.  The property was not performing well at
the time of sale, she said, adding that Northland plans to rebrand the property
as a Sandman Hotel with two of Northland’s restaurants, a Shark Club and and
Denny’s.

She also mentioned the 98-room Best Western Plus Abercorn in
Richmond, BC, which sold for $14.25 million or $145,400 per room.  “This [high rate per room] indicates
the level of interest in the Richmond market,” McCluskie said.

Ian Ricci of GE Capital Franchise noted that new build
hotels peaked in 2007, and have trailed off since 2010.  The average debt per door is $69,400,
which is still pretty competitive, he said. “We don’t usually do new builds,
but if you have a portfolio with us, we will consider it. We like to do deals with owners who really 'get' their market and
their brand.”

Brian Leon, managing partner for Choice Hotels Canada,
talked about the company’s past and present expansion. He noted that in 2004,
CHC had 256 hotels; today they have 309. At the same time, they have been
aggressive at terminating underperforming hotels. 

By deleting the underperformers and adding higher performers
to the system, Choice has raised its overall Medallia likelihood to recommend
score. He noted that 19 of their top 25 performing hotels are ones that have
entered the Choice system in the past five years. On average, the hotels they
terminated had mediocre Medallia scores of 6.6 out of 10. The CHC average is
8.2, and the hotels that have come online in the past five years average 8.6.