TORONTO — Canadian hotel executives converged on Toronto’s newly renovated Eaton Chelsea yesterday to celebrate a good year of transaction activity in 2013, while looking ahead cautiously, but largely optimistically, to the year ahead.
The hospitality professionals were gathering for the 18th Annual Canadian Hotel Investment Conference (CHIC), where many new faces and a bigger crowd than last year, heard about the $2.1 billion of transaction volume in 2013, which represents the third-strongest year ever recorded. And, although Q1 2014 only saw $217 million in transaction activity, approximately half of what was recorded in Q1 2013, the numbers don’t forecast a bad year ahead. “Don’t be deterred,” said Bill Stone, EVP at CBRE Hotels in Toronto, who provided the numbers. “Things change and they can change quickly. He added: “We do see activity continuing through the balance of the year.” CBRE Hotels predicts $1.2 billion to $1.5 billion worth of hotel investments in 2014, which is within the historical norms.
Moving forward, in 2014 Stone noted cap rates are expected to stabilize, supply growth will be tempered, new buyer entrants and continued debt financing activity, thorough buyer due diligence, steady transaction volume and pricing maintenance in most markets.
Many hotel experts are bullish about the year ahead, but some operators voiced concern. Craig Wright, SVP and chief economist at RBC, noted confidence has returned, inflation is expected to continue at about two per cent, interest rates are expected to remain at one per cent for the next three years and the dollar is expected to drop by 5 cents, but select panel members were worried about access to oil in the West. And, Anthony Cohen, EVP, Business Development for Crescent Hotels and Resorts as well as president and CEO of Global Edge Investments in Toronto, offered a caveat to the much discussed “hot” market. “There’s a huge appetite, but there’s more players chasing fewer deals,” he said, noting the increase in overseas investors. Rahim Lakhoo, president, Coastal Hospitality Ltd., with units in B.C., Alberta and Ontario, voiced another concern. “When the market gets too hot everyone wants to jump in.”
Meanwhile, a series of six breakout sessions throughout the day included cross-country overviews as well as discussion on due diligence, site selection, finding value in renovations as well as dealing with difficulties repaying loans. In the latter session, panellists reported that loan repayment isn’t currently a problem, while offering solutions to working with lenders while contending with financing problems. Russell French, Assistant VP, Business Restructuring, Business Development Bank of Canada in Toronto, touted the benefit of employing financial and legal advisors. “When you do make the communication to the lender [that there’s a problem], you don’t want it to be a freefall,” he said. “You want to say you know what the problem is, what’s happened and what you’re going to do about it, so it’s disciplined. It’s not a crisis.”
In the afternoon, attendees were buzzing about the discussion between the CBC’s Amanda Lang, Sylvain Fortier, EVP, Ivanhoé Cambridge and Simon Turner, Starwood, president, Global Development at Starwood Hotels and Resorts in Connecticut. Fortier discussed his company’s plan to get out of the hotel business (although there are plans to keep a couple properties), pointing to a “question mark” about the economy, increasing customer demands and the costs associated with the daily “rent” of a hotel. He noted that iconic Ivanhoé-owned hotels, such as Toronto’s Fairmont Royal York will soon be on the market. On the other end of the spectrum, Turner talked about using technology and SPG Rewards to save money while tailoring the hotel experience to guests needs, He cited the New Balance shoe-lending program at Starwood. “It’s doing those small things that don’t cost too much … that experience is an extension of [the guest’s] lifestyle.” He added: “We as an industry need to focus on what the customer wants and what they are willing to pay.”
The busy day of networking, industry debate and discussion, was marked by announcements. Hilton revealed it’s approaching its milestone 100th property in Canada, which will become official with the opening of the dual-branded Hampton Inn & Suites by Hilton and Homewood Suites by Hilton in Halifax in the coming weeks. Similarly, Starwood announced it will grow its portfolio of Canadian hotels to 70 in the next 12 months with a focus on Four Points by Sheraton growth in Western Canada in secondary and tertiary markets.
As business fluctuates across the country, it was clear at the conference that the hotel operating environment is continuing to intensify as operators and owners try to slim operating budgets while adding value in a market that’s showing tempered growth. “It’s a complicated business,” noted Starwood’s Turner. “That’s what makes it so fun.”
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