Hotel and restaurant expansion doesn’t happen on its own. It requires critical investments, perfectly timed and in-sync with the demands of an already saturated market. That’s where Canadian Western Bank (CWB) steps in. Its 2016 acquisition of GE Capital’s Canadian Franchise Financing business has ensured that the industry’s growth is in good hands. Chris Fowler, president and CEO of CWB, explains, “We’re really proud of the additions to our portfolio — especially the Franchise Financing — which contributed to strong asset growth. It also fit into our strategy to achieve greater geographic and business diversification.”
Fowler credits his team of experts with making the Franchise Financing division a success. “Our bank offers unique knowledge and support to our clients who participate in our restaurant and hotel financing,” says Fowler. “We’re able to customize a financing situation by considering each business’ cycles and contextualize them within the micro-economics of the industry as a whole. Knowing your industry is key.”
Ed Khediguian, senior vice-president of CWB’s Franchise Finance, says the success of the restaurant and hotel-financing division lies in its strong team. “I’ve built this business up since its time at GE Capital Financing and a lot of that involved training a bunch of [people],” says Khediguian. “It’s been about a decade of working hard at understanding the nature of the industry. It’s always beneficial to have a focused lender. There’s no other bank that focuses exclusively on the hotel and restaurant industries.”
Khediguian says he works with specialized risk-rating tools, industry structure models and historical trade data to build a Canadian picture for the client. “We’ve developed this high level of specialization that presented a great opportunity for a bank,” says Khediguian. “We hadn’t lost any money when working for GE, so our division represented a new venture for a smaller, regional bank to acquire a portfolio with a specialized lending capacity for places that are traditionally risky.” But Khediguian was quick to add that risk was really proportionate — and could be minimized by a knowledgeable team that knew the market inside and out.
From a client perspective, it’s been business as usual. Kevin Urgo, chief Development officer at Urgo Hotels, was held as a client prior to the acquisition: “From our standpoint, things have been going very smoothly,” says Urgo. “What we appreciate about CWB is the depth of knowledge about the hospitality industry in general. They’re easy to work with and are great partners.”
Because Khedigulan’s team was transferred with the acquisition, clients benefitted from a virtually seamless transition of power. “I can’t speak to what’s coming down the pipeline for this year yet,” says Urgo. “But I can tell you that CWB’s financing team has been instrumental in helping us set up businesses in both Quebec and Newfoundland. I doubt any other capital financer would have the same vested interest.”
Al Gulamani, president and CEO of Bayview Hospitality, says the CWB takeover has been a step in the right direction. “It’s important to understand the history of this transaction,” says Gulamani. “When the financial crisis hit the U.S. in 2008 to 2009, GE was not in the mode of expanding the capital business. Instead, it was reconsidering how to operate and basically wanted to get out of financing.”
Gulamani noted that the crisis lead to a huge decrease in underwriting deals. Business quickly picked up again once the CWB deal was finalized. “It makes a huge difference that now we have a chartered bank that takes the time to understand the business,” says Gulamani. “But another great thing about the acquisition was that CWB took over the loan book — not just the assets.”
This commitment on behalf of CWB represents a good-faith investment in the Canadian foodservice and hospitality industry. “But taking on the GE team and all the relationships that come with that, industry leaders such as myself really benefit in two ways,” says Gulamani. “First, we now have a stable, long-term lender and second, we don’t have to worry about the financier suddenly pulling out because of a recession.” CWB’s measured investments and careful risk assessment has proven that it can ride out the market’s up’s and down’s — a market that’s framed within the Canadian context.
Gulamani’s relationship with CWB is cemented with new business ventures coming along in 2017. “We are expanding with CWB’s help,” says Gulamani. “In Kanata, a suburb of Ottawa, for example, CWB has supported us towards financing a Hilton Homewood Suites due to open January 2018.” The 101-unit new-build hotel is just one in a chain of future partnerships that Bayview Hospitality hopes to develop. “CWB really backs us and wants to help us grow. That means a lot.”
The fact that CWB is Canadian-owned is no small detail. Whether through offering capital for construction purposes, project-development refinancing or term lending, CWB provides data that specifically Canadian-based businesses need to thrive. “We were owned by a U.S. company prior to CWB,” says Ian Ricci, account manager of CWB’s hotel-finance division. “So there was always that U.S. lens in terms of the way financing was approached.” Ricci says having Canadian expertise distinguishes them from other competitors. “Our clients see that we know the micro-economies of the Canadian marketplace — and that’s a very different landscape than the American one,” says Ricci. “That’s really where our value lies — being a Canadian company and serving Canadian clients.”
Michael Rapps, president and CEO of Clarke Inc., agrees that GE’s capital-financing division suffered under U.S. ownership. “The Canadian guys were great. They knew about the Canadian market and how it functioned,” says Rapps. “Unfortunately, their U.S. parent wasn’t so amenable because they just didn’t ‘get’ the Canadian market. With Canadian ownership, the franchise-financing division will really flourish.”
Rapps differentiates the Canadian and U.S. hotel markets by viewing them through the lens of resources — natural resources such as mining for nickel, gold or oil. “As an operator, you’re either in a resource area, which means your operations are generally struggling, or you are in a non-resource area, where things in the industry are generally okay,” explains Rapp. “People travelling to downtown Toronto, for example, can go for any number of tourist reasons — a sports game or a concert — whereas people travelling to resource areas generally use hotels on a work venture.” The exception to this, he says, would be places such as Fort McMurray, where huge on-site camps were built to house hundreds of workers. CWB’s financing team possesses the history, data and expertise to understand the particular challenges that resource areas face, especially given falling oil prices and the general threat that mining communities face. “When metal prices pull back, it plays itself out in the hotel industry,” says Rapp. “You can look at any number of Ontario examples — Thunder Bay, Kirkland Lake, Kapuskasing. When the economic drivers of that market disappear, CWB would be on top of that.”
That’s why Rapps says CWB’s acquisition of GE’s former financing group is a coup for Canadian hoteliers. “They’ve got so much talent on that team,” he explains. “In particular, they are customer-oriented. With a Canadian-owned bank in a leadership position, the hotel industry can expand exponentially.”
Given the breadth of capital financing, CWB can offer a wide range of products and services. “It’s everything from new construction to acquisitions,” says Ricci. “We go across all brands — Hilton, Marriott, IHG. But also a variety of categories, from limited to full service.”
When asked about future projects, Ricci says he can’t speak for what’s to come, but does concede that the hospitality industry is thriving. “We’re different from the U.S. market because a lot of our newer brands have already been tried in the states,” says Ricci. “There’s also that question of size — we’re significantly smaller than the U.S.”. That said, growth is on the rise and CWB is leading the way. “Our capital financing will go as high as 75 per cent leverage,” says Ricci. “That’s way more aggressive than many other lenders go. But it’s not reckless. We just know our market and clients extremely well.”
With the backing of a Canadian bank, Canadian clients have the clear advantage of knowing what’s at stake. By investing in a specific hotel and restaurant division, CWB proves that the industry is worth investing in.
Volume 29, Number 3
Written by Jennifer Febbraro