The best business minds understand that every investment comes with risk. Whether you’re investing dollars in a renovation, time and resources in a special project or raising capital for a new business development, success is never guaranteed. Rather, in these days of economic turbulence, the risks often outweigh the returns.
Hotel developers operating in this current business climate acknowledge how tough it is to secure capital right now. Certainly, the hysteria on Wall Street two years ago and the ensuing pandemonium it created fostered an era of uncertainty unlike anything we’ve seen in years. Furthermore, the recent S.E.C. allegations of fraud against behemoth Goldman Sachs will only add fuel to the economic fire, leading many to wonder how long it will be before things return to normal — whatever normal is these days.
Nevertheless, the hotel industry can’t flourish without confident investors willing to put their money on the line. Luckily, developers and the finance community in Canada are more confident in the market than their counterparts in the U.S., where for the past two years the economy has come to a standstill, leaving many hotel properties on the market for next to nothing.
In reading Hotelier’s annual investment issue you’ll note one underlying tone throughout: the Canadian hotel industry is poised for recovery. According to Colliers International’s Bill Stone, there’s already been a steady increase in the number of transactions in 2010 over last year, spurred by a group of lenders with a good track record and plenty of equity willing to finance deals. Investors are remaining cautious and choosing projects more judiciously, but that’s a good thing. After all, analysts are quick to note that Canada’s more structured lending environment and banking sector saved us from the same turmoil that plagues the U.S. It’s also helped us weather the recession better, boding well for future development.
While many hotel companies might have been reluctant in the midst of the recession to undertake a massive project like Groupe Germain’s new Calgary development, the Montreal-based hotelier structured a deal that worked for a variety of reasons. As associate editor J.D. Ney points out in this month’s cover feature (see story on pg. 8), one of the biggest reasons Groupe Germain was able to move forward on its Calgary project was it carefully built up some equity and came to the table with some cash of its own. It’s a practice the company has successfully adhered to in all its development deals.
Investors who are willing to take calculated risks, in the face of difficult times, are exactly what the hotel industry needs to return to profitability. After all, it’s the ability to see opportunities that others perhaps don’t see and the belief in the strength and continued viability of the industry — even during its darkest days — that allows companies to innovate, to further challenge themselves and, ultimately, to prosper. In fact, playing it safe and being unwilling to venture outside the norm may be the far greater risk.