TORONTO ― In the world of hotel real estate, there are countless details that need to come together before a deal is consummated. With that as its premise, for the second consecutive year, Big Picture Conferences brought together nearly 100 hoteliers, lawyers, lenders and tax specialists at the Arcadian Court in Toronto to learn about taxation issues, legal topics and franchising.
“In the past 12 months, the credit view of Canada has shifted. Our base is still good, but not as good as in the past,” said Paul Scholz, managing director, Institutional Mortgage Capital, speaking as part of a panel moderated by Bill Stone, EVP of CBRE. Scholz pointed to the oil situation in Western Canada as the catalyst for the shift. Ed Khediguian, SVP, GE Capital, agreed. “There’s been a bit of retrenchment,” he said, noting there’s a “bit of hesitation related not just to hotels but across the commercial sector.”
Khediguan also pointed to the regulatory environment as another factor in the change. For example, he said, “GE is divesting of capital business, and the banks are now big acquirers. While Schedule A banks have always been in the sector, what you are seeing now is the non-banks; shadow financing is burgeoning.” Looking forward, Scholz believes less capital will be available, and the multiple bids of the past will decrease in the future.
With Hotel Capital Connection taking place the day following the major announcement of the Marriott/Starwood deal, Stone estimated that Marriott will now control 35 per cent of the room supply in Toronto. He asked the panellists whether this would impact the lending community. Khediguian responded by saying, “You have to believe in segmentation. Delta makes sense,” he said. “Starwood is a whole other class. These kinds of deals “were necessary to compete against the Expedia and the power of those engines. There’s no choice but to consolidate.”
The panellists agreed that while the oil situation in Alberta impacts the industry, it’s the duration of the cycle that will determine how it is affected. “We haven’t seen powers of sales or panic,” noted Stone. Jessi Carrier, associate VP, Colliers International Hotels, added, “All we’ve seen so far are good trades. People know it’s a cycle and as long as it’s not three years.” In the meantime, “it will create a more conservative lending environment,” said Khediguian. Added Scholz, “Borrowing will cost more, but in the next 12 months; it won’t drive changing values.”