Foreign investors come knocking at Canadian hotels
Foreign investors are increasingly snapping up stakes in Canadian hotels, attracted in part by a relatively stable economy and an increase in buying opportunities.
About 24 per cent of the $794-million that was invested in Canadian hotels during the first six months of this year was foreign money, compared to about 7 per cent of the $650-million worth of hotel deals done during the first half of 2012, according to real estate service firm CBRE.
?Historically Canadian investors bought Canadian hotels, by and large, and this is one of the first substantive breakout years,? said Bill Stone, an executive vice-president at CBRE who worked on the pending sale of an interest in Toronto?s King Edward Hotel to Texas-based Omni Hotels & Resorts. ?We?ve seen a real spike, in the last eight to 12 weeks specifically, of activity.?
A number of Canadian real estate investment trusts are selling hotel properties, while traditional hotel investment companies (those that specialize in owning hotels) are the largest buyer this year.
?We?re experiencing a tremendous amount of hotel investment activity, and this will probably be the biggest year on record in terms of single-asset or small-porfolio transactions,? Mr. Stone said. ?Unlike 2006 and 2007, where there were the big M&A deals, this is a very, very active year for one-off hotels or small portfolios.?
Ivanho? Cambridge, the real estate arm of the Caisse de d?p?t et placement du Qu?bec, is in the midst of selling off its hotel portfolio bit by bit, and will be accepting first-round bids for the Fairmont Chateau Laurier in Ottawa next month (outside Canada, Ivanho? Cambridge is also currently selling the Fairmont Washington and a portfolio of 18 Intercontinental-related hotels in Europe).
It once owned as many as 60 hotels, but decided a couple of years ago that it would rather stick to office, retail and residential real estate investments.
Sylvain Fortier, executive vice-president of the residential and hotel businesses at Ivanho? Cambridge, says he thinks the growing foreign interest stems from Canada?s new-found reputation as a relative safe-haven in the wake of the financial crisis, because success in the hotel business is highly tied to the local economy.
He adds that the trend towards deals for one or two hotels, rather than entire portfolios, is the result of continuing weakness in the commercial mortgage-backed security market. ?It?s harder to syndicate massive loans now, lenders will keep most of their loans on their own balance sheets, so it makes it difficult to go and sell large portfolios,? he says.
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