Picture Years May 2014$4 the Canadian Hotel

CANADIAN PUBLICATION MAIL PRODUCT SALES AGREEMENT #40063470 hoteliermagazine.com THE MAGAZINEFORHOTELEXECUTIVES/ INVESTMENT THE HOTEL PICTURE YEARS MAY 2014$4 THE CANADIAN HOTEL

INVESTMENT ISSUE STAYING AGILE IS CRITICAL. FORTUNATELY, OPENING MORE THAN , NEW* HOTELS HAS KEPT US IN SHAPE.

In the past six years, Hilton Worldwide has opened more than , new hotels around the world, bringing us to more than , hotels in countries today.* In Canada, we have hotels open from coast to coast with a growing pipeline of hotels under construction and over fully approved projects. Impressive growth, made possible by our ability to adapt to the world’s increasingly complex business environments. As a result, we’ve developed a wealth of experience creating and operating the most awardwinning portfolio of hotels in the industry. Not a bad workout for a yearold.

For development opportunities in Canada, please contact Tom Lorenzo, Vice President and Managing Director of Development + , [email protected], and Je Cury, Senior Director of Development + , je [email protected]. STAY AHEAD hiltonworldwide.com

*From January to December Hilton Worldwide

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Job info Notes Colors / Fonts / Links Client Hilton None Inks: Cyan, Magenta, Yellow, Black Live 7.625” w x 10.375” h Fonts: Fedra Sans Alt Pro (Book, Medium) Trim 8.125” w x 10.875” h Links: c160471_A_Comp_v2_1.psd (CMYK; Bleed 8.625” w x 11.375” h 509 ppi; 58.83%), Bb_Single_Horiz_rev_CS3. Keywords eps (79.79%), HiltonWW HORIZ Bevel 4C Description Hotelier AD Logo KO type_CS3.eps (44.95%) None COLLATERAL Approvals AE CW AD PP GP PRF VP VP 350 N. Orleans, 5th Floor, Chicago, IL 60654 • 312.943.0900 Volume 26, Number 3| May 2014 Contents

Features

10 THE INVESTMENT LOW-DOWN The teams at Hotelier magazine and Starwood Hotels and Resorts partner for the fourth-annual investment roundtable Interview by Rosanna Caira Scan to view our website

17 THE NUMBERS GAME Cushman & Wakefield offers an analysis of the relationship between office space and hotel rooms sold in 11 cities across North America By Cushman & Wakefield’s Hospitality & Gaming Group

25 A GOOD YEAR Last year was a memorable one for hotel investments, Departments and 2014 looks strong By Mark Sparrow & Deborah Borotsik, CBRE Hotels 2 EDITOR’S PAGE

3 CHECKING IN 29 HERE WE GROW 48 HOTELIER: Christophe The future looks bright as the hotel real-estate Le Chatton, Langdon Hall, market flourishesBy Robin McLuskie, Colliers Cambridge, Ont. International Hotels

33 TAKE YOUR PICK Canada’s West overtakes the East in the minds of many ON THE COVER investors, but both have opportunities for growth (standing, l to r) Philippe Gadbois, By Laura Pratt Atlific Hotels and Resorts; Sukhi Rai, PHI Hotel Group; Allison Reid, 39 DO YOUR HOMEWORK Starwood Hotels & Resorts (sitting, l to r) Bill Stone, CBRE Hotels; Understanding everything from finances to design is Barbara Mech, Roynat Capital; integral to a successful hotel purchase By Rebecca Harris Scott Duff, Starwood Hotels & Resorts; Brian Stanford, PKF 43 THE REAL-ESTATE GAME Consulting; and Paresh Raja, Selecting the best site for a hotel is contingent on a Brock Hotels. Photographed at the host of issues By Laura Pratt Element Vaughan Southwest COVER PHOTOGRAPH BY ALEX LUKEY hoteliermagazine.com MAY 2014 HOTELIER 1 EDITOR’S PAGE

PRIME TIME or almost 15 years, Hotelier has dedicated its May issue to the Ftopic of investment (see Investment Roundtable and stories, starting on p. 10). MITCH KOSTUCH | PRESIDENT & Clearly, investors are the lifeblood of the GROUP PUBLISHER [email protected] industry. They demonstrate confidence in ROSANNA CAIRA | EDITOR & PUBLISHER business, allow developers to create new [email protected] hotel entities and motivate operators to MARGARET MOORE | ART DIRECTOR upgrade their properties through renova- [email protected] tions, refurbishment and expansion. But, BRIANNE BINELLI | MANAGING EDITOR as each downturn teaches us, it’s hard to [email protected] JACKIE SLOAT-SPENCER | ASSISTANT EDITOR generate investment without strong travel [email protected] patterns and solid growth. DEREK RAE | MULTIMEDIA MANAGER It’s therefore reassuring for hoteliers to learn that global demand genera- [email protected] tors show consumer confidence and strength is on the upswing. For COURTNEY JENKINS | GRAPHIC DESIGN INTERN example, according to a recent global travel trends survey by global BRENDA JAMES | SALES & MARKETING MANAGER forecaster Oxford Economics, “The global travel industry is poised for a [email protected] period of sustained growth over the next decade, driven in part by China’s JIM KOSTUCH | DIRECTOR share of global outbound travel, reaching as much as 20 per cent by 2023.” [email protected] Oxford Economic’s survey, “Shaping the Future of Travel: Macro trends CIRCULATION PUBLICATION PARTNERS driving industry growth over the next decade,” predicts an optimistic [email protected] (905) 509-3511

macro-economic outlook for global travel in the next decade. “The survey ELSIE REDEKOPP | ACCOUNTING shows the [travel] industry is projected to outstrip global GDP by approxi- [email protected]

mately two per cent, growing 5.4 per cent per annum,” states the report. TINA ALEXANDROU | OFFICE MANAGER Perhaps not surprisingly, “China’s growth in outbound travel, which as [email protected] recently as 2005 was just one per cent, is expected to overtake the U.S. to become the world’s largest outbound travel market this year, with the number of Chinese households able to afford overseas travel set to more ADVISORY BOARD: than double in the next 10 years to reach 220 million. China will also David McMillan, AXIS HOSPITALITY INTERNATIONAL; Bill Stone, CBRE; Anthony Cohen, CRESCENT HOTELS — become the biggest domestic travel market by 2017, driven largely by GLOBAL EDGE INVESTMENTS; Christiane Germain, GROUPE rapidly increasing GDP, rising employment levels and higher consumer GERMAIN HOSPITALITÉ; Lyle Hall, HLT ADVISORY; Charles Suddaby, CUSHMAN & WAKEFIELD LTD. — HOSPITALITY spending,” says the report. & GAMING GROUP; Scott Allison, MARRIOTT HOTELS But China isn’t the only nation expected to grow outbound travel. CANADA; Ryan Murray, HARBOUR HOUSE HOTEL — NIAGARA’S FINEST INNS; Drew Coles, OXFORD According to the report, forecasts show other large emerging markets such PROPERTIES; David Larone, PKF CONSULTING; Geoffrey Allan, as Russia, Brazil, India, Indonesia and Turkey will each average more than PROJECT CAPITAL MANAGEMENT HOTELS; Stephen Renard, RENARD INTERNATIONAL HOSPITALITY & SEARCH five-per-cent annual growth over the next 10 years, driven largely by rising CONSULTANTS; Anne Larcade, SEQUEL HOTELS wealth and changing consumer habits. & RESORTS; Michael Haywood, THE HAYWOOD GROUP; David Mounteer, THE THOMPSON HOTEL, TORONTO; Despite recent economic troubles in the Eurozone, Europe is expected to David Whitaker, TOURISM TORONTO retain the lion’s share of tourism flows, but, perhaps not surprisingly Asia is HOTELIER is published eight times a year by Kostuch Media the fastest-growing region for travel. Ltd., 23 Lesmill Rd., Suite 101, Toronto, Ont., M3B 3P6, As for Canada, with such significant global growth predicted, isn’t it (416) 447-0888, Fax (416) 447-5333. All rights reserved. Subscription rates: Canada: $25 per year, single issue $4, U.S.A.: prime time we improved our marketing efforts to tap into this growing $30 one year; all other countries $40 per year. Canadian body of travellers? Publication Mail Product Sales Agreement #40063470. Member of: Canadian Circulations Audit Board, the American Business Media and the Canadian Business Press. We acknowledge the financial support of the Government of Canada, through the Canadian Periodical Fund (CPF) for our publishing activities. Printed in Canada on recycled stock. ROSANNA CAIRA Editor and Publisher [email protected]

2 MAY 2014 HOTELIER hoteliermagazine.com CTHE LATESTh INDUSTRY eNEWS FORc HOTELk EXECUTIVESi FROMn CANADA g AND AROUNDI nTHE WORLD

CERTIFIED SUSTAINABLE The new Wingate by Wyndham prototype announced last month will make it easier for every owner to pursue LEED certification. “As a brand, we are committed to reducing our impact on the environment BUILDING UP and that includes offering hotel owners New hotel prototypes with smaller footprints and flexible design options and resources that allow them to are coming to market BY JACKIE SLOAT-SPENCER operate in more sustainable ways. This is why we designed the new prototype to be n a new hospitality world that’s focused on minimizing investment risk, LEED-certifiable,” says Bill Hall, brand SVP, while creating a luxurious stay for guests, it’s fitting that a slew of economi- Wingate by Wyndham. Some of the hotel’s Ical new-build prototypes have been introduced recently, offering efficient features include LED lighting, low-flow use of space, flexible design and social-inspired guest amenities. fixtures and an option to add an outdoor Parsippany, N.J.-based Wyndham Hotel Group recently announced a parking area to accommodate car- new-build prototype for its mid-priced, business-traveller-centered Wingate charging stations. by Wyndham hotel. The new design offers owners savings of 10 per cent in comparison to its previous model and construction costs of $60,000 per key. The 99-room property is designed to be built on a smaller, two-acre space. Adaptability is also coming into play to maximize guestrooms and lobby spaces. “We focused on creating a mixed-use atmosphere that better meets the needs of our guests who are looking for a warm and sophisticated environment within the hotel, which is conducive to conducting business or socializing,” describes Bill Hall, brand SVP, Wingate by Wyndham. In merging work and play, developers have brought the business centre into the lobby and added a communal breakfast area, which can be transformed into a bar, event space or RAISE THE ROOF an additional seating area during different times of the day. Economy lodging is taking cues from Meanwhile, Atlanta-based InterContinental Hotels Group (IHG) has intro- the mid-scale hotel tier, with the new duced a new Holiday Inn Express prototype. Designers identified key areas of Springfield, Ohio-based Red Roof Plus+ savings for developers, such as reduced square footage, a modular or pre-fabri- cated approach to building and low-maintenance materials. “We worked very next-generation renovation program closely with a number of our key owners to develop the updated prototype announced earlier this year for U.S. design for Holiday Inn Express to ensure it is efficient to build and operate and markets. Renovated properties feature will deliver strong financial returns,” explains Joel Eisemann, chief development upgraded amenities and modern design officer, IHG. elements, including flat-screen TVs, The Holiday Inn Express brand targets travellers who value efficiency and wood-like floors and Rest Suite Beds by simplicity, adds Jennifer Gribble, director, Head of Americas, Holiday Inn Serta. There are also additional outlets for Express Brand, IHG. It has “check-in pods” instead of a front desk, and guest- guests’ electronic devices and a special rooms sport flexible workspaces and horizontal luggage storage to free up space. welcome snack box packed with bottled The prototype is available to be developed in Canadian and U.S. markets. water, trail mix, juice and granola bars. hoteliermagazine.com MAY 2014 HOTELIER 3 HOLISTIC BITS HOSPITALITY AND BYTES

Stamford, Conn.’s Westin is taking its wellness mandate Are you spamming to the next level, partnering your potential with Venice, Calif.-based guests? That may be Headspace meditation and the case if you are electronically communicating with the public. introducing a year-long, Effective July 1, the Canadian government is $15-million wellness initia- enacting comprehensive anti-spam legisla- tive, dubbed the Westin Well- tion pertaining to “commercial electronic being Movement. Headspace’s messages,” such as email, text messages, founder and meditation social-networking websites, software appli- expert, Andy Puddicombe cations and blogs. So, if a business doesn’t have “express consent regime” from a will be a big part of the initia- person, it can no longer communicate with tive and will participate in them electronically. A consumer must now an Advisory Board of wellness “thought leaders” appointed to guide new “opt-in” to receive communication from a initiatives. “At Westin, our mission is to be a partner in our guest’s well- business. But, companies can rely on implied being before, during and after their stay, and this is the motivation behind consent if there is an “existing business this movement,” said Brian Povinelli, global brand leader for Westin Hotels. relationship.” To ensure compliance with the new law, assess your hotel market- “We are proud to partner with some of the world’s premier wellness brands ing activities to establish how commercial and experts to provide innovative, personalized offerings at our hotels around electronic messages are being sent and the world, with the goal of inspiring and empowering our guests and associ- ensure “opt-in” consent is applicable where ates.” The hotel company kicked off the launch across its properties with five- necessary (before the legislation goes into kilometre runs, mini-spa appointments, juice bars and group yoga sessions for effect). Databases should also be cleansed members of the public. New programs will roll out in the coming months. to ensure the new requirements are met. DID YOU KNOW? A BETTER PROPERTY. AN EVEN BETTER OPPORTUNITY.

Choice Hotels® has redefined and redesigned our Comfort Inn® prototypes around what guests value and developers Mobile-and-tablet-toting millennials may need. With you as our architects, we soon bypass a hotel TV for entertainment. created a new prototype to maximize space, materials, human resources and According to “2014 Mobile Personas” — a décor at a low cost with a single goal in study conducted by BrandSpark, a Toronto- mind: attract more guests. It's a design based branding agency — 77 per cent of that will help you provide a higher-end millennials own a smartphone and 33 per experience, without a higher-end price. cent own a tablet. And, they use their tablet So focus your money where it matters to watch videos (52 per cent), movies most. Build now and experience the benefits that come with Choice Hotels. (33 per cent) and TV (27 per cent). Call 905.206.7316 or go to ChoiceHotelsFranchise.ca to learn more Warren Markwart is the principal of MK2 Hospitality, Toronto, which specializes in integrating hospitality technology with revenue- management strategies, guest service and business objectives. He can be reached at warren.markwart@ mk2hospitality.com. ©2014 Choice Hotels Canada Inc. All rights reserved. ChoiceHotelsFranchise.ca

4 MAY 2014 HOTELIER hoteliermagazine.com

CHECKING IN TO BANFF

Banff’s towering mountains and lush national park served as the background for the 94th annual AHLA Convention and Trade Show, held last month at The Banff Centre in Alberta. Organized by the Alberta Hotel & Lodging Association (AHLA), the show featured three jam-packed days filled with networking opportunities and awards ceremo- nies recognizing industry-leading housekeeping across the province. Industry leaders, along with members of the government and post-secondary institutions, also met during a Town Hall Meeting, where they discussed strategies to solve the upcoming labour shortage in the hospitality industry. Meanwhile, break-out sessions informed operators on how to better optimize hotel booking channels, raise housekeeping standards and manage their online reputations. When members weren’t learning, they were checking out the nearly 90 hospitality exhibitors showing a range of products, from technology to textiles. InBrief

Members of Ottawa’s Hotel Association of Canada (HAC) met with the Parliamentary Tourism Caucus last month to advocate for a “Connecting America” tourism campaign to attract more travellers to Canada. “We need to get Canada to five-per-cent annual international growth, which means continuing to work in emerging markets and reconnecting with our friends south of the border,” Tony Pollard, president of HAC, told the group...Atlific Hotels is now managing the 224-room Radisson Plaza Hotel in Regina — the Montreal-based company’s fourth in Saskatchewan... Extended-stay boutique hotel accommodations are aligning with condo living at the SoHo Metropolitan Residences Ottawa, which comprise the upper two

hoteliermagazine.com

floors of theSoHo Lisgar Condominium...Motel 6 Building Council. It’s been recognized for its energy Stony Plain in Alberta has been overhauled; its 72 efficiency through geo-thermal exchange, high- guestrooms now have new bedding, 40-inch flat-screen efficiency water delivery systems and eco-friendly LCD TVs and a new coat of paint...Toronto’s Palm building materials. Holdings Canada now owns the 126-room Travelodge London South in London, Ont. and the 103-room Travelodge Chatham, in Chatham, Ont…Mississauga, People Ont.’s Manga Hotels has recognized the management of the Radisson Suite Hotel in Halifax for overseeing the revitalization of the property; it presented the team with Wyndham Hotel the Renovation of the Year Award. The $7.5-million Group president and revamp included the addition of 16 new suites and the CEO, Eric Danziger, creation of a modern lobby space, two meeting rooms, left the company last refurbished fitness facilities as well as a pool and whirl- month. Geoff Ballotti, pool…The new Grill & Vine restaurant inside The previously president and Westin Resort & Spa in Whistler, B.C. has received CEO of the company’s culinary kudos from Where magazine, which dubbed it Exchange and Rentals one of Canada’s Best New Restaurants…Touchscreen division, has taken the “Neighbourhood Guides” are popping up in Hotel Indigo helm. In related news, properties around the U.S. The guides feature a list of Gail Mandel, CFO of community attractions, a map function and a space to Geoff Ballotti Wyndham Exchange upload pictures and comments...The Wakefield, Que.- & Rentals, will become based Eco River Lodge at the Wakefield Mill and Spa COO of the division…Jayne O’Brien is overseeing brand Swisssol_HH_Layouthas received 1 2/25/2014 LEED 11:17certification AM Page by1 the Canada Green strategy at InterContinental Hotels Group as the new

All Press Wash dispenser brands are available in liquid soap, shampoo hair & body wash, conditioner and body lotion, 300ml

Please contact Paul Weber at eco-friendly [email protected] or 705-687-5445 Help save the environment and ask for a free Press+Wash USE PRESS + WASH dispenser sample.

Help SAVE the enviroment while SAVING 30-35% per year. Dispensers are tamper proof and drip free. New ECO Dispenser brand Made in Germany SVP of Global Brands. Watson has been named the COO of Calgary’s Master- She was previously Built Hotels Ltd. Watson was previously VP of Superior chief marketing officer Lodging Corp...Garrett Turta has become the GM of the for Dubai Properties Fairmont Macdonald Hotel in Edmonton. Group...Achim Lenders, former executive chef and corporate SVP of Food SupplySide and Beverage for Hyatt Hotels Corporation, has moved to Starwood Choice Hotels International’s new world headquarters, Hotels & Resorts to at Foulger-Pratt’s Rockville Metro Plaza II, in Rockville, Gail Mandel become VP of Global Md., is now LEED-certified…A British sensibility is Food and Beverage for arriving in Canadian hotel loos, since Gravenhurst, the company’s nearly Ont.-based Swisssol Inc. Creative Body Care is now 1,300 restaurants and 930 supplying British soapmaker Bronnley’s luxury Honey bars globally... Christo- Blossom body wash, lotion, hair shampoo and condi- pher Norton has been tioner to the Canadian hotel market...Stoddard, N.H.- promoted from the role based Carlisle Wide Plank Floors has opened its first of president of Hotel Op- showroom in Mississauga, Ont…Saint-Damase Hotel erations, Europe, Middle Furniture has announced Walter Bossé is the new VP East and Africa to EVP, of Business Development for the St-Damase, Que.-based Global Product and Op- brand...Ken Default has joined the team at Sioux Falls, Christopher Norton erations for Four Seasons S.D.-based Sonifi Solutions as its new senior director of Swisssol_HH_Layout 1 2/25/2014 11:17 AM Page 1 Hotels and Resorts...Eric Hospitality Product Marketing.

All Press Wash dispenser brands are available in liquid soap, shampoo hair & body wash, conditioner and body lotion, 300ml

Please contact Paul Weber at eco-friendly [email protected] or 705-687-5445 Help save the environment and ask for a free Press+Wash USE PRESS + WASH dispenser sample.

Help SAVE the enviroment while SAVING 30-35% per year. Dispensers are tamper proof and drip free. MAY 2014 HOTELIER 9 New ECO Dispenser brand Made in Germany Visit hoteliermagazine.com for video clips from the investment roundtable

10 MAY 2014 HOTELIER hoteliermagazine.com INVESTMENT ROUNDTABLE

THE INVESTMENT LOW-DOWN The teams at Hotelier magazine and Starwood Hotels and Resorts partner for the fourth-annual investment roundtable

INTERVIEW BY ROSANNA CAIRA

Rosanna Caira: What type of year was 2013 for your company, and how is 2014 shaping up? Bill Stone: It was a big year across the board, skewed by a very large transaction — the acquisition by Starwood Capital of the Westins, but if you strip that out, it still continues to be active, and it is something we see going into this year. Paresh Raja: Ontario has done quite well, too. The markets we’re in increased occupancies, not as strong as out west, but we’re seeing good growth, and we are looking forward to a really positive 2014 in both occupancy and ADR. Philippe Gadbois: We’re coming out of the first quarter with pretty good numbers, but strip out Alberta and Saskatchewan and [the industry’s] performance is ho-hum. Barbara Mech: Since 2009, we have seen consistent growth and improvement year- over-year. I would agree that much of the growth we have seen has been in Alberta and Saskatchewan, particularly with respect to ADRs. We have enjoyed very stable, favourable interest rates for the past few years and THE PANEL (back row, l to r) Paresh Raja, president, Brock Hotels; PHOTOGRAPHY BY ALEX LUKEY that’s continued, so it’s been a very good Bill Stone, EVP, CBRE Hotels; Philippe Gadbois, SVP, Operations, environment that’s expected to continue. Atlific Hotels and Resorts; Rosanna Caira, editor and publisher, Hotelier (front row, l to r) Scott Duff, senior director of Development Canada, Starwood Hotels & Resorts; Brian Stanford, national managing director, DEVELOPMENT PKF Consulting; Allison Reid, SVP- Development & Acquisitions, North Caira: Where is the focus in terms America, Starwood Hotels & Resorts; Sukhi Rai, CEO, PHI Hotel Group; of new builds and conversion? and Barbara Mech, regional director – GTA Region, Roynat Capital. Scott Duff: We are probably evenly split in Photographed at the Element Vaughan Southwest Canada. The West has been the focus for hoteliermagazine.com MAY 2014 HOTELIER 11 INVESTMENT ROUNDTABLE

new construction, although we’ve Reid: The number-1 thing we’re had conversion there as well; Atlan- dealing with is how [to] limit risk. So, tic Canada, those have been all select-service products have limited conversions. risk in that they’re quicker to build, Allison Reid: In 2000, we signed 200 they’re cheaper to build, they’re more deals globally, a lot of those were new efficient, and there is a bigger pool builds, and they never happened. In of potential take out opportunities. 2013, the majority of our deals were And, the group business has changed conversions. [The hotels] were open, in the big boxes. Group business is so 2013 will be our highest develop- down. Generally speaking, travel- ment year so far because they will lers are more efficient with how they open. In 2014, we are seeing a lot travel, and I don’t see that going away more new builds coming back into for a while. What is new is this focus that mix, a lot of conversions and a on luxury, which has come back in lot of repositioning. the last six months, where projects Mech: From what I see, a lot of the are starting to get done.... The full- projects are with experienced opera- service is pretty much only going in tors who have a track record and now if there’s a municipality that’s have owned a number of hotels and looking to compete, from a conven- operated them successfully, and tion centre standpoint. perhaps had some new builds in that Gadbois: In today’s environment, mix — branded hotels, as opposed to the biggest risk, because it’s the most the motel style — and typically they expensive and you’re not seeing the are looking for leverage around the lift on rate, is typically the traditional 50- to 60-per-cent mark. full-service downtown box. Where Sukhi Rai: We have 14 properties you can see rate lift in certain markets through B.C. and Alberta. We have in Canada — not all — is in luxury, two under construction — one and you’re seeing that a little bit in in Spruce Grove [Alta.] and in Toronto, maybe starting inVancou- Kamloops, B.C. We’re doing a lot of ver, Montreal. After that we’re sort development in the suburbs. We’ve of tapped out — maybe Calgary? But got eight hotels in the pipeline. So, there’s an announced three-million- we’re focusing on new development. foot project in Calgary on an A-plus Brian Stanford: Alberta, Saskatch- site…. And everybody can wrap their ewan, Newfoundland have a much head around the commercial, retail, different component, but we’re seeing the parking — no one can wrap their more interest in Central Canada, head around the hotel component — Ontario, Quebec on the conversion because it will cost. side. In large part because there are a Stanford: [Select-service is] the easiest lot of underperforming assets that are point of entry from a development under branded, that can be acquired perspective. The only thing I might at relatively low capital cost. It’s a add is that whether we’re in Eastern little tougher in Western Canada, Canada or Western Canada, we still because even if the asset is not have some challenges on new builds. performing well, the starting point In Western Canada, the issue’s not can be pretty high in terms of getting getting occupancy, it’s can I develop in. So, seeing those conversions, the it at a reasonable cost?.... In Ontario, problem is that nine times out of 10, we are struggling with less occupancy it’s around an acquisition. and more of a rate issue. SEGMENT TRENDS INDUSTRY TRENDS Caira: What segments are most Caira: What are the biggest hotel appealing from a consumer and trends? development point of view? Duff: Technology is huge. Travel-

12 MAY 2014 HOTELIER hoteliermagazine.com INVESTMENT ROUNDTABLE

lers, many of them younger, are very sold this year? rate influencing what’s going on in the sophisticated from a technology point Stone: Other than the blockbuster marketplace? of view. We are introducing keyless big merger deals, I think it’s going to Stone: I don’t think, surprisingly, it’s check-in into hotels; [it’s] your own be very consistent with the last few a big factor. Somebody said that to 24-hour stay, it doesn’t have to be years. So, again, stripping out the me years ago; they said we’re smart in at 3 p.m. and out by 11 a.m. [It’s] sale of the five Westins, probably we enough to assess a market or the being introduced at the Aloft Cuper- will be somewhere between $1.2 and potential of a property — we’re not tino [Calif.], across the street from the $1.5 billion. That deal alone was just smart enough to factor in currency. Apple headquarters. under $800 million. What’s in the So, we’re going to go in, we’re a long- Reid: Lobbies are back to being social- market changes quickly; there are term hold, and hopefully we’ll be izing spaces, but it’s not the way it going to be further large assets on the lucky enough the currency won’t be was 30 years ago when we went to market that will skew those numbers a big factor. But, I don’t think it’s an the bar and had a few drinks. [Guests very quickly. incentive to get people to buy in. would] rather sit in the lobby with their iPad than in their guestroom by Caira: Is there still a lot of foreign Caira: How much are properties being themselves staring at a wall.... That’s capital coming into Canada? sold for, and how do the rates compare how we came up with the Aloft — Stone: We’ve seen way more legiti- to past years? [guests play] pool, there’s a bar, but mate interest in the last couple of Stone: We’re a small market. We there are also little alcoves to sit and years than we have in the last 25. The have 100, 120 hotels that sell in a read a book. legitimate [interest] is people spend- given year, so it’s hard to take that Gadbois: [There’s] the evolution of ing time underwriting, flying over, average and say things are up or the full-service Marriott bedroom looking at it. These are groups that down. But I do think we’re at the — where the full-service bedroom are very forthright; they identify their top end of the range. The last frothy doesn’t have a desk anymore, doesn’t capital source and their motivation period was 2006 and ’07, and for big have a desk chair anymore, because — having said that, it’s also a big step urban assets, the pricing is excep- Gen-Y wants to work from the loung- from those warm and fuzzy conver- tionally strong. Toronto is a great ing chair, from their bed, so they have sations to closing a transaction. example of two different markets a table that floats, open closets.... The But it is, in my view, escalating. It within a 30-minute cab ride. In expectation today, even for someone started with the Americans, but we’re downtown Toronto, we’re seeing who is not Gen-Y, is for something dealing with European groups now very high prices, anywhere from that’s a little less safe. for an asset in Montreal. We’re in the $200,000 to $600,000 a key. Looking throes of doing a couple of resorts out at Toronto airport, it’s not as strong. TRANSACTIONS west with Asian groups, and there’s And there have been examples of Caira: How is 2014 shaping up in terms everything in between. deals getting done around the airport, of how many assets are going to be Caira: How is the current exchange service transactions of $100,000 to

hoteliermagazine.com MAY 2014 HOTELIER 13 INVESTMENT ROUNDTABLE

bad as we may have perceived it.’ couple of months, we’re not even at 25 amortization. FINANCING Caira: Why is that? Caira: What are primary sources of Rai: There’s a lot of supply coming in financing? a lot of these places, especially in the Rai: We’re still going to our banks, West, Calgary airport. Everybody’s because we have an existing portfo- there, everybody’s trying to get there. lio. But, recently, just the last couple So the banks want to push back. months, we were getting amortization Raja: We’ve had multiple bids on for 25 years with some of these banks; our recent projects. [We] recently $110,000 but there’s also … others they’re cutting down to 18 to 20 years purchased a hotel [with] 30-day due that are getting done at $30,000 to now. Some banks aren’t exceeding diligence, 30-day close; we didn’t $40,000 a room. 15 per cent, 15 years.... The rates are even approach a lender until after due still at the same picture, but on our diligence, and I had multiple ones Caira: Is the hotel industry still viewed existing properties that are older than ready to close, impressive rates, 25 as a very risky endeavor? four or five years that have a good years still. This was Ontario; we found Stanford: Most lenders who were in performance, there’s lenders coming the same thing in Manitoba, so we the game in ’06 and ’07 had a few to us and saying ‘turn it around with found aggressive rates, 25-year ams, properties that got on the wrong side us, and we’ll give you these rates’ and and multiple bids on every project so of the balance sheet, but not all that they’re phenomenal rates. On the far. But, debt to equity is also pretty many. So a lot of the new players new development side, there’s only high on our end, so we’re putting a in Canada may be looking at it and a few banks that are giving that 60 bunch of money down, and that’s saying, ‘Yes, it may be riskier than per cent or 55 per cent and giving where risk is eliminated. That’s where [investing in] an office, but it’s not as us 20 to 25. Right now, as of the last you get the aggressive lenders, and

INVESTMENT ROUNDTABLE

they are across the board, from sched- 10 years ago, but last year was the ment’s lack of funding of the Canadi- ule A to credit unions, to private first year we saw positive growth, and an Travel Commission. The fact that equity. The rates are great, covenants we’re talking the U.S. market growing this country does not promote itself are great, so we’ve been surprised at by two to 2.5 per cent over the next in the U.S. is criminal. So, as an how much money there is out there two to three years. So, from a baseline industry, we need to keep lobbying and how aggressive lenders are. perspective, that bodes well in terms to increase those efforts, because it’s of occupying room nights.... We’re fine that we will grow that inbound TRAVEL & TOURISM starting to cap out relative to huge U.S. market by two, 2.5 per cent, but Caira: Do you think the dollar will supply increases. And we’re going we’ve lost 20. increase demand for tourism? to fall back into that 1.5-per-cent Caira: Travel and tourism provides 4.5 Duff: I wouldn’t see it hurting it. It supply growth, that’s 5,000, 6,000 per cent of the GDP to the Canadian may even keep more Canadians at rooms nationally. So that’s going to economy, but when you compare home as well, as it becomes more allow a lot of those markets’ demand it with global travel and tourism, it expensive to travel in the U.S. to catch up, which helps rates, which contributes 9.5 to the world economy. Stanford: What gets us more optimis- helps profitability. Other than certain So we contribute much less from a tic is the travel forecast. We’re markets, where maybe there’s been travel and tourism perspective to the looking at domestic business and huge development interest, you’ve got world. So there’s some great potential domestic leisure travel forecast going a short period of over-building, that for us to catch up, but whether or up between 2.5 to three per cent per fundamental supply demand drives not we have the funding and the annum over the next three to four profitability, and it drives investment, wherewithal to push this, that years. And that’s assuming a stable and all those things look good for the becomes a question [for] the govern- economy globally and nationally. next three to five years. ment. Are we spending enough time [In] the U.S. market, the numbers Raja: I echo Brian’s sentiments, but.... and energy promoting Canada as are only a fraction of what they were I am concerned about the govern- a destination? u

16 MAY 2014 HOTELIER hoteliermagazine.com HOTEL DEMAND

THE NUMBERS GAME Cushman & Wakefield offers an analysis of the relationship between office space and hotel rooms sold in 11 cities across North America

BY CUSHMAN & WAKEFIELD’S HOSPITALITY & GAMING GROUP

ushman & Wakefield (C&W), in Toron- DEMAND DYNAMICS to and New York, is pleased to present the Those involved in the investment side of the hotel indus- results of our analyses of six cities in the U.S. try continually strive to understand the innumerable and five cities in Canada, aimed at assist- factors that influence the demand for transient accommo- ing our hospitality sector clients in making dation. We recognize that individual hotel performance Cstrategic decisions by showing correlations between hotel is linked to a broad range of factors such as location, and commercial real-estate markets. In markets where quality, size, brand, level of service and price points that there is substantial office development, we demonstrate all contribute to a property’s ability to capture a larger that measuring office supply, absorption rates, vacan- share of the market. cy rates and other such factors can help forecast hotel However, it is also important to examine the broader demand. market in which a hotel operates to gain an understanding Drawing from C&W’s extensive office market research, of the market’s long-term prospects. In airport locations, with data dating back to 1999, and data on hotel demand for example, demand is influenced by such factors as the from the Henderson, Tenn.-based Smith Travel Research, volume and nature of air passenger activity as well as we calculated the number of occupied hotel rooms per the amount of commercial and industrial development 1,000 sq. ft. of occupied office space in each market to in the area. Whether activity is in expansion or decline determine the correlations between sector performanc- will strongly influence the success of the surrounding es. This business briefing provides an overview of our market and hospitality properties. Taken as a whole, the findings. performance of a market’s commercial assets — such as hoteliermagazine.com MAY 2014 HOTELIER 17 HOTEL DEMAND

warehouses, offices and manufacturing facilities — has TABLE B a direct bearing on the performance of each hotel in BOSTON: CORRELATIONS BETWEEN the area and must be accounted for in making strategic HOTEL & OFFICE SPACE business decisions. YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER To gain a unique understanding of the demand dynam- HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT. ics in major urban centres, our team examined the corre- 1999 10,423,848 149,388,062 70 lation between the number of occupied hotel room 2000 11,372,284 156,870,519 72 nights and occupied office space in select cities across 2001 10,204,084 140,442,848 73 North America. We uncovered clear evidence that hotel 2002 10,298,688 135,886,355 76 2003 10,232,553 137,064,574 75 demand and occupied office space are linked, as shown in 2004 10,967,771 141,176,143 78 this briefing’s tables and graphs. In fact, in many markets, 2005 11,173,649 145,997,662 77 2006 11,716,287 151,631,421 77 the year-over-year consistency between the performance 2007 12,122,052 156,293,237 78 of the two asset types holds very steady, though notable 2008 12,079,051 155,215,874 78 differences exist in the extent of hotel demand generated 2009 11,443,006 148,371,226 77 2010 12,570,959 148,575,303 85 between markets. 2011 12,996,175 151,908,101 86 2012 13,208,958 156,609,332 84 AVERAGE 77 OCCUPIED OFFICE SPACE AND HOTEL DEMAND – U.S. DEVIATION 5 Table A summarizes the relationship between occupied hotel rooms and occupied office space in key U.S. cities. Table C shows the city with the strongest hotel/ This data show significant discrepancies between major office space correlation — Los Angeles. The number markets, ranging between 69 occupied hotel rooms in of occupied rooms for every 1,000 sq. ft. of occupied New York to 1,092 occupied rooms in Los Angeles per office space is not only much greater than in Boston but 1,000 sq. ft. of occupied office space. Also, the year- has varied much more from year to year, with a devia- over-year deviations tend to be quite high in some cities, tion of 61. This suggests that office developments in Los particularly in Atlanta and Los Angeles. Angeles are generating 13 times as much hotel demand as the equivalent amount of office space in Boston; there- TABLE A fore, hotels in Los Angeles have a much lower reliance on other sources of demand, such as leisure travellers, COMPARISON OF OCCUPIED HOTEL ROOMS TO OCCUPIED OFFICE SPACE meetings and convention attendees.

MARKET ROOMS PER STANDARD 1,000 SQ. FT. DEVIATION TABLE C OFFICE SPACE LOS ANGELES: CORRELATIONS BETWEEN Boston 77 5 HOTEL & OFFICE SPACE Chicago 230 12 YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER Atlanta 560 38 HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT. Washington 275 14 New York 69 8 1999 23,296,738 21,995,643 1,059 Los Angeles 1,092 61 2000 24,623,325 21,448,672 1,148 2001 22,999,365 22,543,398 1,020 2002 22,923,575 21,806,227 1,051 2003 23,751,496 21,994,014 1,080 2004 25,043,483 22,535,903 1,111 2005 25,851,035 23,254,254 1,112 2006 25,407,094 22,710,707 1,119 Table B examines Boston and the relationship between 2007 25,225,182 23,360,809 1,080 hotel demand and occupied office space over time. While 2008 24,344,050 23,394,172 1,041 2009 22,507,129 22,604,498 996 Boston benefits from other demand sources such as leisure 2010 24,237,583 22,360,543 1,084 tourism, these findings suggest that hotel demand gener- 2011 25,667,072 21,937,518 1,170 2012 26,636,104 21,788,777 1,222 ated by occupied office space in this city is quite low AVERAGE 1,092 compared to some other cities in the U.S. The average DEVIATION 61 number of occupied rooms generated each year per 1,000 sq. ft. of occupied office space is 77, with a deviation of Having shown the differences in occupied rooms and five over the past 14 years. However, it is also important deviations in two U.S. cities, the following graph looks at to recognize that the ratio of hotel demand to occupied the results of all six American cities that were surveyed. office space in Boston is trending upwards, from 70 to 73 Boston, New York, Washington and Chicago all show a rooms in the initial years of this analysis to 84 to 86 rooms similarly low volume of occupied hotel rooms for every in the last three years. 1,000 sq. ft. of occupied office space and a fairly small

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500.1065.13_Hotelier_PREMIER_JAN.indd 1 12/16/13 4:05 PM HOTEL DEMAND

OCCUPIED HOTEL ROOMS/1,000 SQ. FT. Table B shows the relationship, by year, for Toron- OCCUPIED OFFICE SPACE to, the largest market in Canada. While Toronto, like MAJOR U.S. MARKETS other cities, benefits from demand sources other than

1,400 occupied office space, the relationship between occupied office space, business travel and hotel demand remains 1,200 very strong. In Toronto, an average of 56 room nights 1,000 has historically been generated for every 1,000 sq. ft. of occupied office space. The deviation of this average is two, 800 meaning that the annual number of room nights gener- 600 ated is likely within 54 and 58 per 1,000 sq. ft. of occupied 400 office space.

200 TABLE B 0 TORONTO: CORRELATIONS BETWEEN 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 HOTEL & OFFICE SPACE

LOS ANGELES ATLANTA WASHINGTON YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER CHICAGO BOSTON NEW YORK HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT.

2001 8,189,054 143,142,062 57 2002 8,024,282 138,457,028 58 deviation from year to year (as shown by the relatively flat 2003 7,019,665 139,705,096 50 trend lines). On the other hand, Atlanta and Los Angeles 2004 7,988,191 143,824,421 56 2005 8,184,361 147,949,155 55 show a much higher ratio of occupied hotel rooms and a 2006 8,409,479 149,711,625 56 less consistent trend line. A closer examination of these 2007 8,592,892 152,669,590 56 2008 8,545,979 153,530,691 56 results reveals that Boston and New York follow an almost 2009 7,981,273 153,825,446 52 identical trend year over year, differing by only a few room 2010 8,709,440 154,455,991 56 nights (the results are so similar that the graph lines are 2011 8,936,963 157,221,354 57 2012 9,004,615 157,689,375 57 difficult to distinguish). AVERAGE 56 DEVIATION 2 OCCUPIED OFFICE SPACE AND HOTEL DEMAND – CANADA The following chart shows the relationship between In Canada, we examined the relationship between hotel occupied hotel rooms and occupied office space for each demand and office space in five cities — Vancouver, of the five Canadian markets. It is interesting to note the Calgary, Toronto, Ottawa and Montreal. As shown in similarities presented within these markets, with Calgary, Table A, the ratio of occupied hotel rooms to occupied Toronto, Ottawa and Montreal showing a consistent office space found in four of the Canadian cities was pattern and Vancouver showing slightly more volatility. notably lower than most of the U.S. cities we examined. Furthermore, Toronto and Montreal mimic each other in Interestingly, Vancouver, with many of the same charac- teristics as Los Angeles, but much smaller in size, received OCCUPIED HOTEL ROOMS/1,000 SQ. FT. only 144 occupied hotel rooms per 1,000 sq. ft. of OCCUPIED OFFICE SPACE occupied office space compared to Los Angeles at more MAJOR CANADIAN MARKETS than seven times the volume. 180

TABLE A 160 140 COMPARISON OF OCCUPIED HOTEL ROOMS TO OCCUPIED OFFICE SPACE 120 100 MARKET ROOMS PER STANDARD 1,000 SQ. FT. DEVIATION 80 OFFICE SPACE 60

Vancouver 144 8 40 Calgary 60 4 Toronto 56 2 20 Ottawa 77 3 0 Montreal 84 2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

VANCOUVER MONTREAL OTTAWA CALGARY TORONTO

20 MAY 2014 HOTELIER hoteliermagazine.com HOTEL DEMAND

the ebb and flow of occupied hotel rooms, showing almost In Toronto, the trend for the downtown core very parallel graph lines for the two cities, albeit Toronto has closely mirrors the results of the larger city-wide market. trended below 60 hotel rooms per 1,000 sq. ft. of occupied As shown in the Toronto table, not only is there remark- office space, while Montreal has trended at more than 80. able similarity between the actual number of occupied It is also interesting to note that Toronto has almost 158 rooms and the level of deviation between the two markets million sq. ft. of occupied office space while Boston has but they also demonstrate almost identical patterns of an almost identical 157 million sq. ft. However, whereas increase and decrease. Boston captured more than 13-million room nights of hotel demand, Toronto hotels captured only nine-million TORONTO TOTAL MARKET room nights. YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT.

TOTAL CITY AND CENTRAL 2001 8,189,054 143,142,062 57 BUSINESS DISTRICT COMPARISONS 2002 8,024,282 138,457,028 58 2003 7,019,665 139,705,096 50 A major city in both the U.S. and Canada was chosen 2004 7,988,191 143,824,421 56 to compare the relationship between hotel demand and 2005 8,184,361 147,949,155 55 occupied office space in the Central Business District 2006 8,409,479 149,711,625 56 2007 8,592,892 152,669,590 56 (CBD) and the overall city. As shown in the table below, 2008 8,545,979 153,530,691 56 the CBD of Boston has a slightly higher standard devia- 2009 7,981,273 153,825,446 52 2010 8,709,440 154,455,991 56 tion than the overall city. This suggests that the relation- 2011 8,936,963 157,221,354 57 ship between hotel demand and occupied office space is 2012 9,004,615 157,689,375 57 slightly more unpredictable in the downtown core than AVERAGE 56 DEVIATION 2 the overall city; however, it still remains a strong indicator of future hotel demand. TORONTO CBD

BOSTON TOTAL MARKET YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT. YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT. 2001 4,125,771 72,896,008 57 2002 4,128,513 70,436,004 59 2001 10,204,084 131,578,355 78 2003 3,494,626 71,142,272 49 2002 10,298,688 116,472,425 88 2004 4,078,918 72,892,430 56 2003 10,232,553 121,983,828 84 2005 4,216,039 74,113,825 57 2004 10,967,771 126,538,252 87 2006 4,292,044 75,272,069 57 2005 11,173,649 142,721,636 78 2007 4,456,135 76,354,397 58 2006 11,716,287 147,890,518 79 2008 4,407,227 76,412,707 58 2007 12,122,052 153,258,735 79 2009 4,180,854 77,585,544 54 2008 12,079,051 153,196,018 79 2010 4,402,053 78,718,950 56 2009 11,443,006 146,348,594 78 2011 4,530,309 80,484,006 56 2010 12,570,959 145,111,979 87 2012 4,540,728 80,675,392 56 2011 12,996,175 150,738,911 86 AVERAGE 56 2012 13,208,958 156,513,718 84 DEVIATION 3 AVERAGE 82 DEVIATION 4

BOSTON CBD

YEAR OCCUPIED OCCUPIED OFFICE ROOMS PER HOTEL ROOMS SPACE SQ. FT. 1,000 SQ. FT.

2001 4,293,783 52,281,591 82 2002 3,630,269 48,045,697 76 2003 3,776,905 52,777,689 72 2004 4,073,451 51,321,253 79 2005 4,169,447 51,723,210 81 2006 4,418,520 53,011,161 83 2007 4,633,992 54,475,941 85 2008 4,647,676 53,980,981 86 2009 4,591,921 52,222,950 88 2010 5,029,384 51,929,818 97 2011 5,144,964 52,593,802 98 2012 5,237,940 55,419,993 95 AVERAGE 85 DEVIATION 8

hoteliermagazine.com MAY 2014 HOTELIER 21 Atlific_ad_May2014.pdf 1 14-04-22 1:37 PM

HOTEL DEMAND

The amount and composition of hotel demand varies greatly by city and is generated by a number of different factors described in this briefing. Demand is also very susceptible to economic swings and extraordinary events such as terrorist attacks, political unrest and natural disasters. Evidence of this can be seen in stats from 2001 through 2003 (for example, the Gulf War, 9/11, the Iraq war, SARS, et cetera), as well as in the boom that lasted through 2007 and then the economic downturn that started in 2008. Forecasting these events and determining how long they may impact hotel demand is generally impossible. C However, in many major urban markets where it can be M shown that commercial real-estate demand and hotel Y demand are closely related, it may be possible to forecast

CM future hotel demand based, in part, on present and projected activity in the real-estate sector. MY Unlike the hotel sector where the lead time for the CY sale of guestrooms tends to be very short-term and very CMY unpredictable, office space is normally associated with

K much longer lease terms — generally months or years. This more stable environment enables analysts to take a more reliable and longer-term view of the health of the office market. In markets where there is substantial office development, we believe measuring office supply, absorption rates, vacancy rates and other such factors can be of assistance as a means of forecasting hotel demand. In this analysis, we found some markets have little year-over-year volatility and a standard deviation that is low, enabling hoteliers to have a reasonable level of confidence as they weigh the influence of the office market in their assessment of future hotel demand. However, other markets show much more volatility, underscoring the need to be more cautious in the use of office research as a measure of long-term hotel demand and indicating the need to delve deeper into the many other factors that contribute to performance. u

Cushman & Wakefield is a real-estate firm with 227 offices worldwide. Its Hospitality & Gaming Group specializes in the hospitality industry, providing a range of advisory, appraisal and transactional services. For questions regarding this report, or to speak to one of their hospitality professionals, call 416-359-2407.

hoteliermagazine.com 12,022 RooMs soLd UnLoCkIng vALUe one RooM AT A TIMe

Colliers International Hotels has proudly served as advisor in over 75 hotel transactions in excess of $1.25 billion in the past 36 months on behalf of a wide variety of private, public and institutional clients.

Some of our recent Canadian experience includes the following:

Featured 2013/2014 transactions, L-R top row: Courtyard by Marriott Toronto Markham & Residence Inn Toronto Markham (sold as part of the 632-room Toronto Courtyard & Residence Inn Marriott Portfolio), Stage West All-Suite Hotel & Theatre Restaurant, Hilton Windsor (sold together with the Riverside Windsor), Homewood Suites by Hilton Cambridge-Waterloo & Hampton Inn by Hilton Toronto Airport Corporate Centre (together as part of the 578-room Toronto Area Hilton Extended-Stay/ Select-Service Portfolio recapitalization). L-R middle row: Hilton Toronto Airport, Fairmont Château Laurier, Courtyard by Marriott Toronto Downtown. L-R bottom row: Fairfield Inn & Suites Toronto Airport, Holiday Inn Express & Suites Nepean, Comfort Inn Chilliwack, Best Western Abercorn Inn Richmond, Waterfront Burlington (debt placement), Coast Vancouver Airport.

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Alam Pirani Tom Andrews Robin McLuskie Jessi Carrier www.colliershotels.com +1 416 643 3414 +1 604 661 0846 +1 416 643 3456 +1 514 764 8172 [email protected] [email protected] [email protected] [email protected] @colliershotels

Russell Beaudry Hamir Bansal Tiffany Chow Fraser Macdonald +1 416 643 3761 +1 604 661 0850 +1 416 643 3497 +1 416 607 4322 [email protected] [email protected] [email protected] [email protected] Cassels Brock at your service.

The hospitality group at Cassels Brock acted on hotel industry transactions valued at more than $ 1 billion in 2013.

Find out more Hotel management and development agreements Jason Arbuck 416 860 6889 acquisitions and divestitures [email protected] public and Gary Steinhart private Financings 416 860 2939 [email protected] Hotel FrancHise documents Lawrence D. Wilder 416 869 5750 [email protected] Check in with us.

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Cassels Brock - February 18, 2014 Submitted by: Heather Murray Please PRINT a hard copy of the Hotelier Magazine full page ad [email protected] file and either FAX it or SCAN and 8.125” x 10.875” portrait 416 869 5782 - fax 416 642 7137 EMAIL it back to me, thanks! REAL ESTATE

A GOOD YEAR Last year was a memorable one for hotel investments, and 2014 looks strong

BY MARK SPARROW & DEBORAH BOROTSIK, CBRE HOTELS

t looks like 2013 is the year to beat in Canada’s global conflicts such as the Ukraine crisis. hotel investment sector since transaction volume But, the hotel investment sector is cyclical, and moving approached $2.1 billion and represented the third- into Q2 2014 there are signs Canada is past the peak of strongest year ever recorded. Transaction volume the cycle, with preliminary Q1 2014 volume at approxi- has only surpassed this threshold during the height mately $205 million, half of its total in Q1 2013. This Iof unprecedented merger and acquisition activity in shift is increasingly evident with limited product on the 2006/2007 when annual volume averaged $3.8 billion. market, prolonged timelines for deals to close, increased Activity this past year was fuelled by strengthening seller/buyer pricing spreads and moderately constricting operating fundamentals, relatively stable cap rates in most lending parameters. Investor risk tolerance has waned and markets, an abundance of equity capital, availability of will undoubtedly lead to widening yield spreads for trophy diverse product and the relative ease of obtaining low cost versus traditional hotel assets. And, The Real Proper- debt financing. Solid domestic fundamentals mitigated ty Association of Canada and FPL Advisory Group’s global market concerns, including a rising U.S. dollar, “Canadian Real Estate Sentiment Survey” — which volatility in European capital markets, hesitant growth measures executives’ current and future outlook for overall projections in Asia-Pacific and the threat of escalating real-estate conditions, asset values and the availability of ILLUSTRATION BY JEM SULLIVAN ILLUSTRATION

hoteliermagazine.com MAY 2014 HOTELIER 25 REAL ESTATE

capital — shows numbers fell to their lowest level since GREATER TORONTO AREA 2009 in Q4 2013. The good news is there has been an by the numbers uptick to the survey in Q1 2014, and longer term investor optimism remains. While Canada will no doubt experi- MILLION ence lower levels of hotel investment activity in 2014 $672 relative to last year, CBRE Hotels predicts investment will remain well within historical norms, averaging between DEALS $1.2 billion to $1.5 billion annually. 21 ROOMS TRANSACTION ACTIVITY 5,513 Canadian transaction volume increased 87 per cent in 2013, from approximately $1.1 billion in 2012 to $2.1 billion. While there was a wide spectrum of deals completed, the largest was the five-hotel Westin portfolio acquired by Starwood Capital and a Middle Eastern Fund in Q3 for 59% 32% $765 million. This represented 36 per cent of total trans- Regional National action volume and helped push per-room pricing for the Volume Volume year to $129,000, an increase of 23 per cent over 2012. Even when this significant portfolio is removed from the analysis, volume of $1.3 billion still exceeded 2012 by 19 per cent. Preliminary Q1 2014 transaction volume is approximately half of what it was at this time last year, This was partly due to an abundance of product that came with per-room pricing at $75,000 compared to approxi- to market — particularly within the Greater Toronto mately $120,000 in Q1 2013. Area — that led to the year ending with 21 hotel sales, comprising almost 60 per cent of the aggregate volume REGIONAL REVIEW reported within Central Canada. Last year’s transaction activity was heavily skewed to Western Canada (British Columbia, Alberta, Saskatch- Central Canada (Ontario and Quebec), accounting for ewan, Manitoba and Yukon) continued to report robust 54 per cent of the total as volume topped $1.1 billion. investment activity in 2013. Transaction volume of $872 million represented an increase of 65 per cent over 2012 but was largely attributed to the Westin hotels located in Vancouver, Edmonton and Calgary, which REGIONAL TRANSACTIONS totalled $429 million. Without by the numbers these trades, volume in Western Canada slipped 16 per cent year- 41% 57 TRANSACTIONS over-year; however, this is believed $872

WESTERN to be a direct result of limited MILLION W E S inventory and not waning investor T $146,000 E R PER ROOM N

NATIONAL VOLUME R

H 5

TRANSACTIONS

E R $2.1 N $100

BILLION MILLION EASTERN

L “CANADIAN

E $141,000

N A

E PER ROOM

S TRANSACTION

E R

N VOLUME 5% 65 TRANSACTIONS INCREASED $1.1

BILLION CENTRAL 54% 87 PER CENT $119,000 PER ROOM IN 2013”

26 MAY 2014 HOTELIER hoteliermagazine.com REAL ESTATE

interest. While Central and Eastern Canada have experienced tempered RevPAR growth, Western Canada’s RevPAR “THREE SIGNIFICANT growth continues at a strong pace, particularly through- PORTFOLIO SALES out the Prairies, northern Alberta and urban markets in British Columbia, comprising nine out of the top 10 IN 2013 ACCOUNTED Canadian RevPAR growth markets. The Western invest- FOR APPROXIMATELY ment climate is built around cash-flow driven regional hotel investment companies, private investors and $923 MILLION, OR public companies looking to expand their position. British ALMOST HALF Columbia continues to see a steady flow of offshore capital OF TOTAL predominantly through direct investment in the Vancou- ver and Vancouver Island regions. TRANSACTION Transaction activity grew immensely in Eastern Canada VOLUME” in 2013, due to Temple REIT’s strategic acquisition of the $87.5 million Centennial Portfolio; there were only two small deals in Eastern Canada in 2012. primarily from the Centennial hotel portfolio. The price gap between Western and Central Canada is primarily a function of a larger proportion of smaller deals occur- ring in Ontario and Quebec. PORTFOLIO TRANSACTIONS As a point of reference, 34 by the numbers per cent of the deals in the PORTFOLIO TOTAL NATIONAL TOTAL West exceeded $100,000 per

MILLION MILLION room and just 14 per cent $923 $2,100 fell below $50,000 per room. This compares to Central HOTELS DEALS 13 130 Canada, which had only 23 per cent of its trades above

ROOMS ROOMS the $100,000 threshold, with 4,106 17,351 41 per cent falling below $50,000.

PORTFOLIO TRANSACTIONS ALTERNATIVE USE Three significant portfolio sales in 2013 accounted for Nine hotels were purchased for redevelopment to alterna- approximately $923 million, or almost half of total trans- tive uses in 2013, representing five per cent of transaction action volume, a significant change from the previous volume, compared to 14 trades in 2012, which accounted year when just one portfolio sale — representing only five for 39 per cent of total volume. But, this trend is reversing, per cent of total volume — occurred. Portfolios in 2013 with sales pegged for alternative use in Q1 2014, includ- included: the Westin portfolio (five hotels/$765 million); ing Hôtel des Seigneurs (Saint-Hyacinthe, Que.), Loews Concord Hospitality GTA select-service portfolio (five Hotel le Concorde (Quebec City), Holiday Inn & Confer- hotels/$70.5 million) and the Centennial Hotel portfolio ence Centre (Brampton, Ont.) and Holiday Inn Montreal (three hotels/$87.5 million). Midtown (Montreal), accounting for just under half of total preliminary Q1 volume. PER-ROOM PRICING Per-room pricing in 2013 of $129,000 was fuelled not BUYERS AND SELLERS only by the Westin portfolio but also other landmark Institutions/equity funds dominated investment activity deals, including the 600-room Hilton Toronto ($233,000 in 2013, followed by private investors at 44 per cent and per room) and 549-room Centennial Hotel Portfolio 20 per cent, respectively. In total, non-Canadian buyers ($159,000 per room). Western Canada led at $146,000 represented just under half of all transaction volume, per room, reflecting a premium over the national average largely skewed by the Westin portfolio. Similarly, institu- of approximately 13 per cent. Central Canada averaged tions/pension and equity funds were the dominant seller $119,000, some eight per cent below the national average, group at 50 per cent of total volume, based on only eight while Eastern Canada achieved $141,000 per room, transactions. Approximately 68 per cent of all trades hoteliermagazine.com MAY 2014 HOTELIER 27 REAL ESTATE

were priced below $10 million, further demonstrating the the market; stable cap rates, unless interest rates creep impact of smaller, private investors. In contrast, private upwards or new supply threatens a market; an anticipated investors sold 75 assets (58 per cent of total assets sold) drop in the Canadian dollar to below the 90-cent thresh- and comprised just 17 per cent of total volume. old; tempered supply growth in most markets; abundant buyers, particularly private equity and private investors; DEBT FINANCING low cap rate and turnaround deals may need a level of Debt has remained readily available for most hotel asset seller participation to facilitate the transaction; active types due to moderate increases in bond rates, stable to debt financing in most markets; highly comprehensive declining spreads and a mix of lenders. Interest rates for buyer due diligence that could prolong timelines; and hotels range from 250 to 350 basis points over five-year modest increase in the number of distressed sales. Canada bonds (1.7 per cent at the end of Q1 2014), Although hotel investment is unlikely to reach 2013 although slightly lower rates for relationship lending have levels, all indications suggest activity will remain at very been noted. Comparatively, urban assets in prime markets healthy levels in 2014. u warrant interest rates at the low end of the spectrum, while assets in secondary/tertiary markets and those that CBRE Hotels is a are limited-service in nature would be at the upper thresh- commercial real- old. Typically, loan-to-value ratios are 50 per cent to 65 estate brokerage firm, per cent with an amortization period of 18 to 25 years, specializing in hotel depending on the age and condition of the property. sales, consulting and advisory, with offices THE 2014 OUTLOOK in Toronto, Calgary CBRE’s 2014 outlook is based on trends that are expect- and Vancouver. Mark Sparrow ([email protected]) ed to influence the motivations of sellers and buyers. is director of Hotels, Western Canada and associate VP; Predictions include: limited hotel product actively on Deborah Borotsik ([email protected]) is VP. REAL ESTATE

HERE WE GROW The future looks bright as the hotel real-estate market flourishes

BY ROBIN McLUSKIE, COLLIERS INTERNATIONAL HOTELS

houghts of the global financial crisis moved to GROWING OPERATING METRICS investors’ rear-view mirrors in 2013 as exhibited Healthy RevPAR gains across the country are spurring by the strong demand for a variety of assets. The investor interest. RevPAR is forecast to grow by 4.1 per proof is in the numbers as hotel transaction cent in Canada for 2014, reports PKF Consulting, much volume rose to more than $2 billion in 2013. higher than the 10-year running average of 2.9 per cent. TLast year, the market was flush with capital, and the strong and diverse rotation of buyers and sellers took advan- FAVOURABLE DEBT CONDITIONS tage of current conditions. Improvements in the lending The bullish transaction market described above is environment were exhibited throughout 2013 and into welcomed by a healthy list of Canadian, U.S. and inter- 2014, aided principally by the all-time low cost of credit national lenders eager to fund prime, institutional-grade and an expanding universe of lenders attracted to the hotel assets brought to market. Borrowers will continue to Canadian lodging industry. Below is a list of 10 reasons be pleased with the ample supply of debt capital available why it’s the optimal time in the Canadian hotel invest- for hotels, which encourages lenders to be more aggressive ment market for both capital flows and debt availability. on both underwriting standards and pricing. For larger full-service urban assets, the active lenders are insurance ROBUST TRANSACTION ENVIRONMENT companies as well as foreign banks and U.S. institutions. Entering 2014, there’s a variety of product available for GE Capital, credit unions, the Business Development sale and a strong cross-section of buyers. We estimate Bank of Canada and other regional banks are very active $1.25 to $1.75 billion in transaction volume for 2014, for select- and focused-service assets. The landscape is given favourable market conditions and deal pipeline quite different from west to east, with additional competi- channel checks. There is a trend in growing transaction tion in the resource-rich markets of Alberta and British size represented by deals over the $10-million threshold, Columbia given the strength of their economies. accounting for approximately 86 per cent of full-year volume in 2013. Average price per room has also seen DEFAULT RISK IS LOW healthy growth levels, increasing to $133,000 in 2013, Canada has benefited from a significantly smaller amount representing a 59-per-cent increase from 2012; similar of lender-driven scenarios than the U.S. This trend levels are anticipated in 2014. will continue into 2014 as we expect to see even less ILLUSTRATION BY JEM SULLIVAN ILLUSTRATION

hoteliermagazine.com MAY 2014 HOTELIER 29 INNOVATING. GROWING. LEADING. FOUR POINTS BY SHERATON HALIFAX Nora M. Duke PRESIDENT AND CHIEF EXECUTIVE OFFICER THE POWER OF FORTIS PROPERTIES CORPORATION “Fortis Properties has had tremendous success working with Starwood Hotels & Resorts. Both the STARWOOD PARTNERSHIP. Four Points by Sheraton Halifax and Sheraton Hotel Newfoundland have proven to be strong performers in their respective markets and provide wonderful guest experiences. The Starwood team has been a

great partner, offering ongoing brand and operations SHERATON HOTEL NEWFOUNDLAND support, and the Starwood Preferred Guest® loyalty With a portfolio of 65 hotels and strong growth momentum, LE WESTIN MONTRÉAL Starwood Hotels & Resorts continues to expand its presence program has been a definite asset. We are pleased in Canada. With nine distinct lifestyle brands and the with Starwood’s continued award-winning Starwood Preferred Guest® loyalty program, commitment to their brands, Starwood is well positioned to drive results for our partners. and we look forward to continuing our positive STARWOODHOTELS.COM/DEVELOPMENT relationship with Starwood 203 964 4468 for many years to come.”

Philippe J. Gadbois SENIOR VICE PRESIDENT, OPERATIONS

ATLIFIC HOTELS & RESORTS FOUR POINTS BY SHERATON KELOWNA AIRPORT “With Starwood’s proven track record of brand innovation and Thom Killingsworth forward-thinking strategies, Atlific partnered with Starwood to reinvent REGIONAL VICE PRESIDENT, OPERATIONS the historic former Montréal Gazette building, making it one of the city’s PACRIM HOSPITALITY SERVICES INC. top Four Diamond hotels. Together, we also brought the “When our Ownership Group, Argus Properties, was ready to make the first Element hotel to Canada, further highlighting brand decision for their first new-build hotel in the Okanagan Valley, our joint ability to introduce brands and products SHERATON RED DEER HOTEL we knew Four Points by Sheraton would be a great choice. After only while exceeding the needs and expectations of the eight months of operation, we are seeing great results in employee, communities we serve. Starwood’s solid global sales guest and shareholder satisfaction. It was also obvious and marketing network, combined with proactive from opening day how loyal Starwood Preferred Guest® communication channels, is a key reason for members are to the brand, as the property quickly our success, and we look to continue this upward became a market leader and ranked #1 on momentum with projects already in the pipeline.” TripAdvisor. With over 45 hotels in our portfolio and multiple brands, Pacrim Hospitality ELEMENT VAUGHAN SOUTHWEST is excited to have partnered with Starwood.”

©2014 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Aloft, Element, Four Points, Le Méridien, Sheraton, St. Regis, The Luxury Collection, W, Westin and their logos are the trademarks of Starwood Hotels & Resorts Worldwide, Inc., or its af liates.

GDG14021_CanadaTestim_Hotelier.indd 1 4/17/14 4:50 PM INNOVATING. GROWING. LEADING. FOUR POINTS BY SHERATON HALIFAX Nora M. Duke PRESIDENT AND CHIEF EXECUTIVE OFFICER THE POWER OF FORTIS PROPERTIES CORPORATION “Fortis Properties has had tremendous success working with Starwood Hotels & Resorts. Both the STARWOOD PARTNERSHIP. Four Points by Sheraton Halifax and Sheraton Hotel Newfoundland have proven to be strong performers in their respective markets and provide wonderful guest experiences. The Starwood team has been a

Philippe J. Gadbois SENIOR VICE PRESIDENT, OPERATIONS

GDG14021_CanadaTestim_Hotelier.indd 1 4/17/14 4:50 PM REAL ESTATE

distress than last year’s meagre $65 inventory in select markets. Where million in dollar volume. There is a an asset has reached the end of its significant amount of capital from life as a hotel, converting to an alter- private investors and hotel invest- native use often makes the most ment companies in Canada who economic sense. are comfortable putting substantial equity into deals and are therefore CAP RATE STABILITY more conservative from a leverage (& COMPRESSION) standpoint. This bodes well for the It’s tempting to say cap rates should hospitality industry where limited trend upwards, but the market lender-driven distressed sales impact seems stable overall with contin- pricing and overall metrics. ued compression in gateway markets (more capital, more competition NEW SUPPLY REMAINS LOW equals a great outlook). Overall, The new supply of guestrooms will cap rates averaged 8.5 per cent in remain below historical norms (two 2013, which is still more attractive per cent to 2.5 per cent) and should than other real-estate classes, such as average 1.5 per cent to two per office, where cap rates can be as low cent in 2014, according to Colliers. as sub five per cent. Ensuring new supply is in check is a critical component of maintain- INTEREST RATES/FOREIGN EXCHANGE ing an active transaction market. The Bank of Canada has reported Lenders tend to look closely at this plans to keep its prime rate at one before financing an existing hotel per cent through 2014, and perhaps as the negative impact on the older much of 2015, resulting in a contin- properties can be quite meaningful ued record-low interest-rate environ- once a new hotel opens. However, ment. Coupled with a Canadian for the most part, the markets seeing dollar that’s forecast at 90 cents new supply have strong economies U.S. for 2014 (per BMO Capital that can absorb the new rooms. Markets), this should generate interest from cross-border capital. INSTITUTIONAL CAPITAL CHECKS IN The availability of rarely offered BEHIND-THE-SCENES ACTION prime city centre hotels in Canadian There’s been a substantial market for gateway cities will continue to partnership buy-outs, refinancings attract institutional capital. When and new joint ventures. These don’t the right product is available for register as market transactions but sale, it attracts a diverse array of cap- are significant and representative of a ital sources such as pension funds, healthy investment market. u private equity firms, hedge funds and other public vehicles such as REITs, helping to further legitimize hotels Colliers International Hotels is an active as an institutional grade asset class. hotel brokerage, having been involved in more than 300 Canadian hotel and ACQUISITIONS FOR resort property transactions with an ALTERNATIVE USE aggregate asset value of $6 billion. Although this theme has slowed Robin McLuskie is in the last 18 months, the appetite the VP of Hotels for conversion to student residence and is based in or redevelopment to residential or Toronto. She retirement home still exists, taking can be reached at non-performing hotels out of inven- robin.mcluskie@ tory and helping the existing stock of colliers.com.

hoteliermagazine.com REGIONAL OVERVIEW

TAKE YOUR PICK Canada’s West overtakes the East in the minds of many investors, but both have opportunities for growth

BY LAURA PRATT

anada’s investment landscape offers an inter- “It’s generally better in the West than in the East,” sums esting dichotomy, as it’s difficult to avoid up Robert Pratt, president of Vancouver’s Coast Hotels, characterizing the current and pending level which operates 40-something properties in the West. of hospitality investment in the West as Regardless, he also notes that some western markets are more thriving and promising than in the seasonal and aren’t very strong. And these factors have CEast. But there are pockets of strength and weakness a profound influence on investment, valuations and cap scattered throughout the country, and both regions have rates, to say nothing of how hoteliers operate and structure inherent and unique challenges. So, let’s examine both hotels there. sides of the coin. Nonetheless, the thriving resources economy in the West kisses everything it touches with good fortune. IS THE WEST BEST? As long as oil and gas exploration is thriving, asserts “From a 5,000-foot standpoint, it’s pretty simple,” says Pratt, the hotel business will accommodate it. It’s why Philippe Gadbois, SVP, Operations for Montreal’s Atlific Coast is planning “significant investments” in its assets in Hotels, speaking of the West Coast. “Hotels there are the region. It’s also why Western Canada leads pricing. running in a very strong, growing environment. That At $160,000 per room, on average, that represents a means, because there’s more demand, we can charge more 23-per-cent premium over the national average, accord- money. And, because we get more money — because ing to Mark Sparrow, director of Hotels, Western Canada, there’s more demand and people pay more for the rooms CBRE Hotels in Vancouver. Indeed, if you’re comparing — it’s a double beneficial whammy.” Super 8s alone, the room rates in the resource markets are ILLUSTRATION BY JEM SULLIVAN ILLUSTRATION

hoteliermagazine.com MAY 2014 HOTELIER 33 REGIONAL OVERVIEW

probably 50-per-cent higher than in other markets, says financing has always been pretty readily available for the Carrie Russell, managing director of hotel consulting giant Western Canadian hotel world and a prominent key to its HVS in Vancouver. You’d pay more for a midweek bed in growth. It’s typically priced 100 to 150 basis points lower Estevan, Sask. today than you would for one in downtown than in Central and Eastern Canada, but he says that is Vancouver. In fact, the current rate of $190 for a room at due to optimism from regional banks and credit-union the Fort McMurray Super 8 in Alberta is the highest of syndicates. any in the brand’s system, globally. Looking ahead, 2015 shows no signs of flagging. The It’s why the oil-patch hub of Calgary had a great year, resource activity continues to prosper, with lots more why oil-and-gas staging town Edmonton is booming, why hinging on the government’s decision to allow pipelines exploration heart Fort McMurray, Alta. is golden and along the coast to funnel resources to China (particu- why various towns in Saskatchewan — where potash, larly in spots such as B.C.’s Fort St. John, Prince George Bakken Oil, natural gas and forestry activity is coming to and Terrace). Additionally, a growing U.S. economy is life — are drawing crowds. “You almost don’t have to do sending more convention business to Vancouver. anything to succeed in these markets,” says Russell. “We’re quite optimistic about the demand forecast,” But it’s not all idyllic. The fall-off in U.S. traffic and says HVS’s Russell, who believes the challenge will be convention action dragged down trade in downtown new supply. With only a half per cent Canada-wide Vancouver and Victoria (though it’s recently picked growth in supply in the last two years, compared to an up in the latter city). Business in B.C.’s Fraser Valley, historical average of 1.2-per-cent growth, a lot of supply the seasonal Lower Mainland and in some parts of the languishes in the planning pipeline. province’s interior hasn’t been robust, either, possibly “We believe the Western Canadian hotel investment a consequence of recent supply augmentation to which market will continue to remain robust,” echoes CBRE’s demand has yet to catch up. Sparrow. The West’s share of the country’s overall trans- And the fallout from a heated up local economy means action volume has dropped from about 61 per cent (of $2 construction costs are also on fire. “It’s more expensive to billion) in 2012 to just under 39 per cent (of $1.1 billion) build in Western than in Eastern Canada,” says Russell, in 2013, but Sparrow acknowledges that was largely driven “and labour is hard to come by.” by Central Canada having a “really strong year” and the Indeed, says Ryan McRae, VP, Acquisitions and Devel- availability of product there. He maintains that a lot of opment for Vancouver’s SilverBirch Hotels & Resorts, activity still remains in Western Canada. developers looking for higher-quality, more institutional- SilverBirch’s McRae affirms that resource-based markets level assets might be hard pressed to find them here, may have short- and medium-term volatility, but they simply because there hasn’t been a lot of that develop- have long-term gains. “If we do a 20-plus year review of ment activity in the last 20 years. those markets, we see continued strength and desirability. And, since people are paid quite well for basic construc- In the long term, we’re very confident these markets will tion jobs and work associated with oil and gas devel- be good investment plays,” he says. opment, the hospitality industry can’t compete and is facing labour woes. “Finding room attendants, guest clerks WHAT ABOUT THE EAST? or restaurant servers is a huge challenge,” says Atlific’s Resources factor into the more limited opportunity in the Gadbois. Eastern Canadian hotel market, too. St. John’s, N.L. is Seniors’ residences and work camps in the resource- an example of a market where development is surging to buzzing areas, both of which have a reputation for poach- match supply with demand. That said, the activity in the ing service-minded resources from the lodging sector, East is more about conversions than new builds and more aren’t helping matters. Foreign worker programs are taking about secondary and tertiary markets, such as Kingston, some of the pressure off, but some operators have other Ont. and Sudbury, Ont. “The big markets are pretty well solutions. “Hire right and take care of your people. It covered in Eastern Canada and have been quite dynamic seems such a no-brainer, but so many companies don’t [do in the last decade,” says Serge Primeau, VP of Operations it],” says Coast’s Pratt. and Development for Canada at Urgo Hotels, a Bethesda, More than that, access to financing is becoming a Md.-based hotel development, ownership and manage- challenge in the West, particularly in the full-service ment company. “Everything got built, and now it’s more sector, since the bulk of development is in limited-service about looking at repositioning existing buildings to get where construction costs aren’t as high. “We’re starting better performance from them than building from the to see a slight pullback from regional banks,” says CBRE’s ground up.” Sparrow. Still, since construction costs are just as high for a Still, the director of the commercial real estate firm says, three- as for a five-star hotel, and the rate doesn’t compen-

34 MAY 2014 HOTELIER hoteliermagazine.com SINCE 2011, CBRE HOTELS INTERNATIONAL CANADA HAS COMPLETED EXPOSURE TRANSACTIONS TOTALING OVER LOCAL $1.2 BILLION AND UNDERTAKEN EXPERTISE VALUATION AND ADVISORY SERVICES WITH ASSET VALUES TOTALING OVER $3 BILLION.

LOEWS HOTEL QUEBEC CITY CLARION HOTEL CALGARY AIRPORT SUPER 8 ABBOTSFORD

DELTA TORONTO AIRPORT WEST

OMNI KING EDWARD HOTEL TORONTO

TORONTO VANCOUVER BILL STONE** BRIAN FLOOD MARK SPARROW* TORONTO 416 815 2371 DEBORAH BOROTSIK* KIMBERLY DICKEY CINDY SCHOENAUER CALGARY 403 750 0514 LUKE SCHEER* KARINA TOOME CALGARY VANCOUVER 604 662 5192 GREG KWONG**

CBRE Limited, Real Estate Brokerage ** Broker * Sales Representative

Hotelier_CBRE Ad.indd 1 4/23/2014 3:17:31 PM REGIONAL OVERVIEW

sate for the price, you have to make the numbers work U.S. leisure travel over the last several years. for your company. “There are opportunities, but they “There are lots of things that are weighing on the aren’t as obvious as they used to be. You need to monitor Central and Eastern Canadian economy that aren’t the markets carefully, manage your costs tightly and be weighing on the Western Canadian economy to the same clever,” says Primeau. extent,” says Larone. And brand recognition is an issue, because there’s But there is still good news in the Eastern end of limited development in the suburban markets, Primeau Canada, Larone hastens to confirm. Along with the oil adds. “For developers like us who are associated with projects in Newfoundland, there are various infrastructure branded products that have standards and costs that need and utility initiatives on the East Coast, including Shell’s to be justified with a return on investment, you have to be investment in offshore exploration in Nova Scotia and careful to associate yourself with the proper brand.” ship-building contracts in Halifax. Then, says Larone, Overall, says David Larone, national managing director there’s the four-per-cent RevPAR growth in 2014 for for PKF Canada in Toronto, it makes sense to character- Toronto, Quebec City and Montreal; and the 73-per-cent ize Eastern Canada as you would the Canadian econo- occupancy, $153 ADR and $111 RevPAR in St. John’s, my overall. “We’re looking at a relatively low-growth, N.L., the highest in Central and Eastern Canada. low-interest-rate environment.” “There’s lots of reason to feel optimistic about the And, while the Newfoundland economy is doing quite investment environment in Eastern Canada being strong well, Ontario and Quebec are still recovering from the and getting stronger,” says Luke Scheer, director of 2009 hit to their manufacturing sectors. The political Eastern Canada for CBRE Hotels in Toronto. “As a hotel volatility and legacies of the federal government’s auster- brokerage firm, we communicate with investors across the ity measures in these two provinces aren’t helping matters, country, and we’re seeing a ton of interest from groups Larone says. New Brunswick and Nova Scotia are also who [want] to establish a presence there.” experiencing slower growth, damaged by the decline in “We’re moving in the right direction,” adds Larone. u CELEBRATING 25 YEARS OF EXCELLENCE Do you want to reach and influence the leaders in Canada’s hotly competitive hotel industry? Then you should advertise in Hotelier, Canada’s most authoritative industry magazine.

While others may lay claim to the Hotelier moniker, there’s only one Hotelier!

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Since 1989, Hotelier has been covering happenings in Canada’s $18-billion industry. Our coverage of the hotel industry is unparalleled and unrivalled. We write about the news that matters to the industry from topics of interest to profiles on the movers and For more information contact: shakers in the industry, to controversial issues that are Rosanna Caira, Editor and Publisher making headlines. Email: [email protected] Published eight times a year, Hotelier gives advertisers Phone: 416-447-0888 ex 224 a unique opportunity to reach the industry’s decision To book an ad or request rates contact: makers, those who make the purchasing decisions. Brenda James at [email protected] After 25 years of covering Canada’s vibrant hotel industry, we have created a comprehensive database of 10,000 decision makers who demand a publication that puts their needs first.

Hotelier 25years .indd 1 2014-04-28 10:45 AM

DUE DILIGENCE

DO YOUR HOMEWORK Understanding everything from finances to design is integral to a successful hotel purchase

BY REBECCA HARRIS

ue diligence has always been essential to any having all the right information.” hotel purchase, but the process is (or should Being organized and prepared is key. For example, be) far more intensive today. With tighter buyers should have monthly financial statements lending requirements and increased aware- organized and available in advance. “[Lenders] want to ness about environmental issues, buyers need see trailing 12-month periods, whereas before it might Dto arm themselves with more and more information before have been OK to just use an annual statement,” says Ricci. they sign on the dotted line. Four experts from different “There’s more granular analysis.” sides of the hotel sector weigh in on what investors need It’s also important that internal statements and to know. account-prepared statements match up. “Sometimes they don’t,” says Ricci. “And, if they don’t, you have to under- THE FINANCIAL COMMITMENT stand why, because that question will come up.” Times have changed, and lenders are requiring more Ricci’s checklist for potential buyers looking to information than they ever did before, an outcome of the appease lenders also includes: understanding the financial economic downtown of 2007/2008. performance of the hotel; understanding the competi- “There’s more detail required and a lot of that is driven tive landscape in which the hotel operates; and, if by compliance requirements across the board,” says Ian there’s an existing franchise, understanding the situation Ricci, a senior account manager at GE Capital who of the franchise and the requirements for the next 12 to specializes in hotel finance. “You have to be more sure 18 months. now. You have to be absolute and ironclad in terms of All this information is needed quickly. “Time can kill ILLUSTRATION BY JEM SULLIVAN ILLUSTRATION

hoteliermagazine.com MAY 2014 HOTELIER 39 DUE DILIGENCE

things, so speed and access to information is really impor- have to fix asbestos, you need to know that before you buy tant,” says Ricci. “The faster you can respond to certain it,” says Watters. questions, whether it’s about ownership structure or a Another reason for increased due diligence is growing period in the financial statements where things look differ- consumer awareness about other similar environmental ent, [the better].” issues that affect air quality. “The public is demanding higher standards than in the past,” says Watters. THE CARBON FOOTPRINT In addition, employees are demanding a safer working Environmental issues are now front and centre in the environment. “It’s all positive, because we don’t want due-diligence process, as investors want to know exactly people staying or working in a building that’s compromis- what they’re buying and what they need to fix. They want ing their health.” to know whether the hotel has mould and if there is waste And, while it’s important to understand the environ- storage that could cause a damaging spill. mental condition of a site, due diligence doesn’t end when “They know [these issues] can cost a lot, and they know the assessment is done and the deal is closed. Issues such the health implications to their guests and employees as dealing with mould or making sure swimming pools are significant,” says Rob Watters, president and CEO meet health and safety standards at all times become at Toronto-based Watters International, which conducts ongoing operational issues. environmental assessments for companies, including “There is a lot of responsibility for due diligence on hotels. behalf of the hotel owners and operators to not just say Many operators are now spending up to tens of they’re doing something but prove it,” says Watters. “And thousands of dollars on an environmental assessment we’re starting to see hotels being visited by regulators more to minimize potential costs. For example, older hotels frequently.” That means it’s important to have systems sometimes require substantial repair to meet the current and processes in place and keep meticulous records. “If you regulations for asbestos. “If you’re buying a hotel and you do that, you’re gold,” adds Watters.

COMING IN JUNE

THE GREEN REPORT: CREATING A SUSTAINABLE HOTEL

+ Innovation

+ Bars

+ Fitness Areas/Spas & Pools

+ PMS

YOUR HOSPITALITY Amsterdam BrewHouse BUILDING PARTNER 416.755.2505 ext. 22 Mackay Wong Strategic Design bltconstruction.com 40 MAY 2014 HOTELIER hoteliermagazine.com Toronto - Vancouver

Photography: David Whittaker DUE DILIGENCE

THE PERSONNEL ELEMENT Traditional due diligence is centered on financial, build- UNDERSTANDING ing and environmental conditions, but lately investors “ have been increasingly focused on employee liabilities THINGS LIKE due to the significant costs that can result from terminat- VACATION, ing employees, for example. PENSION “Understanding things like vacation, pension and retirement are [also] critical these days when you’re doing AND RETIREMENT due diligence,” says Jeff Hyslop, director, Asset Manage- ARE CRITICAL ment, Westmont Hospitality Group, a hotel owner and operator in Mississauga, Ont. THESE DAYS On the brand side, finding out if there are encum- WHEN YOU’RE brances on the property, the capital costs of maintaining the brand and the cost of terminating the brand are issues DOING DUE buyers should consider. “But conversely, as a seller, you DILIGENCE need to strategize on how you’re going to deal with these ” issues,” says Hyslop. For example, if a seller decides to Jeff Hyslop, Westmont Hospitality Group market the asset as unencumbered, they’ll have to cover the cost of getting rid of the brand and any encumbrances. Brand liabilities have always been taken into account, but as more investors look at alternative uses for buildings, such as student residences or condos, brand liability becomes a bigger issue. Employee issues tie into this as

YOUR HOSPITALITY Amsterdam BrewHouse BUILDING PARTNER 416.755.2505 ext. 22 Mackay Wong Strategic Design bltconstruction.com Toronto - Vancouver

Photography: David Whittaker DUE DILIGENCE

well, so if a building is converted, the owner will have to and cooling as well as plumbing systems. “Ideally, [you terminate the hotel employees’ jobs at a huge cost. should] find out the age of equipment and what changes While there are many opportunities for hotel acquisi- have been made so you can identify parts that are going to tions, the perfect deal or property is hard to find. “You need to be replaced,” says Stratford. can always find reasons to kill a deal,” says Hyslop. “The Getting the as-built drawings are especially relevant important thing as a buyer is to understand your risks and now, as the sustainability trend means more investors are liabilities. Know what you’re getting into and what the using existing buildings rather than building new ones. worst possible outcome could be, and have a measured “People are increasingly aware that it takes a lot of effort, understanding of the liabilities going into a deal.” energy and cost to create new buildings,” says Stratford. “It depends on the location and the condition, but it may THE DESIGN QUESTION make more sense to retain existing buildings than it would For Gordon Stratford, director of Design at HOK’s Toron- to create new ones.” to office, due diligence is about being proactive, so buyers It’s also essential for potential buyers to create a master can avoid being surprised by potential design and structure plan, which gives stakeholders a big-picture view of the problems. “It’s the ability to get more upstream in under- hotel, says Stratford. For example, the as-built drawings standing the condition of the building and being able to (or even a building assessment) might reveal that the more proactively plan and anticipate costs,” he says. cooling system is 10 years into its 20-year lifespan. So, the Buyers preparing to take over a building, re-flag a master plan should include a plan to replace the system in property or refresh it should request the ‘as-built’ drawings year 10. — existing drawings that reflect the current condition of “Due diligence is such an important part of the process,” the building. says Stratford. “[It] will help all parties concerned have a With these drawings, owners will have a better under- healthier investment, a healthier return and perhaps fewer standing of issues such as the hotel’s mechanical, heating sleepless nights.” u

A Visionary Partner

Vancouver • Calgary • Edmonton • Toronto Ottawa • Montreal • New York • London, UK

42 MAY 2014 HOTELIER hoteliermagazine.com SITE SELECTION

THE REAL-ESTATE GAME Selecting the best site for a hotel is contingent on a host of issues

BY LAURA PRATT

hanks to an overload of online reserva- tions and loyalty programs on the hospitality scene, investing in a hotel location involves different considerations than it did a generation ago. That means a Tprominent spot along the edge of a busy highway isn’t the prime real estate it once was, and brand loyalty plays a big part in a consumer’s decision about which hotel to patronize. It also means hotel companies and development firms have reworked the game plan when it comes to site selection. Still, choosing where to open a hotel is “not rocket science,” says Stuart Laurie, IHG’s director of Franchise Sales and Development for Canada in ILLUSTRATION BY JEM SULLIVAN ILLUSTRATION

hoteliermagazine.com MAY 2014 HOTELIER 43 This is Economy Lodging. SITE SELECTION

This is Motel 6. Mississauga, Ont. Certain consid- relevance in a market. If demand erations don’t change, including generators have moved away from a access, visibility, an area’s growth hotel, the product left behind may potential, proximity to comple- now be obsolete. mentary retail and a ready supply of In some of the larger markets in potential customers. As a franchi- Canada, a modest new construc- sor, IHG executives regularly put tion project can cost more than $3 themselves in the customer’s shoes million before a shovel is even put in when considering a site and ask: the ground, and the price per key is would we stay here? $100,000 and up, says Eric Watson, And, where is here? Sometimes a COO for MasterBuilt Hotels in build-from-the-basement initiative Calgary. “And yet in a few of these can make more sense than an acqui- same markets you can pick up exist- sition; sometimes, it’s precisely the ing hotels with definable operating opposite. The decision depends on results for under $40,000 a key. Does a multitude of issues: does the brand it make sense to develop new when in question allow conversions, what you can buy a resale property for is the physical state and location of so much below replacement cost?” the hotel, and what is the quality of he asks. competing hotels in the region? But sometimes it can cost more But the essential consideration to retrofit a property than build when wrestling with the build- new, notes Brian Flood, VP, CBRE or-convert conundrum is a site’s Hotels, Valuation and Advisory Services in Toronto. Examples of this persist in Southern Ontario, the Maritimes and the lower half of B.C., WHERE THERE where the economics are extremely “ tilted toward buying existing hotels MAY HAVE BEEN instead of starting from scratch, adds Manlio Marescotti, VP, Lodging THREE HOTELS Development, Marriott International IN A MARKET in Mississauga, Ont. BEFORE, But, a hotel’s construction, layout, mechanical systems and plumbing, or NOW ALL OF the existence of hazardous materials, A SUDDEN may exclude it from being adapted. And hotels that have been grandfa- THERE ARE FIVE thered might prove too costly for the OR SIX, WITH retrofit option. “They might have asbestos or other structural issues,” DEVELOPERS says Charles Suddaby, VP and INFILLING TO practice leader of the Hospitality and Motel 6 Canada STEAL BUSINESS Gaming Group from the Toronto 416.966.8387 office of the global real-estate firm FROM THE Cushman & Wakefield. “Better to [email protected] demolish the site and start again.” A division of Realstar Hospitality ORIGINAL That said, since hotel operators are THREE competing with other commercial ” developers, land is more expensive Charles Suddaby, than ever before. “So where there Cushman & Wakefield may have been three hotels in a market before, now all of a sudden there are five or six, with develop-

44 MAY 2014 HOTELIER hoteliermagazine.com

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ers infilling to steal business from the original three,” says Suddaby. “That, in turn, has forced up the value of devel- WHEN opment land for hotels. And now I wonder at what point “ the developers really start to back away.” YOU’RE Suddaby cites “a very rough rule of thumb” dictating the LOOKING pricing of a hotel room, explaining that investors should spend approximately $100,000 in a market that can FOR A HOTEL support a $100 average room rate; that generally equates LOCATION, to a $1-charge-per-$1,000-spent ratio. It’s a reasonable YOU CAN’T guideline that might steer a developer away from laying $250,000 on a property that can only attract a room rate RISK BEING of $110 a night. SECOND So, if a new build is the answer, consider the best location, rather than the best price. “When you’re looking CHOICE for a hotel location, you can’t risk being second choice or ” [being] passed by,” explains IHG’s Laurie. “If you took a B Stuart Laurie, IHG location over an A location, there’s the risk of someone coming into the A location and adding supply — so better to pay for the A location.” Watson agrees. “Start with the market first. If you don’t have a good, strong market, there’s probably no point,” says the COO for MasterBuilt Hotels. “[MasterBuilt] will go anywhere in search of the best returns. And if we don’t SITE SELECTION

believe we can fill Monday-to-Thursday night at a really strong rate, we won’t do construction.” Finding a piece of land that is a specific size is another hurdle in today’s jammed-to-the-gills market. It means an hotelier developing a limited-service hotel that requires a minimum of two acres might find himself scratching his head over an A location on five acres. That, says Laurie, is why it’s not uncommon for developers to build two hotels on one piece of land — each with a different set of experiences. Such “combination deals” are more common in urban environments where land prices are higher and it’s necessary to maximize the available square footage — but they require a fair piece of capital to carry them. Yet, trying to shoehorn a project into the wrong site is among the most common mistakes a hotel developer makes, says Cushman & Wakefield’s Suddaby. “You probably don’t want to build a resort, whose aim is to allow people to relax and escape from their urban life, right beside a railway track or a landfill,” he offers. Often, the difference between a good site and a great one depends on the intangibles. “In the discussions I have with our franchisees and developers, I’m always concerned [about] what’s beneath the surface,” says Laurie. “Is the site ready to go? What are the soil conditions? Does its foundation support the building’s weight load? Is it ready for development permit approval? Is the city prepared to work with us?” In his opinion, a great site is flat and zoned and doesn’t need a lot of work. So, construction crews can immediately pour slab and start building. Alternatively, an operator may have to wait for approvals and pay carrying costs. To avoid this, find out if a site is poised for growth by talking to existing property owners and hotel consultants in the area. Then stick your head into the city’s planning department. “There’s a wealth of information there,” says Laurie. “You can find everything you need to know, whether it’s [about] projects that have already been approved or projects that are [pending approval].” Poll the market’s demand generators, too. “People don’t think about that, but just walking into a company in the immediate area can reveal a lot about it,” says Laurie. “I’ve done that on numerous occasions when I’ve had some doubt. [I’ve] asked, ‘Would your people stay in this location?’” “Demand generators are the most important consideration,” agrees Marriott’s Marescotti. If there isn’t critical supporting infrastructure such as a restaurant, he suggests buying a slightly larger site and carving out a restaurant pad on the premises. Draw from a larger area if the access to your site is good (close to a highway, for example). “Fundamentally, you have to dig down and understand who’s going to generate room demand for your hotel,”

hoteliermagazine.com SITE SELECTION UNIQUE BUSINESS OPPORTUNITY “THE OLD FULL-SERVICE NEW HOTEL AT THE SUMMIT OF THE HOTELS THAT MONTMORENCY WATERFALL HAD ROOMS, AN INDOOR INVITATION FOR PROPOSALS - QUÉBEC CITY REGION POOL, LOTS OF MEETING SPACE, A BIG RESTAURANT, A FINE-DINING ROOM AND MAYBE A DISCO DON’T EXIST ANYMORE” Brian Flood, CBRE

says CBRE’s Flood. “The old full- service hotels that had rooms, an indoor pool, lots of meeting space, a big restaurant, a fine- dining room and maybe a disco don’t exist anymore.” Today’s The Société des établissements de plein air du Québec is seeking a promoter hotels are much more targeted. interested in designing, financing, building, and operating a hotel at the Parc de As such, hoteliers need to focus la Chute-Montmorency, the second most visited tourist site in the Québec City on building in the midst of the region. Combining the operation of the Manoir Montmorency, an elegant villa right demand generators for the with a long history, overlooking the western cliff of a waterfall that is 83 metres hotel in question. in height, the future hotel will feature a unique site for its clients, which is also a It’s also important to consider marvel due to its natural environment and its unobstructed view of Québec City, the current and future competi- the Island of Orleans and the St. Lawrence River. tion in a particular geographi- cal area. “A market can go from For more details about this unique business opportunity, contact performing well to being oversup- plied in fairly short order,” says sepaq.com/proposals Flood, pointing to Grand Prairie, Alta., as well as the Calgary and Winnipeg airports as examples. Proposals will be accepted until Unfortunately, building may be underway before it’s determined OCTOBRE 10, 2014 AT 3:00 PM (EST) that other hotels are entering the market. But, that, after all, is part of the real-estate game. u hoteliermagazine.com

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Christophe Le Chatton GM, Langdon Hall, Cambridge, Ont. BY ROSANNA CAIRA

hristophe Le Chatton is no stranger to change. In fact, he thrives on it. CFor years the charming French-born hotelier was a fixture at Fairmont Hotels & Resorts where he worked in various capacities at several of the company’s iconic properties, including Toronto’s stately Royal York. Then, a few years ago, looking to grow his potential, the hotelier made the trek from English Canada to the French capital with his young family in tow to become GM of Quebec City’s majestic Château Frontenac. To many, the feat might have proved daunting, but it didn’t faze the leader or his supportive wife, Lisa. So, when a new opportunity beckoned a few years later, this time to move to the American southwest to take the reins of the Fairmont Scotts- extensive grounds,” he says. dale, Le Chatton et famille didn’t flinch. In 2012, after It’s smaller than the other hotels Le Chatton has spending several years leading the charge in the desert commandeered, but it’s just as well regarded. “The oasis, Le Chatton transferred to Shanghai where he hotel encompasses every aspect of a five-star opera- spent a few years honing his hospitality skills while tion and more,” boasts Le Chatton, who was recently working in the customer-service capital of the world. conferred “fellow” status by the Ontario Hostelry Now, after a decade of adven- Institute. “Each of the rooms is individually decorated; QUICK QUIPS: ture, the passionate GM is happy the restaurant is the only Five-Diamond restaurant in First hotel job “I was a com- to be back home, comfort- Ontario, and there is also a bar, an event centre, a spa, mis chef at the Hotel Lutetia ably ensconced at the five-star an outdoor pool facility, a garden and 10 km of trails in Paris. I loved the energy in Langdon Hall in Cambridge, located on 200 acres.” the kitchen” Ont. “This Relais & Chateaux In operation for 25 years, the hotel is constantly What makes you successful? “I plan ahead, innovate, be property is unique because of its evolving. “We have just completed a large expan- original, develop and inspire geographic location in the heart sion to both our kitchen and our restaurant. Thirty leaders” of the Carolinian Forest. It’s the seats have been added to our award-winning dining How do you cope with stress? perfect luxurious escape from the room, and we doubled the size of our kitchen with “I exercise regularly, bike, read city. With five million potential state-of-the-art equipment that sparkles as brilliantly and [take] family trips” customers within an hour’s drive as our Five Diamonds from the CAA/AAA,” says the

from Langdon Hall, we aim to hotelier. Over the next few months, an additional PHOTOGRAPH BY DAVID BRIGGS offer an all-inclusive unique personalized luxurious wing will be added to the hotel’s Cloister building, experience in a relaxing environment,” he says. featuring nine new guestrooms, a newly designed spa Le Chatton oversees 175 employees, who tend to with 20 treatment rooms and a venue to host meetings 53 rooms located within three buildings. “Forty-eight and weddings. rooms are equipped with wood-burning fireplaces. The It all complements Le Chatton’s customer service main house guestrooms feature the uniqueness and ethos. “Hotels today need to connect with guests. heritage of the property with vaulted ceilings, archi- They must anticipate needs and wishes and deliver tectural beams and large windows overlooking the them seamlessly and effortlessly,” says the GM. u

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