By Curtis Gallagher, Vice President – Hotel Investments, Capital Markets, Charles Suddaby, Vice President & Co-Leader, Hospitality & Gaming, Valuation & Advisory, and Brian Flood, Vice President & Co-Leader, Hospitality & Gaming, Valuation & Advisory
The positive general economic growth and favorable outlook for a number of Canadian cities has given way to significant capital investment by owners of existing hotels. There are numerous cases of reinvestment in hotels for repositioning purposes, from former run-down motels to well-established primary assets. Investors rely on several common factors amongst these hotel projects to gauge their confidence of future success, including prime location, ever-increasing construction costs, and limited acquisition opportunities in desirable markets.
Hotel value creation through reinvestment is apparent in a range of Canadian markets where there are existing or anticipated positive changes in the overall business outlook. There are also opportunities to capitalize on the shifting preferences of targeted travelers and in areas of real estate rejuvenation within established markets.
Downtown Toronto, and the surrounding GTA, is possibly the most attractive hotel investment pocket in the country. The hotel performance outlook is very strong; however, there are limited acquisition opportunities and the cost of land and construction for new development is constantly increasing. A number of existing owners have chosen to invest considerable capital to completely reposition assets. Some current examples include InnVest’s repositioning of the former Holiday Inn on Bloor Street to a Kimpton Hotel and its investment in the former Trump Hotel for conversion to Marriott’s luxury St. Regis brand, as well as Oxford Properties’ closure of the Park Hyatt on Bloor Street for a major reinvestment in the property.
This trend doesn’t just apply to central urban assets. Look at the value creation of the Gladstone Hotel, Drake Hotel, and Broadview Hotels outside of the core of Toronto. At one point, these hotels were low rated and run down; now transformed, they are highly desirable hotel investments. Another successful example is the repositioning of an older motel in Picton (Ontario) into the current June Motel. These are just some of numerous examples, and the list will continue to grow.
The same trend should occur in other Canadian markets including downtown Edmonton and Calgary. While both of these markets suffered declining hotel performance a few years ago, they are now starting to recover. In downtown Edmonton, there is a multi-billion dollar mixed-use real estate development that is revitalizing the downtown core. Granted it will include some new hotel supply with a sparkling new JW Marriott, yet a number of other demand generators within the overall development will drive more business to the core. This will provide support to existing owners to reinvest in their hotels. In Calgary, the development of the East Village has inspired new hotel development and rejuvenation of some older buildings. New construction cost is much more expensive than reinvestment, so repositioning will positively impact these markets as they continue to recover in the near term.
Identifying reinvestment opportunities is not restricted to major markets. Dynamic shifts can occur in any market across the country. Knowledgeable owners and operators should constantly be looking for chances to wisely invest in their hotels in order to capture potentially exceptional returns.
Curtis Gallagher, a Vice President in Cushman & Wakefield’s Capital Markets service line, leads the hotel investment sales division for Canada. With over 20 years of experience in the hotel industry, Curtis possesses an extensive background in hotel operations at a senior management level and real estate services including valuation and transaction advisory.
Charles Suddaby has provided advisory and valuation services to the hospitality industry for 30 years and currently leads the Hospitality & Gaming Group at Cushman & Wakefield in Canada. His consulting practice includes market and feasibility studies, valuations and appraisals, development strategies, operational reviews, asset management, litigation support and other services associated with the tourism and hospitality industries.
Brian Flood has provided advisory and valuation services to the hospitality industry for 30 years and leads the Hospitality & Gaming Group at Cushman & Wakefield Ltd. in Canada. His consulting practice includes market and feasibility studies, appraisals, development strategies, litigation support, and other services associated with the tourism and hospitality industries.