Participants listened to expertise on topics like adaptive reuse, workforce strategies, financing trends, and changing guest expectations through panels, keynote sessions, and networking. As the official media sponsor, STAY Magazine was thrilled to be part of this event, covering important conversations taking place at the conference, and connecting directly with industry stakeholders.
We enjoyed speaking with so many attendees and speakers dedicated to advancing the future of hospitality in Western Canada and look forward to sharing the latest industry developments with our readers.
Following are some of our STAY Magazine takeaways from #WCLC2024!
WCLC2024 opened with an industry update from Ingrid Jarrett, president and CEO of the British Columbia Hotel Association (BCHA). Jarrett spoke about key issues facing B.C> hoteliers today including the Canadian Hospitality Health Plan, the rising costs of doing business and other key advocacy efforts that BCHA is working on for our industry such as the association’s “Annual Industry Pulse Check Survey” which closes November 8. Participate in the survey HERE.
The first plenary session titled “The Peaks and Valleys of the Western Canadian Hotel Business: Strength Training with Some Flexibility” featured insights from Greg Kwong, regional managing director at CBRE Limited, and Carrie Russell, senior managing partner at HVS, who provided an in-depth analysis of the Western Canadian hotel market.
KEY TAKEAWAYS
- Market performance and trends: The session emphasized overall occupancy rates in Canada, noting a peak year in 2018 and stable demand growth through 2023. Occupancy rates are around 67 per cent nationally, with Alberta and Saskatchewan showing strong performance due to economic activity, especially in sectors like energy and agriculture. In contrast, Newfoundland struggled with softer numbers.
- Domestic and international travel: Despite international flight capacities exceeding pre-pandemic levels, the return of visitors to Canada remains below 2019 peaks, although domestic flight capacity lags. This has led to strong RevPAR (revenue per available room) growth across Western Canada, notably in Alberta and Saskatchewan.
- Regional breakdown: Winnipeg faced declines in occupancy, attributed to reduced demand from groups like evacuees and asylum seekers. The pipeline in Winnipeg is limited, with few hotel projects expected.
- Calgary and Edmonton experienced significant boosts, with Calgary’s UBO Centre and convention activity driving demand. Edmonton saw increased rates from the “Oilers effect” during their playoff run, although growth is expected to normalize in 2025.
- Saskatchewan benefitted from agricultural resilience and energy sector activity, with moderate hotel development and RevPAR growth.
- Banff and Vancouver stood out with exceptionally high demand. Banff saw RevPAR growth of nearly 8 per cent despite a small supply increase, driven by high ADR (average daily rate) growth. Vancouver’s downtown area has seen robust occupancy and ADR growth, reflecting strong tourism and convention demand.
- Development: There is optimism about Calgary’s new BMO convention centre, but without an adjacent hotel, large events are difficult to attract. In Vancouver, interest in new hotel developments has surged, although high-rise projects face construction and financing barriers. This interest is also pushing developers to examine sites in emerging areas like Chinatown.
- Investment and cap rate trends: Hotel transactions in Alberta, Saskatchewan, and BC highlighted varied cap rates, with no clear pattern due to market-specific factors. Key trades showed Alberta hotels trading at cap rates from 5.5 per cent to 6.5 per cent, while BC’s Embassy Inn in Victoria traded at a low 3.5 per cent due to repositioning potential. The panel discussed how investors are cautiously optimistic, with some institutions showing new interest in the hotel sector due to yield potential amid stabilized interest rates.
- Labour and operational costs: Labour costs were highlighted as a critical concern, with rising wages driven by union contract renegotiations impacting profitability. The sector is experiencing cost pressures across operations, particularly in construction and hospitality staffing.
- Debt market conditions: Loan-to-value ratios have stabilized at 60-65 per cent, and interest rates have started to ease, though the bid-ask spread remains challenging. PIPs (property improvement plans) are a significant factor in transactions, as buyers typically factor these costs into their valuations.
The second plenary session titled “Free Flowing Capital Funding – The Bucks Start Here” featured prominent Canadian lending professionals on the current state of hotel financing including Juan Duran from CWB Franchise Finance, Starry Lyon from the Business Development Bank of Canada, Andrew Mallory from Valiant Mortgage Inc., and Trevor Scott from CFO Capital.
KEY TAKEAWAYS
- Availability of capital: Despite higher interest rates, capital remains accessible, with Canadian interest rates being notably lower than those in the U.S. The panelists highlighted that lenders are increasingly interested in hotel investments due to the asset class's recent strong performance, especially as other real estate sectors face challenges.
- Loan structures and lender criteria: The panel discussed the importance of historical performance, market fit, and management experience in securing loans. They emphasized that lenders look at more than financial data, digging deeper into market trends, operational efficiency, and the strategic fit of a hotel within its local context. For new construction projects, lending criteria are more stringent, given the reliance on projections rather than historical data.
- Branded vs. independent properties: Many lenders prefer branded hotels, as they are often seen as lower risk. However, some lenders, like the BDC, evaluate independent properties on a case-by-case basis, especially if these are in key or niche markets. Financing terms generally allow for higher leverage with branded properties.
- Bridge financing and subordinated debt: Panelists discussed the role of bridge lenders who offer short-term financing solutions for acquisitions or renovations. These lenders allow borrowers to secure quick capital, often at higher rates, with the expectation of transitioning to traditional financing later. Subordinated debt was also mentioned as a viable option, especially when a primary lender supports a project.
- Interest rates and lending environment: The panel indicated a general expectation of declining interest rates over the next year, providing an opportune environment for hotel financing. Some lenders, like CWB, are relationship-focused and value the borrower’s capacity to execute projects, aiming to provide flexible financing arrangements that consider market uncertainties and potential future rate cuts.
- Construction and renovation financing: With demand for construction financing increasing, lenders noted that they remain interested in financing new projects, especially with stabilized assets. For renovations, several lenders offer tailored solutions, allowing hoteliers to fund property improvements in alignment with brand standards and market positioning.
- Alternative sources of income: The panelists discussed including alternative revenue sources, such as VLTs or attached commercial spaces like liquor stores, in the underwriting process. These income sources may be evaluated differently from room revenue but are generally acceptable if they represent reliable cash flow.
- Advice for hoteliers: The panel emphasized the importance of due diligence, market understanding, and maintaining relationships with multiple financing partners as essential strategies for navigating current and future lending environments. They suggested that first-time investors or those with limited hotel experience should consider third-party management or branded affiliations to improve their financing prospects.
The third plenary session titled “Conversion Diversion – Re/Development Options to Hotels from Other Lagging Real Estate Asset Classes” was led by David Ferguson from Coast Hotels, the panel featured insights from Duncan Chiu of Marriott International, Sahad Kassam from Synvest Capital, and James Scott from PBA Land and Development.
KEY TAKEAWAYS
- Demand for hotel rooms and market needs: Western Canadian cities like Vancouver and Calgary face a shortage of hotel rooms according to officials representing the tourism and hospitality sectors in those respective cities, with Vancouver needing up to 20,000 more and Calgary an additional 4,000 to 5,000 rooms. As traditional new builds face cost and land challenges, conversions are becoming attractive.
- Some current conversion projects: PBA Land and Development is converting a 170,000-square-foot office building in Calgary’s downtown into a 226-key Element by Westin, leveraging Calgary’s incentive program.
- Synvest Capital is transforming a century-old Vancouver office building into a 73-room independent hotel, focusing on quick turnaround and unique amenities, including a rooftop patio.
- Benefits of conversions: Speed and Cost: Conversions are faster to complete than new builds and typically cost 15-20 per cent less. They also provide immediate access to infrastructure like core structural elements, reducing build time significantly.
- Location advantage: Conversions in city centres benefit from existing infrastructure and nearby amenities, which aligns with Marriott’s demand for urban properties that are conveniently close to transit and commercial areas.
- Challenges in conversion: Structural and Mechanical Adjustments: Office buildings often have larger floor plates than hotels, creating “dead space” that can be challenging to repurpose. Structural issues like post-tension cables, seismic reinforcement (especially in heritage buildings), and HVAC retrofits can add significant complexity and costs.
- Elevator and parking constraints: Many office buildings lack elevator access to parking levels, necessitating costly workarounds like valet services. Adequate elevator capacity and guest access also require careful planning.
- Back-of-house needs: Finding space for hotel-specific operations (like housekeeping, laundry, and kitchen facilities) can be challenging, especially in heritage or smaller buildings.
- Aesthetic and guest experience considerations: Conversion projects must account for creating an inviting hotel experience from an office building facade. Factors such as signage, entrance design, and exterior aesthetics are critical, along with the need for communal spaces and guest amenities.
- Municipal incentive programs: Cities like Calgary have incentivized conversions to address vacant office spaces, offering financial support and regulatory flexibility. Other cities, such as Denver and Winnipeg, are considering similar programs.
In her keynote, Beth McMahon, president and CEO of the Hotel Association of Canada (HAC), highlighted the association's ongoing initiatives and advocacy efforts in the hotel industry.
KEY TAKEAWAYS
- Short-term rentals: HAC has been pushing for the release of a $50 million enforcement fund for municipalities to regulate short-term rentals, intended to mitigate their impact on housing and rental availability. The fund, previously announced but delayed by bureaucracy, is a critical priority for the association.
- Workforce shortages: Labour shortages continue to challenge the industry. HAC has launched campaigns to attract youth to hospitality careers, including a successful social media initiative with over 7 million views. Additionally, HAC is advocating for workforce-focused immigration solutions, especially for rural areas, despite public opinion pushing for immigration reductions.
- Immigration policy advocacy: With evolving immigration policies and the potential reduction of new permanent and temporary residents, HAC is lobbying for special workforce programs that will continue to support the hospitality sector, including programs targeting youth and recent immigrants already within Canada.
- Fraudulent visa bookings: HAC identified nearly 4 million instances of fraudulent bookings this year, which cost the industry significant time and resources. The association is working to implement prepaid visa requirements and to address misleading practices by immigration consultants that encourage fraudulent bookings.
- Election strategy: Anticipating a potential federal election and a shift toward conservative governance, HAC is building a strategy focused on improving the investment climate in Canada, as well as tourism promotion and infrastructure development.
- Green Key Global certification program: Sustainability initiatives, particularly the Green Key program (owned by HAC and the American Hotel and Lodging Association), were underscored as a key focus. This program aligns with a predicted rise in eco-conscious travel demand by 2025, highlighting sustainability as a growth driver for the industry.
This session concluded with a push for industry members to join HAC’s advocacy and participate in upcoming events to support ongoing campaigns for industry improvements.
In the fourth plenary session titled “Buy, Build, Finance, Open and Operate – It Takes More Than Five Easy Pieces!” panelists discussed hotel acquisition, development, and operations, providing guidance on common issues and innovative solutions. Moderated by Vera Liu of KingSett Capital, the panel included Jeff Hyslop from InnVest Hotels), Tom Lorenzo from Hilton, Irwin Prince from Realstar Hospitality, and Jiri Rumlena from SilverBirch Hotels & Resorts.
KEY TAKEAWAYS
- Project timelines and planning: Panelists stressed the importance of realistic timelines, especially in conversions, where “optimism bias” can lead to underestimating the complexity of renovations, new branding, and employee training.
- Cultural integration: For brand conversions, it’s essential to involve all staff in training and cultural shifts, enhancing alignment with the new brand’s standards and values.
- Repositioning challenges and brand standards: Negotiating Brand Standards: Rebranding involves negotiations on Property Improvement Plans (PIPs). While brands may have specific requirements, panelists highlighted the need to negotiate catch-all clauses to prevent unexpected, costly upgrades.
- Designer costs: Upscale brands often require specific designers, which can push costs above initial estimates, making negotiation critical for budget control.
- Flexible conversion strategies: Software-Based Rebranding: Soft conversions (where the focus is on brand change without extensive structural requirements) offer more flexibility, particularly in minimizing food and beverage obligations or other costly modifications.
- Adaptation to market conditions: Hilton, for example, provides financial incentives for conversions in high-priority markets, like Vancouver, where its footprint is relatively small.
- Labour and retention: Labour Shortages and Retention Strategies: To combat labour shortages, companies are emphasizing a supportive work culture, focusing on retention, and addressing fair wage negotiations. Labour turnover costs are high, making retention strategies and a positive workplace culture essential.
- Union negotiations: The panel discussed adapting to union wage expectations post-pandemic, noting that major urban markets with high union penetration require careful alignment to prevailing wage trends.
- Technology integration: Efficiency Gains: Technologies like automated scheduling and AI-driven revenue management are being implemented to improve labour and operational efficiency, contributing to an estimated 3-5 per cent reduction in staffing costs in some cases.
- Guest experience innovations: Text-based pre-arrival communications, automated upsell options (e.g., early check-in fees), and the use of robotic vacuums are examples of how hotels are streamlining guest interactions and optimizing operational workflows.
- Financing and acquisition: Current Financing Climate: While the financing landscape has seen improvement since the height of the pandemic, lenders are exercising caution, particularly regarding interest rate fluctuations and debt-service ratios. Panelists advised locking in favourable terms in the current market, where conditions may tighten.
- Market-specific considerations: Financial performance expectations vary by region; for instance, InnVest’s recent acquisition in Seattle has faced slower-than-expected market recovery, underscoring the importance of regional considerations in acquisition planning.
The fifth plenary session, “The CEO’s Perspective - The Road to Getting There,” featured insights on managing hotel operations, labour challenges, and talent retention strategies. Moderated by David Goldstein of Travel Alberta, the panel included Tony Cohen of Crescent Hotels & Resorts Canada, Christine Kennedy of Atlific Hotels, George Kosziwka of InnVest Hotels, and Ron Mundi of Mundi Hotel Enterprises.
KEY TAKEAWAYS
- Strategic growth and value creation: Ron Mundi described his strategy of hands-on management, leveraging a close-knit team culture to foster loyalty and encourage staff to progress to higher positions, including general management roles. His team’s focus is on building and managing hotels across Western Canada.
- George Kosziwka emphasized creating value by bringing services, such as hotel management and renovation, in-house, which has improved profitability and enabled control over service quality. InnVest’s strategy also includes acquiring underperforming properties and optimizing their performance, particularly in high-demand areas like Banff.
- Christine Kennedy shared Atlific’s strategy of supporting owners by leveraging their national reach and deep market knowledge to help target acquisitions, especially in a post-pandemic context where opportunities are growing as interest rates stabilize.
- Tony Cohen highlighted the benefits of being an independent operator with no real estate ownership, allowing Crescent to focus purely on client success. Their goal is to grow with strategic clients and assets where they can make the most significant impact.
- Labour and union negotiations: Christine Kennedy noted heightened union activity in Quebec and British Columbia, with significant wage increases impacting the industry. For properties managed by Atlific, the focus remains on fair wages and respectful treatment to foster loyalty, whether or not properties are unionized.
- George Kosziwka shared InnVest’s approach of proactively implementing wage increases in unionized hotels, even without a final contract, to stay competitive and avoid strikes. He pointed out that current wage increases reflect the rising cost of living and market expectations.
- Employee retention and development: Ron Mundi discussed Mundi’s investment in developing new talent directly from hospitality programs, providing both financial and career growth incentives. This strategy has led to high retention, with employees progressing through the ranks and even becoming co-owners.
- Tony Cohen emphasized creating a positive work culture, with a focus on inclusivity and purpose, which is crucial for retaining Gen Z employees. Crescent’s strong Glassdoor rating highlights its success as an employer of choice.
- George Kosziwka stressed the importance of realistic and achievable bonus structures to keep general managers engaged, linking performance incentives to attainable goals and fostering a motivating environment.
- Cost management in a high-expense landscape: The panel acknowledged the pressure of increasing operational costs post-pandemic. With revenues stabilizing, it has become essential to manage expenses prudently, particularly in labour-intensive markets where talent costs have risen due to unionization and wage demands.
- Leveraging technology, efficient scheduling, and flexible budgeting were noted as critical strategies to optimize expenses without compromising service quality.