HC² maps out Canadian hotel opportunities

TORONTO — The last time hotel financing was this liquid was in the mid-1980s, said Mark Kay of CFO Capital in his opening remarks to Hotel Capital Connection (HC²) on Oct. 30. Monique Rosszell of HVS identified some of the gaps in the Canadian hotel just waiting to be filled.

Held at the Ritz-Carlton Hotel and run by Big Picture Conferences, the summit, which is back following a three-year hiatus, attracted 135 mostly C-level registrants — owners, lenders, lawyers and tax experts from the hospitality community.

The afternoon format allowed for a light lunch, opening remarks and two in-depth panel discussions, with a break in between, and a cocktail reception following the summit. The foyer was abuzz with conversation, as delegates discussed possible deals and caught up on the latest industry news.

Mark Kay is principal broker and president of CFO Capital, a leading provider of commercial real estate capital across Canada. Elaborating on his comment about today's liquidity, Kay said that in 2008, there was very little capital available, but now lenders are cautious optimistic, focusing on viability. The industry is seeing new entrants to the market in primary, secondary and tertiary markets. For example, CFO recently provided financing for Travelodge by Wyndham Stony Plain, Alta., and the Maritime Inn in Antigonish, N.S.

Monique Rosszell, senior managing partner at HVS, gave the 10,000-foot view of the lodging market in Canada. “I hope you have a crystal ball,” she said. “I'm under a lot of pressure. Everybody is asking if we're at the tipping point or will continue to see growth in Canada.”

In her presentation, she pointed out a number of areas of opportunity.

Provinces lacking supply: There are about 7,500 hotels with 450,000 rooms in Canada, a country with 37 million people. Ontario and Quebec attract a number of immigrants and the hotel growth has not kept up with the population. In Ontario, the spread between population and hotel supply is high, while in Quebec it is slightly lower. Every province where the rooms percentage is lower than the population percentage has not kept up.

Older hotels: Rosszell noted that 58 per cent of the country's room supply is over 30 years old; only 6.1 per cent is less than five years old — and much of that is concentrated in Western Canada. In Ontario and Quebec, new supply is around 4-5 per cent. Given that the average life of a hotel is 60 to 70 years, there is an opportunity for new supply.

Unbranded properties: Here in Canada, only 55 per cent of the hotels are branded with 45 per cent either independent or Mom and Pop operations. This compares to the U.S., where 72 per cent of the hotel room supply is branded. The 45 per cent of properties in Canada that are branded are represented by nine hotel chains. Best Western is better-represented in Canada that in the U.S., but many of the other chains are not. Hilton has twice the percentage of supply in the U.S. Hyatt has just one fifth of the U.S. representation — but that is quickly changing as Hyatt has 22 hotels in the pipeline.

“We need to increase new supply,” Rosszell said. Canada will finish 2019 with about 1.4 per cent increase in supply; 2020 should see 1.9 per cent and 2021, 2.3 per cent. “In the next few years, we will get new supply, but northing compared to the U.S.”

Ontario will have high growth at about 12,000 rooms or 8.8 per cent new supply, but it needs that growth. Alberta's growth rate is comparable with 7,000 rooms or 8.8 per cent, but that is a lot of rooms for Alberta. Saskatchewan is also strong at 1,300 rooms or 6.4 per cent; Newfoundland and Labrador plans 500 rooms or 7.9 per cent; and B.C. will have 3,000 rooms or 3.7 per cent.

The Finance Focused Risk panel was moderated by Charles Suddaby of Cushman & Wakefield, with panellists Ed Khediguian of CWB Franchise Finance, Mark Kay of CFO Capital, Alexis Levine of Blake, Cassels and Graydon and Roy Dias of BMO Bank of Montreal. The experts provided insights into the expectations of lenders in today's market.

The legal panel, moderated by David Larone of CBRE, included Jason Arbuck of Cassels, Brock and Blackwell, Christie McNeill or Aird & Berlis LLP, Harley Gold, and Andy Mittra of Business Development Bank of Canada (BDC).