January 2004 - The first nine months of 2003
has seen a marginal increase in market transactions when compared to recent
years in Western Canada. However, the opportunity to complete more
transfers has been reduced as the price spread between the expectations
of purchasers and vendors was still too wide. To date this year, 19 hotels
transactions have taken place in Western Canada as listed below.
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One of the largest sales listed above, was the
Parkhill Hotel in Vancouver�s West End residential district that was bought
for conversion into residential apartments as the hotel market in downtown
Vancouver continues to decline. During the late part of September, Sutton
Place Hotels, stepped into the market again, after many years of inactivity,
and purchased the Sheraton Grande in downtown Edmonton. This hotel was
first opened as a Four Season�s over 26 years ago and was later sold to
Hilton International and finally to Gencom from Houston who franchised
with Starwood�s Sheraton brand. The general perception is that until the
margin between the buyers�
expectations and sellers top price narrows, few
hotel transactions will take place, but clearly that time is now changing.
With the banks not cooperating in financing hotels, this will further frustrate
hotel buyers in being able to close deals without vendor financing.
On a positive note, the announcement that Vancouver/Whistler
has won the right to host the 2010 Winter Olympic Games should provide
a needed boost for the B.C. economy and encourage international investment
in our province. Vendors, however, need to maintain some sense of reality
in their pricing expectations, as few buyers will be willing to pay the
prices that are being asked.
This problem is enhanced by the fact that during
the past couple of years, most properties have faced a substantial decline
in net operating income. As a result, asking prices with cap rates of 10%
and below, (and they may be negative due to negative cash flows), are deterring
investors.
This trend indicates that there are a lot of hotels
unofficially on the market for sale in Vancouver and throughout our province,
however, the majority of buyers are looking for deals with upside potential,
so only properties that at least have some net income to cover debt service,
are likely to sell, unless receivership or bankruptcy scenarios force the
sale of the hotel.
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According to the Pannell Kerr Forster (PKF) Trends
report for 8 months through August of 2003, B.C. as a whole is down 2.7%
over the same period of 2002 in occupancy and 3.1% in average daily rate
(ADR), for an overall decline of 5.7% in revenue per available room (RevPAR).
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The trend is similar in Greater Vancouver, however,
the other areas of B.C., which includes the interior and some northern
communities, is only down 0.2% in RevPAR in 2003 with Kamloops actually
posting a 13.3% increase.
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The most improved markets over 2002 during the first
seven months of 2003 include Parksville/Qualicum, Other Areas of Vancouver
Island, Kamloops and Penticton with RevPAR gains of 8.3%, 20.6%, 13.3%
and 4.8% respectively.
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In contrast, the Downtown Vancouver market has seen
the largest decline with a 8.5% decline in RevPAR, followed by other Vancouver
hotels and Greater Victoria with declines of 7.8% and 6.6% respectively.
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Alberta has also seen the effects of the decline
with the province down 8.0% through August with the only positive growth
coming in the City of Red Deer which saw RevPAR grow by 4.4%.
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Most regions of Saskatchewan continue to show improvement
over 2002 with the province posting a 2.4% increase.
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While the Greater Vancouver area is down 8.0%, it
pales in comparison to the declines that have ravaged the Greater Toronto
Area where RevPAR is down 24.6% due to the effects of SARS, the Iraq war
and other international crisis situations that have deterred visitors from
travelling.
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Looking forward through the last quarter of 2003
and into 2004, we believe that more hotel investors will look at Vancouver
as a place where the hotel sector will continue to show signs of increased
activity with the expectation that the market will prove to be resilient
and that with the generally safe economic and political climate in western
Canada, tourism and the convention business will rebound faster than in
other parts of North America.. We are seeing signs that more hotel owners
may be forced into selling, as the banks are starting to tighten their
credit policies, as mortgages mature or hotels are unable to service the
debt.
Tyne
Hospitality Services Limited is a commercial real estate brokerage firm
specializing in the sale of hotels and resorts in western Canada. For more
information, we invite you to visit our website at www.tynehospitality.com
or contact us by phone, fax or email.
The information contained herein was obtained from sources which
we deem reliable and, while thought to be correct, is not guaranteed by
Tyne Hospitality Services Limited.
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