Western Canada 2003
Western Canadian Hotel Sales 2003
|As we enter 2004 and reflect back upon 2003,
it is evident that the year proved to be one of the most challenging years
in the history of Western Canada’s hotel industry and for most other countries
in the world. The lingering effects of 9/11, SARS, Mad Cow disease, the
Okanagan forest fires all contributed to provide challenges to not only
the hospitality industry, but the general economic climate of our region
and Canada. We are optimistic that in 2004, barring any other natural or
man-made disasters, we may be finally begin to see some greater confidence
The general perception in the hotel investment market has not really changed since our third quarter market report in that, until the margin between the buyers’ expectations and sellers top price narrows, few hotel transactions will take place. We believe that margin will gradually narrow in 2004. The single biggest problem facing the hotel markets is 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 the Vancouver area and throughout the province; however, the majority of buyers are looking for deals with upside potential. Only properties that have sufficient net income to cover debt service are likely to sell, unless receivership or bankruptcy scenarios force the sale of the hotel.
With most of Canada’s chartered banks reluctant to renew hotel mortgages, more owners may be forced to sell or seek financial partners if they cannot secure replacement financing. We are working with one source of hotel financing who has funds in the $1 - $5 million range and are targeting hotels that have to refinance.
The announcement that Vancouver/Whistler will host 2010 Winter Olympic Games has provided some increased interest in the major markets in BC, notably downtown Vancouver, Squamish and Whistler. 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 and the demand projections associated with the Olympic Games may be overly optimistic.
According to the Pannell Kerr Forster (PKF) Trends report for 11 months through November of 2003, RevPAR in Western Canada as a whole is down 4.9% over 2002. Saskatchewan fared the best posting a 3.0% gain, followed by Manitoba which saw a decline of 2.1%, B.C. which fell 4.7% over 2002 and Alberta saw the largest drop with a 6.8% decline over the same period in 2002. These rates compare to an overall decline in the country of 8.8%. The following are some of the highlights for the first eleven months of 2003:
Looking forward, there are two key components to investment and growth in the Vancouver market, the first being the pending groundbreaking of the expansion to the Vancouver Trade & Convention Center (VTCC). Construction is expected to begin this fall with completion in 2008. The expansion of the VTCC with an additional 419,000 square feet of meeting space (a 300% increase over the current size) will have a significant impact on the Vancouver lodging market, much more so than the Winter Olympic Games in 2010.
The second key however is far more challenging due to the escalating land prices as the city planning department allows more and more commercial sites to be rezoned for residential development. With the limited amount of good hotel sites left in the Central Business District of Vancouver, hoteliers may have to become more creative in the approach to site selection by working with condo developers to include a hotel component in a residential high-rise, by demolishing obsolete hotels or office buildings and rebuilding them with modern hotel facilities. The price per square foot that can be justified by hotel developers are well those being paid by residential developers.
Vancouver hotel prices are a bargain on the international travel scene with an average daily rate of less than $93 (US) compared with cities like Seattle at $130.00 (US), San Francisco at $146 (US), New York at $194 (US) or London at $185 (US). While this encourages visitation to the city and region, it discourages new hotel development as the current prices of land and construction are too high for projects to be financially viable.
Supply growth has been limited during the past few years in Vancouver but the suburban markets like Richmond and Surrey continue to see new supply. In Surrey/Langely, over the past eighteen months and including the hotels that are now under construction and scheduled to open in 2004 –the Surrey hotel market will see a 73% increase in rooms and the total market supply will increase by 48%. The Surrey/Langley market ran at an occupancy of 55.4% through November 2003 with an ADR of $80.44, for a RevPAR of $44.58, which is down 0.7% over 2002. With all the new supply that is entering the market, hotels have sold at less than replacement cost, as was evident with the Meristar REIT hotel sales.
Financing will continue to be an issue for the industry in 2004. Developers are continuing to explore alternative methods of finding financing including mixed use projects such as residential with hotel and retail. Developers are even still trying to convince investors that strata hotels are a good buy, even with law suits pending against the developer’s of several British Columbia hotels. Investment activity in the Western Canadian Hotel market in 2003 saw a total of 39 transactions. The largest sale that took place was that of the Sheraton Grande in Edmonton that was purchased by Sutton Place Hotels for seventeen million dollars. The Park Hill Hotel in Vancouver’s West End, sold in 2002, and was sold again in March of 2003. It should open in the spring of 2004 as a Sandman Inn & Suites.
Probably the most note worthy sale of the year took place in December when Meristar (the largest US REIT) sold its remaining Canadian assets in a portfolio sale that included the Holiday Inn Metrotown, the Holiday Inn Calgary Airport and the Ramada Vancouver Center. A fourth property, the Sheraton Guildford is scheduled to close in February and all four properties have been purchased by a single buyer from Toronto. One of the largest Canadian hotel companies, CHIP REIT, was also active in 2003 selling off its three Imperial 400 properties in a transaction that involved CHIP carrying the debt on the properties.
Western Canadian Hotel Sales 2003
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.
Tyne Hospitality Services Limited
Angus G. Wilkinson, CGA, MHCIMA
Eric S. Pateman, MHCIMA
|Also See:||Hotel Market Update in Western Canada; 3rd Qtr 2003 - Hotel Transactions, Market RevPar, Occupancy Report / Tyne Hospitality / January 2004|
|Hotel Market Update in Western Canada; Hotel Transactions, Market RevPar, Occupancy Report / Tyne Hospitality / September 2003|
|2003 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / January 2004|