Second Quarter 2005
Following a lackluster period of hotel investment activity in 2004, transaction sales and activity surged during the first half of 2005. Year to date (YTD) June 2005 transaction volume reached record levels, matching the all-time peak mid-year results of $1 billion in 1998 and exceeded more than five times prior year results of $185 million.
Contributing to this tremendous activity were eight strategic trades, representing 68% of aggregate volume and totaling $692 million. This is the highest number as well as the highest volume of strategic acquisitions ever.
When strategic acquisitions are excluded, transaction activity when
comparing price per room, has also improved considerably, increasing 40%
over YTD June 2004, from $57,500 to $80,500 per room. While pricing per
room is in part, a reflection of the assets that come to market in a given
year, the notable increase in 2005 reinforces the strength of the hotel
investment market and the continued appetite for product. A table
summarizing mid-year hotel investment activity from 2001 to 2005 follows.
Institutional investors have emerged as a dominant force this year (made up of opportunity funds, pension funds and real estate companies) representing more than half (55%) of the volume and seven of the trades completed. Historically, this group has not been an active participant in the sector. Anthem Properties, a Canadian real estate company, with a portfolio of office, retail, multi-family and industrial buildings, purchased its first hotel asset - the 233-room Pacific Palisades Hotel Vancouver in June 2005 for $41.2 million ($176,800 per room). Also included in this buyer group is Starwood Capital Group, who along with their institutional partners, acquired five Westin properties across Canada for an estimated $516 million. This is the company’s first acquisition in Canada.
Private investors represented the second most active group so far this year, reflecting 21% of the volume. With well-capitalized backing and established lender relationships, private investors have maintained a dominant presence with a range of 35% to 43% of volume from 2001 to 2003 and a volume spike to 73% in 2004 (the result of the acquisition of 41 hotel assets worth some $270 million). Over the years private investors have acquired a range of assets from larger urban hotels like the 188-room Holiday Inn Calgary for $17.5 million in June 2004 to the small properties in tertiary markets such as the 92-room Best Western Inn & Suites in Red Deer, Alberta for $6.4 million ($69,600 per room) in February 2005.
After a reported 3% of volume share in 2003 and inactivity in 2004 (a result of poor operating fundamentals and the scarcity of suitable product during these years), REITs have resurfaced as a dominant investor group that is actively seeking hotel product, with $116 million or 11% of total activity for the first six months of 2005. REITs were the most active group in 2001, with 46% ($305 million) of aggregate sales and in 2002 was the second most active group, with 26% ($124 million) of total volume.
Public companies and hotel investment companies each made up 6% of volume YTD June 2005. In the period from 2001 to 2004, public companies investment has ranged from 5% to 11% of total volume share, although in 2003 it spiked to 26%, as groups such as Fortis Properties and CNL Hospitality Properties expanded into new markets. In contrast, public companies have reported fluctuations in activity levels ranging from 2% of volume in 2001, to 24% in 2002. In 2003 and 2004 volume share was 16% and 14% respectively.
A number of noteworthy trades were completed during the first six months of 2005, including:
INNvestment is published quarterly by Colliers International Hotels. Comments and suggestions are welcome
Colliers International Hotels
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|Also See:||Rolling the Dice on Canadian Casino Hotels - Lyle Hall / Colliers International / Including Q1 2005 Hotel Transaction Summary / May 2005|
|Hotel Financing - Oxymoron or Reality? Robert Shiller, Colliers International / Including Q3 2004 Canadian Hotel Transaction Summary / October 2004|
|Hotel Growth Strategies; Value Creation and Preservation / Colliers International / September 2004|
|Mid Year Canadian Hotel Investment Industry Summary / Colliers International Hotels / July 2003|
|Slow, Steady and Strong Wins the Race / Colliers International Hotels / INNvestment Canada Fourth Quarter 2003 / January 2003|
|Canadian Hotel Investment Report 2002 - Colliers International Hotels / Feb 2002|
|Canadian Hotel Investment Report 2000 - Colliers International Hotel Realty / Feb 2000|