Canadian hotels are realizing solid growth in operating results and strong activity in the investment sector. Although the number of hotels sold in Q1 2012 was below the prior year period, volume and pricing increased substantially. Based on Q1 trending CBRE Hotels expects 2012 will be a very active year for the hotel sector, as investors redeploy capital in keeping with their longer-term growth strategies. Institutional owners will make available a number of non-core assets as they rebalance their asset mix and take advantage of favourable market conditions.
Q1 2012 hotel transaction volume was approximately 151 per cent ahead of the same quarter last year and represented an increase of 27 per cent over Q4 2011. Average price per room for Q1 2012 is reported at approximately $142,000, well above the Q1 2011 average of $69,500, however this quarter’s per room pricing has been skewed upwards with the inclusion of the Four Seasons Toronto.
“Transaction types have been varied over the first quarter of 2012, including a number of assets purchased for conversion to alternate use”, noted Bill Stone, executive vice president of CBRE Hotels. “Most prominent among them is the Four Seasons Toronto which sold in March 2012 and is being converted to residential condominiums.” While demand is strengthening, ADR remains below pre-recession levels in many markets. The lack of ADR growth since the recession and higher demand levels should be an impetus for rates levels to improve, increasing returns to owners.
Stone added: “The number and diversity of deals being brought to market is escalating, while cap rates and pricing appear to be stabilizing. 2012 is shaping up to be a strong year.” This activity is largely driven by commercial real estate capital markets that continue to be active for both borrowers and lenders, with the entire spectrum of deals being funded. According to Nektarios Diamantopoulos, vice president of CBRE Debt and Equity Finance, “as a result of improved liquidity, there have been enhancements to deal structures benefiting the borrower, as opposed to 2010 when underwriting guidelines remained stringent coming out of the global economic recession.” “While banks and pension funds continue to be lead lenders”, he added, “new sources of debt have emerged including international funds, sponsored funds, credit unions and private lenders, and there is also evidence of a very active secondary and mezzanine debt market.”