Who buys and sells hotels in Canada?
How big is the Canadian Market? The Canadian Hotel Market has been well over a $1B per year for the last four years. According to Colliers’** the total value of all transactions in 2014 was…
How big is the Canadian Market?
The Canadian Hotel Market has been well over a $1B per year for the last four years. According to Colliers’** the total value of all transactions in 2014 was approximately $1.4B and they are predicting similar volume for 2015. Many non-traditional hotel investors who are looking to diversify their portfolio have entered this market in search higher yielding real estate assets. With a market of this size, who is involved in all of this buying and selling?
The participants in the hotel industry are grouped into 5 main categories. While there can be some overlap for some of the groups, the majority of the buyers and sellers fall into one of the following 5 groups.
- Private Investor – could be s single individual or a small group acting together i.e. 3 friends
- Real Estate Company – this is usually an investment company that buys a combination of differing types of real estate such as raw land, single family homes, apartments, commercial real estate and hotels.
- Public Company – these are publically traded hotel REITs who are looking for de-risked assets that provide steady returns.
- Institutional – large diversified investment funds which invest money on behalf of pension funds, pooled funds, or corporations.
- Hotel Investment Co. – tend to be private entities with hotel management experience who are more focused on challenged assets which they can add value.
The two charts below illustrate the relative level of activity in 2014 from each group.**
Highlights from the Graphs
- Private investors were the most active in 2014 on both the buy and sell side. Activity by private capital has been a consistent component of the overall transaction environment over the years since 2009.
- In 2011 the Public companies continued to sell non-core assets and take advantage of improving capital conditions to tighten their investing focus.
- Hotel investment companies (HICs) continue to be motivated by opportunistic turn-around deals across the country. Historically they acquire properties at a lower price per room and repositioning with capital and other value-add opportunities.
What this means for our Fund
There are several factors in the current market which we deem beneficial. The large number of transactions provides good liquidity to the market and enables a more transparent pricing structure. This liquidity also means we don’t have to settle for substandard assets. We also like that there are multiple players with similar influence which points to a free exchange rather than one or two players controlling the market. The largest buyer group is the “Private Investor” which supports our model of active selling from small businesses and single owner operators. With the activity level expected to remain high over the forecasted year, we remain confident in our ability to find valuable assets that support our fund mandate.
** Colliers 2015 Canadian Hotel investment Report