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Expect fewer Canadian hotel mega-deals – report

Hotel sales in Canada will stay strong yet are set to slip from the near-record levels of the past two years with fewer large-scale deals being made, according to a new report from CBRE Group Inc.

High demand for stable assets in major markets will continue to impel transaction volume, with hotel investments projected to total $3 billion in 2018, the real estate services firm stated. That’s down from $3.4 billion and $4.1 billion in 2017 and 2016, respectively.

“This is still a really strong period, though we do anticipate the large-entity deals and M&A deals to be fewer this year, with overall activity in individual and small-portfolio sales,” CBRE Hotels executive vice president Bill Stone told Bloomberg in an interview. “It’s a very brisk market both from a transaction standpoint and on an operating basis.”

Foreign capital played a central role in the past two years, with two of the largest purchases made by companies with ties to Hong Kong. In 2017, Leadon Investment Inc. bought a group of upscale hotels across Canada from British Columbia Investment Management Corp. for $1.1 billion. The year before, InnVest Real Estate Investment Trust was acquired for about $2.1 billion by Bluesky Hotels & Resorts Inc.

Portfolio sales like those are rare, so total transaction volume is likely to fall this year, according to Stone. The industry will remain robust, however, as growth in overseas travel makes hotels attractive investments.

Demand has been booming for all types of commercial real estate in Canada as investors seek high-yield assets in a haven from global turmoil. Transactions reached a record $43 billion in 2017 and are set for potentially higher volumes this year, CBRE said last month.

Related stories: Canada’s commercial segment sets another record in 2017 – report

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