Ritz-Carlton announces new Toronto development as hotel industry bounces back
12.06.2009, 15:20
Investors who have shunned the hotel industry for years are now clamouring for a piece of the action as the sector rises from the depths it experienced after the Sept. 11, 2001 terror attacks in the United States and the SARS scare.
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On Tuesday, The Ritz-Carlton Hotel Co. announced it is building a 53-storey luxury hotel and condominium complex in downtown Toronto. The $300 million project was announced just days after the news that Saudi Prince Alwaleed bin Talal had bought the city's Four Seasons hotel.
That property will now undergo some renovations, said Douglas Ludwig, chief financial officer of Four Seasons Hotels and Resorts.
Those two luxury hotels will compete with the $500-million Trump International Hotel & Tower currently under development in Toronto.
And a consortium of Canadian and American investment groups is in negotiations for five Canadian Westin-branded hotels, an industry source confirmed Tuesday.
"If you go back a couple of years, you wouldn't have even had anyone touch those (projects) from a financial point of view," said Lyle Hall, an industry consultant with Toronto's Hall Hospitality Advisors.
Now, he said, there's "way too much money chasing way too little prize."
Occupancy levels have recently recovered as business and leisure travel pick up, and room rates are on the rise.
Michael Beckley, vice-president of development for Marriott International Inc., the parent company of Ritz-Carlton, said "the hotel industry has really bounced back, both from an operating perspective as well as a real estate perspective. So there's a lot of interest in it from all sorts of angles right now."
Canada stands to reap North America's gains as the U.S. hotel market reaches saturation, said Hall.
His company partnered with Colliers Hotels International to host a hotel investment conference in Toronto last week.
"The mood at that event was very much one of interest in acquisitions. There was interest by a lot of U.S. companies coming up here and looking at Canadian investment opportunities, because there's not very much in the States, it's been pretty much picked over," Hall said.
Pension funds and banks are among the investment groups that are shopping in the hotel industry right now, he said.
Besides Toronto, Vancouver stands out as a bright spot thanks to the coming Olympics.
"While it's difficult to think of people building things for a two week event, the hype and the energy out there is really quite profound," Hall said.
While the recovery appears strong, it is still fragile.
"Until somebody puts the shovel in the ground, they are great concept pieces on paper," Hall said of the recently announced hotel projects. "But they've got to get built first."
The International Society of Hospitality Consultants (ISHC) cites global uncertainty, including terror attacks, as the top challenge this year.
It also notes that a proliferation of branded hotels is causing the product to become a commodity, with hotels losing the ability to cater to local cultures.
And as new investors flood the industry with capital, there is a risk the taps will be turned off by another round of disappointing earnings.
Hall said the recent announcement of passport requirements for Canadians and Americans crossing the border could also damage Canada's hotel industry. About 85 per cent of international visitors come from the United States.
"It's a cyclical industry, but usually the good times do last for a lengthy time," said Ludwig.
The next phase for expansion is hotels that lure travellers, by combining with convention centres, Hall said.
"You need hotels that generate demand as much as hotels that service demand," he said. "People don't come to Toronto because it's got a Ritz-Carlton. They come to Toronto for something else and stay in a Ritz-Carlton."