The highest-priced deal in Canadian hotel lodging history had tongues wagging at a Toronto conference as industry leaders speculated what the price of 1.3 million Canadian dollars per room for the Hazelton Hotel could mean for the market.
First Capital REIT agreed to a deal this month to sell the boutique hotel in Toronto, along with the real estate investment trust's interest in an adjoining restaurant, to Hennick & Co., a private investment firm controlled by Canadian billionaire Jay Hennick. Hennick is also the chairman, chief executive and controlling shareholder of Colliers International.
"The only transaction I want to talk about is the Hazelton Hotel, which is a phenomenal property," said Rob Kumer, president and chief investment officer of KingSett Capital, during a panel discussion at the Canadian Hotel Investment Conference in Toronto on Wednesday.
Kumer said the property reportedly traded at a capitalization rate of 4 percent or below 4 percent, an expected annual yield that "probably exceeded everyone's expectations."
Kumer was direct in wanting to know whether the deal would spark a trend.
"It's an exciting trend to have in our marketplace and definitely marks the highest price per room we have ever seen," said Robin McLuskie, managing director of hotels for Colliers Hotels, noting the Four Seasons in Toronto traded for under $900,000 a key back in 2016. "It just proves the depth of the Toronto market. It is a top-tier investment market people want to be in."
McLuskie said the Hazelton Hotel, located in the city's trendy Yorkville neighbourhood known for attracting film stars during the Toronto International Film Festival, garnered a "depth" of bidders.
"It caters to that buyer profile that is a family office with long-term vision and probably not the same investment parameters as others," McLuskie said.
Hennick & Co.'s website says its real estate division aims to acquire institutional quality office, industrial, retail, multifamily and mixed-use real estate assets in major markets that "we would be proud to own for generations."
Paul Morassutti, chairman of CBRE Canada, said several clients reached out to his firm on the day the deal was announced.
"I'm not familiar of the mechanics of the deal, but it makes total sense to me," said Morassutti. "The boutique [nature of the property], the Yorkville location, the great operating history and not just in Toronto but globally, there are lots of these specialty trophy deals where the going in yield is almost irrelevant," said Morassutti, adding the CA$1.3 million per room price, or about US$965,000, was not unreasonable. "Assets like that just do not come to the market."
McLuskie noted deals in the United States for some sought-after-hotel properties are going for even higher prices.
Brian Flood, executive vice president and practice leader of the hospitality and gaming group in Canada for Cushman & Wakefield, said his firm sees values exceeding CA$1 million per room for some Canadian hotels.
"It's not atypical. It makes total sense. I think [these assets] take a long-term perspective. Most of these assets are irreplaceable," said Flood, noting there have been few large significant hotels built in Canadian cities recently. "The land values make it very hard."