Canadian Real Estate Market Ends 1998 On Upswing, ?99 To Bring Price Stabilization

TORONTO? The Canadian stock market carried into 1998 much of the momentum it gained in 1997, even though the year was plagued with the weakened Canadian dollar, falling commodity prices, and Asian and Russian economic crises. These conditions contributed to a slight market correction which occured in September and showed signs of recovery by year?s end. According to a report by Colliers Int?l Hotel Realty, the Canadian hotel market ended 1998 by reaching just over $1.3 billion in transactions, a decrease of over 32% over the previous year?s $1.9 billion. However, $835.6 million of 1997?s transaction volume included the sale of 11 Canadian Pacific Hotels to the Legacy Hotels REIT which was not considered an arm?s length transaction. Excluding this portfolio sale, 1998 transaction volume actually increased by 27% over the previous year. Additionally, the price per room increased by 4% from $55,800 in 1997 (excluding Legacy) to $57,800 in 1998. It was, according to Colliers, another phenomenal year with significant fluctuations in investor attitudes as the year progressed. Real estate transaction activity occurred within most of the major cities in Canada. However, no trades were recorded in Victoria and downtown Vancouver. Montreal, on the other hand, enjoyed the most activity, representing 12% of the total transaction volume with 10 hotels trading hands, up from six in 1997. Four of the hotels were purchased by American buyers and four related to UniHost?s acquisition. The second most active market was Toronto Airport, accounting for 9% of all activity, an increase of 42% over the previous year?s volume. The largest single acquisition was the Radisson Hotel des Governeurs in Montreal, which sold in October for $67 million, or $94,200 per room, to Legacy Hotels REIT. The next significant trade was the Montreal Bonaventure Hilton, which was acquired by Westmont Hospitality for an estimated price of $35.6 million, or $90,000 per room. Colliers said that the Canadian real estate buyer profile will be somewhat different in 1999, with private and institutional capital once again dominating. While the REITs and public companies are expected to remain cautious until the capital markets stabilize, well-capitalized Canadian and American private investors and investment funds will return to the market. Stable pricing is expected this year, according to the report, as occupancies and rates are expected to grow in most markets. However, returns will be pushed upwards because of more stringent financing and underwriting requirements, and higher rates of return needed not only by the REITs and public companies, but private and institutional capital sources, said Colliers.