The Muskoka region's Deerhurst Resort is up for sale just weeks after playing host to the Group of Eight summit, as its U.S. owners try to take advantage of the resort's sudden high profile and the perceived safety of the Canadian real estate market.
The deal's ramifications extend far beyond Ontario cottage country. The recession has been brutal on resorts across North America, so much so that industry insiders have no idea how much the 114-year-old property may fetch on the open market.
The metrics used to value these properties - average rental rates and comparable sales - are thin because there have been so few properties sold in the past four years. That means all eyes are on Huntsville, Ont., because a successful sale could set the tone for future transactions.
"All we know is values are way down from a few years ago," said Queen's University Professor John Andrew, who specializes in commercial real estate. "We have no idea if values are down 15 per cent or 50 per cent, so this process is quite important to the broader industry."
Real estate consultant Colliers International said in its annual review that the number of hotel sales - including resorts - fell by 20 per cent in 2009. Sales volume dropped 61 per cent to $414-million, as buyers exited the market in anticipation of more hard times for the tourist-dependent sector.
There were a slew of distressed sales among smaller players that couldn't pay their bills. Industry giant Intrawest ULC, meanwhile, struggled under the weight of its debt and had to refinance in the middle of the Winter Olympics to hold onto its prized Whistler-Blackcomb resort in British Columbia.
"If you look through the deals over the years, you don't see these types of properties sell very often," said Colliers executive managing director Alam Pirani. "The last significant transaction was in 2006 when the Fairmont portfolio was sold, so it's hard to gauge values."
Deerhurst was founded in 1896 and run by the Waterhouse family until 1990, when it was sold to Apotex Corp. chairman and chief executive officer Barry Sherman, who had hoped to develop a casino on its grounds.
It was bought in 1998 by Cornerstone Real Estate Advisers LLP, a Hartford Conn.-based fund, for an estimated $21-million. Cornerstone has since spent an estimated $60-million on renovations.
Deerhurst now has space for 1,000 guests in 400 rooms and suites, two golf courses, conference facilities, seven restaurants, a spa and salon, and 3,000-foot airstrip.
The owners said the decision to sell was made because of an improving commercial real estate market, not because of financial distress. An asking price wasn't disclosed.
"We've seen a pickup in transaction volumes across North America," said Bill Stone, executive vice-president of CB Richard Ellis Hotels, which is handling the sale. "It was quite quiet for a long time, and there really hasn't been anything like it on the market."
The official sales material will be distributed to potential buyers Tuesday. Targets primarily include pension funds and private equity firms looking for longer-term investments, although CBRE plans to target some high-net worth individuals as well.
"We will give these groups indications of what we're looking for, but there is no formal listing price," Mr. Stone said. "We are looking for offers."
While the G8 Summit was a welcome shot of global publicity, Deerhurst spokeswoman Anne White said the resort didn't receive funding to spruce up the resort for the world's most powerful dignitaries and their staff.
"The majority of the on-site government budget was event-based and temporary," she said, adding an undisclosed amount of government money was spent "to ensure all 10 leaders' suites were identical and to reconfigure a ballroom half-wall slightly to allow for the division of the space."
Still, the spending associated with hosting the government summit pumped at least $50-million into infrastructure projects in the area to prepare for the world leaders' visit. The improvements included the repaving of Deerhurst Road, improvement of the region's power grid and enhanced cellphone coverage.
"This offering will have international appeal. It represents a unique opportunity to own a highly recognizable asset, in a beautiful part of the country," Mr. Stone said.
Still, location may not be enough to convince buyers to step into the world of resort ownership at a time when valuations are hazy.
In January, the 221-room Rosseau resort was placed on the auction block after lenders pulled their funding on the $170-million project. Located west of Deerhurst, the sale was cancelled in April, leaving the fully developed property in the hands of its creditors.
"The Deerhurst sale could help set the value for all of these other types of resorts," Mr. Andrew said. "If it doesn't go through or flounders, it would be a sign things will take a while longer to sort out.
The Deerhurst story
1896: Opened by British entrepreneur Charles Waterhouse on a four-acre plot. The resort has 18 bedrooms, a dining room, a smoking lounge, and a verandah. Guests arrive by steamboat.
1972: First set of significant renovations enable resort to open year-round.
1980s: Period of dramatic expansion adds a convention centre and a golf course. Deerhurst launches nightly Vegas-style shows. Timmins, Ont.'s own Shania Twain performs on stage for three years. The singer later auditions for her first record contract at the resort.
1990: Bill Waterhouse, grandson of founder Charles, sells Deerhurst to Apotex chairman Barry Sherman.
1998: Acquired by Cornerstone Real Estate Advisers.
2000: $25-million expansion adds a new hotel wing, conference centre, lobby, restaurant and indoor pool.
June, 2010: Hosts the Group of Eight summit. Federal money is used to repave Deerhurst Road, improve the region's power grid, and enhance cellphone coverage.
Size: 780 acres, including a private airstrip, two 18-hole golf courses, and paintball-game terrain.
Accommodations: 400 guest rooms with 1,000-guest capacity. Lodging ranges from hotel rooms to three-bedroom condo-style units with full kitchens and fireplaces.
Conferences: 45,000 square feet of indoor venues host about 40,000 delegates each year.
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