Oxford Properties Group is planning to sell half of its ownership in the Fairmont Banff Springs, Chateau Lake Louise and two other resorts in the Canadian mountains, in what could be one of the biggest hotel deals in recent years.
The real estate company is seeking more than $1-billion for a 50-per-cent stake in the package of landmark hotels, which includes the Fairmont Chateau Whistler and Jasper Park Lodge, according to a source who was not authorized to speak publicly on the matter. It is rare for such high-profile hotels, three of which are in national parks, to come to the market.
Toronto-based Oxford, which acquired the hotels in 2006 from Saudi Prince Al-Waleed bin Talal and a U.S. fund, wants to partially cash in on those assets but plans to continue managing the properties.
It’s the next step for the pension-fund-owned real estate company, which says it has about $60-billion in assets under management and has sold significant interests in other top properties such as the profitable Yorkdale mall in Toronto.
Oxford intends to retain a 50-per-cent stake in the four resorts. Potential buyers could be another pension fund or a large real estate company. The sale is being marketed as a portfolio of four assets and not as individual hotel stakes in order to attract a single investor. A spokesman for Oxford declined to comment on the size of the sale, the price tag and marketing process.
The hotel divestment is part of Oxford’s strategy of developing properties and then capitalizing on the gains by selling passive stakes to other investors. Oxford now manages about $18-billion in third-party capital and has partnerships with entities such as Canada Pension Plan Investment Board, Alberta Investment Management Corp., JPMorgan Chase & Co. and Singapore’s sovereign wealth fund, Temasek Holdings.
The sale is occurring after nearly a decade of booming commercial real estate prices and it is unknown whether an investor will pay more than $1-billion for the passive stake in the marquee hotels.
Oxford paid $1.6-billion more than a decade ago for the four resorts along with three other Fairmont properties. Oxford has since sold the Fairmont Vancouver Airport Hotel for $90-million and two others in Quebec for an undisclosed price.
Oxford has hired commercial realtor JLL to broker the deal. Earlier this week, JLL informed a small group of investors about the properties, according to the source. JLL did not respond to a request for comment.
What could complicate matters is that the sale is occurring amid fears of a slowdown after nearly a decade of strong economic growth.
“If you have a strong leisure component and the economy turns and people want to save more, obviously high-end leisure travel is the first thing to go,” said Jan Freitag, a senior vice-president with hotel research firm STR. Mr. Freitag also noted the first things businesses tend to cut in an economic slowdown are travel and training.
Oxford did not provide detail on occupancy rates or profitability for the four resorts, except to say they had full capacity and extremely strong room rates.
The performance of high-end accommodation in Banff, Jasper and Whistler has been improving, according to STR data.
The occupancy rate over the January-to-March months reached 69.8 per cent, according to STR. That is the highest level in more than a decade.
As well, the average daily rate has increased 50 per cent to $341.73 over the past five years.
“These are outstanding room-rate increases, on top of already arguably fairly high room rates,” Mr. Freitag said. “Are these hotels doing well right now? Yes. But as an investor can I get in at a rate that makes sense for me? That is the question,” he said.
The most recent deals for high-end hotels fall below $1-billion. Sheraton Centre Toronto Hotel sold in 2017 for $335-million and that was for the entire hotel, including fees associated with managing the asset.
Leadon Investment of Hong Kong paid $1.1-billion in 2017 for a portfolio of Canadian hotels that included the Delta hotels in Calgary, Toronto and Victoria. Hong Kong’s Bluesky Hotels and Resorts Inc. paid $2.1-billion for InnVest’s suite of Canadian hotels in 2016.
However, none of those hotels have the same cachet as Chateau Lake Louise and Fairmont Banff Springs, castle-like properties that have become part of the landscape of the Rocky Mountains.
Oxford is spending more of its capital developing properties in Canada and investing outside of the country in places such as London and New York. Oxford said proceeds of the sale will go to other acquisitions and developments in Canada, including the redevelopment of the Park Hyatt hotel in Toronto.
Commercial real estate is one of the consistent bright spots for Oxford’s owner, Ontario Municipal Employees’ Retirement System, which has been working at plugging a funding shortfall brought on by the financial crisis.