Toronto's historic Fairmont Royal York hotel's renovation efforts will get a $50-million boost over the next two years from its new buyers, who say the work will restore the landmark's lustre as it competes in the city's expanding high-end hotel market.
The city's most famous hotel, which opened in 1929 and plays host to the Queen and other members of the Royal Family when they are in town, made news on Tuesday as a pair of big real estate investment players agreed to take an 80-per-cent share in the hotel for $186.5-million.
InnVest Real Estate Investment Trust, an owner of more than 110 hotels across Canada, and private equity real estate investment firm KingSett Capital, said Tuesday they had made the deal with the Royal York's current owner Ivanhoé Cambridge, the real estate arm of Quebec pension fund manager Caisse de dépôt et placement du Québec. Ivanhoé Cambridge will retain a 20 per cent stake. The deal, which will see InnVest with a 20 per cent share and KingSett take 60 per cent, is set to close in January.
The Royal York, which sits right on Front Street across from Toronto's Union Station – currently undergoing a traffic-snarling multimillion-dollar overhaul – is already in the middle of a $100-million renovation that has included extensive work on its exterior façade. By January, 500 of its 1,363 guest rooms are expected to have been fully renovated, the companies said.
Next year, using the new infusion of cash, the hotel plans to start renovations in its well-travelled lobby and update another 400 rooms, said Edwin Frizzell, regional vice-president and general manager of the Fairmont Royal York.
Ed Pitoniak, the managing director of InnVest, said the Royal York, with its storied history and its central downtown location near Toronto's future rail link to Toronto Pearson International Airport, has enormous potential. He also said that the price the new owners paid per room, $137,000 – or $174,000 if you count the renovation bill – is a good deal, compared with the recent $1-million-a-room-deal for New York's Waldorf Astoria.
"We think the Royal York deserves to be thought of among the world's most iconic hotels," Mr. Pitoniak said.
Earlier this year, the Caisse said it was putting the Royal York and Hotel Vancouver up for sale, as part of a plan to get out of the riskier high-end hotel business that has seen it sell off the Château Laurier in Ottawa and other properties.
Toronto in the past few years has seen an unprecedented infusion of five-star luxury hotels, with the Ritz-Carlton, the Shangri-La, the Trump International Hotel & Tower, and the new Four Seasons all catering to rich travellers.
The Royal York also looks to that market to fill its 82 so-called Fairmont Gold rooms, which feature private lounge areas and concierges. But its age and size mean its main target market is much broader, Mr. Pitoniak said, and includes business travellers and a vigorous event and convention business. In hotel industry lingo, the segment is known as "upper upscale."
Relying on only five-star travellers is much riskier, he said, making the Royal York a more stable bet for InnVest's investors: "That population of [five-star] travellers is very small. And the population of them in tough times can be frighteningly small."
Dr. Gabor Forgacs, an associate professor at Ryerson University's school of hospitality and tourism management, said that while historic properties like the Royal York can be at a disadvantage because of the high costs of renovations and upkeep, the Royal York's storied past, unparalleled location in Toronto and respected management make it a good investment.
"To occupy the piece of land where they are, in this city, that is a deal in itself," he said.