British Columbia's public pension fund manager is moving to sell off its portfolio of large Canadian hotels, which is valued at more than $1-billion, as it retools its real estate investment strategy, according to people familiar with the sale process.
British Columbia Investment Management Corp. has entered into an agreement to sell SilverBirch Hotels & Resorts, including its 26 hotel assets and management operations, to Leadon Investment Inc., a private investor group with ties to Hong Kong. These well-known properties span the country, including Delta hotels in Toronto, Calgary, Victoria and Halifax.
Victoria-based BCIMC is checking out of the hotel business at a moment when international bidders have been eager to snap up properties and the industry is under immense competitive pressure. Hotels in Canada and the United States have drawn interest from global institutional investors, particularly from China, that are seeking to buy assets outside their home markets that generate a relatively steady income. At the same time, the hospitality industry is challenging property owners to keep up with customer needs and brands. Hotels and resorts have increasingly required investments in technology to improve online booking systems and contend with rival upstarts such as AirBnB.
Leadon, which does not already have a significant hotel management platform in North America, is relatively unknown in Canada. The federal government's website indicates that at least some of the property sales were reviewed under the Investment Canada Act, which oversees foreign acquisitions valued at more than $600-million. Leadon's place of origin is cited as Hong Kong.
SilverBirch spokesperson Brigitte Diem-Guy said that sale details were confidential, but that the company is "incorporated in Canada under the Leadon name," and 2016 records from BC Registry Services show that Leadon used Canadian law firm offices as its delivery and mailing addresses. Leadon could not be reached for comment.
BCIMC's foray into the hospitality industry began a decade ago when it paid $1.2-billion for Canadian Hotel Income Properties Real Estate Investment Trust (CHIP REIT), scooping up 7,700 rooms in 32 hotels flying the banners of Delta, Radisson, Marriott and Hilton.
In early 2015, the pension fund struck a $168-million deal with Marriott to sell the brand and management of Delta hotels in Canada, while retaining ownership of some Delta-branded buildings. BCIMC's hotels that are not now managed by Marriott are managed by SilverBirch.
Hospitality properties account for a small part of BCIMC's real estate holdings. The pension fund had $17.5-billion in domestic real estate assets as of March 31, 2016, the most recent figures available. Only 5.8 per cent of properties were hotels held by SilverBirch, ascribing them a value of about $1-billion. It's expected that a deal to acquire the properties would be in excess of that figure. Sources familiar with the deal said a competitive auction was run for the properties. BCIMC, which oversees investments for B.C. public-sector pension plans as well as other government funds, did not respond to requests for comment.
BCIMC has been shifting its real estate strategy in an effort to boost investment returns and expand its global reach. Last year, the fund launched QuadReal Property Group to develop and manage buildings in Canada, the United States, Asia and Europe, starting with bringing its real estate assets in-house.
Amid these plans to consolidate its property holdings, BCIMC quietly moved to sell SilverBirch last year into a market that has shown a healthy appetite for hotel deals.
North America has experienced a burst of commercial real estate investment in recent months from Chinese buyers. These investors have sought to diversify away from their home markets, where prices have rapidly escalated, and they are often willing to pay a more generous premium than local bidders.
The trend has been obvious in the office property sector – especially on well-known buildings in developed markets such as New York. Last month, the Canada Pension Plan Investment Board sold its 45-per-cent stake in 1221 Avenue of the Americas to sovereign wealth fund China Investment Corp., according to sources familiar with the deal. CIC bought its stake through Invesco Real Estate.
Hotels have also been hot targets in the United States and Canada. Chinese giant Anbang Insurance Group solidified the trend when it paid nearly $2-billion in a record deal for New York's iconic Waldorf Astoria in 2014, and then bought up more U.S. hotels in 2016.
In Canada, hotels have also been in demand. Bluesky Hotels and Resorts Inc., a company backed by capital from Hong Kong and affiliated with Anbang, acquired InnVest Real Estate Investment Trust and its more than 90 hotels in a $2.1-billion deal last year. Bluesky said it would use the company as a platform for further investment.
The SilverBirch deal is expected to be completed in the coming weeks, subject to closing conditions and other government and brand partner approvals. The process is still under way and is not assured to be completed, said Ms. Diem-Guy. She added that the SilverBirch business will continue on with normal operations and the sale would not result in any changes for hotel guests.