Trump International Hotel & Tower Toronto is looking for a new owner, with creditors hoping that strong investor interest in Canadian hospitality properties can rescue a development that proved to be a money pit for its original backers.
The court-appointed receiver for the Trump hotel formally launched the sale of the 65-storey tower on Tuesday, with CBRE Ltd. as its real estate agent and a $298-million minimum price tag on a development that cost more than $500-million to build. The original owner, billionaire Alex Shnaider's real estate company Talon International Development Inc., handed the keys to lenders last year after defaulting on a loan.
The Trump hotel opened in 2012 and has been plagued by a complex, controversial structure – 94 of its hotel rooms and condominiums are owned by outside investors and not part of this sale – and competition in Toronto from newly opened rivals that are part of global chains, such as Four Seasons Hotels Ltd., Ritz-Carlton owner Marriott International Inc. and Shangri-La Hotels and Resorts.
Potential buyers of the Trump hotel pick up a property with 211 hotel units and 74 condominiums that did not find buyers when Talon was the owner, and this unsold inventory is part of the reason Mr. Shnaider lost money on the development.
Purchasers of the Trump hotel also inherit incoming U.S. president Donald Trump's company as the property's operator, as Trump Toronto Hotel Management Corp. provides marketing, reservation and housekeeping services at the 261-room hotel. That may weigh on the potential price, as sources in the hospitality industry said the Trump brand is tarnished by the founder's controversial political stances, and rival hotel firms have more robust reservations systems and customer loyalty programs. Toronto real estate executives say the hotel faces significant challenges and the property may be better suited to a 100-per-cent condo development, a conversion that would lower the value and take years to complete.
However, creditors are selling the property at a time when domestic and foreign investors are paying premium prices for Canadian hotels. In 2016, investors set records for the prices paid on hotels and the value of transactions taking place, with $4-billion of hospitality properties changing hands.
"It's hard to recall a better time for the Canadian hotel industry and for Toronto in particular," said Bill Stone, executive vice-president of CBRE. He added: "Opportunities to acquire such a prominent trophy asset in Toronto's financial core are extremely rare."
There are approximately $1.8-billion of hotel properties currently for sale in Canada, according to CBRE's data. Other marquee properties on the market include downtown Toronto's Westin Harbour Castle, which is being sold by another real estate brokerage and expected to fetch more than $300-million. CBRE research shows that Toronto is the country's hottest hotel market, with double-digit growth in key financial measures last year: Average daily rates for hotel rooms in Toronto increased 10.3 per cent in 2016 and revenue per available room jumped 15.6 per cent.
The Trump hotel is expected to attract interest from investors ranging from wealthy individuals to pension plans and foreign sovereign wealth funds. CBRE is starting the sales process by pitching more than 500 potential buyers. The sales process is expected to play out quickly. Initial bids for the Trump hotel are due in mid-February and binding offers that include a five per cent down payment must be made in early March.
This is a court-supervised sale that is being run by receiver FTI Consulting Canada, which has struck a minimum "stalking horse" bid of $298-million on the Trump hotel from a private real estate fund, JCF Capital ULC, which is the property's biggest creditor, after acquiring loans from the Trump hotel's original backer, an Austrian bank. If no other buyer emerges, JCF Capital will acquire the property.
Even at that minimum price, the sale of the Trump hotel would set a new high-water mark in Toronto, as the most expensive hotel purchase to date was the 2016 sale of the newly built Four Seasons property in Toronto for $225-million – the buyer was Shahid Khan, billionaire owner of the NFL's Jacksonville Jaguars and Britain's Fulham soccer club.
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