Vancouver is consistently ranked among the top performing hotel markets in Canada, with high occupancy, high room rates, and limited new supply boosting demand for available rooms.
So what drove Vancouver-based Pacific Reach Properties to look east for its latest acquisition, the 263-room Ritz-Carlton Toronto hotel at 181 Wellington St. West, Toronto, its first hotel purchase in the city?
In short, the hotel presented a prime opportunity to add value in one of the continent’s top hotel markets.
“Toronto is one of the top five lodging markets in North America, and I think the rates, especially in U.S. dollar terms, don’t reflect what rates should be, especially for five-star luxury assets,” Azim Jamal told Western Investor from aboard his boat in Desolation Sound last week, after closing the deal in partnership with Toronto’s Dilawri Group. “We think we can use the experience and years that we have running luxury hospitality to bring some of those learnings and lessons to optimize this property.”
Data from market analytics firm CoStar indicates average daily room rates in Toronto were down 5.6 per cent versus last year in June at $269.64 a night, while revenue per available room was down 7.8 per cent to $223.73 a night.
Toronto under-performed the Canadian market, which saw daily rates rise 2.9 per cent to $239.06 a night over the period, while revenue per available room increased 4.4 per cent to $180.77 a night.
Yet luxury rooms out-performed the national market, posting the strongest rate growth of any tier over the past year at 6.3 per cent to $477.03 a night while revenue increased six per cent to $368.63 a night.
“You look at where RevPAR has gone in luxury versus other asset classes, and it’s typically out-performed,” Jamal said.
The strength of the class drove new investment in locales like Banff post-pandemic but has since extended to urban markets including Vancouver and Toronto, as witnessed by plans for multi-million-dollar makeovers of the former Shangri-La Vancouver by Hyatt Hotels Corp. and plans to convert the office tower at 1111 West Hastings St. to a 180-room boutique hotel by Germain Hotels and Reliance Properties Ltd.
Built in 2011 by Cadillac Fairview and Graywood Group at a cost of $350 million, Ritz-Carlton Toronto is home to three full-service restaurants, 20,251 square feet of conference space and a 23,000-square-foot spa. The hotel rooms are nestled in 20 storeys below 33 floors of private residences, a common arrangement when construction was initiated in 2007.
Vancouver’s Rosewood Hotel Georgia, which Pacific Reach also owns, has a similar mix of uses, as well as a small portion of office space.
Cadillac Fairview, the real estate arm of the Ontario Teachers' Pension Plan, acquired full ownership of the Ritz-Carlton Toronto in 2018, but earlier this year listed the property with Luke Scheer and Mark Sparrow of CBRE Ltd.
The purchase price was not disclosed but Jamal said pricing was attractive given current replacement value.
“We’re happy with the basis that we transacted at,” he said. “We couldn’t replace this asset for that price or those terms. … To develop a proper five-star luxury asset of this class and calibre in the Toronto market would be a decade of effort – years of permits, multiple years of construction and then stabilization.”
The investment also aims to stay ahead of what Jamal said is a rush to build hotels in many urban markets as an alternative to other forms of development.
“There is a bit of a gold rush right now,” he said. “Seemingly, everyone wants to build a hotel because the office market doesn’t support new construction, multi-family doesn’t support new construction.”
While this could lead to an over-supply of hotel units in some markets, it’s impossible to build luxury accommodation on the cheap.
“When we look out into the future, from our perspective we think there’s going to be muted growth in proper five-star luxury properties due to the massive barrier to entry,” Jamal said. “And the demand for five-star luxury hospitality is growing and strong, so we like the position we have in the marketplace because of those factors.”
Dilawri, which built its name in auto sales, has diversified into real estate investment in recent years and was a willing partner with Pacific Reach on the Ritz-Carlton.
“I’ve known the family and the brothers for many years,” Jamal said. “When we put this asset under contract … it became very clear that they were very well aligned with us in terms of their vision and their goals with this type of investment.”
The property will continue to be managed by Marriott International, but Jamal looks forward to applying Pacific Reach’s decade of experience in the hospitality and entertainment sectors at the Ritz-Carlton.
“When you come to a new market, you bring some new ideas and fresh concepts, and you learn as well,” he said.
