Climate Change

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Finally, after a long, harsh winter, spring has arrived. Mother Nature’s change in season brings renewal and a promise of hope. And for hotels, the new season brings a dramatic climate change and a rosy forecast.

During the maelstrom of the past few years, investment activity was significantly curtailed but, as a report by Colliers International and Toronto’s Ryerson University indicates, investment is finally on the rebound, growing by 70 per cent in 2010. Operating numbers are also encouraging. according to Randy Smith of Smith Travel Research, speaking at the HAC conference held in Toronto last month, room demand is up by 4.7 per cent, while occupancy is up by 3.5 per cent and RevPAR has grown by 5.6 per cent to $78.48.

While the U.S. has struggled, these days the news south of the border is promising. A new report by PKF shows transaction volume in the U.S. has increased by 68 per cent. In fact, the good news continues across the board as room revenue in the U.S., in 2011, is projected to grow by 7.1 per cent. According to the report, “In 2011, projections of rising employment and income should result in a solid four-per-cent increase in hotel demand. The improved business environment, combined with the two-per-cent reduction in payroll tax, will put more people on the road for personal and professional travel.” According to Moody’s Analytics January 2011 economic forecasts, U.S. employment and real personal income should rise 1.7 per cent and four per cent, respectively, in 2011.

While the rest of the world has struggled through the past two years, Canada has clearly benefitted from sound economic fundamentals. But, the same qualities that make us a shining example to others sometimes hold us back. “There are challenges and the biggest one is financing,” says Tony Cohen, president and founder of Toronto-based Global Edge Investments and president, Crescent Hotels. Cohen was part of an Investment Roundtable jointly hosted by Hotelier magazine and Starwood Hotels & Resorts, in Toronto (see story on page 8), the lead story for our annual Investment Issue. “It’s a bit of a double-edged sword,” says Cohen, “because of the stringent financing restrictions in Canada, we didn’t hit those low lows, but — at the same time — they make it hard to grow and develop.”

Gil Blutrich, president of Skyline International Development, Inc., echoed those sentiments. “The industry is perceived to be a high-risk industry by the lenders; nothing has changed in 20 years. And, notwithstanding the fact the industry had very low or little delinquency during the downturn in Canada, we were tainted by the portfolios of some of these lenders in the U.S. That hurt us in a way it shouldn’t have because these lenders were making good spreads and good returns in Canada. The whole industry was painted negatively.”

Still, the challenges of financing aside, it would appear the industry is bouncing back. Investment is growing, optimism abounds and the changing dynamics of the marketplace bring a host of opportunities for owners, developers and hoteliers. And, with the lessons learned during the past recession, as well as the pent-up demand of the past few years, the future waits, ready to be shaped.

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