Morguard Hotel Portfolio Sale is Canada’s Biggest In Four Years

Investors are waking up to the renewed appeal and strong fundamentals of Canadian hotels.

Morguard Corp. just closed on the sale of a portfolio of 14 hotel properties in Ontario and Halifax to InnVest Hotels and Manga Hotel Group for $410 million.

“This is the biggest hotel portfolio sale since the pandemic,” notes CBRE’s Mark Sparrow, who brokered the transaction along with his partner Luke Scheer.

InnVest acquired 10 of the hotels: Marriott Toronto Airport, Courtyard Toronto Airport, Residence Inn Toronto Airport, Hotel Carlingview, Courtyard Vaughan, Courtyard Markham, Residence Inn Markham, Townplace Suites Sudbury, Cambridge Suites Halifax and The Prince George Halifax.

The purchase “demonstrates confidence in our vertically integrated hospitality organization and the Canadian hotel market,” InnVest CEO Lydia Chen said.

The deal, InnVest’s largest acquisition since 2007, expands its GTA hotel portfolio and grows its Marriott branded franchise and managed portfolio to 14 hotels. Many of the hotels will undergo renovations to “elevate the guest experience,” InnVest said in a release.

With 90 hotels in its portfolio, InnVest is Canada’s largest hotel owner/operator.

Manga Deepens Ontario Presence

Privately held Manga Hotel Group acquired four hotels in the Morguard sale: Hilton Garden Inn Toronto Airport West, Courtyard by Marriott Mississauga, Cambridge Suites Mississauga, and Holiday Inn Express Ottawa West.

“This strategic move marks an exciting expansion for our organization," says Manga CEO Sukhdev Toor. “This further deepens our presence in Ontario, serving the Greater Toronto Area, and adding to Ottawa where we acquired the 498-key full-service Ottawa Marriott in July 2023.”

The deal increases Manga Hotels’ Hilton portfolio to 14 properties and its Marriott portfolio to seven properties.

Morguard Sharpens Focus

In a statement announcing the hotels sale, Morguard said it is making progress in optimizing its real estate portfolio and “sharpening its focus on core real estate investments.”

"The successful conclusion of this deal is a testament to the appeal of our hotel portfolio and the strength of Morguard's management over the years," Chairman and CEO K. Rai Sahi said. "We are pleased to have capitalized on the current market demand for high-quality hotels. This positions us well for future growth."

The liquidity provided by this transaction will enable Morguard to pursue its core business: owning and managing a diversified real estate portfolio of office, industrial, retail, and multi-suite residential properties. Morguard's owned/managed portfolio is valued at $18.3 billion.

Strong U.S. Interest

CBRE’s Mark Sparrow says the level of interest in Morguard’s hotel portfolio was “very telling, with strong bidder depth. We received more interest from U.S. and international markets than we have seen in decades.

“We had a dozen bids in the first round, half of which were U.S. buyers and the other half Canadian buyers. That’s hugely significant; most Canadian hotels are traded within Canada to Canadian groups.”
Sparrow says the level of interest from U.S. investors has much to do with the dislocation in debt pricing.

“Comparing US debt pricing for the same product in Canada, there’s about a 250 basis point spread lower for Canada. It’s allowing a lot of the U.S. players who look locally in the US to seek assets in Canada. And these players are looking for levered return acquisition opportunities.”

Hotel fundamentals in the Canadian market are strong at the moment, thanks to well-balanced supply and demand.

“In the U.S. they just build hotels whenever they want on spec, whereas in Canada it’s harder,” says Scheer. “The cost of construction has risen so significantly that it’s pushed more groups to acquisition versus development.”

“That’s one of the key reasons why both of these acquisition groups acquired this portfolio. Even post-acquisition the capital needed to put into the properties is below replacement cost.”

Debt Capital Is All In On Hotels

The hotel debt market has always been smaller than that for general commercial real estate, largely due to hotel fundamentals going up and down, notes CBRE Debt and Structured Finance group’s Joshua Sonshine, who helped the buyers with funding the transaction.

“But with strong fundamentals versus other sectors of real estate at the moment, it’s attracting both equity and debt to the hotel space,” he says.

Groups that aren’t typically hotel investors are shifting capital towards it.

“That’s a theme we’re seeing across all alternative assets,” says Sparrow. “Many of your typical commercial real estate investors are putting more weight toward alternative investments: hotels, seniors, self-storage, student housing. And hotels leads the pack, given the strong operating results.”

Sparrow expects a continuation of hotel investment activity throughout the balance of 2024. “We should double the transaction volume over last year.”

Hotel investors would do well not to fall asleep on this moment of opportunity.