Rising interest rates were a key topic at the Western Canada Lodging Conference in Vancouver last week, but concerns are muted by this summer’s strong demand and above-average revenue performance.
With yet another 50 basis point increase today pushing the Bank of Canada’s policy rate to 3.75%, hoteliers anticipate a recession in 2023 and are trying to determine the impact a slowdown will have.
“It takes time for rates to impact the economy. I haven’t seen that yet,” said Ed Khediguian, senior vice-president with CWB Franchise Finance during a discussion of transaction activity, which surpassed $1 billion in the nine months of this year. “There’s not going to be a quick retrenching back.”
But he said lenders are taking a closer look at hotel revenues now when considering whether or not to back deals.
“They’re not necessarily concerned about values, the real focus now is on debt-service coverage,” Khediguian said.
With leisure travel roaring back, investor and lender interest in properties catering to that segment of the market is strong and seeing sustain because they can service any debt the owners have.
While the expansion of supply and accommodation capacity will likely slow in the event of a recession, Carrie Russell, senior managing partner of HVS Canada remarked during a panel on the lending environment that room rates will hold steady. This will further support revenues and valuations.
“Hotels are the space you want to be in in an inflationary environment,” she said. “Inflation is going to remain above historical norms for the next couple of years. We’re going to see above normal, up to 3% inflation in rates. … That’s offsetting the increase in interest rates.”
During a panel of industry leaders, Northland Properties Corp. president Rob Pratt noted that the strong growth hotels across the country saw this summer was especially kind to Northland’s Sandman, Sutton Place and other properties.
