As a principal and Canadian hospitality lead at Avison Young, Curtis Gallagher is charged with expanding the firm’s presence in the sector.
Gallagher has been a top hotel broker for more than 20 years, previously holding leadership positions at Cushman & Wakefield and CBRE. He’s closed over $3bn of investment sales and financing transactions for clients including Ivanhoé Cambridge, Cadillac Fairview and Starwood Capital.
That work has included some of the most notable hotel deals in Canada, including the sale of the Westin Harbour Castle in Toronto and the Westin Bayshore in Vancouver.
Gallagher spoke with Green Street News about the hospitality sector’s positive post-pandemic performance, the shifting profile of hotel buyers, and teeing up off-market deals.
We’re a little over halfway through the year. What are some of the key trends that have emerged in the hospitality sector in 2024?
Operating levels within hotels are healthy, and lending conditions are certainly improving. It’s good news. Owners aren’t pressured to sell, but some may want to take some chips off the table.
What we’re starting to see is that bid-ask gap becoming more manageable amongst willing buyers and willing sellers.
Given those positive market conditions, do you see more sales on the horizon?
Yes, I think so. For a value-add investor, they’re going to look at assets that can be repositioned through capital investments or a change in brand and management. That was similar with the Morguard portfolio and the Fairmont Winnipeg.
With the Richardson family buying the Fairmont Winnipeg, it was very strategic. … They sold that property many years ago and now have bought it back because they own the connecting office buildings. They are going to reinvest significantly to raise the profile of that asset and restore it to its former glory.
On the Morguard sale, a lot of significant property improvement plan–driven capital investment was going to be required. Morguard owned a lot of hotels, but that was probably deemed non-core for them long-term.
Looking at Toronto’s hotel market, what makes it attractive to investors right now?
It’s a major North American gateway city. It has a diverse mix of demand generators. I would say that the overall commercial real estate market in Toronto is fairly transparent and relatively stable.
Are you seeing more interest from foreign buyers?
There’s always offshore interest, but there’s nothing statistically that indicates that an abundance of this capital will be closing more transactions.
Over the next 12 to 18 months, let’s see where that goes. The U.S. always shows interest, but they’re not always the ones to ultimately pull the trigger and complete the deal.
They want to see what’s going on, but they’re not necessarily ready to make that jump.
In many cases, if it’s an attractive asset offshore, including here in Canada, [U.S. investors] will build in a bit of a risk premium for investing in a foreign country.
If you’ve got domestic interest — and we’ve seen this on a number of the larger transactions that we’ve worked on — the domestic interest usually can get more aggressive because they have a greater granular understanding of local market dynamics than would an offshore buyer.
Are you seeing a rise in non-traditional buyers?
Non-traditional can fall into many categories, but yes, it’s certainly happening. I think what would drive part of that would be a diversity play into a different asset class because of the performance appeal of hotels coming out of Covid.
And because the federal government supported the hospitality industry in Canada, I think there’s an appreciation that the industry is a pretty important one. So, if you’re a local investor and you have a multitude of real estate in your community, why not look at hotel if you haven’t looked at that asset class before?
We’ve seen multi-res builders get into the hotel space. We’ve seen families buy them as trophy assets.
Where we also might see some new investment from non-traditional is in situations where you have an asset that’s higher and better use is no longer its original purpose. So, there may be an adaptive reuse possibility, and that might see [a non-traditional] buyer form a partnership with an experienced hotel partner.
If it’s development land, office, multi-res or condo and they don’t pencil, there may be a pivot to another asset class, and hotel is strong. In certain markets there could be a demand for a new hotel build. And that might be where you find yourself as a non-traditional owner — as part of a partnership with a strategic partner that has hotel experience.
What do you see as your greatest achievement with Avison Young since joining the firm in 2021?
Bringing an asset class specialty to Avison Young’s Canadian business that did not exist prior. We’ve created a number of new collaborations across the country whereby we can bring hospitality expertise to an existing client relationship that was not able to handle that asset class before.
For example, many real estate investors across the country don’t necessarily invest in hotels. They are active in other asset classes. So, our colleagues have those trusted relationships with clients, but if there was a hotel requirement, it couldn’t be properly handled.
Now when a requirement comes up, the expertise that our team brings can be packaged into that existing client relationship. And, hopefully, we can get a deal done.
How will you continue to grow your presence in the sector?
Our team will grow in these regions by having boots on the ground with brokers that can now take on an added area of specialty. Our team can bring the years of experience, transaction record and understanding of the hotel business to the brokers that are out there working the deals.
They may be doing multi-res, student housing, seniors housing, and now if you add hotels to that — and I would call it the real estate you sleep in — it’s another added feature.
As we grow and we do more collaborations, certain people in certain regions that can be an adjunct to our team will become more confident in their ability to speak the hotel language and they will open up more doors, which ultimately creates an income stream that benefits the brokers within our firm and also the company in general.
Looking at the rest of 2024, is there anything specific you’re really focused on for your business?
I think it’s just being out there and responding to needs and trying to anticipate where there may be a buy-sell opportunity to introduce some off-market deals, because we know where values are. We know what will drive a transaction.
In many cases these conversations are had when we know somebody who, quietly, might sell and somebody else who wants to buy. We bring them together, rather than having to do a broad market approach. And those do work, certainly the broader you go the more interest you’re going to get.
But at the end of the day, if you know what you’re trying to achieve on a transaction, you really only need one buyer. And if you do a deal, that’s wonderful. And if you don’t do the deal, the whole market doesn’t need to know.
