The hotel industry suffered one of its worst years in 2009, as investment evaporated and some new hotel owners even opted to pave over properties rather than risk renting out rooms by the night.
Already feeling the effects of the recession in 2008, Canada's hotel investment industry experienced yet another challenging year in 2009 as transaction volume plummeted 61 per cent, according to Colliers International Hotels annual investment report.
It's the sharpest decline in activity on record, and 91-per-cent lower than the peak reached in 2007.
The national price-per-room average also saw a decline of 12 per cent nationally.
The numbers are a sobering reminder for the industry that even without the challenges posed by a higher Canadian dollar and the broader effects of the recession, hotel revenues tend to lag behind any economic recovery.
"Certain classes of real estate, such as hotels, generate cash flows that have a greater immediate sensitivity to general economic conditions than other types of real estate," RBC Dominion Securities analyst Neil Downey wrote in a recent report.
The best that owners may hope for this year is an easing of the declines that have hammered the industry, said Colliers executive managing director Alam Pirani.
"From an operating standpoint I'm quite certain it's never been this bad," he said. "The good news would be that many owners are hanging in there because of conservative capital structures, not a lot of them were over-levered. You can count the number of distressed sales on one hand."
Falling investment is an ominous sign for the industry, because new owners and the capital they can provide are often needed to revitalize properties that have fallen out of style and need updating.
Mr. Pirani said buyers are interested in snapping up properties, but it's difficult to access the financing needed to get a deal done. Those that do have the money - real estate investment trusts in particular - don't want to pay full price.
"Particularly difficult was agreeing on the market value of hotel assets, with sellers unwilling to value their properties as distressed income," he said. "Well-capitalized buyers sought bargain pricing, given the apparent instability in the marketplace and lack of available credit."
The largest investment was for the Hilton Garden Inn & Ajax Convention Centre in Ajax, Ont., at $24-million.
Peter Freed of Freed Developments in Toronto was responsible for the second-largest transaction of the year, a $21-million deal to buy a Travel Lodge in downtown Toronto. The building was relatively rundown and low-end, but he didn't care about that. Within two months, it was knocked to the ground to make way for a condominium development.
"It's a pretty hot neighborhood so you're going to pay a price for the property, but we never intended to run it as a hotel," said Mr. Freed, who is only weeks away from opening a high hotel half a block away from the condo site.
It was one of several purchased last year to make way for alternate developments. The City of Calgary paid $10.6-million for the Cecil Hotel, a gritty landmark that will likely be replaced with a parking lot. The Genosha Hotel in Oshawa was bought by a private developer for $2.3-million, and is being converted to apartments and student residences.