How hard could it be for a U.S.-based hotel company to enter the Canadian market? Just ask Hotel Equities. The company recently started managing operations at a Fairfield by Marriott in Calgary and a TownePlace Suites by Marriott in Edmonton, Alberta, a process that took the company more than a year to prepare for. Now, Hotel Equities has had a taste of the north and it's ready for more.
Brad Rahinsky, president and CEO of Hotel Equities, said he had been informed on multiple occasions that Canada is being underserved from a management perspective. While he was immediately excited at the prospect of filling a management void, kicking off operations in a new country is easier said than done, even if that country shares a border with our own. Rahinsky said Hotel Equities ran through countless scenarios and evaluations of the Canadian market before committing to expanding there.
Rahinsky said the U.S. and Canada share more commonalities than differences. Even so, there was much to learn ahead of time.
"The biggest differences are monetary, the way Canada handles taxes and their healthcare system and how it relates to employees," Rahinsky said. "However, if you have the capacity and scalability in your model, you can be highly effective up there."
Joe Reardon, SVP of business development and marketing at Hotel Equities, said Canada has been a target market for the company for some time, but establishing a base there requires a large upfront investment. In establishing these new contracts, Reardon said Hotel Equities spent hundreds of thousands of dollars, but it is paying off in short-term success. By the end of the year, the company plans to operate between eight and 10 Canadian hotels.
"We're very excited for the Canadian Investment Conference in April, and we are using the event to scan for opportunities," Reardon said.
Building to Manage
No one knows how difficult it is to become involved in the Canadian hotel market like Gerry Chase. The president and COO of New Castle Hotels & Resorts said it's almost a requirement to build hotels in the region in order to secure management deals, which is what his company did more than 20 years ago, making a number of mistakes along the way.
"We were pretty ignorant when we first went in," Chase said. "We didn't have much of a plan, and we were coming out of a severe recession in 1990, which helped us buy hotels at a substantial discount. Canada has its own culture, and one thing we found when we went up there is that they are as nationalistic as we are, and it's very challenging to get anyone from the U.S. a job in Canada, so hire local."'
Hotel Equities is poised to benefit from the experiences of its predecessors, and Reardon said he isn't naive about employment concerns in the country. With unemployment numbers low in both the U.S. and Canada, Reardon said Hotel Equities is making use of its pipeline of talent, which it established for situations such as these.
"It's always a challenge to find good talent that are commensurate of the hospitality space, but we are fortunate to have an extensive training program built around organic placement," Reardon said. "While other hotels are scrambling to fill roles in certain markets, we have a farm team at the ready thanks to this program we put together more than seven years ago."
Slow and Steady
Urgo Hotels, another U.S.-based hotel management company, has had a presence in Canada since 1997 and continues to be active in the country. Serge Primeau, VP of operations, development and finance at Urgo Hotels Canada, said trends in Canada mirror those in the U.S., with a few slight differences. First of all, Primeau said the presence of branded hotels is much less ubiquitous in Canada, where boutique properties are more common. Because of this, the core tenets of branding were not fully understood by Canadian hoteliers until recent years, and now Canada's branded hotel sector is taking off. In addition, he also said Canada has fewer markets that have reached their full saturation potential for hotel rooms, has led to more consistent market performance overall.
"The Canadian market also differs from the U.S. in that it has less of a roller-coaster effect," Primeau said. "One Canadian trend that remains exciting is stability over growth. You won't see as much double-digit growth in occupancy or [revenue per available room] year over year, but you won't see as many severe drops either."
According to Reardon, Hotel Equities is taking all of this into account. The company is stressing owner relations and employee culture first, and Reardon said it is committed to helping Canadian hotel operators navigate the brand relationship as they deal with the whirlwind of information required to take on such an undertaking.
In short, Reardon's message is this: Hotel Equities didn't get into the hospitality industry to do short-term projects.
"I think folks in our space will realize there is an opportunity in Canada as the market continues to grow, but it's not an opportunity for those who aren't all in," Reardon said. "We spent a significant amount of time to ensure we are successful here, and our commitment is considerable, and we had well into six figures of investment in Canada before we even got started. There is a reason not too many groups are up there."