Times are tough up north, too. Just as in the U.S., the volume of hotel transactions in Canada dropped significantly last year—down 77 percent to $1.1 billion—and isn’t expected to improve much in 2009. According to a report released yesterday from Colliers International Hotels, the country’s real estate market, including the hotel segment, is a victim of “global economic instability and a credit catastrophe.”

But Bill Stone, Colliers' executive managing director, may see a glimmer of hope. In recent weeks he’s noticed an uptick in interest in hotel properties in the country.

“We’ve seen a lot of interest from offshore groups in larger assets, as well as from private money here in Canada,” he says. “These inquiries may not result in immediate transactions, but I’m very encouraged by the interest.”

Unlike the U.S., where the pricing gap between buyers and sellers remains generally wide, Stone believes sellers in Canada are becoming more realistic in their pricing expectations. “While there certainly are fewer number of buyers today than a few years ago, those who are buying are generally able to arrange their own financing,” he says.

As in the U.S., smaller transactions—those under $15 million financed through existing lending relationships—can get done up north. And while Stone says the larger deals ($50 million to $100 million and up) are more difficult to accomplish, “Once things open up, I’m certain we’ll see a lot of activity in that part of the market.”

Last year, 92 hotels changed hands in Canada. And while transaction volume was down sharply from a record high of $4.6 billion the previous year, 2008 was the fifth strongest on record, reports Colliers. Prices took a tumble last year, too, with the per-room average falling from $154,200 in ’07 to $116,500 last year, most attributable to fewer sales of premium full-service assets.

On a regional basis, 35 traditional hotel sales were in the western provinces, 34 in Ontario and the rest in Quebec and Atlantic Canada. Another 11 properties were classified as “strategic acquisitions” by Colliers, meaning at least two of the following conditions were part of the deal: a premium price was paid; the asset was in a high-barrier-to-entry market or in the same geographic area as the owner’s principal business; or the deal enabled the buyer to extend its company’s brand presence or portfolio. Pricing was significantly higher in the West, mostly due to the booming oil business in the early months of the year in those provinces. Per-room pricing increased by 23 percent in Alberta, while it dropped 26 percent in Ontario. Cap rates rose last year to the 10- to 11-percent range, from nine to 10 percent in 2007.

Thirteen properties sold for more than $20 million, including seven strategic sales. The biggest single-asset transaction was the Grand Okanagan Lakefront Resort in Kelowna, BC. The British Columbia Investment Management Corp. (bcIMC) bought the property, since rebranded as a Delta Hotel, for $131 million. The largest portfolio transaction was bcIMC’s $200-million purchase of Delta properties in Calgary, Saskatoon and at the Toronto Airport.

Nearly three-fourths of all transactions (but only 31 percent of the sales volume) were done by private Canadian investors. According to the report, just one hotel was purchased by a non-Canadian company. Pandox AB, a Swedish lodging firm, bought the Hyatt Regency Montreal for $59 million.

From an operations viewpoint, the Canadian hotel industry is also suffering, with RevPAR forecast to be down between two and five percent this year. Increases in supply are also a problem: In both 2008 and this year, about 8,900 new rooms, or 2.4 percent of the country’s total room count, will open.

“While I have many concerns because of cutbacks in corporate travel and drop-offs in group business, the Canadian market is certainly not as bad as the U.S.,” says Stone. “And a number of markets remain strong. Atlantic Canada is a market into itself and provinces like Manitoba and Saskatchewan are very strong regional markets.

“Where I see the erosion is in the major cities like Vancouver, Calgary and Toronto as they’re more focused on international corporate travel and heavy amounts of group business,” says Stone.