Calgary’s population has grown by 200,000 people, or 18% since 2020. Those people need somewhere to live, as do their friends and families when they come visit.
As a multifamily and hospitality specialist in the Avison Young Calgary office, Haig Basmadjian is advising investors and developers looking to seize the opportunity created by the city’s recent boom.
The associate vice president spoke to Green Street News about how Calgary’s population growth has impacted the multifamily market, how domestic travel is affecting the hospitality sector and why Calgary presents outsize opportunity for buyers and builders.
You deal in the real estate that people sleep in – multifamily and hotels. How do the asset classes compare?
I began my career as a hospitality broker and then was introduced to the multifamily world. So, I have a deep familiarity with both asset classes, and I practice in both asset classes.
Hotels operate very differently from all other asset classes – they’ve got branding, they’ve often got different financing structures and different investment rationales. They’re very capital intensive. The underwriting can be vastly different than multifamily.
You have to be a specialist to be able to understand hospitality assets because they use different language. Certain terms such as average daily rate (ADR) and revenue per available room (RevPAR), those are unique to hospitality underwriting methodologies.
So, the only similarity that I see is that people sleep in them. They are vastly different assets from both an operational standpoint and an investment standpoint. The product is different. The buyer pools are different.
How do the buyer pools differ?
Buyers for hotels, especially when you’re talking about tertiary or secondary markets, are often very hands-on. They are very astute when it comes to the operation of the hotel, because it’s the only asset class where you can reprice your inventory overnight. As a result, you ride the market for better or for worse. And if you’re experienced, you can quickly capitalize on a higher room rate if you make the necessary operational changes.
Multifamily still moves pretty quickly compared to other asset classes. You typically don’t have longer than one-year leases, and Alberta doesn’t have rent control. As a result, you realize the market very quickly. That’s one of the reasons why we’ve seen so much attention from out of province buyers.
Calgary has seen significant population growth over the last two years. Is that part of what’s attracting out of province buyers to multifamily assets in the city?
Yes, without question. When I first started at Avison Young six years ago, most of our buyers were local. Now at least half, if not more, of our buyers are from out of the province.
In 2014, 2015, when the oil and gas industry was quite challenging and Alberta was in the midst of a recession, a lot of groups were gravitating towards major markets like Montréal, Toronto and Vancouver when it came to multifamily assets, and hotels, too.
Now, a lot of buyers are realizing that Calgary makes a lot of sense, as rents are increasing because of population growth. Calgary also has a scarcity of product, which shifts rents very quickly, too. And that combined with CMHC’s MLI Select financing, which worked beautifully in Calgary, created this perfect storm for out of province capital to identify Calgary as the next place to start deploying.
How has population growth affected the hotel market?
It really has bolstered the hotel space, without a doubt. Generally, we are seeing ADR go up. When you have a huge population boom like we have, the people who moved here, their families are going to come visit, their friends are going to come visit. There’s going to be increased traffic in the hospitality space. And we’ve seen that. The airport sector leads in Calgary when it comes to occupancy rates, not in ADR or RevPAR, but in its occupancy rates.
On the buy-side, a lot of hospitality operators like to diversify their holdings and buy in different geographic locations. We have a lot of local buyers, but we naturally do a lot of deals with owners that are Ontario-based or B.C.-based. But that’s always been the case. It’s not a new phenomenon the way it is for multifamily.
But the hotel space in Alberta is unique, because you have your urban, suburban, secondary and tertiary markets, but you also have the energy markets. And those are a unique ecosystem that behave very differently from a secondary or tertiary market.
What is the attraction to those oil and gas markets from an investment standpoint?
They’re great markets. You get a lot of value, a lot of variety of product.
If you can buy strategically, you can get tremendous value and yield, especially if you’re a good operator and you understand the nuances and the intricacies of these energy markets. We recently did a deal in Fox Creek, which is an energy market, which is a prime example of that. The buyer was out of province, and they have a strategic desire to increase their holdings in Fox Creek.
With more Canadian tourists avoiding the U.S., how are Alberta’s tourist markets, like Banff and Lake Louise, performing?
I think that the push for local tourism has been beneficial to all Canadian hotels. But those markets – Canmore, Banff, Lake Louise, Jasper – even before the tariffs and before this push for more local tourism, they were very strong. They will be very strong for the foreseeable future. These are world-class hotels in world-class locations, the most beautiful parts of the country.
I think that there’s a lot of opportunity in those markets if you can find product right now. A lot of groups realize that it’s scarce and realize the value of owning a hotel in those great markets. But I don’t suspect there are going to be a lot of trades [this year]. We don’t see a ton traditionally for that very reason – owners know the value.
There’ve been some sizable hotel trades in Calgary over the last year. Why would a buyer gravitate to Calgary over Vancouver or Toronto?
Number one is value. You get tremendous value for the assets out here. Trying to buy a hotel in other major markets, their prices are significantly higher than they are in Calgary. A lot of groups recognize that they can get a lot more bang for their buck here.
The fundamentals are strong, too. Buyers see that the population growth comes with more tourism, which obviously comes with more activity. And with the oil and gas sector performing well and the way that Calgary’s diversifying its economy, business travel is picking up, too.
We’re seeing a big shift right now [with debt]. We’re seeing hospitality thaw out in the sense that debt is becoming much, much more manageable and conducive to transactions. That’s great for buyers because it allows them to increase their capabilities when it comes to their offering price, which gets sellers to a point where they’re happy and want to do a deal.
