10 Luxury Canadian, US Hotels Hit Market

A division of Caisse de Depot et Placement du Quebec is offering a stake in a portfolio of Fairmont hotels in the U.S. and Canada that is valued at about $2 billion.

The pension fund manager prefers to sell roughly half of its 93% interest in the 10 luxury properties to one or more investors. But it is open to other options. For example, it would consider the sale of different stake sizes. And it would be willing to sell its full interests in the portfolio's two U.S. hotels - the 415-room Fairmont in Washington, D.C., and the leasehold interest in the 450-room Fairmont Olympic in Seattle. However, Caisse intends to retain significant stakes in the Canadian properties.

The package contains some of Canada's most prestigious hotels, including the 618-room Fairmont Le Chateau Frontenac in Quebec City, where Caisse is headquartered. Two properties - the 556-room Hotel Vancouver and the 489-room Fairmont Waterfront - are in Vancouver, which is slated to host the 2010 Winter Olympics.

Caisse assumed the majority stake in the portfolio via its C$2.5 billion ($2.4 billion) takeover of Toronto REIT Legacy Hotels in September 2007. At the time, Caisse intended to sell half of its stake to Lehman Brothers, but that deal fell by the wayside when the investment bank's financial woes widened.

Now Caisse is looking to bring in new equity partners, handing the listing to CB Richard Ellis. Curtis Gallagher, the Toronto-based CB broker handling the assignment, declined to elaborate on specifics of the offering. But he described the properties as having "center ice" locations - a hockey term that alludes to their prime spots in densely developed urban areas. There is assumable debt, although details were unavailable.

The recession has taken a toll on hotel performance in general. Meanwhile, the credit crunch has decimated the sales market for larger properties, putting further downward pressure on valuations. But Caisse is described as not being under pressure to sell and as unlikely to accept offers that don't meet its expectations.

Caisse's interest is held via its Cadim division. Cadim's partners in the portfolio are Desjardins, an association of credit unions in Levis, Quebec, that holds a 4.5% interest, and operating partner Westmont Hospitality, a Mississauga, Ontario, firm that has a 2.5% stake. Each hotel is subject to a management contract with Fairmont Hotels & Resorts of Toronto.

The other properties in the portfolio are:

*Fairmont Royal York (1,365 rooms) in Toronto.

*The Queen Elizabeth (1,039 rooms) in Montreal.

*Fairmont Empress (477 rooms) in Victoria, British Columbia.

*Fairmont Chateau Laurier (429 rooms) in Ottawa, Ontario.

*Fairmont Winnipeg (340 rooms) in Winnipeg, Manitoba.

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