A fund managed by real estate company KingSett will acquire a 60 per cent interest worth an estimated $111.9 million, while InnVest Real Estate Investment Trust (TSX:INN.UN) will pay $37.3 million for a 20 per cent stake in the hotel.
The Caisse de depot's real estate subsidiary, Ivanhoe Cambridge, will retain a 20 per cent stake in the 1,363-room hotel as a joint venture partner in the $186.5-million deal announced Tuesday.
The joint venture partners plan to spend $50 million on additional renovations of the 85-year-old property in the 24 months after the deal closes in January.
Fairmont Hotels and Resorts will continue to operate the hotel, located across from Toronto's Union Station, a rail hub which is undergoing a large upgrade.
The hotel is also close to major venues including Air Canada Centre and Rogers Centre, homes of Toronto's pro hockey, basketball, baseball and football teams.
The Royal York is in the midst of a $100-million renovation. More than 500 rooms are expected to be fully updated by the end of January following major infrastructure upgrades.
The joint venture said most of the additional $50 million will be earmarked for further room renovations in addition to upgrades to public spaces. The hotel has 2,700 square metres of retail space, nearly 6,000 square metres of meeting space and six bars and restaurants.
"With the nearing completion of the Union Station enhancements, as well as the introduction of the Pearson Airport Rail Link, the Fairmont Royal York's location places it at the commercial, cultural and transportation crossroads of Toronto," said InnVest managing director Ed Pitoniak.
InnVest owns a portfolio of more than 110 hotels across Canada and a 50 per cent interest in hotel franchisor Choice Hotels Canada Inc.
KingSett Capital is a private equity real estate investment firm with more than $5 billion of assets under management. It manages the KingSett Real Estate Growth LP No. 5 that's making the investment in the Royal York.
Ivanhoe Cambridge said earlier this year that it planned to focus on three luxury hotels in Quebec by selling most of its portfolio of 70 hotels in Europe, the United States, Canada, Barbados and India to concentrate on retail, office and residential multi-family units that generate more stable returns.
But executive vice-president Sylvain Fortier said the real estate investor had a change of heart because it likes the Toronto hotel's location, which is near two office towers it will be building that will also house a new GO Bus Terminal.
"It allowed us to indirectly remain involved in this asset without necessarily being the lead for the renovations," he said in an interview.
"We are also not as present in Toronto as we would have liked to be in recent years."
Fortier said it will also possibly retain an interest in the Seattle Fairmont Olympic that is in the process of being sold.
Other remaining hotels in the portfolio will be sold entirely to new owners over the coming months. The Fairmont Washington, D.C., is expected to sell this year, while the Fairmont Vancouver and Hilton Atlanta will probably follow in early 2015.
Afterwards, hotels will account for about $400 million, or less than one per cent, of Ivanhoe Cambridge's $42-billion in assets, down from eight to 10 per cent in recent years.
Among the hotels that already have been sold are Ottawa's Chateau Laurier and The Empress Hotel in Victoria.
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