Spinoff | How the Exempt Market is Helping Revive the Economy
By: Matt McKellar and William McNarland
One of the first things a person notices from their airplane seat as they descend into Calgary these days – after taking in the Rocky Mountains to the west, and the impressive, ever growing cityscape in the downtown core – is the scale of construction at and around the airport itself. Alberta’s prolonged economic boom, which needs no introduction, has more than doubled the airport’s passenger volume over the past twenty years. The growth is far from over, either; Calgary welcomed an impressive 12.8 million passengers in 2011, but planners expect a staggering 27 million annual passengers by 2025.
This growth has prompted an extensive and transformative airport development plan that will aim to meet the city’s current and future needs. The Calgary Airport Authority has begun a $2.4 billion infrastructure project as of April 2011 that is reshaping the current facility. The project is centered around a $1.9 billion international terminal which will shift much of Western Canada’s international air traffic from Vancouver to Calgary. A new $500 million runway, which will be the largest in Canada upon its completion, will be able to accommodate larger aircraft than those currently able to take-off and land in Vancouver.
As the larger runway and international terminal shift inbound and outbound international traffic from Vancouver to Calgary, the airport will create a sizeable economic area around it. The development project will have a meaningful impact not only on Calgary’s status as a hub for passenger travel, but also on the transportation of goods into and out of Western Canada. Billions of dollars in investment, supporting thousands of jobs, are flowing into the area. Numerous industrial, warehousing, and logistics centres have been built near the airport grounds in the last several years, and many more are planned. Calgary’s increased ease of access for international travelers will also bring more events to the city and the airport area, and should support a variety new service and hospitality businesses.
In 2006, a group of Calgary-based entrepreneurs looked at the plans for Calgary Airport’s redevelopment and saw an exciting opportunity for a multi-stage hotel development. The new runway project would require a permanent closure of the existing primary access to the airport via Barlow Trail, and re-route traffic to Airport Trail further in the northeast. The cluster of hotels and restaurants located near Barlow Trail that serviced the airport’s existing setup would be miles from the new primary entrance impracticably far for the average airline traveller. However, even if the existing hotel cluster had been located ten metres from the international terminal’s doors, the existing capacity would have been insufficient to support the projected passenger growth considering the existing capacity had been eliminated, the opportunity was massive.
The group of entrepreneurs, who have since incorporated themselves as Prestige Capital Inc., began to assess just how large the opportunity was, and how best to approach the project. After a considerable amount of research, planning, and personal investment, Prestige successfully entered into franchisee and management agreements with Hilton Worldwide and its affiliates to construct three hotels and a conference centre on a prime piece of property adjacent to the airport’s new primary access road. Personal investment has formed the cornerstone of the project’s financing, but Prestige Capital also decided to raise capital through the growing Exempt Market. The group successfully raised $16.5 million through two offering memorandums, and is now preparing a third offering memorandum for launch later this year.
In May of 2013, I sat down with Curtis Potyondi, President of Prestige Capital Inc., to discuss the Calgary Airport Hotels and Conference Center project and his thoughts on the Exempt Market.
Who are the principals behind Prestige Capital?
Arif Amlani, Ayaz Kara, Jim Jiwani, Saleem Budhwani, and I are the principals of Prestige Capital. We have brought together an impressive group with a long history of starting and operating businesses in Alberta, including networks of automobile dealerships, restaurants, real estate developments, and other interests. Collectively, there is a deep understanding of the Alberta market and an ability to spot new business opportunities.
How did you initially recognize the opportunity for this business?
The international airport had discussed some really transformative expansion plans, which in turn would create major changes to traffic patterns in Calgary’s northeast. Between the re-routing of airport traffic and the high levels of passenger growth, we could see that there was a large opportunity for service sector businesses which could feed off of the airport traffic.
What was the key factor in deciding to go ahead with the project?
It was a variety of factors that came together to make this an opportunity we could not pass up. The closure of Barlow Trail, the continued growth of the city, and the airport’s decision to proceed with its expansion plans. The airport area was ready to boom. There was also an overall stabilization of the hospitality industry’s key operations metrics that made a hotel and conference centre complex very attractive.
How do the airport hotel cluster and conference centre play into the larger vision for Calgary’s airport expansion plans?
Calgary was really caught off guard for a few years by just how fast it had grown. The city had seen some extraordinary growth and had transformed into this corporate powerhouse – Calgary houses the second most head offices in Canada – and the existing infrastructure and services in the airport area didn’t keep up. The airport area, and therefore the city, was just not competitive as a business traveller’s destination compared to other large cities. The availability of meeting space and hotel rooms close to the airport is an important factor in the decision making process for companies looking to hold events and meetings. Additionally, Hilton Worldwide manages a diverse portfolio of hotel brands that appeal to different segments of travellers, and therefore was an ideal partner for a large, three-hotel project. Our vision for this project really works hand in hand with the vision of Calgary as Western Canada’s new aviation hub.
What sort of economic impact do you expect this project to have?
It’s a $120 million project, so the economic spin-offs are significant. In fact, we are already having quite an impact. Through the construction phase we will be supporting approximately 300 jobs. Upon the project’s completion, we’ll be employing roughly 175 people on a full-time basis. Beyond the direct impact we are having, I think it is also important to remember that this hotel cluster and convention centre will bring in business travellers to the Southern Alberta area on a continuous basis through the ability to host top-tier events in a convenient location. The economic impact of a single large event can be huge – it is one reason why cities bid for and heavily support sporting events, competitions, etc.
What originally attracted you to the Exempt Market as a way to raise capital for your business idea?
The Exempt Market gave the principals the ability to have others share in the growth and successes of operational assets that have high barriers to entry. The original business plan was to simply focus on raising capital through friends and family; however, the exempt industry allowed the plan to be introduced to the community. The importance of having people in the community being supportive of your business can’t be understated.
What was the investor response to your project like? How receptive were people to a hotel and conference centre development project?
Once investors understand the changes at the airport and the opportunity to position Calgary’s airport area as a choice business travellers’ destination, they recognize just what an exciting opportunity we’ve identified. On the whole, their response has been very positive and both offerings we’ve completed were quickly sold out.
What is the relationship between Prestige and its investors like?
We have an excellent relationship. One reason for that is that we have made communicating with our investors a priority throughout this project. We provide all the traditional support that an investor or dealing representative might expect, but we have also been quite innovative. Prestige has held several site tours to groups of our investors and the dealing representatives that have supported us, who have been great. Investors can also watch the on-site construction progress live and in real time through a live webcam we’ve set up at www.prestigenewscentre.com. Our investors enjoy being able to track our progress. The feedback has been tremendous and people are really pleased with how we have managed the project.
Something that is important to point out is that our investors will be participating in the project’s operational income, so once the hotels open; returns will start to be paid. I should also mention that Prestige Hospitality Corp currently has an offer out to the investors in phase one (the Hampton project), to buy their preferred shares at a premium. This offer comes one year earlier than what was stated in the offering memorandum, and includes a repayment of contributed capital, accrued dividends, and the premium.
What was the toughest challenge you faced in raising capital through your first Exempt Market offering?
Getting our name out there and letting people know what is happening at the airport were two of the biggest challenges. When we released the first offering, most agents and the public had no previous knowledge of Prestige Capital or its plans, and in some instances were not aware of the changes underway at the Calgary airport. Subsequently, there was a delay while this educational process took hold. Prestige invested a considerable amount of time and money on this process, including educational tours and meetings, whereby agents and Exempt Market dealer executives were brought onsite. There was just a lot of new information that we had to get out to investors. We also had to adjust to the new environment introduced by the Alberta Securities Commission and the introduction of Exempt Market Dealers.
What milestones in the project’s development have you reached? What are you expecting to accomplish in the next year?
Our development is proceeding through a phased approach, so there will be many milestones in the months ahead. Phase one, which is a Hampton Inn by Hilton-branded hotel, is already underway. The building’s structure is completed, the windows and exterior are nearly finished, and the building is close to being turned over to the interior team to complete the fixtures, furnishings, and equipment. We anticipate opening in September 2013.
The structure has also just been finished on the Homewood Suites by Hilton building, which is our second phase. Homewood Suites hotels feature a more residential-style, intended to appeal to the frequent and extended-stay traveller. Work on the exterior and interior packages is still on-going. We’re projecting that the second phase will open in the fourth quarter of 2013.
Over the next few months we anticipate that construction will also begin on phase three, which is the Hilton Hotel and Conference Centre. We also anticipate announcing our involvement in several other existing and development opportunities in the hospitality industry that are separate from the airport project.
What sort of potential do you think exists for small and start-up companies to gain the capital they need through the Exempt Market?
Syndicating private capital for a successful business model is a concept that has existed for generations; it is just that we now have a regulated structure to facilitate it. To that end, the growth in this industry should be exponential for the foreseeable future. Again, education and information are key for growth and continued success.
Why do you think the Exempt Market is still underutilized as a capital raising tool?
The industry is still in its infancy, so a lot of people don’t even know its existence, let alone the benefits that it avails. As the general awareness levels grow, so will the industry itself. The second hurdle is that there has been limited exposure in the media. Of the few stories that have been written, the most notable ones have not been kind. Some articles have painted all industry participants with one broad stroke, despite many impressive and underreported successes. However, the Exempt Market industry as a whole is becoming better when it comes to talking about its successes, thanks to industry associations and the like. It will take time and positive, responsible results to earn trust from investors.
What’s next for Prestige?
This is going to be a big year for us. We will be releasing our Calgary Airport Hotels and Conference Center phase three offering, the details of which we’re excited to be able to release soon. This phase of the project features a Hilton Hotel and Conference Centre. Of the three brands that we’re building those hotels under – Hampton, Homewood Suites, and Hilton – Hilton is the flagship. The Hilton will offer an unmatched experienced for the business or leisure traveler that wants the convenience of an airport hotel and the amenities and attention to detail that the Hilton name is known for, like world-class fine dining, 24-hour room service, and services for business travellers.
There are also exciting things in the works for Prestige Capital. Our plan is to continue to expand our hospitality portfolio through new developments and choice acquisitions.
Prestige Capital’s exciting hotel and conference centre development is a story that the Exempt Market and the city should be eager to tell. This group of local entrepreneurs has been able to capitalize on an incredible opportunity created by the city’s growth through raising capital from mostly local, retail investors. The project has also demonstrated that the Exempt Market route is a viable and eager source of capital for large projects with sophisticated partners and well-known, international brands; investors naturally gravitate towards doing business with brands they are familiar with and respect. Finally, Prestige’s disciplined approach to business, strong commitment to communication with investors, and prompt execution on its project makes it a role model for other groups thinking about becoming Exempt Market issuers.