An iconic downtown Toronto waterfront hotel is going on the market, with a price tag expected to set a record for a sale of a Canadian hotel.

The Westin Harbour Castle could fetch $350-million to $400-million, a price that reflects both its location on 3.5 acres of prized Toronto lakefront at the foot of Yonge Street, and the potential for the buyer to construct additional buildings on the site, said Curtis Gallagher, vice-president of hotel investments at Cushman & Wakefield, who was hired to sell the property. The broker is planning to put it on the market early next week.

The Harbour Castle's listing comes months after developer Concord Pacific Developments reportedly paid a record $290-million for the Westin Bayshore on 2.4 acres of downtown Vancouver waterfront in September, a sign that the market for waterfront development sites in Canada's most expensive real estate markets is heating up despite a slowing national economy and a falling Canadian dollar.

Story continues below advertisement

"With the Canadian dollar where it's at, it just gives that little bit more leverage to foreign buyers," Mr. Gallagher said. The hotel will be marketed to both local developers and foreign investors.

The same group is behind the sale of both the Bayshore and the Harbour Castle. An affiliate of U.S. investment firm Starwood Capital Group, backed by investors from the Middle East, bought the two hotels as part of a five-hotel deal that also included Westin hotels in Calgary, Edmonton and Ottawa, according to a 2014 report by brokerage Colliers International. They paid a total of $765-million in a deal that valued the Harbour Castle at $146-million at the time, based on land-registry documents.

The prospective sales price for the Harbour Castle is a significant jump up from the $186.5-million investors InnVest Real Estate Investment Trust and KingSett Capital paid for the nearby Fairmont Royal York Hotel in 2014. But the Royal York has less room for redevelopment and isn't on the water. "It's a big aggregate number, but it's also a big piece of real estate," Mr. Gallagher said.

With the real estate market softening in Alberta amid plunging oil prices, the owners have no plans to sell their hotels in Calgary and Edmonton or Ottawa. However, a prime slice of Toronto waterfront land will appeal to a particularly diverse range of investors, with the current owners looking to capitalize on a hot market for urban Canadian development lands.

"It's optimal timing," Mr. Gallagher said. "They're not developers in Canada per se, so they see that there's the opportunity to do that. They're just not going to be the ones to execute on that plan."

The hotel's potential sale comes at a time when the City of Toronto is working to revitalize its waterfront. The city is looking to redevelop its Toronto Islands ferry terminal, rechristened the Jack Layton Ferry Terminal in 2013, and is in the midst of an ongoing battle over how to fix the aging Gardiner Expressway.

A burst of condo development has created the new South Core neighbourhood in the area. Last May, the city finally got rid of Captain John's, the former floating restaurant that had sat rusting next to the Harbour Castle for years.

Story continues below advertisement

The 977-room Harbour Castle is likely to attract a buyer who wants to own a well-performing hotel, but with the added prospect of being able to build up to three new towers on the site, Mr. Gallagher said.

The site could accommodate an additional tower near the hotel's two existing towers, while a conference centre across the street could be redeveloped into two other towers. The site is zoned for both residential and commercial, meaning a buyer could potentially add new condos to the property, although it would need to be rezoned for more density. A profitable hotel on the site means a prospective purchaser can afford to spend the time it will take to get development approvals, Mr. Gallagher said. Revenue per available room for downtown Toronto hotels, a key industry measure of financial performance, increased 5 per cent last year.

In Vancouver, city planners have balked at plans to redevelop the 511-room, 54-year-old Bayshore hotel, arguing the site is too small and the hotel is an important source of good-paying unionized jobs. In Toronto, the Harbour Castle's zoning dates back to the late 1960s. Any plans for the site would have to be in keeping with the city's plans for its downtown waterfront, which include building "spectacular new public space, promoting the environment and creating dynamic, diverse communities," said Gregg Lintern, Toronto's director of community planning.

The Harbour Castle was built in 1975 by developer Robert Campeau. It has traded hands several times in its 40-year lifespan and was once owned by Hong Kong billionaire Li Ka-shing, who sold it to the Westin hotel chain in 1990. It was also previously owned by the Public Sector Pension Investment Board, the pension investment manager for the federal public service, which purchased it in 2005 as part of the portfolio of five Canadian Westin hotels. PSP sold the group of hotels to the Harbour Castle's current owner in 2013.