Small hotels – no small deal

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After a lull of several years, Victoria has two new small hotels and a third on the way in 2008, thanks to some creative financing.

They differ on details but condo sales were critical to getting all three out of the ground.

“Really, it’s the only way you can finance a hotel these days,” said Frank Bourree of Chemistry Consulting. Banks are reluctant to loan for even a little boutique hotel, knowing that the business — in the often volatile tourism industry — won’t start to make money until reaching at least 60-per-cent occupancy.

Loaning money on a new hotel, facing high land prices and spiralling construction costs, is financially risky. Banks usually won’t talk until the hotel developer has half of the project cost in hand, said Bourree. But structure it as a condo building, and bankers are happy to spread the risk among dozens of individual buyers.

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Opening a hotel costs tens of millions, even for the classy, smaller one-of-a-kind places. The Oswego Hotel, which opened in June in James Bay, was $25 million and all 80 rooms and suites are strata. The 119-unit Oak Bay Beach Hotel under construction will probably top $40 million, although one big advantage for owners Kevin and Shauna Walker is that they already have the land. Nineteen strata “hotel residences” will be part of the project, starting at $995,000 and reaching around $3 million.

Just the lower half of the 109-suite waterfront Sidney Pier Hotel functions as a hotel, but the sale of 54 condos in the other half financed Marker Development’s land and construction costs of $60 million. It opened in May at the foot of Beacon Avenue and includes an art gallery, bakery café, spa, and fitness studio. The building also includes the unfinished marine education centre to be run in partnership with the Vancouver Aquarium.

The Oswego and the Sidney Pier have brought together experienced hotel and restaurant people to run the new operations.

Victoria native Peter Neilsen, a graduate of Camosun College’s hotel program in the 1990s, is the Oswego’s general manager and has a decade of experience in hotel room operations, including the Chateau Whistler and Poet’s Cove on Pender Island. He’s part of the team at Boutique Hotels and Resorts of B.C. Ltd. (BHRBC), a two-year-old company focused on managing small luxury hotels in the province, led by Mike Duggan, ex-general manager of the Pan Pacific at Whistler.

So far, BHRBC has Oswego and two Okanagan resorts in its portfolio, but it will add Nita Lake Lodge at Whistler this fall and Black Rock at Ucluelet early next year.

All but 10 per cent of the Oswego’s rooms were sold before it opened, and the 80 units — which include 44 one-bedroom and 15 two-bedroom suites — form a hotel rental pool. One-bedroom units topped out at $346,000. Hotel rates for summer in the studio units are $220 a night.

Neilsen figured room owners wouldn’t use their units more than 10 per cent of the time. The Oswego was developed by James Bay Investments Ltd. of Vancouver, also responsible for a 130,000-square-foot retail-residential project in Squamish.

The Oswego opened O Bistro on the open-area ground floor under chef Martin Deboard, who came up via Westin hotels at Whistler and Bear Mountain. He calls the concept smaller “urban plates,” but wants to avoid the tapas label.

Hotel guests don’t have to come down to the lobby to eat. Each suite has a classy kitchen with china, silverware, high-end cooking pots, and stainless steel appliances, even a blender. Neilsen said Oswego has signed up Small Potatoes Urban Delivery, so guests can order ahead on their laptops and a box of fruit, vegetables, dairy items, meat, and poultry will be delivered the day they book in.

At The Sidney Pier, Markus Griesser is the general manager. His family started and still runs the Aerie luxury resort where Griesser began his hotel career. He took time out for a Royal Roads MBA and was involved in planning at the Pier during construction.

He raided the Fairmont Empress for a couple of key people. Lisa Hall is the Pier’s “director of guest experience” and was director of rooms at the Empress (and, before that, co-owner with chef John Hall of the much-missed Cassis in Cook Street Village). Amber Fiddler handles sales and marketing, which she used to do for the Empress. The Pier also has Ellen Coburn as “director of arts and wellness,” responsible for the spa and art gallery. She helped open spas at the Aerie, Silk Road Tea, and the Kingfisher resort near Courtenay.   

The Pier restaurant is Haro’s, for the strait visible in the distance from most of the 65 seats and the outdoor patio. There’s also Café Georgia for lattés and muffins. Cowichan consultant Mara Jernigan advised on Haro’s Island-specialized menu, and the chef is Gordon O’Neill, a former partner in Suze and Camille’s and most recently at Butchart Gardens.

The new Oak Bay Beach Hotel is also selling condos, and, this fall, five have been released for sale. Meanwhile, there’s a new wrinkle to help finance the redevelopment, called the Discovery Club, kind of a personalized hotel booking service for richer folks. Owners Kevin and Shawna Walker are selling memberships starting at $150,000 but after they sell the first 25, the price goes up.

It’s a new phenomenon here, although the first destination clubs for well-off travellers were developed in the U.S. in the 1990s. Some own their own properties, typically high-end, single-family homes in places like Sun Valley, but Discovery has stuck to hotels.

It’s not strata title or a time share. You pay a six-figure initiation fee and annual dues. That buys a stay in numerous four- and five-star hotels and resorts, including ten Fairmont properties, the Marriott chain, Raffles Hotel in Singapore, Wickaninnish Inn, and Westin Bear Mountain, from 24 to 50 room nights a year, depending on the hotel and the season. You can roll over your allotment but the unused nights evaporate after two years.

Walker’s been in the hotel and motel business for more than 30 years, and has worked out serious discounts for his club. “Hotel owners like dealing with one person who can bring them a whole lot of business.”  

The club has a security indenture for club members’ money — “an absolutely secure piece of paperwork” — monitored by Pearlman and Lindholm law firm of Victoria. The cash is invested in real estate — the new Oak Bay Beach Hotel is one investment — and it also buys the hotel room nights.

“You buy in, it’s yours for life,” said Kevin Walker. Or after a minimum five years, you can sell it back to the club for 70 per cent of the original price, or let the Walkers market to a third party.