Destination hotel developers in B.C. are facing a financing challenge after what appeared a brilliant concept a few years ago – selling hotel units directly to investors – has turned into a spectacular bust.
Neither fractional ownerships nor hotel condominiums, both of which rely on individual buyers purchasing hotel rooms and then putting them into a rental pool, have proved profitable for investors.
"Every hotel condo investment [in B.C.] has lost money for the investor," said real estate consultant Ozzie Jurock. "Every one."
The crash has led to a freefall in prices.
At Sun Peaks ski resort near Kamloops, hotel condos at the Sunset Lodge and Hearthstone Lodge that once sold for around $199,000 are now being offered at $19,000 to $25,000 – with some selling for even less. The typical arrangement allows owners 56 days of use per year with the units potentially rented the rest of the time.
The catch is that monthly fees for owners can easily top $360, and the owner receives less than half of any rental income; the rest goes to management. In most cases, rental incomes don't cover the management fees.
A Vancouver investor who bought a shared unit at the Penticton Lakeside Resort in the Okanagan for $140,000 three years ago estimates the unit has lost half of its value.
"We only used it for 12 days in the last two years," said the buyer, asking not to be named, "but the rentals have never covered our costs."
In Whistler, hotel condos – known as Phase 2 units – are selling this year for less than they were in 1999, according to veteran Whistler realtor Mike Wintemute. Recent listings show one-bedroom Phase 2 suites at Whistler are priced as low as $61,000.
Fractional units, where hotel suites are usually sold in one-eighth to one-quarter shares, have also floundered. The most recent and highest-profile collapse is the luxury Parkside Resort and Spa in Victoria – named the best new resort hotel in the province by the Urban Development Institute in 2010 – where one-eighth fractional shares were being sold from $115,000 to $121,000 last January. By November 2011, Parkside was in receivership with more than $61 million in unsold inventory, according to court filings by Victoria-based developer Aviawest Resort Group.
As Jurock pointed out, the problem with fractionals during a downturn is that eight owners will be trying to sell the same unit at the same time.
"No one will build hotel condos or fractionals anymore," predicted Zack Bhaista, vice-president of Mayfair Hotels and Resorts of Vancouver, which has just broken ground on the Crystal Blu Hotel in downtown Vancouver. "Anybody who bought a [shared ownership] hotel unit in the last 10 years has lost a tremendous amount of money."
He added that this will make it tough for hotel developers in a province where the average hotel is half vacant most of the time.
"If I had a choice I wouldn't build a hotel in this market."
However, Bhaista is forging ahead because he has the zoning and floor-space ratio to include 112 residential condominiums along with his 78-room Robson Street hotel.
Mayfair's Crystal Blu, like Vancouver's new Shangri-La, Fairmont and the Rosewood at Georgia, he said, show perhaps the only solution for B.C. hotel developers: include full ownership strata units. "The profit you make on the condos pays for the hotel; that is the only way to make it work."
Betsy MacDonald, a partner in North Vancouver-based hotel consultancy HVS International, said the industry rule of thumb is a hotel room must make $1 per night for every $1,000 it takes to build or buy.
"If the hotel costs $125,000 [per room], the room has to rent for $125 per night on average," she said, "and you need 60% to 70% occupancy to break even."
MacDonald noted the sale last year of the 561-room Sutton Place Hotel in Vancouver for $291,667 "per key" raised some eyebrows.
"No one is getting an average rate of $291 per night," she said.
According to the most recent HVS survey, the average daily rate for a hotel room in B.C. is $119, and the average occupancy rate is around 42%. •
Investors kick off new resort-buying cycle
As B.C.'s major tourism market signals a growth year for 2012, one of Canada's largest destination resort companies has kicked off a new cycle of investment with a $28 million buy.
In January, Calgary-based Resorts of the Canadian Rockies Inc. (RCR) bought the Kicking Horse Mountain Resort – the last major B.C. ski resort built in the past 25 years – near Golden, from Dutch-based Ballast Nedam. While RCR did not disclose the purchase price, a post-sale financial report from Ballast Nedam pegs the asset value at $28 million.
Steve Paccagnan, who will remain Kicking Horse president under the new ownership, said it's business as usual at the resort and all existing ski packages, passes and joint agreements will continue to be honoured.
RCR is one North America's largest private ski resort owner/operators. It now owns six ski resorts across Canada, including three on the B.C. side of the Rockies.
Kicking Horse is not the only place in B.C. where prospective resort buyers have been kicking tires. Calgary-based Bellstar Resorts and Hotels is rumoured to be preparing a bid for part of Aviawest Resort Group, which has gained an extension of credit protection to March 26.
"We're looking at Parkside," said a Bellstar spokesman, referring to Aviawest's flagship Parkside Resort and Spa property in Victoria.
Meanwhile, Tourism Vancouver is forecasting a 2% increase in visitor volumes for 2012 in what it says will be "a solid year for tourism."
"2012 will be a year of marketplace strengths for Vancouver's tourism industry," said Howard Jang, Tourism Vancouver's board chairman. "New in-bound flights, an increase in cruise ship sailings, growing confidence among U.S. travellers, and buoyancy in international markets will help to offset the ongoing effects of the recession which has impacted the worldwide tourism industry since 2008." •
