Oak Bay Beach Hotel sale could spark bidding war
“I think there will be a lineup [of buyers],” said Frank Bourree of Chemistry Consulting.
Bison Properties, the company owning the hotel which was developed by local resident Kevin Walker, has been in receivership since last December. Its debt total $140.8 million.
Receiver Ernst and Young is going to B.C. Supreme Court today to ask for permission to put the luxury property on Oak Bay’s Beach Drive up for sale, with the hopes of confirming a purchase agreement in March. The receiver is proposing to run the sale process.
Bourree said it is a good time to take the Oak Bay Beach Hotel to market. The property has 100 hotel units and 20 condo units.
The value of most Canadian hotels is climbing and the industry is “having a record year,” Bourree said. The hotel’s desirable features include the quality of construction, waterfront location, strong management and marketing initiatives, he said.
Chinese buyers, who have been active in the B.C. hotel market in recent years, and North American investors will probably vie for the property, Bourree said. He figures it will sell for close to $71.6 million, the value of the construction loan owed to a five-member syndicate. The property’s most recent assessed value is $66 million.
Receiver Mike Bell said in a report this week that for the construction lenders to get full recovery on their money, proceeds (net of transaction costs and fees) of $75 million are needed. Even if the construction loan is paid off, that would leave the rest of the creditors — including 49 bondholders who invested in hotel suites and condominiums — out of luck, not to mention several trades and other creditors.
Colliers International’s 2015 Canadian Hotel Investment Report paints a picture of a robust hotel market.
The total value of hotel sales in Canada is projected to reach between $1.25 billion and $1.5 billion this year, the report said.
National hotel values rose by six per cent last year and are forecast to increase by 6.8 per cent this year, the report said.
The lodging industry is an “attractive proposition for a wide range of buyer groups,” it said.
Sales of full-service hotels are expected to continue growing, according to Colliers. Hotels in this category represented 52 per cent of the total volume of sales last year. The Oak Bay Beach Hotel is a full-service hotel in that it offers a wide range of amenities, such as restaurants, a pub, spa and theatre.
Factors favouring the hotel sector include competitive debt financing available to a variety of lenders as funds are “expected to remain cheap and plentiful through the medium-term,” the report said. “Strong resources of equity capital are available with a variety of investors eager to pursue opportunities both large and small across Canada.”
The Oak Bay Beach Hotel’s revenues moved up by more than $1 million in the first eight months of this year, compared to those months last year, Bell said.
Between December 2014 and September this year, the hotel brought in about $13.6 million, Bell said. Of that, $10.6 million was from hotel operations. Revenues were generated from room revenue at $4.9 million, the Snug Pub at $1.8 million, the Boathouse Spa at $993,563, the David Foster Theatre at $578,566, Kate’s Cafe at $430,626, and collection of government sales taxes of $1.1 million. As well, one of the construction lenders loaned $3 million to the receiver.
Disbursements within that period came to about $11.6 million. These included $8.9 million in operating costs, hotel management fees, appraisal costs and professional fees of $1.2 million. There were also pre-receivership liabilities of $272,000, with $235,000 of that going to pay staff wages and expense claims. Another $338,000 went to restocking and one-time costs, and $869,000 on outstanding property taxes for 2013 and 2014.
The hotel had $1.4 million cash on hand as of Sept. 20, the report said.