Development Matters: Attracting a hotel

During the shopping mall debate, many people said Revelstoke needs hotels. Well, we decided to see how you make that happen.

The Best Western Plus is one of Revelstoke's newest hotels.

During the shopping mall debate, many said they wanted hotels instead. Well, we decided to see if they’re needed and how to make that happen.

It was a refrain heard time and again during the shopping mall debate: “We want hotels.”

“This is one of the last affordable pieces of land in B.C. that is close to the Trans-Canada Highway,” said Elmer Rorstad during the momentous public hearing on the Revelstoke Crossing shopping centre at the end of November. “Why are we wasting it on a strip mall when we should be looking at a series of hotels?”

“What do we need?” asked Glen O’Reilly. “We need a smaller retail area and we need hotels.”

“A hotel is the perfect addition to the town,” said Chuck Ferguson.

That raises the obvious questions: Do we need a hotel? How do you actually attract hotel development? How do you convince a developer that Revelstoke is where they should invest their money?

To find out, I spoke to several local hoteliers, city hall officials, and one consultant who specializes in hotel development.

It’s a matter that involves studying the local market, looking at demand, looking at the business climate and determining if there’s enough potential to generate a return on a multi-million dollar investment.

We’ll take a look at three issues: What the local market is like, what hotel developers look for, and what the city can do to attract development.

The local market

One of the biggest indicators of a hotel’s success is its occupancy rate. It’s not the only one – the revenue per room is also a key mark – but it helps show how profitable a hotel is.

In Revelstoke, occupancy rates are not readily available. We’ve heard the annual rate across all hotels is about 60 per cent, though no official statistics are made public. That includes every property, from the Frontier to the Sutton Place Hotel. Brady Beruschi, the manager of the Regent and Best Western told me the annual occupancy rate of both hotels is in the mid-60s.

“There’s peaks and valleys,” he said. “There’s certain times of year there’s a lot of demand, and there’s months it’s drastic.”

In winter and summer, the town can be booked up on many nights, but in the shoulder seasons and off seasons, occupancy can plummet, he said.

“There’s probably demand certain weekends of the year, but if you look at it on a yearly basis, I think it’s a gamble,” said Beruschi.

Alan Mason, the city’s director of economic development, said the best data he has for tourism numbers is the hotel tax revenue, which has increased to about $650,000 in 2015, from $420,000 when Revelstoke hotels first started collecting the tax in 2008.

That’s a sign of two things — one is the increasing number of occupied beds in the community and the other is the price of a hotel room. “That’s an attractive package,” said Mason.

Thom Tischik, the executive director of the Revelstoke Accommodation Association, said the community could use more beds during peak season, but there are several issues that need to be addressed. One is the number of illegal vacation rentals, which compete with hotels, but don’t contribute to the economy in the same way by charging things like the hotel tax.

“In my opinion we have so many vacation rentals in town that are taking away from existing hotel rooms,” he said. “Would that be a solid investment? I don’t know.”

He said Revelstoke has about 1,200 hotel rooms and 200 vacation rental rooms.

“If I was in an investor, I’d be thinking long and hard about how I’d put my money into not just Revelstoke, but any town, because of the vacation rental situation,” he said.

At the same time, he noted hotel tax revenue was up each month in 2015 compared to the previous year.

Judy Goodman, the executive director of the Revelstoke Chamber of Commerce, said she thinks the town could use another hotel. “I do think it is something we should be looking at as far as recruiting.”

What hoteliers look for

The first step to attracting a hotel is ensuring the destination is strong, said Christian Piche, an associate vice president with Colliers Hospitality Valuations.

This could mean tourism, or it could mean being a strong business destination. He pointed out Terrace, B.C., where an expected boom in natural gas resulted in three new hotels being built in the past three years. “On a general basis a hotel product is not a destination,” Piche told me. “It’s there to provide services for a destination.”

Revelstoke qualifies as a tourism destination. We have Revelstoke Mountain Resort and snowmobiling in the winter, and a summer season that is still largely based on highway travellers, but is growing in terms of destination traffic.

Generally, Piche said, the first thing a developer will do is a market feasibility analysis — something Colliers is in the business of doing. They’ll look at occupancy rates and room revenue to see if there’s enough potential revenue to justify the investment.

“How much competition exists? What kind of shape is it in? Do they provide a product that’s old, tired, and ready to replace, or is it new inventory I’m going to be competiting against head-to-head?” said Piche.

The cost of building also comes into play. “They’re looking at profiitability between 30-40 per cent,” he said. “If they can’t reach that benchmark, why should they take the risk?”

Most new hotel developers are looking to build and stabilize a property, but they also want an exit strategy, said Piche. “An exit strategy implies profitability and if there isn’t the market for a hotel, it isn’t going to be built.”

There have been three hotels built in Revelstoke recently — the Sutton Place Hotel, the Best Western Plus and the Cube.

Brady Beruschi told me they built the Best Western Plus to satisfy the growing demand for winter accommodation. “Revelstoke was always a winter destination and obviously when the ski hill went through there was more demand in Revelstoke,” he said.

David Evans, who has proposed to build a boutique treehouse hotel near the base of RMR, said he crunched the numbers to see how many people he could attract before making his proposal.

“I think we’d be looking at 100 days in winter and 100-120 days in summer that are really good days,” he said. He hopes the uniqueness of a treehouse hotel will draw people as a destination unto itself, much like Quebec City’s Ice Hotel.

“That’s why we’re developing a different product that will drive people to come for the product,” he said.

Piche said that if a community has a 70 per cent occupancy rate, developers will be interested. At 50 per cent, they’ll probably stay away. At 60 per cent – where Revelstoke is supposedly at – they’ll look at room costs.

“If the inventory that you have in your town demands a rate of $70 and you have a product that’s worth $95 to $100, all of a sudden 60 per cent makes sense for you. You can steal the business from everyone else,” he said.

What can the city do?

The first person I spoke to for this story was Judy Goodman at the Chamber of Commerce. She said attracting hotel development is something that should be done by the department of economic development.

Alan Mason, who is that department, said he would need to ensure there is demand for another hotel before going out to recruit one.

“I’m funded by tax payers and hotels are tax payers,” he told me. “I might be a bit pissed off if my tax dollars were going to help someone compete with me.”

At the same time, if a hotel developer approached him about building in Revelstoke, he could present to them a package showing things like the rise in hotel tax revenues since the tax was implemented in 2008. That means more hotel rooms are being booked and/or the price of rooms has gone up.

He could also point out sites that are available for development.

If he were given the go-ahead to recruit a hotel, he could post a package on the city website, and attend trade shows.

Dean Strachan, the city’s manager of development services, said he gets inquiries from agents for hotel developers. Generally, the identity of the developer is kept secret, he said.

The main sites he identified for hotel development are along the highway, the empty lot behind city hall, and at Revelstoke Mountain Resort.

Peter Nielsen at Revelstoke Mountain Resort said Revelstoke wasn’t considered friendly to developers. He identified the commercial tax rate as a barrier to development at the resort. The resort has had inquiries from people looking at strata developments, but the prospect of paying high commercial taxes scares them off.

“We have several plots of land that are ready and zoned for it. We’ve shopped it wth third parties,” he said. “The biggest issue we’ve encountered is the tax issue.”

Christian Piche said if the city was serious about recruiting a hotel, it would need to put together a package for developers. He said many are from overseas, pointing to new hotel development in Terrace, B.C., that was funded by Korean investors.

“It’s a question of knowing your market, knowing you have to sell it and knowing you have to have something to sell,” he said. “You need to back that up with some hard numbers. Its a question of somebody in the town doing a decent a job of selling it to investors.”