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Creativity helps mid-priced hotels thrive in pricey cities
Adapting rooms to fit current needs is the key to optimizing property use, cutting costs and maintaining a city's economic momentum
Special to The Globe and Mail

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Tuesday, July 9, 2019 – Page B6

The owners of the modest and quirky Victorian Hotel in Vancouver get offers all the time for their property, with potential buyers offering astronomical figures just to get a small piece of real estate in the downtown area.

Formerly a low-rent residential hotel, the space was taken over by its current owners in the 1990s before renovating and relaunching it as a three-star-hotel that caters to business clients.

For now, the owners of the Victorian Hotel are staying put.

"The business is doing so well," manager Brian McLauchlan says. It's almost always at full capacity, even at current rates of $200 to $350 a night and even though it's in a transition zone between the central business core and the Downtown Eastside.

Not all who have ventured to establish hotels in this area have fared so well. Mr. McLauchlan acknowledges that over the past decade, quite a few other small-hotel owners ended up selling, and he says others are likely to cash out during the next year or two.

"If you don't have deep pockets, you have to sell," says Mr. McLauchlan, who has managed other smaller hotels in Vancouver.

IT'S HARD TO BE A HOTEL The pressure on hotels, particularly small to mid-sized properties, has turned into a significant problem for Vancouver. The issue is serious enough to attract the attention of both city planners and individual entrepreneurs, both of whom are now working together to find a solution.

As with so much else in the city, the lower-priced, more affordable rooms are disappearing.

Between 2010 and 2017, Vancouver lost 1,598 hotel rooms in the three-star or below categories, and another 438 in the fourstar category.

During the same time, almost 1,200 new five-star rooms were created. Well-known luxury brands, such as Marriott and Executive Hotels and Resorts, staked a claim in Vancouver's downtown core in late 2017 and 2018, but with a one-night stay on a weekend costing $400 or more, these new hotel options don't cater to a large segment of visitors.

The impact of lost rooms in these more affordable price brackets means that hotels are full or near capacity far more often - and that says a lot for a city where hotels tend to dominate the downtown core. On average, the national occupancy rate hovers around 65 per cent. Between June and September of last year, Vancouver's 13,000-plus rooms had a 90-per-cent occupancy rate. Clearly, there are an insufficient number of rooms to meet the city's demand. This isn't good if you're a city planner who is counting on tourism growth as part of the city's future economy.

"If we don't deal with our hotel supply, we're won't be able to grow our visitor economy," says Ty Speer, chief executive officer of Tourism Vancouver. "We will have visitors that want to come and will not be able to."

SHORT-TERM RENTALS HELP Mr. Speer concedes that the only reason this problem isn't worse is the presence of Airbnb and short-term rentals.

"The slack has been picked up by short-term-rental sites and home-sharing," he says. "Without that, we would have been in trouble much sooner. But what we're seeing now is that Airbnb - the flexible supply of rental rooms - is tightening up a lot across the province and in the city."

Feeling the heat, City of Vancouver planners introduced a new policy in mid-2018 that opens up three specific areas in the downtown area to allow for the construction or redevelopment of commercial structures for hotel use.

As well, planners asked councillors to support other measures to protect existing rooms or encourage the construction of new ones, including allowing smaller room sizes, nudging developers to replace lost hotel rooms with new ones and allowing strata buildings that have only one owner to be converted to hotels in commercial areas. Finally, smaller changes to the overall design requirements of hotels - including not requiring a standard lobby, for example - were included.


Vancouver's hotel problem is a direct result of all the other real estate and housing issues that have hit the city in recent years.

Some hotels are being lost because owners have sold out for high purchase prices offered by condo or office developers. The Landmark on Robson Street and the Quality Inn on Howe Street are two examples.

The city's aggressive effort to deal with its homelessness problem also plays a role. Vancouver bought or leased several midrange hotels to provide transitional or permanent housing for its always-growing number of homeless people.

The Biltmore Hotel, once a mainstay for out-of-town visitors in Mount Pleasant, is now leased by the city. The former Ramada Inn on Kingsway is now home to the people who used to live in the Continental Hotel on Granville. And another Ramada on East Hastings was purchased in 2013 for transitional housing.

Other hotels, including the Pacific Palisades on Robson, the Plaza 500 across the street from City Hall and the Coast Plaza Hotel on Denman, are in the process of conversion or have already been converted to rental apartments.

Finally, as a result of Vancouver's soaring land prices, the only kind of new hotel space that's currently being built is in the luxury segment.

SOLUTIONS ARE POSSIBLE, BUT REQUIRE CREATIVITY Commercial broker Hamir Bansal at Colliers International says one alternative is a mixed-use development where the hotel only occupies part of a building, which may also include condos, offices and retail space. The Exchange Hotel, in the city's central business district, is a prime example of this mixed-commercial-use development.

Prima Properties is also looking at developing a 47-storey tower on the former site of a gas station at Burrard and Davie, which would have 236 condo units and 50 hotel rooms.

Then there is a convergence of ideas that offers a unique take on the mixed-commercial approach. This is the direction the Sonder hotel is taking. As a San Francisco-based company with a McGill University student from Montreal as a founder, Sonder has been billed as a challenger to the short-term-rental space because of its aim to combine the Airbnb experience with hotel efficiency and standardization.

"We used to call ourselves the deconstructed hotel," spokesman Mason Harrison says.

"Hyatt can't make an eight-unit hotel work, but a tech-enabled hotel can do that."

The company has about 4,500 rooms in 22 cities.

It is currently opening its first major Vancouver project in a former Arts and Crafts-era office building on Seymour Street. The project will create 36 hotel rooms, but there will be no lobby or visible hotel-type services. Instead, Mr. Harrison says, Sonder's on-call Vancouver operations team will provide guests with concierge and housekeeping functions.

"When you look at the cost of real estate in Vancouver, it's crazy to use it for lobby and back-ofhouse functions," he says.

The company has faced blowback in Vancouver and elsewhere for appearing to operate single, Airbnb-type units in residential buildings.

Mr. Harrison says those are old listings that the company had prior to their regulation of short-term vacation rentals.

Now, he says, the company has dropped those and works to comply with city regulations.

That's just one of the challenges this new hotel model faces - in every city, but perhaps especially in real estate-jaded Vancouver, Mr. Harrison says.

The city has a lot of rules meant to ensure that renters don't get displaced. It's not a problem, he says, since his company works hard to find spaces that fit with existing company goals and current city by-laws.

"We believe this mixed-use model is good for the city."

Associated Graphic

Vancouver's Victorian Hotel, a former low-rent residential hotel, was relaunched as a three-star hotel that is now almost always at full capacity. But a manager at the Victorian says over the past decade, quite a few small-hotel owners in the area have sold their properties.


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