Saturday, March 19, 2011

City of Saskatoon withheld concerns over the viability of a hotel at River Landing; consultant hired did not conduct market assessment


For nearly seven years Saskatoon city council has been obsessed with forcing the private sector development of a luxury hotel at River Landing regardless of market demand.

Records recently released by the city in response to access to information requests submitted in February 2005 and May 2006 show that the city was advised of industry concerns about the viability of a hotel on the former Gathercole site, but failed to tell the public.

The documents also show that much of the city’s discussion on the matter was conducted behind closed doors and that the consultant hired to guide the concept planning process for the area did not conduct a market assessment of the hotel industry to see if additional rooms were necessary.

On July 21, 2004, city council’s executive committee met in private to discuss the marketing and disposition of Parcel “Y” (then known as Block E16) at River Landing. An excerpt from the minutes of the meeting indicates that the city solicitor circulated copies of a memo dated July 20, 2004, from Victoria-based consultant Gwyn Symmons.

The purpose of the memo was to provide an opinion on the disposition of Parcel “Y” for a hotel and other uses. Council had two choices for the land, either sale or lease.

Symmons noted that the private sector generally prefers sale over lease.

“It is less complex and leasing can sometimes cause problems with lenders,” he said. “The presence of the city on title may be a deterrent to some lenders. Lenders are generally conservative and will need to examine and accept the lease wording. This may be an added complication to obtaining a hotel.”

Symmons said developers sometimes also express concerns with regard to the marketability of projects built on leased land where residential development is a component.

“In competitive markets, individual home purchasers (with legal advice) may have concerns over leasing. In markets where leasing is uncommon, there may be buyer reluctance where the property is leased, which may affect a developer’s interest in the subject,” he said.

After considering council’s objectives for the site, Symmons concluded: “The subject site is an excellent site and we feel confident that it will attract the interest of developers. On balance, sale of the lands seems more appropriate in the Saskatoon market where leasing has been less common and where the development market place is smaller and perhaps less robust than larger metropolitan centres.”

However, it is important to note that Symmons did not study the Saskatoon market to see if the downtown could handle another major hotel. And yet, he appeared to support the idea nonetheless: “We have not undertaken a market analysis of the hotel industry but continue to believe that the location is an excellent one for this use. Only a competitive call to the private sector will determine the interest or viability and/or the type and size. There is no guarantee that a hotel will be forthcoming.”

Conducting a market assessment early on might have saved the city a lot of grief. Because it wasn’t long before the red flags started to appear.

The executive committee met behind closed doors again on August 6, 2004. It was at this meeting that councillors determined the hotel site “will be sold rather than leased.” There was never a resolution or vote on the matter at a public meeting of city council, only a short mention in a report by the committee for the August 16, 2004, council meeting. The public never had a say.

On November 15, 2004, council awarded a realtor services contract to Colliers McClocklin Real Estate Corp. to assist in the sale of the Parcel “Y” beating out JJ Barnicke, ICI Commercial Real Estate, and Royal LePage.

“Colliers McClocklin submitted one of the top overall proposals that highlighted their experience and in-depth knowledge of hotel marketing on a national basis,” the city manager said in a report to council.

The decision to hire Colliers McClocklin was made at a private meeting of the executive committee held October 15, 2004.

As part of their nine month term contract, Colliers McClocklin provided the city with regular verbal and written progress reports. The city recently released one of these reports, that being a letter from Colliers McClocklin president Tom McClocklin to the city’s then special projects manager, Chris Dekker, dated January 31, 2005.

In the letter, McClocklin indicated that his company had electronically distributed marketing information to 1,429 prospects, created a webpage, Flash TM presentation and a marketing brochure.

Two rounds of advertisements were placed in the Globe and Mail, National Post, StarPhoenix and Leader-Post.

“We did not receive any direct response,” McClocklin wrote.

The company also distributed 25 expressions of interest for Parcel “Y” and received 15 signed registration letters.

“We have not received any concerns relating to the format or procedure of the EOI,” said McClocklin. “We have made note of all comments and/or feedback that has been communicated to us through face-to-face meetings.

McClocklin went on to say that after meeting “with all of our top prospects” there were “three recurring comments.”

“Proponents are convinced that the site does not allow for adequate surface parking which will result in the public areas not being used,” he said.

“The second common concern relates to the overall viability of the project. Proponents are concerned about the need for additional hotel rooms in the Saskatoon market and the ability to achieve required room rates and occupancy levels. In addition, proponents are concerned about the ability to achieve the necessary price per square foot for luxury condominium sales.”

The third concern raised was “the question of site subdivision and the concept of bringing in partners.”

None of these concerns were included in the city manager’s report to council on March 7, 2005.

The city received a total of four EOI’s by the February 11, 2005, deadline.

At a closed door meeting of the executive committee on February 28, 2005, councillors informally decided to invite Remai Ventures Inc. and VPMI Hotel Group to proceed to the request for proposals stage.

The decision was made official at the March 7, 2005, city council meeting. The identities and proposal details of the two unsuccessful applications were not revealed.

However, on February 17, 2011, the identity of one of the proponents was disclosed: Airline Motor Hotels Ltd. of Saskatoon. This was made possible when the city agreed to release the company’s EOI following a review by Saskatchewan’s information and privacy commissioner, who obtained permission from Airline Motor Hotels to disclose their 2005 submission.

Airline Motor Hotels proposed a two stage development. Phase I included a spa complex with restaurant and lounge. This phase would be designed to accommodate a minimum 200 room hotel, as a Phase II initiative in the future, when market demand in the downtown can support this.

“Over the past few years, there have been pro formas done for a mineral spa hotel. This research indicates to us that the downtown area of Saskatoon cannot support another full service property (i.e. one with a hotel) at this time,” the document says.

Future considerations for the site included “another retail operation” and “multifamily/residential development.”

The city has never officially said why the Airline Motor Hotels proposal was rejected.

Money or success can’t be the problem. The company has been around for nearly 40 years and operates the Saskatoon Travelodge, Hilton Garden Inn (Saskatoon) and Four Points by Sheraton Edmonton South.

At the deadline for RFP’s on May 25, 2005, only Remai Ventures had submitted a detailed proposal. VPMI Hotel Group pulled out because major lenders weren’t convinced of the viability of building another major hotel downtown with so many already operating, the StarPhoenix reported.

“It’s a matter of evaluating the risk and lenders aren’t willing to sign the (financing) document this time,” said Shaun Ng, VPMI vice-president of development. “There’s enough hotels downtown, that’s our main problem.”

Charles Misouri, a commercial lender with Saskatoon Credit Union, told the newspaper that downtown is close enough to being overbuilt with hotels that any lender may require a third-party feasibility study to prove another one is viable.

“I know a lot of the banks don’t like to do financing on them,” he said. “For something down on the riverbank, you’d probably need a few banks (to come up with financing).” [One spa bid remains: Bankers sink competing proposal for mineral spa (StarPhoenix, May 26, 2005)]

The fatal blow to the city’s plans came on February 26, 2007, when Remai Ventures wrote to then special projects manager Chris Dekker to advise that they would not be proceeding with their proposed development of Parcel “Y”. The company said the project was “no longer economically viable” due to rising construction costs, the difficulty in obtaining skilled labour, and the considerable costs and risks associated with developing a mineral spa.

StarPhoenix business columnist Murray Lyons said at the time he was surprised that most people didn’t see Remai’s decision coming.

“Let’s face it, a hotel-spa was always more a city hall pipe dream than a business case study. Remember, the Remai proposal was really the only serious reply the city got to its flawed request for proposal process,” he said.

“If city leadership had been less entranced by the idea of a spa, it might have attracted real interest from across Canada in a more open-ended development call.”

Lyons spoke with major players in the downtown hotel industry who said they didn’t believe a full-service hotel and spa would ever generate much of a return.

Andrew Turnbull, general manager of the Delta Bessborough and past president of the Saskatoon Hotel Association said city council was made aware of the hotel association’s skepticism.

“We were quite pointed in our advice that what they (city council) thought was right for the site was unlikely to happen,” Turnbull said in the article.

Sheraton Cavalier’s then general manager, John Bevis, said that while downtown hotels were doing better as of late, adding 200-plus rooms “would saturate the market.” Bevis noted a recent study done by the owners of the Sheraton and the adjoining Cavalier apartment complex found that “the market is not there for a new build.” [Back to reality downtown (StarPhoenix, March 9, 2007)]

Even Greater Saskatoon Chamber of Commerce executive director Kent Smith-Windsor said at the time that the Saskatoon market could not support another hotel complex as hotels struggle to get room rental rates near the national or even Prairie region average.

“If it’s going to cost in excess of $100,000 to build one hotel suite and you’re getting less than $100 (a night) in the marketplace, that won’t work,” said Smith-Windsor. [Remai backs out: Investor pulls plug on hotel, spa project (StarPhoenix, March 8, 2007)]

Still, Mayor Don Atchison stubbornly insisted that a hotel on Parcel “Y” was viable.

“There’s still a strong viability, I believe, for a hotel here. We’ll find out what the market actually says,” Atchison told reporters at a press conference on March 8, 2007. [River Landing hotel viable: mayor (StarPhoenix, March 9, 2007)]

In an interview the previous day, Atchison said the city would “go out to the private sector once again and, hopefully, we’ll be able to have someone build us a wonderful facility there.” [Remai backs out: Investor pulls plug on hotel, spa project (StarPhoenix, March 8, 2007)]

Sure enough, on May 1, 2007, the city issued another EOI for Parcel “Y”. This time only two submissions were received by the June 15, 2007, deadline:

1) Lake Placid Investments Inc.
2) WAM Development Group/Concorde Group Corp.

Concorde president David Dube said at the time that the project would have to be cost-efficient in order for his group to proceed.

“It’s got to be an economically viable development for us,” he said. “We’re not going into it as a charity. We’re going into it as a business.” [Developers line up (StarPhoenix, June 22, 2007)]

On June 25, 2007, city council approved the selection of both companies to proceed to the RFP round.

At close of deadline September 4, 2007, WAM Development Group/Concorde Group Corp. declined to submit a formal proposal, while Lake Placid Investments Inc. submitted a complete proposal.

According to the StarPhoenix, the city received a letter from WAM Development Group/Concorde Group Corp. saying they were no longer interested. No reason was given. The smart money says the project wasn’t viable.

The StarPhoenix said Atchison expressed no concern over the fact that only one developer came through with a serious bid for the property. [River Landing site attracts one proposal (StarPhoenix, September 5, 2007)]

On September 17, 2007, council instructed administration to proceed to negotiate the necessary agreements with Lake Placid Investments Inc. for the development of River Landing Parcel “Y”.

Council approved the sale agreement on January 14, 2008. And for the next 2 years and 9 months there was nothing but excuses, missed deadlines, special treatment, secrecy, hypocrisy and poor decisions by council. By November 1, 2010, Lake Placid had sold its interest in the project to its partner, Victory Majors Investments Corporation, because it apparently couldn’t get financing.

As of March 19, 2011, Parcel “Y” is still empty. The city only has itself to blame.

If there was a need for additional rooms, that time has probably come and gone. Within the last year four new hotels totaling 438 rooms were being readied for the Saskatoon market: A 179 room Holiday Inn at Pacific Avenue and 22nd Street (under construction), a 119 room Four Points by Sheraton in Stonebridge, a 100 room Best Western in Blairmore, and the 40 room Bridgewater West at 1414 22nd Street West.













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