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Finally five-star: Canada gets deluxe hotels

Mixed hotel-condo developments defray costs of building luxury accommodations

By TERRENCE BELFORD
Tuesday, May 3, 2005 Page B10Key
Special to The Globe and Mail

Canada's major cities, although world class in other ways, are lacking one thing: the highest level of luxury hotel and condo accommodations.

It has been prohibitively expensive to build either of these. But now, with a growing pool of sophisticated business travellers and condo owners who expect a certain level of luxury, developers have found that five-star hotels and luxury condos can play off each other's strengths. Condo selling prices can subsidize the hotel construction costs, while the hotel's amenities and cachet can help sell the condos. Niche appeal will even allow several to exist in one market, developers say. Toronto will soon have at least three of each, and Vancouver one, with strong prospects for other cities.

"I think you are likely to see maybe five more projects, which combine luxury hotels and luxury condominium suites in certain key markets," says Joel Rosen, chairman of Toronto-based hotel and leisure consulting firm Horwath Horizon Consultants. "Toronto can support more of them; Calgary may well be able to; Vancouver already has one under way; and Montreal may be able to support one as well."

The demand exists thanks to the growing internationalization of business, says David Larone, a director of PKF Consulting, hospitality industry consultants with offices in Vancouver and Toronto.

"The people who will fill the hotel rooms and the people who will buy the condominiums are well travelled and sophisticated in their tastes," he says. "They are used to staying in five-star hotels in other major cities and they want the same when they come to Toronto and Vancouver."

But the problem has been one of cost, according to Mr. Larone. "There is no way you can afford to build a five-star hotel on a standalone basis today."

The same applies to building a luxury condominium with all the bells and whistles, Mr. Rosen adds. Costs of providing residents grace notes like room service, housekeeping, top-flight restaurants and bars would drive monthly maintenance fees into the stratosphere.

Putting a five-star hotel and a luxury condominium in a single structure, however, readily solves those problems, both consultants say. Condo selling prices can subsidize hotel construction costs, while hotel amenities and even the name can provide the marketing sizzle that sells this particular steak.

"Luxury condos on the Toronto market today may sell in the $400- to $500-a-square-foot range," Mr. Larone says. "If you include the name and amenities of a five-star hotel, you can charge $800 or more a square foot. That gives you a spread of $300 a square foot to finance the hotel's capital costs."

In Vancouver, the new Shangri-La Hotel & Residence is now being built at West Georgia, Thurlow and Alberni streets.

The 64-storey tower will have 120 luxury hotel rooms, 245 live-work units and 66 top-end residences.

The project could not have been done as separate luxury hotel and luxury condo towers, says Stephen Darling, regional operations vice-president for the chain.

"We just couldn't afford to build either with this level of service. There are major benefits by putting both in a single tower. In a way they feed off each other."

Construction costs are only one part of the business equation, however. Toronto and Vancouver's new luxury hotels will have to charge up to twice the cost of today's average hotel room to be profitable. The average room rate in downtown Toronto last year was $154.40 a night; top hotels charged upwards of $200, Mr. Larone says.

"These new luxury hotels will probably have to charge double that to be successful," he says. "Toronto has long been one of the world's great travel bargains. Hotel rooms are underpriced. I think well-heeled travellers will certainly pay a lot more for the standard of service and luxury they are used to elsewhere."

Luxury hotels can appeal to different markets, allowing for several to exist in one city without stepping on each other's toes.

Toronto, for instance, will have the Trump International Hotel and Tower at Bay and Adelaide streets, the Ritz-Carleton, Toronto, on Wellington Street between Simcoe and John streets, and the Hazelton Hotel and Private Residences on Yorkville Avenue.

The city can accommodate all three new projects because each aims at a different niche market, says Barry Landsberg, director of marketing for the 70-storey Trump Tower.

"We are not going to have the ballroom, meeting rooms and proximity to convention facilities the Ritz-Carleton will have," he says.

"The Ritz will appeal to a different market. The same applies to the residences. What are Ritz-Carleton residents going to do when the entrance to the parking garage is jammed by people going to a big wedding at the hotel?

"We won't have those kinds of problems."

Michael Beckley, vice-president of lodging development for both the Marriott International and Ritz-Carleton International chains, agrees that his new project appeals to a different market segment than either the Trump or the Hazelton projects.

"The Ritz names stands for something," he says. "It has been an internationally recognized brand for 100 years and is identified with a certain level of luxury. We believe Ritz hotel guests and Ritz condo residents are a different group."

The Hazelton stands distinctly apart from the other two in size and services offered residents. It will have just 77 rooms and 18 residential units and offer all hotel services to residents, according to Rachel Haar, vice-president of public relations.

"We are an intimate project and because of our boutique approach can offer residents everything we offer hotel guests," she says.

Both the Ritz-Carleton and Trump Tower, by comparison, will offer things like room service and housekeeping on a selective basis.

"We just couldn't afford to have the size of staff that would provide room service to all residents at any time," Mr. Beckley says.

The financial benefits of combining a hotel with a condo are not restricted to the top end of the market. Maple Leaf Sports and Entertainment Ltd. will include a 171-room mid-range hotel along with 900 condo units in two towers at its recently announced Maple Leaf Square project adjacent to the Air Canada Centre in Toronto.

"The hotel becomes part of the lure for condo buyers as is the shopping area and the ACC itself," says Ian Clarke, executive vice-president and chief financial officer.

"Putting them all together also helps finance the project; it helps spread out the cost of the land."

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