In a move that some observers say could become increasingly common as hospitality property owners look to wring more value out of their investments during the pandemic, two major downtown Ottawa hotels are being converted into long-term rental complexes.
The Albert at Bay Suite Hotel at 435 Albert St. and the Best Western Plus at 377 O'Connor St. shut their doors earlier this month after being sold to a new ownership group. On Wednesday, the head of the city’s main hotel industry organization confirmed to OBJ that the buyer plans to turn both lodgings into rental apartments.
“They’re particularly suited for that because they were suite hotels,” said Steve Ball, the president of the Ottawa Gatineau Hotel Association. “They've got kitchens, they’ve got laundry facilities in each suite.”
Jake Levinson, a member of the Levinson Group of Companies that previously owned both hotels, wouldn’t say who purchased the properties and refused to divulge any financial details of the transaction.
The sale marked the end of an era for the family-owned business. Jake’s grandfather, Jacie Levinson, originally developed the Albert at Bay as a rental apartment property before it gradually transitioned to a suite hotel in the mid-1980s. The family later opened the Best Western on O’Connor Street in the early 1990s.
Levinson told OBJ the new owner initially made an “unsolicited offer” for the hotels in February, before widespread measures aimed at curbing the spread of the coronavirus crippled the industry.
'It made a lot of sense'
“What was a good deal for us forgetting about COVID became an even better deal as time went on,” he said. “It made a lot of sense to move forward with the deal.”
Levinson said the hotels – which relied heavily on business travellers and employed a combined 120 people at their peak – have been as much as 95 per cent empty over the past few months, making it virtually impossible to run a viable operation.
“Five to 10 per cent (occupancy) doesn't pay the bills,” he explained. “We just really didn’t know what the future held for us or for the Ottawa tourism industry or the hotel industry at large.”
"Five to 10 per cent (occupancy) doesn't pay the bills. We just really didn’t know what the future held for us or for the Ottawa tourism industry or the hotel industry at large."
With real estate firm CBRE and other analysts predicting the hard-hit hotel industry won’t return to last year’s levels until 2023 at the earliest, Ball said he wouldn’t be surprised to see other owners of suite hotels convert their properties into rentals – at least in the short term until the hospitality industry gets back on its feet.
Ottawa’s rental vacancy rate was below two per cent in 2019, making a shift to apartments the obvious pivot for landlords looking for a steadier income stream, he explained.
“There's some real logic in doing that right now,” Ball said. “There’s demand for downtown rentals. An owner facing those kinds of challenges might decide, let’s take advantage of long-term rental for a while.”
Veteran Ottawa hotel executive Ross Meredith agreed. The general manager of the Westin and Delta Ottawa City Centre said landlords at virtually deserted hotels will likely be “willing to get a little bit creative” to find new sources of revenue as a long winter looms for the industry.
“I think hotels that have kitchens and any sort of laundry facilities, they could be easily converted into a different use for a period of time,” Meredith said. “Every owner is going to be looking at how they pay their bills and how they cover their costs through this difficult time.”
Ball said the next few months could be a make-or-break period for many hotel operators. He said most lodgings in Canada are owned by small and medium-sized companies rather than large hotel brands.
“A lot of them are quite heavily leveraged,” he said, pointing to a recent industry study that suggested as many as four in 10 hotels across Canada might not survive the winter without significant financial aid. “They’re the ones that are at risk unless we get some liquidity breaks for them.”
Occupancy is currently hovering around 10 per cent in Ottawa, Ball said. He said about 75 per cent of the capital region’s hotels are still open, but he’s not sure how many will stay in operation through the winter.
“Certainly, the next five to six months are going to be critical for a number of properties,” he said. “There’s no committed demand.”
Ball said the industry is hoping that COVID-19 infection rates in provincial hot spots fall enough to warrant an easing of public health measures and make would-be travellers more comfortable with taking a road trip to the nation’s capital.
“I think Ottawa has some opportunities from a leisure perspective this winter,” he said. “We have Winterlude, we have Christmas lights, we have a lot of outdoor activity that – if the province would just suggest that a road trip from Toronto to Ottawa on the weekend is probably as safe as anything – we could probably pick up on some leisure travel this winter.
“As long as the province keeps telling everybody to stay home, our industry is going to stay hurting. I’m not sure how much longer a lot of people can hang on.”