SkyCity Centre Winnipeg | 45F | 575 Ft | 175.26 M | Cancelled

[Simplicity]

http://www.cbc.ca/news/canada/manitoba/s...own-developers-promise-1.3090941?cmp=rss

"... a deal with a major grocery chain fell apart last year when the company pulled out, but he says Fortress has issued an expression of interest to other chains to fill the space."

Good luck with that, eh?

[esquire]

^ It's kind of funny how most of the articles about the project these days involve Fortress officials insisting it will happen.

[drew]

The valuation of the Sherbrook is north of $10,000,000? Is that based on what it would take to get the owner to budge, or what the appraisal would say?

Based on very recent pricing I have seen to build a smaller mixed use development further north on Sherbrook, you could knock that the Sherby building over and almost rebuild it twice for $15,000,000. Now granted, this other development is on an empty lot and doesn't include the extra rear parking lot, but still, something doesn't add up to me.

[steveosnyder]

Originally Posted by drew

The valuation of the Sherbrook is north of $10,000,000? Is that based on what it would take to get the owner to budge, or what the appraisal would say?

Based on very recent pricing I have seen to build a smaller mixed use development further north on Sherbrook, you could knock that the Sherby building over and almost rebuild it twice for $15,000,000. Now granted, this other development is on an empty lot and doesn't include the extra rear parking lot, but still, something doesn't add up to me.

What Simplicity said...

[Simplicity]

Originally Posted by drew

The valuation of the Sherbrook is north of $10,000,000? Is that based on what it would take to get the owner to budge, or what the appraisal would say?

Based on very recent pricing I have seen to build a smaller mixed use development further north on Sherbrook, you could knock that the Sherby building over and almost rebuild it twice for $15,000,000. Now granted, this other development is on an empty lot and doesn't include the extra rear parking lot, but still, something doesn't add up to me.

The cost to build is a whole other kettle of fish.

The Sherbrook Inn is a very profitable going concern; it's not just some derelict building waiting to be knocked over or a gravel surface lot. This is why we refer to returns as 'hurdle rates': one has to 'hurdle' the existing return in order to generate another worthwhile investment. A very simplified version of this would be mortgaging a property at 4% and generating a 3% return. You aren't hurdling your cost of capital.

And cost of capital can be measured in varied ways. For instance, if you're the owner of a business that operates at a 15% margin annually, your cost of capital - equity in this case - is a 15% return. In other words, your equity needs to do better than 15% annually to justify removing it from your business and investing it elsewhere. This is all very simplistic and I'm not going to get into things like internal rate of return which would value this equity out in perpetuity inclusive of certain growth rates plus the speculative value of the real estate itself in say 20 years, or the aggregated cost of capital when you start adding debt to the mix, but you can see where the point is being made. Somebody has to go to the owners of the Sherbrook Hotel and give them a price that reflects not only the present value of their operating company within the four walls of the company over something like 6-8 years, but also the value of the rents the operating company is no doubt paying the real estate holding company. And, given this is an unwilling seller who isn't dead and as a result won't have life insurance to cover the tab, the value of the capital gains tax that will be realized upon disposition.

Since nobody is generating returns on total investment of anywhere near 15% in the real estate world (hypothetically speaking), that's why it won't happen. And the truth is these guys are probably doing better than a 15% return in there.

The only time you get businesses willing to sell the real estate asset is because the business owners are ready to retire, there's nobody to take over the company, and the only asset in the company of any tangible value is the real property.

[Simplicity]

Originally Posted by steveosnyder

I think he means cashflow wise... It would take north of $10MM invested somewhere else to create the return for the Sherbrook Hotel owner somewhere else. Why would the owner sell the hotel for anything less?

Just thinking about this a bit, that would mean more than likely the place is bringing in over $1MM in profits a year.

I'm speaking entirely hypothetically here when I use the numbers I do, but the valuation of real estate works more on a capitalization of income basis than a multiple of EBITDA basis. in other words, the company inside probably has a normalized value of 6-8 times EBITDA given that they're unwilling sellers while the real estate will have a market capitalization rate of somewhere around 6.5-7% which makes teasing out the net income nearly impossible without the financials.

And that's the way it's intended

[TimeFadesAway]

Originally Posted by Simplicity

Since nobody is generating returns on total investment of anywhere near 15% in the real estate world (hypothetically speaking), that's why it won't happen. And the truth is these guys are probably doing better than a 15% return in there.

^^^^^^
Bang on. I bought some condos in Scottsdale during the bottom of their last bust that are making around a 14% gross return annually. In other words, I bought during a once in a generation bottom of a market that fluctuates far more wildly than Winnipeg and am still not quite making 15%. 15% Is freaking huge.

[Simplicity]

Originally Posted by TimeFadesAway

^^^^^^
Bang on. I bought some condos in Scottsdale during the bottom of their last bust that are making around a 14% gross return annually. In other words, I bought during a once in a generation bottom of a market that fluctuates far more wildly than Winnipeg and am still not quite making 15%. 15% Is freaking huge.

And that's gross! Generally cap rate returns are on the net.

[CoryB]

Originally Posted by esquire

Yeah, the facilities are there from when the Marlborough was a upper-echelon hotel. The dining facilities there are spectacular... the dining room (which is no longer used as a restaurant) has a spectacular double-vaulted ceiling, and Joanna's Cafe is one of the most impressive restaurant spaces in town. The banquet halls at the top are great too. It would probably take a ton of work to get the rooms up to snuff, though.

Frankly, I'm surprised that the Marlborough has dropped off as much as it has... it's so close to the business hub of the city that you'd think it wouldn't have to rely on long-term residents which I understand it has been doing a lot of over the past 4 years.

I think the plan to turn around the Malborough is roughly this:

1. Remove the long term residents
2. Upgrade a single floor of rooms to boutique/luxury standards
3. Upgrade the lobby
4. Upgrade the elevators to the top floor event space.
5. If possible enlarge the lobby on the event floor.
6. Do a top to bottom renovation of the event spaces.
7. Take steps to make your in-house catering near the top in the city.
8. Setup a Sunday brunch to take over the market the Fort Garry left behind which pulls people in to see what you have done.
9. As funds come in do more upgrades to rooms, floor by floor.

They have amazing bones on a meeting space with their skyview room and could easily pull off a Fort Garry style turn around with the right people in place. You also have an excellent playbook to work from. The key is you are going to need some deep pockets to pull it off.

[esquire]

^ The Fort Garry didn't have the long-term residents that the Marlborough has, but they followed more or less the same turnaround plan that you mapped out. It was a pretty slow, painstaking process... even though the common areas were overhauled in the 90s, it took years for all of the hotel floors to get renovated.

It would be nice to see the Marlborough follow the same plan... there aren't that many classy old character hotels in town and it would be great to see this one do well.

[buzzg]

Originally Posted by CoryB

I think the plan to turn around the Malborough is roughly this:

1. Remove the long term residents
2. Upgrade a single floor of rooms to boutique/luxury standards
3. Upgrade the lobby
4. Upgrade the elevators to the top floor event space.
5. If possible enlarge the lobby on the event floor.
6. Do a top to bottom renovation of the event spaces.
7. Take steps to make your in-house catering near the top in the city.
8. Setup a Sunday brunch to take over the market the Fort Garry left behind which pulls people in to see what you have done.
9. As funds come in do more upgrades to rooms, floor by floor.

They have amazing bones on a meeting space with their skyview room and could easily pull off a Fort Garry style turn around with the right people in place. You also have an excellent playbook to work from. The key is you are going to need some deep pockets to pull it off.

Bang on, and the good thing is – now they do have deep(ish) pockets.

[CoryB]

The Marlborough has a somewhat hidden gem in the Skyview Ballroom. It is feeling very tired and worn out though. The elevator to get up there is slow and needing an update. The upper lobby is also relatively small compared to the size of guests that can fit into the ballroom. Focus your upgrades starting here and get people booking it for big events. Also make the lobby similarly attractive. I don't recall any big issues there but you want people coming in and being impressed.

The brunch idea is a killer time to strike. Fort Garry has walked away from that market leaving it open for someone to take over the king of the hill in Winnipeg. It is the perfect opportunity to showcase your food and renovations. It might not be what makes you rich but think of it more as a loss leader getting people to sample your space.

If we could only "save" one of the downtown hotels that is in need of attention I think it should be the Marlborough.

[buzzg]

Originally Posted by CoryB

If we could only "save" one of the downtown hotels that is in need of attention I think it should be the Marlborough.

I wouldn't say that it needs "saving" quite like the other ones you are probably referring to, it's not in any danger of the wrecking ball, but I agree. It's also the simplest/easiest one to "save" at this point.

[CoryB]

As long as whatever replaces St Regis, the Garrick and the Vendome includes a street level presence and something is done to assistance those long term residents I don't think it would really be a loss to see those three properties redeveloped. If suddenly the Marlborough say was renovated to an office building I feel the loss would be much larger.

[esquire]

Originally Posted by CoryB

As long as whatever replaces St Regis, the Garrick and the Vendome includes a street level presence and something is done to assistance those long term residents I don't think it would really be a loss to see those three properties redeveloped. If suddenly the Marlborough say was renovated to an office building I feel the loss would be much larger.

To some degree the loss of rooms from the Marlborough would be offset by the new rooms in the TN Square hotel, although there is still something to be said for an old character hotel. The Fort Garry was almost demolished and Winnipeg would have been worse off without it.

But that said, I heard that basically the entire old wing of the Marlborough no longer has any hotel rooms that are in active use, and that some of them are in fact used for office space. Anyone know what's happening with the rest of the place? In mothballs, or what?

[BAKGUY]

Originally Posted by esquire

To some degree the loss of rooms from the Marlborough would be offset by the new rooms in the TN Square hotel, although there is still something to be said for an old character hotel. The Fort Garry was almost demolished and Winnipeg would have been worse off without it.

But that said, I heard that basically the entire old wing of the Marlborough no longer has any hotel rooms that are in active use, and that some of them are in fact used for office space. Anyone know what's happening with the rest of the place? In mothballs, or what?

The original , older section had been a Fashion Mall for importers and exporters of apparel for decades. Some fashion businesses still remain there.
Others moved to Fort Garry Place mall.
I would like to see The Marlborough restored ad we need more hotel spaces between the RBC conventions centre expansion and Place Louis Riel leaving the market.

[rypinion]

Here's a fun article:

http://www.cbc.ca/news/canada/manitoba/n...s-yet-to-erect-single-building-1.3097686

Originally Posted by CBC.ca

CentreVenture has put redevelopment hopes for the St. Regis Hotel in the hands of Fortress Real Developments, a company with five more projects across three provinces where not one ounce of concrete has been poured and none have started construction.

[buzzg]

Originally Posted by BAKGUY

The original , older section had been a Fashion Mall for importers and exporters of apparel for decades. Some fashion businesses still remain there.
Others moved to Fort Garry Place mall.
I would like to see The Marlborough restored ad we need more hotel spaces between the RBC conventions centre expansion and Place Louis Riel leaving the market.

Place Riel didn't leave, just downsized. I believe it's about a 50/50 split with the apartments.

[rrskylar]

Originally Posted by rypinion

Here's a fun article:

http://www.cbc.ca/news/canada/manitoba/n...s-yet-to-erect-single-building-1.3097686

Good find. The company reminds me of Lake Placid Investments who were to build River Landing in Saskatoon way back in 2007.

[h0twired]

Originally Posted by rrskylar

Good find. The company reminds me of Lake Placid Investments who were to build River Landing in Saskatoon way back in 2007.

Or Concrete Equities in Calgary that bilked "investors" out of millions selling bonds for their pie-in-the-sky projects.