Options for the AMS Lodge in Whistler, BC

Transcription

1 Options for the AMS Lodge in Whistler, BC Final Report December 2011 Prepared for: AMS Society of UBC By: Coriolis Consulting Corp.

2 Table of Contents 1.0 Introduction Background and Purpose Professional Disclaimer Existing Facility Location and Site Size Description of the Existing Facility Rental Rates Financial Performance Net Operating Income Analysis Occupancy Analysis Existing Assessed Value Market Context Competing Hostel Accommodation Hotel Occupancy Planning and Zoning Official Community Plan (OCP) Current OCP Designation Proposed OCP Designation Zoning Existing Zoning Comparison of the LR4 and LR9 Zoning Districts Input from the Whistler Planning Department Alternative Strategies for the Existing Property Continue to Operate the Existing Facility Convert 50% of the Dormitory Space to Private Rooms Convert 100% of the Dormitory Space to Private Rooms Develop a New Facility Rezone and Sell the Land CORIOLIS CONSULTING CORP. PAGE I

3 6.0 Alternative Strategies for Providing Whistler Accommodation for Students Acquire a Different Property Block Book Conclusions CORIOLIS CONSULTING CORP. PAGE II

4 1.0 Introduction 1.1 Background and Purpose The AMS Society of UBC owns and operates a lodge in Whistler that is mainly intended to provide low-cost recreation-related accommodation at Whistler for the University community. The property is also made available for UBC courses and field schools, small conferences, and rentals to the general public. The financial performance of the property has been declining in recent years and there is a need for some significant repairs, so the AMS wants to consider a range of options for the future of the property and develop a strategic plan. The AMS retained Coriolis Consulting Corp. to help explore realistic options for the future of the property and suggest a strategy for the property. 1.2 Professional Disclaimer This document may contain estimates and forecasts of future growth and urban development prospects, estimates of the financial performance of possible future urban development projects, opinions regarding the likelihood of approval of development projects, and recommendations regarding development strategy or municipal policy. All such estimates, forecasts, opinions, and recommendations are based in part on forecasts and assumptions regarding population change, economic growth, policy, market conditions, development costs and other variables. The assumptions, estimates, forecasts, opinions, and recommendations are based on interpreting past trends, gauging current conditions, and making judgments about the future. As with all judgments concerning future trends and events, however, there is uncertainty and risk that conditions change or unanticipated circumstances occur such that actual events turn out differently than as anticipated in this document, which is intended to be used as a reasonable indicator of potential outcomes rather than as a precise prediction of future events. Nothing contained in this report, express or implied, shall confer rights or remedies upon, or create any contractual relationship with, or cause of action in favor of, any third party relying upon this document. In no event shall Coriolis Consulting Corp. be liable to the AMS Society of UBC or any third party for any indirect, incidental, special, or consequential damages whatsoever, including lost revenues or profits. CORIOLIS CONSULTING CORP. PAGE 1

5 2.0 Existing Facility 2.1 Location and Site Size The AMS/UBC Whistler Lodge is located at 2124 Nordic Drive in the Nordic Estates neighbourhood of Whistler, about 1 km north of Whistler Creekside and about 3 km south of Whistler Village. Figure 1 shows the location of the site in its Whistler context. The site is not within easy walking distance of ski lifts, commercial space, or other resort amenities. Figure 1: Location in Whistler Context Source: Resort Municipality of Whistler s online GIS map, labels added. The site is irregularly-shaped and has a total area of approximately 1.7 acres, with frontage of about 200 feet along Nordic Drive. Figure 2 shows an aerial photograph of the property as of April CORIOLIS CONSULTING CORP. PAGE 2

6 Figure 2: Aerial Photograph of Property Source: Resort Municipality of Whistler s online GIS map, labels added. Aerial photograph is dated April Description of the Existing Facility The property is developed with a lodge that was built in about The lodge has capacity to accommodate up to 42 people in a hostel setting, with 40 beds in four large open dorm rooms that each have bunk beds (i.e. 5 bunk beds or 10 individual beds per dorm room) plus 2 beds in one private room. There is also a caretaker suite and shared common facilities. The lodge has a total floor area of approximately 7,210 square feet, of which about 2,204 square feet are used for dorms, about 507 square feet are used for the caretakers suite, and the balance is common area including bathrooms, kitchen, dining area, and lounge. 2.3 Rental Rates Existing rental rates at the lodge vary seasonally by user (i.e. students versus general public) and by type of accommodation (i.e. dorm bunk versus private room). Figure 3 shows the current posted rates. Figure 3: Current Rental Rates at the Whistler Lodge Summer (May-Nov 2011) Winter (Dec 2011-Apr 2012) Private room (rate based on 2 persons) $90 $110 Dorm bunk: UBC student rate General public rate $25 $30 $29 $35 Source: CORIOLIS CONSULTING CORP. PAGE 3

7 2.4 Financial Performance This section summarizes the recent financial performance of the lodge based on information provided by AMS. Figures in this section are presented on a fiscal year (not calendar year) basis. The AMS fiscal year runs from 1 May to 30 April. Figure 4 shows the trend in gross revenue over the last 5 years. We understand that some significant repairs were done in 2007, which presumably explains the low revenue if some or all rooms were not available for part of the year. Gross revenue was stable in 2008 and 2009, but since 2009 has declined dramatically. Figure 4: Gross Revenue by Source (Student vs Public), Fiscal Years 2007 to 2011 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Gross Revenue: Revenue from Students $4,174 $66,143 $60,838 $55,416 $74,089 Revenue from the Public $245,791 $215,542 $232,945 $167,680 $89,153 Total Revenue $250,561 $281,684 $293,783 $223,097 $163,242 Source: Produced by Coriolis based on data provided by the AMS. Each fiscal year ends in April. Figure 5 graphs the trend in UBC student versus general public use. Student use has remained fairly stable, but has accounted for a small share of total revenue (about 25% on average during 2008 through 2011). The decline in total revenue has been due to reduced use by non-ubc students. As will be seen in Section 3.0, the major reason for this decline appears to be the dramatic increase in hostel-type accommodation that occurred in 2010 as a result of the conversion of Olympic athlete housing to hostel use. Figure 5: Graph of Gross Revenue by Source (Student vs Public), Fiscal Years 2007 to 2011 $350,000 $300,000 $250,000 Revenues by Source (Students vs Public) by Fiscal Years 2007 to 2011 Revenue from Students Revenue from the Public Total Revenue $200,000 $150,000 $100,000 $50,000 $0 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Source: Produced by Coriolis based on data provided by the AMS. CORIOLIS CONSULTING CORP. PAGE 4

8 2.4.1 Net Operating Income Analysis Figure 6 shows net operating income performance for 2005 to Figure 6: Net Operating Income, Fiscal Years 2005 to 2011 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Revenues: Winter Rentals $102,433 $108,617 $177,476 $177,034 $174,108 $145,844 $90,085 Summer Rentals $75,343 $46,269 $69,517 $88,064 $101,376 $71,447 $65,841 Vending & Other $16,228 $5,217 $11,165 $12,359 $12,158 $8,284 $6,077 Total Revenues $194,003 $160,103 $258,158 $277,457 $287,642 $225,575 $162,003 Operating Costs $172,972 $172,346 $177,452 $192,061 $207,420 $199,928 $202,503 Net Operating Income $21,031 ($12,243) $80,706 $85,396 $80,222 $25,647 ($40,500) Source: Produced by Coriolis based on data provided by the AMS. Each fiscal year ends in April. As shown in Figure 6: Operating costs have remained reasonably stable over the last several years, such that net operating income in 2007, 2008, and 2009 was substantial and stable at around $80,000 per year. It is interesting to note that commercial accommodation properties are valued almost entirely based on income at cap rates that are higher (because of the risk) than for typical income-producing properties such as retail centres or office buildings. Capping the $80,000 income at 10% yields a property value of about $800,000, which is similar to the assessed value (see Section 2.5). Because of the decline in gross revenue since 2009, net operating income has decayed, resulting in $25,000 income in 2010 and a loss of $40,000 in Figure 7 shows the same data in graph form, illustrating the fairly stable operating costs and the steep decline in revenue. AMS also advised us that in 2006 approximately $500,000 was spent in capital repairs and upgrades to the property. This expenditure is not included in the financial operating statements. If we add this amount into an estimate of cash flow performance, the property has earned a total of about $200,000 in operating income since 2007, but required $500,000 for repairs, so had negative cash flow of about $300,000. CORIOLIS CONSULTING CORP. PAGE 5

9 Figure 7: Graph of Total Revenues and Operating Costs, Fiscal Years 2005 to 2011 Total Revenue and Total Operating Costs for Fiscal Years 2005 to 2011 $350,000 $300,000 Total Revenues Operating Costs $250,000 $200,000 $150,000 $100,000 $50,000 $0 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Source: Produced by Coriolis based on data provided by the AMS Occupancy Analysis Figure 8 shows the trend in occupancy, indicating that the highest achieved occupancy rate is only 33%. This is very low by hotel industry standards, which typically regard 65% to 70% as necessary for financial viability. Again, it is noteworthy that student occupancy has remained somewhat stable; the decline is in general public occupancy. It is also noteworthy that during the best recent years (2008 and 2009) student occupancy only accounted for 28% or so of total use. This low rate of student use makes it difficult to support the view that weak financial performance of the property can be justified as an investment in a student service. Figure 8: Occupancy, Fiscal Years 2007 to 2011 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Actual # of Occupied Beds: Student Beds General Public Beds Total Beds Total Potential # of Beds (41 beds x # nights) a Implied % Occupancy 32% 33% 32% 27% 22% Source: Produced by Coriolis based on data provided by the AMS. Each fiscal year ends in April. Note a: Assumes the private room is counted as one bed (i.e. it physically has two beds but is one booking). CORIOLIS CONSULTING CORP. PAGE 6

10 Figure 9 shows the occupancy trend on a monthly basis. As would be expected, occupancy is highest in the winter season, although even then it only achieves 40% to 50% (except for 2010 which was below 40%). Occupancy is very low in the summer season, in the 20% to 30% range, indicating the ski-cabin orientation of the property. Figure 9: Graph of Monthly Occupancy Rate, Fiscal Years 2007 to 2011 Source: Produced by Coriolis based on data provided by the AMS. Figure 10 graphs annual occupancy over the last several years. Figure 10: Graph of Annual Occupancy Rate, Fiscal Years 2007 to % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 32% 33% Annual Occupancy Rate for Fiscal Years 2007 to % 27% 22% Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Fiscal 2011 Source: Produced by Coriolis based on data provided by the AMS. CORIOLIS CONSULTING CORP. PAGE 7

11 2.5 Existing Assessed Value In 2011, the property has a total assessed value of $977,000, including an assessed land value of $851,000 and an assessed improvements value of $126,000. The property is approximately 1.7 acres, so the 2011 assessed land value is equivalent to a value of about $500,000 per acre. As noted earlier, this value is in the ballpark of what would be expected based on financial performance during 2007 through Based on recent net operating income, the value of the property would be much lower based on current use (which could provide the basis of an assessment appeal if AMS continues to own and operate the property). CORIOLIS CONSULTING CORP. PAGE 8

12 3.0 Market Context 3.1 Competing Hostel Accommodation Figure 11 summarizes the total current inventory of hostel accommodation in Whistler. The most significant observations about the inventory are: Prior to the opening of the HI hostel ( in the former athletes housing), the total inventory of hostel accommodation in the resort was about 170 beds. The HI property added 188 beds, more than doubling the total hostel inventory. As well, the HI property offers a higher standard of accommodation, with 14 private double rooms and the rest of its accommodation in small 4 person dorms. This different standard of accommodation enables this property to capture a large share of the hostel market. Rates in the HI property are not that much more than in other hostels. The HI property has a strong location. For these reasons, it appears likely that the sharp decline in general public use of the AMS lodge is due to a high market share being captured at the HI hostel since it opened. Figure 11: Hostel Accommodation in Whistler Name Description Location Beds Price UBC Whistler Lodge (AMS property) HI (Hostelling International) Whistler 42 Room hostel in an older building New, facility built for the Winter Olympics. 2 dorm rooms share a bathroom. Private rooms have their own bathroom. Alpine Lodge Close to green lake, 2 km north of Whistler Village. Southside Lodge Fireside Lodge Art s Hostel Source: Internet research. Older building, internet, cable and communal kitchen available. Older member owned lodge located in Nordic Estates, was originally the BC hydro ski club lodge. Located 1.5 km north of Creekside and 2.5 km from Whistler Village. This is an older property Nordic Way in Nordic Estates 1035 Legacy Way 42 total, one 2 person room and 40 dorm beds on 2 floors 188 beds total, 14 private 2 person rooms, 32 4 person dorms Alpine Way Dorm and private room, with a total capacity of about 28 beds Lake Placid Road 2117 Nordic Drive 2113 Nordic Drive 6 rooms, each with 2 bunk beds. Sleeps 58 people in 6 private rooms, and 6 loft rooms. A separate dorm area divided into five 4- person roomettes is also available. 28 beds divided into 6 rooms. The main floor has 2 rooms accommodating 10 guests, the upper floor has 4 rooms accommodating 18 guests. Dorm: for students, rate is $25 to $29, for the public is $30 to $35. Private room is $90 to $110 per night. All rates season dependent. Dorm: $31 to $40, private rooms $85 to $155 per room. Rates are season dependent, members of HI get a discounted rate (the low end of the price range above). Dorm: $35 to $40 per night, 2 person rooms are $100 to $125 per night, 3 person rooms are $125 to $150 per night, and suites with kitchens are $ 145 to $170 per night. Rates are season dependent. Dorm: $30 per person per night Dorm: Non-member price is $28 per night Private rooms are $92 per night in peak season, and $80 per night in the off season based on double occupancy. Dorm: $15-$25 per night, depending on season. Peak season exclusive booking is $675 a night, off season is $425 per night. CORIOLIS CONSULTING CORP. PAGE 9

13 3.2 Hotel Occupancy The peak season occupancy rate in Whistler hotels was about 65% in the first quarter of According to PKF Consulting (which tracks provincial trends in hotel occupancy), this is an 8.7% drop compared to Q and 7.6% drop from Q Between 1998 and 2009, full year occupancy rates in Whistler have been around 55% on average. An economic viability report published by the Resort Municipality of Whistler states that annual occupancy rates needs to be about 65% in order to achieve economic stability in the hotel market. These low occupancy trends are the reason there is a prevailing sense that the Whistler market does not require additional hotel accommodation at this time. CORIOLIS CONSULTING CORP. PAGE 10

14 4.0 Planning and Zoning 4.1 Official Community Plan (OCP) The Official Community Plan (OCP) that is currently in force is Bylaw No. 1021, 1993, but the Resort Municipality of Whistler is currently in the process of adopting a new updated OCP. Therefore, we reviewed both the existing and proposed OCP designations for the subject site Current OCP Designation The existing OCP (Bylaw No. 1021, 1993) only contains written policies and objectives; it does not include a land use map with designations by individual property. We reviewed the existing OCP and obtained some input from Whistler planning staff to assist with determining what policies and objectives would likely apply to the subject site under the existing OCP. The existing planning policy applicable to the subject site can be characterized as follows: The existing OCP outlines the general objective of not increasing the number of bed units in Whistler past the number already permitted by current zoning. This is based in part on the view that the market will not support additional beds, because of the persistent low overall occupancy rate. The subject site is a Development Permit area which sets out form and character guidelines for development in the Nordic Estates neighbourhood. The watercourse on the property immediately east of the subject site may 1 have stream setback requirements that would affect development on the subject site Proposed OCP Designation In September 2011, the Resort Municipality of Whistler published a first draft of its proposed new OCP. The draft OCP includes a land use map as well as updated written policies and objectives. The draft OCP notes that the land use plan designates permitted land use(s) for each property in Whistler, but that the land use designations are intended to be general in nature. The subject site is designated Visitor Accommodation in the September 2011 draft new OCP, which is defined as lands that provide for commercial visitor accommodation outside the core commercial area and may include limited auxiliary commercial uses and resident-restricted housing. Nearby lands are also designated for Visitor Accommodation or Multi-Family (Medium) Density Residential uses. The draft OCP includes the objectives of maintaining a broad range of accommodation options in Whistler and supporting reinvestment in existing properties. 1 As indicated by the Planning department, this would be determined at the application stage based on detailed site analysis. CORIOLIS CONSULTING CORP. PAGE 11

15 4.2 Zoning Existing Zoning The property is zoned LR4 ( Leisure Recreation Four ), which is intended to provide for hostel use. 2 The LR4 zone permits the following uses: Hostel, which the Zoning Bylaw defines as a building used as a temporary place of lodging containing one or more dormitories and includes common areas for washing, cooking, dining and socializing, bathroom, kitchen, dining and social facilities; and which may also contain an auxiliary residential dwelling unit. The Zoning Bylaw further defines dormitories as a room used as a common sleeping area which may be divided by one or more partitions which are at least 0.5 metres less in height than the distance between the floor and the ceiling in the dormitory in which they are located. 3 An auxiliary residential dwelling unit provided it is contained within a hostel building. Auxiliary buildings and auxiliary uses. Park and playground. The LR4 zone also includes the following key parameters: The maximum gross floor area is 610 square metres (i.e. 6,566 square feet) but can be increased to 640 square meters (i.e. 6,889 square feet) where the hostel building contains an auxiliary residential unit. The maximum permitted gross floor area to be used for sleeping accommodation is not to exceed 50% of the total floor area of a hostel building. A minimum of 50% of the gross floor area used for sleeping accommodation in a hostel building shall be provided in one or more dormitories. The minimum floor area per bed in a sleeping unit, bedroom, and dormitory is 5 square meters (i.e. 54 square feet). The maximum permitted height is 10 metres (i.e. 33 feet). The minimum permitted parcel area is 5000 square meters (i.e. 53,820 square feet or 1.23 acres) and the minimum parcel frontage is 1/10 th of the parcel perimeter. An auxiliary residential dwelling unit shall not contain a gross floor area greater than 90 square meters (i.e. 969 square feet) or less than 35 square meters (i.e. 377 square feet), and in no case shall an auxiliary residential unit exceed 35% of the total floor area of a hostel or be used for tourist accommodation. Based on information provided to us by the AMS, the property was rezoned in about 1993 from LR2 ( Leisure Recreation Two ) to its current LR4 zoning, to permit the addition of 318 square feet to the caretaker s residence at the lodge. 2 Resort Municipality of Whistler, Zoning and Parking Bylaw No. 303, Adopted 5 March 1984, consolidated to 27 August Resort Municipality of Whistler, Zoning and Parking Bylaw No. 303, Adopted 5 March 1984, consolidated to 27 August CORIOLIS CONSULTING CORP. PAGE 12

16 The LR2 zone only permitted a maximum gross floor area of 510 square meters (compared to the 640 square meters in the LR4 zone), but the Whistler lodge was considered legally non-conforming with respect to floor space as it was lawfully constructed prior to the establishment of Whistler s Zoning Bylaw. Permitted Proposed in 1993 (Now Built) Maximum gross floor area 510m m2 Maximum of 50% of gross floor 334.9m m2 area for sleeping area Minimum of 50% of sleeping area as dormitory 102.4m m2 In reviewing the bylaw in detail, we discovered an ambiguity that results from poor regulation drafting. The bylaw requires that a minimum of half of the sleeping area be in dorm accommodation, but it does not explicitly define the allowable use of the other half of the sleeping area. We asked the Planning Department if the other half could be private rooms, but the department maintains the view that a hostel (as defined in the zoning bylaw) must only contain dormitory accommodation. We pointed out that this interpretation is not consistent with the LR4 language and is not consistent with the large number of private rooms in the HI property. In our view, this is an ambiguity that could be pursued further, but likely only in the context of a development permit or rezoning application rather than a general enquiry. We return to this point in our analysis of alternatives Comparison of the LR4 and LR9 Zoning Districts Figure 12 compares the LR4 and LR9 bylaw (the zoning on the HI property) provisions. Both districts are intended to allow hostel accommodation, but HI contains private rooms. In our view the Whistler hostel zoning districts are not well drafted and contain significant ambiguities. Figure 12: Comparison of the LR4 and LR9 Zoning Districts LR4 LR9 Intent Hostel Hostel and associated uses Permitted use Density Hostel and accessory dwelling use 640 square meters (6,889 square feet), a maximum of 50% of the building can be used for sleeping accommodation; a minimum of 50% of the sleeping accommodation must be in dormitories. Hostel and auxiliary use Restaurant Professional office Local service commercial Retail Parks and Playgrounds 2,677 square meters (28,815 square feet), the size of accessory uses are limited in size and location within the building. Height 10 meters (33 feet) 18.2 meters (60 feet) Site area Minimum parcel size is 5,000 (53,820 square feet) Minimum parcel size is 3,000 square meters (32,598 square feet). Site coverage and setbacks Minimum setback is 12 m (39.4 ft), no site coverage regulations Front setback: 4.9 meters: (16 feet) Side setback: 12.5 meters: (41 feet) Rear setback: 7.6 meters: (25 feet) CORIOLIS CONSULTING CORP. PAGE 13

17 4.3 Input from the Whistler Planning Department We interviewed representatives of the Whistler Planning Department regarding the potential to obtain OCP amendment and rezoning to allow a more typical type of commercial accommodation on the property (either via conversion of the existing building or by demolition/redevelopment to create a new facility). The response we received can be summarized as follows: Because of the persistent low occupancy rate in commercial accommodation in Whistler, the hotel community in Whistler generally opposes the approval of new bed units that would compete directly with existing properties. There is not opposition to the maintenance of or addition of new alternative accommodation (such as hostels) because the price point for these properties is low enough that they do not compete with mainstream accommodation. However, there would be opposition to new competition. The prevailing attitude about new commercial bed units in Whistler is that any new projects must make a significant contribution to the destination appeal of the resort, not simply add more accommodation that takes advantage of existing resort assets. For these reasons, it appears that rezoning the existing site to allow conversion or construction to create typical commercial hotel accommodation is not likely to be supported. This does not mean that such a rezoning is impossible; it simply means that there is likely to be substantial opposition to allowing a product that would compete with the existing inventory. Consequently, rezoning to allow a hotel (i.e. all private rooms with private bath) is a low probability. Another option is a rezoning to allow transition to a hostel with only (or primarily) private rooms, assuming Whistler is amenable to a rezoning that (a) clears up the existing bylaw ambiguities, (b) retains the principle of hostel use, but (c) aims to improve the financial performance of a hostel operation by reducing the open dorm component. This is might be achievable under the following circumstances: There would likely be limits on the proportion of private rooms. There would likely be a requirement to include a substantial common area, so that the property functions as a hostel but with private rooms instead of dormitory beds. There would not be an increase in the total number of beds. There would be an enforced limit on room rate, to help ensure that the quality and pricing are clearly geared to the hostel market. This room rate limit would make it challenging to recover the investment in creating a new (or substantially renovated) facility. CORIOLIS CONSULTING CORP. PAGE 14

18 5.0 Alternative Strategies for the Existing Property In this section, we explore several options for the existing property: retain the existing operations, making essential repairs. convert 50% of the sleeping area to private rooms (assuming that approval for this can be obtained based on interpretation of the Zoning Bylaw). convert 100% of the sleeping area to private rooms (assuming that a new zoning district can be created that maintains the principle of low budget, hostel-type accommodation but with a design change to support better financial performance). develop a completely new hostel with a more efficient use of space and more private rooms. rezone and sell the land. 5.1 Continue to Operate the Existing Facility We have analyzed the financial performance of continued operations under several scenarios. Scenario A1 assumes the continuation of the existing accommodation format and continuation of recent operating costs. As shown, assuming that all revenue comes from room rentals, continued operation at current room rates and occupancy will produce an ongoing loss of $40,000+ per year, even with no further capital expenditure. We see no compelling reason why bed pricing or occupancy can be increased in the current market, so the outlook for the status quo scenario is continued operating loss and no ability to recover any additional capital expenditure. Scenario A2 shows the breakeven occupancy rate required in the existing property, assuming all revenue comes from rentals at posted rates. The necessary occupancy rate for dorm rooms is 39% (over the whole year), which has not been achieved even in the relatively strong years before the HI property opened. Unless AMS has some ability to market the property more aggressively, this scenario is not likely. Scenario A3 shows the breakeven occupancy required if there is an immediate need to spend $100,000 on major repairs (e.g. fixing the roof) and recover this money by amortizing the cost over 10 years. Required occupancy in the dorm bunks rises to 41%. In our view, there is not a viable scenario for continuation of the current style of operation in the existing facility. The property will continue to lose money, will not recover any further capital investment, and will not recover the $500,000 previously invested. Because of this, we see little market interest in acquisition and operation of the property as a going concern (unless the price is very low). It is unlikely that any party would lease this property from AMS if there is an obligation to maintain the current style of accommodation. This is simply not a viable concept in the current market because there is declining interest in bunk-house accommodation, particularly given the alternatives available at properties such as the HI hostel. CORIOLIS CONSULTING CORP. PAGE 15

19 Scenario A Continue the Existing Project Scenario A1: Approximate Model of the Existing Situation Assumptions Number of private rooms 1 Number of doom beds 40 Average rate per private room $100 Average rate per dorm bed $30 Annual occupancy rate for private room 90% Annual occupancy rate for dorm beds 29% Annual operating cost $202,000 Major repairs $0 Assumed amortization period for major repairs cost 10 years, or $0 per year Analysis Total revenue (rounded) $159,870 Less operating costs $202,000 Less major repair cost $0 Net position ($42,130) Scenario A2: Occupancy rate required to breakeven in the Existing Situation Assumptions Number of private rooms 1 Number of doom beds 40 Average rate per private room $100 Average rate per dorm bed $30 Annual occupancy rate for private room 90% Annual occupancy rate for dorm beds 39% Annual operating cost $202,000 Major repairs $0 Assumed amortization period for major repairs cost 10 years, or $0 per year Analysis Total revenue (rounded) $203,670 Less operating costs $202,000 Less major repair cost $0 Net position $1,670 Scenario A3: Occupancy rate required to breakeven if spend $100,000 in major repairs Assumptions Number of private rooms 1 Number of doom beds 40 Average rate per private room $100 Average rate per dorm bed $30 Annual occupancy rate for private room 90% Annual occupancy rate for dorm beds 41% Annual operating cost $202,000 Major repairs cost $100,000 Assumed amortization period for major repairs cost 10 years, or $10,000 per year Analysis Total revenue (rounded) $212,430 Less operating costs $202,000 Less major repair cost $10,000 Net position $430 CORIOLIS CONSULTING CORP. PAGE 16

20 5.2 Convert 50% of the Dormitory Space to Private Rooms In this option, we model the financial performance of converting some existing dorm space to smaller private rooms (for 2, 3 or 4). This option takes advantage of the market opportunity for a hostel-type product, with budget pricing, in rooms with more privacy for couples or small groups. This option would require either a negotiated agreement with Whistler regarding zoning interpretation or a rezoning. Scenario B1 models the project assuming: 5 private rooms (for 2 to 4 people) with private baths and 20 dorm beds. $100,000 in repairs, amortized over 10 years. an allowance of $25,000 per private room for partitions and modest bathrooms (this is an allowance only and we have not confirmed physical feasibility of the plumbing and electrical work necessary), also amortized over 10 years. Even at high occupancy for the private rooms (65%) and with the conservative capital allowances we have used, this is not viable. The property loses money and does not recover the capital investment. Scenario B2 shows the breakeven occupancy to make this option work. Occupancy must be 65% in the private rooms and 49% in the dorms. This is unlikely based on current market evidence. This 50% conversion does not appear to be a viable strategy, mainly because of the small number of private rooms that can be achieved. CORIOLIS CONSULTING CORP. PAGE 17

21 Scenario B Convert 50% of the Dorm Space to Private Rooms Scenario B1: Base Case Assumptions Total area currently used for dormitories 2204 sq.ft. Share assumed to be converted to private rooms 1102 sq.ft. or 50% Average size of each room 200 sq.ft. Number of private rooms 5 Number of dorm beds remaining 20 Average rate per dorm bed $30 Average rate per private room $100 Annual Occupancy rate for dorm beds 22% Annual Occupancy rate for private rooms 65% Repairs and capital projects: Cost to create private rooms $25,000 per room, or $125,000 total Major repairs $100,000 total Subtotal of repairs and capital projects $225,000 Assumed amortization period for repairs and capital projects 10 years Annualized amount for repairs and capital projects $22,500 Annual operating cost $202,000 Analysis Total revenue (rounded) $166,805 Less operating costs $202,000 Less amortized cost for repairs and capital projects $22,500 Net position ($57,695) Scenario B2: Occupancy Rate Required to Breakeven Assumptions Total area currently used for dormitories 2204 sq.ft. Share assumed to be converted to private rooms 1102 sq.ft. or 50% Average size of each room 200 sq.ft. Number of private rooms 5 Number of dorm beds remaining 20 Average rate per dorm bed $30 Average rate per private room $100 Annual Occupancy rate for dorm beds 49% Annual Occupancy rate for private rooms 65% Repairs and capital projects: Cost to create private rooms $25,000 per room, or $125,000 Major repairs $100,000 total Subtotal of repairs and capital projects $225,000 Assumed amortization period for repairs and capital projects 10 years Annualized amount for repairs and capital projects $22,500 Annual operating cost $202,000 Analysis Total revenue (rounded) $225,935 Less operating costs $202,000 Less amortized cost for repairs and capital projects $22,500 Net position $1,435 CORIOLIS CONSULTING CORP. PAGE 18

22 5.3 Convert 100% of the Dormitory Space to Private Rooms We also modeled a scenario in which all of the sleeping area is converted to private rooms. This is not consistent with the zoning district, but would depend on rezoning or on a re-interpretation of the word dormitory to mean a sleeping area for as few as 4 people (i.e. small private rooms that could sleep 2 to 4 people). This scenario makes similar capital cost assumptions as in the previous option ($100,000 in repairs plus $25,000 per new private room, all amortized over 10 years). As shown in the following figures, this option reaches break even at 60% occupancy and makes a modest ($20,000+) net income at 65% occupancy (as well as recovering the capital investment). In our view, this scenario is not financially attractive for these reasons: it is unlikely that the property could achieve 60%+ occupancy. we have used very modest assumptions for capital investment. If we increased the capital budget by only $200,000 in total, the project is back in the red even at 65% occupancy. we have left operating expenses constant, despite the assumed increase in occupancy. While much of the operating budget is fixed, some costs are variable based on usage and would go up with increasing occupancy. This scenario, along with the previous two, provides a compelling argument that the existing facility is not likely to provide attractive financial performance over the long term, even with a better mix of unit types. The best possible case appears to be breakeven or small losses, with little prospect to recover additional capital that must be invested and little prospect of earning any return on the equity tied up in the property. CORIOLIS CONSULTING CORP. PAGE 19

23 Scenario C Convert 100% of the Dorm Space to Private Rooms Scenario C1: Base Case Assumptions Total area currently used for dormitories 2204 sq.ft. Share assumed to be converted to private rooms 2204 sq.ft. or 100% Average size of each room 200 sq.ft. Number of private rooms 11 Number of dorm beds remaining 0 Average rate per dorm bed $30 Average rate per private room $100 Annual Occupancy rate for dorm beds 0% Annual Occupancy rate for private rooms 65% Repairs and capital projects: Cost to create private rooms $25,000 per room, or $275,000 total Major repairs $100,000 total Subtotal of repairs and capital projects $375,000 Assumed amortization period for repairs and capital projects 10 years Annualized amount for repairs and capital projects $37,500 Annual operating cost $202,000 Analysis Total revenue (rounded) $260,975 Less operating costs $202,000 Less amortized cost for repairs and capital projects $37,500 Net position $21,475 Scenario C2: Sensivity Analysis Assumptions Total area currently used for dormitories 2204 sq.ft. Share assumed to be converted to private rooms 2204 sq.ft. or 100% Average size of each room 200 sq.ft. Number of private rooms 11 Number of dorm beds remaining 0 Average rate per dorm bed $30 Average rate per private room $100 Annual Occupancy rate for dorm beds 0% Annual Occupancy rate for private rooms 60% Repairs and capital projects: Cost to create private rooms $25,000 per room, or $275,000 total Major repairs $100,000 total Subtotal of repairs and capital projects $375,000 Assumed amortization period for repairs and capital projects 10 years Annualized amount for repairs and capital projects $37,500 Annual operating cost $202,000 Analysis Total revenue (rounded) $240,900 Less operating costs $202,000 Less amortized cost for repairs and capital projects $37,500 Net position $1,400 CORIOLIS CONSULTING CORP. PAGE 20

24 5.4 Develop a New Facility One option for the property is to demolish the facility and develop a new one that is more efficient. The bed unit count cannot be increased and the existing building is already at maximum size. Therefore, the optimal scenario under the existing zoning (assuming favourable interpretation) would be to build a new building of about 6900 square feet (the allowable maximum) of which 50% (3,450 sq. ft.) can be sleeping accommodation. Assuming this new sleeping area is all private rooms at maximum efficiency (say 200 square feet per room for 2 to 4 people), the facility would have about 17 large private rooms with overall capacity for 42 beds. At 50% annual occupancy and an average achieved room rate of $125 (both optimistic), total annual gross revenue would be about $390,000. Assuming operating expenses as at present (say $205,000 per year), results in annual net operating income of about $185,000 per year. The low end of all-in construction cost for a facility of this type (including all furniture and equipment) is likely about $250 per gross square foot, so total cost (not including land) is about $1.7 million (which is equivalent to about $100,000 per room). If net operating income is $185,000, this represents a 10% return on the cost of the new facility (without any recovery of past investment and assuming land value is not considered). However, if occupancy is only 40% and achieved average room rent is only $110, then total gross revenue falls to $273,000, leaving about $68,000 per year to recover the capital investment (i.e. only 4% per year). This option involves a large capital investment and considerable risk. AMS would have to decide if this is a sufficiently important student service to warrant this investment. 5.5 Rezone and Sell the Land A completely different option is to sell the property. We have already indicated that there would be little market interest (and low value) realized by selling the property as a going concern that must continue the existing operation. We have also indicated that rezoning to allow a hotel use is not likely. So, a more realistic rezoning option is rezoning to allow residential use. On the next page, we model the performance of a single family lot rezoning, subdivision, and sale. As shown, this option would yield proceeds of about $2 million. This is subject to rezoning, of course, and it will not be possible to get an official Whistler response to this idea without making a formal written enquiry. We note that a property of about 1.5 acres with similar zoning and in the neighbourhood (2004 Nordic Court) is currently listed for sale at a price of just under $3 million. This site is improved with a single family house, so it could be used as a hostel or occupied as a home. Sale of the land as a single detached property would generate considerably more value than the current use (based on existing and potential income). CORIOLIS CONSULTING CORP. PAGE 21

25 Scenario D Rezone and Subdivide the Site into Single Family Lots Assumptions Lot Assumptions Total site size 1.71 acres or 74,422 sq.ft. # of single family lots 3 Average single family lot size 0.57 acres or 24,807 sq.ft. Revenue Assumptions Sales price for single family lots $35 per sq.ft. or $868,000 per lot Cost Assumptions Size of existing lodge 7,210 sq.ft. Allowance for demolition of existing lodge $5.00 per sq.ft. of built area, or $36,000 in total Municipal fees and charges: Demolition permit fee $1,000 (see note 1) Rezoning application fee $5,000 (see note 2) OCP amendment fee $5,000 (see note 2) Development permit application fee $750 Subdivision application fee $1,000 (see note 3) Development cost charges (DCCs) $8,593 per lot (see note 4) Allowance for water, sewer, hydro connections $15,000 per lot Allowance for road/frontage upgrades $100,000 (i.e. $500 per lineal foot of frontage) Allowance for soft costs $200,000 (see note 5) Marketing cost 5% of gross revenues Analysis Revenue Gross sales revenue $2,604,000 Less marketing commissions $130,200 Net sales revenue $2,473,800 Costs Allowance for demolition $36,000 Municipal fees and charges: Demolition permit fee $1,000 Rezoning application fee $5,000 OCP amendment fee $5,000 Development permit application fee $750 Subdivision application fee $1,000 DCCs $25,779 Water, sewer, hydro connections $45,000 Allowance for road/frontage upgrades $100,000 Allowance for soft costs $200,000 Total costs $419,529 Net Position Net Position $2,054,271 Notes: 1. Whistler charges a $150 permit fee plus an hourly rate associated with application review/processing, so this is an allowance. 2. Whistler charges a $1500 permit fee plus an hourly rate associated with application review/processing, so this is an allowance. 3. Whistler's subdivision application fee is not available online, so this is an allowance. 4. Includes $801 per lot for water, $512 per lot for recreation, $3749 per lot for transportation, and $3531 per lot for sewer charges. 5.Soft costs include consulting fees for rezoning, engineering, subdivison, and project management; legal fees for subdivison registration, etc. CORIOLIS CONSULTING CORP. PAGE 22

26 6.0 Alternative Strategies for Providing Whistler Accommodation for Students 6.1 Acquire a Different Property A completely different approach to providing budget accommodation to Whistler students would be to acquire an existing hotel property (or acquire some rooms in a strata title property). This would allow the possibility of acquiring rooms in a more central location (walking distance to lifts and amenities) which should improve occupancy and room rate. Here are some examples of prices for acquiring rooms or developed properties: The Listel Hotel is a 98 unit hotel in the heart of Whistler Village and is located at 4121 Village Green. This high quality hotel has 98 rooms. Strata titled hotel suites at this hotel are assessed at $80,200 to $82,200 per suite in The Mountainside Lodge is a 76 room hotel that is centrally located at 4417 Sundial Place in Whistler Village. Strata titled suites in this hotel are assessed between $92,200 and $130,800 in The Pinnacle Hotel is centrally is located at 4319 Main Street in Whistler Village. This is a good quality 84 room hotel with kitchenettes in every suite. Strata titled hotel suites at this hotel are assessed at $117,000 to $182,000 per suite in The Summit Lodge and Spa is conveniently located in Whistler Village at 4359 Main Street. This 81 room hotel has an assessed land value of $7,202,000 and assessed improvements value of $4,396,000, for a total assessed property value of $11,598,000 in This is a total of about $143,185 per suite. Tantalus Lodge is a 64 room hotel that is located close to Whistler Village at 4200 Whistler Way. This property has large suites complete with kitchens. The large strata titled hotel suites at this hotel are assessed between $287,000 and $365,600 in Nita Lake Lodge is located at 2131 Lake Placid Road, which is about 3.0 km south of Whistler Village. This luxury hotel was built in 2008 and has 77 rooms in total. Strata titled suites at his hotel are assessed between $159,000 and $680,000 in A package of 55 hotel suites at this property sold in 2010 for a total of $19,000,000. At the low end, it is possible in theory to acquire rooms at say $100,000 each. These are fully selfcontained, private rooms with bath and kitchenettes. Obviously these would not come with the same kind of common kitchen, dining, and lounge facilities provided by the current lodge, but they would be much more central and convenient. Acquiring say 17 rooms would cost about $1.7 million, not dissimilar to the cost of constructing a new lodge at the existing site. 6.2 Block Book A completely different approach to providing a student service would be for AMS to simply block book space for use by students in existing hostels. Annual revenue from students has been about $60,000 to $70,000 per year. AMS could book this amount of space in existing properties and then rent to students at cost, with little risk and probably little or no annual loss. CORIOLIS CONSULTING CORP. PAGE 23

27 7.0 Conclusions Our conclusions and recommendations are: 1. There does not appear to be a financially viable scenario for continuing the current operation in the existing facility. 2. Remodelling the existing facility to provide private rooms is only viable if a very high occupancy rate can be achieved. Otherwise, the capital investment cannot be recovered. 3. Developing a new facility that is more efficient (i.e. higher ratio of sleeping area to total building area) and with all private rooms could be financially viable, but it requires an investment of on the order of $2 million (including approvals costs) and involves risk. This style of accommodation would require rezoning. 4. The property has little market value as is. If rezoned to single family, AMS could recover significant value. This would allow AMS to recover its recent capital investment in the project and free up equity for other purposes. Alternatively, this would allow AMS to acquire hotel rooms in strata title properties in the Village. Such units would lose the group-orientation of a hostel (i.e. common kitchen and dining) but would be more marketable and, for small groups, probably more enjoyable because of proximity to ski lifts, entertainment, and amenities. 5. We see two key questions for AMS to consider: a. is it willing/able to inject more capital into a Whistler property? In order to have a viable operation, it appears that an investment on the order of $2 million is necessary, although this will involve risk and the capital may not be recovered. b. how important is the provision of a group-oriented cabin experience for students, as an AMS service? There are lower cost options for simply providing budget accommodations for individuals and small groups (e.g. block book space), but this is obviously not the same as a large facility that can be booked for UBC-only groups. 6. If AMS wants to pursue the option of rezoning/selling as single family or the option of rezoning and developing a new facility with all (or mainly) private rooms, it will be necessary to commence an application process. The municipality has provided general information so far, but will not provide more detail or more definitive answers unless a formal application is made. CORIOLIS CONSULTING CORP. PAGE 24