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Okanagan motels under pressure as housing needs trump tourism

BC Housing's motel acquisition spree puts squeeze on Okanagan tourist accommodation
BC Housing's purchase of older Okanagan motels such as this property on Skaha Lake Road in Penticton is putting the squeeze on tourist accommodation as the sector rebounds from pandemic-era travel restrictions.

A growing interest in tourism properties in the Okanagan Valley will have to be balanced with space for affordable and social housing, according to local stakeholders.

With vacancy rates remaining low throughout the valley and an increasing population moving in, finding housing is a challenge for the area.

A high tourist population also builds demand for more accommodation, specifically during the summer months and after the pandemic lull.

Faith Wilson Real Estate Group real estate advisor Terese Cairns said she expects to see the hotel industry see a strong rebound this year.

“2022 was good, but I think this year is going to be even better. There's a lot more interest from the U.S.,” she said.

“The demand is going to stay high, for sure, especially in Kelowna, because, the population is increasing so much, so quickly. Lots of people are moving, and lots of businesses are moving. There's a lot more demand right now, for properties in Kelowna.”

Cairns currently has a listing for a newly renovated Osoyoos motel that hit the market for just under $6 million.

With a prominent location and backing from a major hotel chain, she expects the renovated motel to do well in the area.

But the same can't be said for other aging properties.

“BC Housing has been an aggressive campaign to purchase a lot of these outdated properties, and transfer them and convert them into much needed social housing," Cairns said.

In West Kelowna, the Super 8 Motel has been leased by BC Housing since April 2020 to provide shelter for people experiencing homelessness in the community during the COVID-19 pandemic. While the lease was set to expire by April 2022, BC Housing has worked with the owner to extend the lease until March 31, 2023 to ensure people remain housed.

Once that lease expires, the future of the motel is uncertain, as is where the people staying there will all go.

BC Housing also purchased the Meadowlark Motel, Sun Valley Motel and Mayfair Motel, all in the 2000 block of Skaha Lake Road in Penticton, for $7.9 million in 2021.

They said they are making improvements to the existing facilities and plan to redevelop the three motels and an adjacent existing BC Housing-owned facility, Skaha Sunrise Apartments, into 105 total affordable units, which will come before local city council at a future date.

“So a lot of those older properties, especially in Penticton, have been repurposed for that. People don't like it, but it's happening, and it's something that is probably a very smart thing to do because there's really nothing else that exists for that purpose,” Cairns said.

Penticton Mayor Julius Bloomfield said seeing those replaced with purpose-built housing units made some sense, but there can still be a concern.

“Using motels purely for a quick fix to residential stress, I don't think that's worked out too well in the past with a lot of locations,” Bloomfield said. “Unfortunately, a lot of the old motels are de facto social housing, and so they're occupied on monthly rentals and often rented to people that can't afford to move anywhere else”

“It's how to ensure that the people that are going to be displaced from a redevelopment have adequate housing for their needs once the development starts to take place.”

The dilemma with older motel models is whether is best for a buyer to keep it as is and renovate it or try to get the property rezoned and turn it into a development.

“It totally depends on location. Location is really key for hospitality use because some of these properties are in really noisy busy areas, and they would make better condos,” Cairns said.

“It's the balance of housing and having good quality housing, and also providing good quality tourist accommodation. Either way, it's going to be redevelopment, whether it's hotels or residential,” Bloomfield said.

In a smaller market like Kamloops or the South Okanagan, Cairns said keeping it as a hotel can be a harder sell, mostly because of the off-season.

“People call all the time asking for hotels in Kelowna. We want a hotel in Kelowna, everybody wants Kelowna hotels because the perception is that Kelowna is the busiest hub in the Okanagan,” she added.

“Until those areas get populated a little bit more with regular full-time population and more businesses move into the area and they grow, I think it's still going to be a little bit more difficult to turn properties over in the South Okanagan.”

“So they need to market the long-term stays like people who come from Saskatchewan, or Manitoba and think it's balmy in Osoyoos or Oliver or Penticton in the winter months.”

Cairns said some of the motels in Penticton, which are in a very high-density commercial area, may be better off as residential properties.

But the overall decision on what’s next for these aging motels comes down to city council and the municipality’s Official Community Plan.

“It's the balance of housing and having good quality housing, and also providing good quality tourist accommodation. Either way, it's going to be redevelopment, whether it's hotels or residential, depends on the site," Bloomfield said.

For Penticton, Bloomfield said what the area needs is more quality hotel rooms, rather than quantity.

The decision also comes down to whether the buyers want to wade through the red tape.

“In certain markets, the zoning and if you're going to rezone from hotel use to condo for example, in certain markets like Vancouver, I mean, it can take 18 months to even go through that process,” Cairns said.

“It's expensive, takes time and money and you have to have the appetite to really want to do that. So it's much easier to find a property that's already zoned if you're gonna build a condo than it is to take a motel and change it over," she added.

“I think that as the hotel industry rebounds, people are going to be more interested in maintaining in that hotel sector.”