For The Cavalier, a facelift trumps the wrecking ball
Developer Bruce Thompson takes on renovation of one of Hampton Roads’ most beloved hotels
Bruce Thompson, CEO of Gold Key/PHR Hotels & Resorts,
continues to take on major projects
in Hampton Roads, including the
renovation of The Cavalier Hotel.
The city of Virginia Beach has pledged
$18 million for the project.
After two decades of replacing outdated oceanfront hotels with upscale, contemporary buildings, developer Bruce L. Thompson is about to take on the biggest project of his life: a nearly $260 million plan that includes the renovation of one of Virginia Beach’s most iconic properties, The Cavalier Hotel.
The founder and CEO of Gold Key/PHR Hotels & Resorts purchased the 86-year-old Cavalier Hotel earlier this summer. Sitting on a hill overlooking Atlantic Avenue with its name etched into a manicured lawn, the stately brick hotel had hosted an array of dignitaries before falling into disrepair. Owned for more than 50 years by The Disthene Group — a Buckingham company that mines the world’s largest deposit of kyanite — the property went on the market this year after a circuit judge ordered the dissolution of the private firm after a prolonged family dispute about minority shareholder rights.
One of the beach’s most ardent boosters, Thompson, and his partners in Cavalier Associates LLC, paid $35.1 million for the venerable hotel and its surrounding property, including a more modern sister hotel on the oceanfront and an adjacent beach club pavilion. The partners are John Lawson, president and CEO of W.M. Jordan Co. in Newport News; Robert Howard, chief investment officer of Gold Key; and the Ruffin Family Trust.
They plan to spend $84.5 million to renovate both hotels, $70 million to construct a new oceanfront tower, $54 million to build 100 homes around the original hotel, $10.2 million for a parking garage and site development and $5.5 million to refurbish the beach club. According to Gold Key spokeswoman Elizabeth Weller, Thompson and his partners are meeting with bankers and are confident that they will be able to secure funding to finance the project. Lawson and Thompson have worked together before on another public-private project, a $79 million oceanfront Hilton Hotel project, with Lawson’s company investing in and building the project.
To renovate The Cavalier, Thompson made clear that he would need economic help from the city again. In July, on a 7-1 vote, the Virginia Beach City Council approved an $18 million financial package that will help restore and preserve the 22-acre site. Renovations to The Cavalier could get under way this fall. The move was controversial, because $8.2 million of the money is supposed to come from the city’s Economic Development Incentive Program, and it would be the largest such grant in the city’s history.
The outdated grand dame may seem out of place among the modern high-rise hotels and resorts that Gold Key has positioned along the resort strip, but Thompson believes The Cavalier still has value and should be spared from the wrecking ball. “This is our community,” he says. “We’ve prospered here. If we can use our resources to preserve this asset for the community, we have a responsibility to do so.”
When it comes to business, Thompson — known in some circles as Virginia Beach’s answer to Donald Trump — is a realist. If the city had refused to help finance The Cavalier’s renovation, he would have considered razing the hotel and constructing a timeshare development on the property. “It’s in horrific condition,” he notes. Still, demolishing the landmark would not win him any popularity contests. “I don’t want to be that guy.”
The city’s support for Thompson’s plan shows the leverage the developer wields in Virginia Beach. Twenty-seven years after entering the vacation ownership industry with 30 employees and 170 hotel rooms, Thompson has built Gold Key into a dominant force in the resort city. With more than 2,300 employees, Gold Key controls half the rooms on the oceanfront and generated a record $175 million in revenue in 2012, says Thompson. “Every time we look at other markets to buy or build assets in, we look around our backyard and find there are still plenty of opportunities here. It certainly reduces the risk of trying to learn another market.”
New Gold Key developments continue to spring up on the resort strip, including the $70 million Oceanaire Resort, and 31 Ocean, a $72 million mixed-use development designed to transform the oceanfront into a year-round destination. The project, which opened earlier this year, includes an office tower, retail space and 178 fully leased apartments. On that project, the city is spending an estimated $40 million on roads, including a traffic circle, and some utility work. “We need more year-round activity,” Thompson says. “We want to stimulate the economic base and bring in diverse retail.”
To spur year-round business at the oceanfront, Thompson has worked with the city to develop both a $180 million entertainment complex on the former Virginia Beach Dome site as well as an 18,000-seat sports arena. The entertainment center faces an “uncertain future,” according to Robert Hudome of the Virginia Beach Department of Economic Development, while Dallas, Texas, developer Michael Jenkins finalizes finance agreements. The sports arena was also put on hold after the NBA’s Sacramento Kings opted not to pursue relocation to Virginia Beach.
Thompson contends there is demand for both an entertainment center and a sports arena. “If an arena already had been in place, I’m confident we would be talking to that team today and clearly would have been able to secure the franchise. Once we have a facility like that, we’ll be back in the hunt again.”
Meanwhile, Gold Key’s ninth oceanfront property, a 14-story Hilton Garden Inn, is scheduled to open next spring. Plus, Gold Key is preparing to start construction early next year on a $126 million, 23-story luxury hotel and conference center in downtown Norfolk. The hotel represents a $64 million Gold Key outlay, along with a $42.5 million public investment and a $19.5 million garage paid for with parking revenues.
Thompson is counting on an improving economy to boost his first venture in his native Norfolk. Along with the anticipated revitalization of the Waterside Festival Marketplace, the hotel project, which would offer a high-tech, 50,000-square-foot conference center, is expected to add $150 million of new development and create more than 1,000 jobs downtown. “There’s a clear need in the market for a modern hotel and conference center,” says Thompson.
Not everyone agrees, especially other downtown hoteliers. The Norfolk Hotel Motel Association, along with The Norfolk Waterside Marriott and the Sheraton Norfolk Waterside, urged City Council to delay the project’s approval, citing concerns about the impact of a new hotel on a market still recovering from the economic slump. Both hotels noted a decrease in military and government travel during the recession and expressed concern that a potential sequestration could cause a further decline.
Scott Adams, though, thinks the facility — coupled with a revitalized Waterside — could spark a revival in downtown Norfolk. The Baltimore-based Cordish Cos. is working with the city to revive Waterside with new restaurants and live entertainment. “It brings another Class A amenity to downtown,” said Adams, Hampton Roads regional president for CBRE. “A lot of our clients say they can’t find a room when they come to downtown. This new hotel will not only have premium rooms but also a high-end restaurant on the first floor.”
He adds that the new hotel also could draw more businesses downtown, putting the area on par with Virginia Beach’s thriving Town Center. “There’s a tremendous momentum at Town Center,” he says. “Town Center has done a great job with an energy that’s palpable.” Much of that energy surrounds the center’s new 14-story office tower and apartment complex set to open next year. Clark Nexsen Architecture & Engineering, currently located in Norfolk, will anchor the facility, leasing 80,000 square feet for its corporate headquarters. “When you have a strong, Hampton Roads-based business, it gives Town Center more momentum to attract other businesses,” says Adams.
According to Adams and other local brokers, businesses are starting to seek premium space after biding their time during the economic downturn and fears over sequestration. “People were scared for so long about the word sequestration that there was a lull in activity,” says Tom Dunn of S.L. Nusbaum Realty Co. However, some defense contractors, such as Newport News’ Huntington Ingalls Industries, have been authorized to proceed with major military contracts. “Sequestration is still out there, but things have started moving.”
Craig Cope, vice president and city manager with Liberty Property Trust in Virginia Beach, also is starting to see more of an appetite for space. He says more companies are looking for upward of 10,000 square feet to lease. “That’s something we’ve not seen in a while. Some of it is pent-up demand. Some of it is pure coincidence,” he adds. “Six to eight companies are in the market for larger space. That’s unusual.”
But it’s still a tenants’ market, although the trend appears to be stabilizing after six years. Stewart J. Sacks, of Stewart Title and Settlement and president of the Hampton Roads Association for Commercial Real Estate, says there’s a sense that the area has touched bottom. “… Landlords are withholding some incentives. Tenants are factoring in the cost of a move, and more are willing to work with their existing landlords.”
Meanwhile, a new realty company entered the market as four associates of S.L. Nusbaum Realty struck out on their own to form the Franklin Johnston Group. Led by Chairman and CEO Wendell Franklin, Taylor Franklin, Tom Johnston and Steve Cooper, the Virginia Beach-based firm will focus on apartment development and management. “The renter market is not just predicated on people who can’t afford to own a home,” says Johnston. “People on all socioeconomic levels are renting. We wanted to develop products to meet all levels of demand.” With a majority of its apartment communities in Hampton Roads and the Richmond regions, the firm expects to have more than 6,000 units from Northern Virginia to Charlotte, N.C., by the end of 2013.
The Franklin Johnston Group also is supporting Thompson’s goal of making the Virginia Beach oceanfront a year-round destination: the company leased space in 31 Ocean’s Sidney Kellam Building.
In Hampton Roads, Virginia Beach is definitely a draw, which explains why Thompson is keen on not just restoring The Cavalier to its former luster, but transforming it into a five-star resort. Think wedding chapel, spa and a celebrity chef. As Thompson told the City Council, he wants to make Virginia Beach proud. The project would help the region shake off a sluggish economy and prove that it knows how to show off and have a good time.