Construction is continuing at a steady pace on the renovation of the El Encanto Hotel in Santa Barbara, and the luxury hotel’s owners say the long-running project will be completed by early 2013.
Orient-Express Hotels received $45 million in construction financing last November, and officials say the company will spend around $134 million in all on the purchase and renovation of the luxury hotel at 1900 Lasuen Road, on the Riviera overlooking Santa Barbara.
Martin O’Grady, Orient-Express’ vice president and chief financial officer, said it will take until around 2016 for the company to break even on the project.
“We’ve got about $49 million, $50 million left to spend, of which about $42 million or so will be funded by the draw-down of the construction finance facility for El Encanto,” he said during a first-quarter conference call in May.
An investor then asked how that investment will affect the earnings before interest, taxes and amortization (EBITA) in the short term.
“Of course, it will be affected in the short term, because you’ll have an additional $45 million of debt, and we won’t see that asset stabilizing until about $6 million or $7 million, three years down the track,” O’Grady added.
James Warren originally developed the property in 1913 as rental cottages for the nearby Santa Barbara State College, which eventually became UCSB. The property was rebuilt in 1917 as the El Encanto Hotel.
New York-based Orient-Express, which owns 46 luxury hotels throughout the world, bought the property in 2004 for $26 million, after then-owner Eric Friden’s death from a polo accident the year before. The hotel closed for renovations in 2006, when the company said it would invest $10 million in the 92-room project. But the company delayed renovations until late 2011 to find financing, O’Grady said.
“At that time we were looking at residual cost or final cost to complete it of about $70 million, and that number hasn’t changed,” O’Grady said in Orient-Express’ fourth-quarter conference call in February. “The total book cost by the end will be about $134 million.”
About 200 construction workers are laboring on “all buildings, public areas, parking structures and gardens,” according to an April newsletter. The first phase of the historic garden cottages will be completed this summer, it reads.
The Santa Barbara Historic Landmarks Commission approved the revised master plan in June, including 11 new cottages, a utility distribution facility, underground parking, a swimming pool and a fitness center.
Orient-Express spokeswoman Vicky Legg did not speculate on expected profit margins, but board chairman Bob Lovejoy told investors in the February conference call that El Encanto will increase the company’s exposure in the U.S. market.
“The most important impact of El Encanto is going to be the impact in terms of our consumers in North America who will see that, and who will see what Orient-Express means around the world,” Lovejoy said. “But El Encanto is really not in the 2012 numbers at all because we’re talking about opening it really a year from now.”