The Hotel Money Pit: Digging Deeper

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VIRGINIA BEACH, Va. (WAVY) — One year ago, 10 On Your Side reported on the Cavalier Hotel restoration project. Now, the project is experiencing more delays and cost over-runs — and 10 On Your Side is investigating why.

The development group is known as Cavalier Associates, LLC, and it's made up of five of the most experienced builders, developers and investors in Hampton Roads.

Last year, developer Bruce Thompson gave 10 On Your Side a tour to show what still needs to be done to the hotel.

"We had no idea that the substructures underneath the ceilings were in such horrific condition," Thompson said in April 2016.

The Cavalier Hotel: Over Budget and Behind Schedule

The Cavalier was over budget, behind schedule, and one year later, it's only worse.

"It is extremely frustrating. Extremely frustrating," said Cavalier building construction manager Kevin Owsley. "You got a lot of structural issues, design issues that we have to work out. You've got to look at the history, and everything else as you go and you can't sacrifice that."

Owsley is referring to historic building restrictions and improvements needed to meet the American with Disabilities Act. Those improvements cost -- and can cost big.

The Cavalier was to open in spring 2016. That was pushed back to spring 2017, and now that is pushed back to the end of the year, and that is a big "maybe." When asked about that, Thompson says, "We are hopeful we will have a wonderful Christmas celebration."

The reality: The Cavalier is a hotel money pit. In May 2013, Thompson budgeted $55 million for hotel restoration with contingencies for unknowns.

By April 2016, unknowns turned $55 million into $74 million. Today, Thompson expects final restoration costs to be almost $80 million, and that is a 45 percent increase over original forecasts.

"If we knew then what we know now, then we never would have done this. We would have gone to the city and appealed to them to not restore it. We just want to rebuild it, and that would have been the right thing to do," Thompson said.

One year later, Thompson and his partners continue digging deeper into their pockets to keep the Cavalier restoration afloat.

"Clearly we could have built two identical buildings for what we have here today, for what we will have invested in that project," Thompson said.

Thompson admits he could have built two hotels in the place of the Cavalier, which raises the nagging question: How did such experienced builders get the scope of the project so wrong? That is a question for Thompson, who immediately shot back: "It is frustrating. Every time we think we have a handle on something then we find something that becomes a little bit more problematic that we originally anticipated."

That apparently has happened a lot during the last year.

The restoration is a financial challenge, but Thompson and his partners John R. Lawson, George Metzger, Bart Frye and Ed Ruffin are far too down the road to turn around now.  They appear to be stuck. They also have deep pockets, and other groups would have likely folded by now. For those who wanted to keep the original Cavalier, it appears Bruce Thompson is their hero.

From the start, the numbers didn't seem to make sense. Thompson says the hotel site alone was zoned for 3,200 units. He only has 85 rooms in the Cavalier. Even more shocking: An average hotel room costs about $250,000 to build. Thompson says he is paying a whopping $850,000 for each Cavalier hotel room, and that is on the low side. If you divide it all out, the price is somewhere around $918,000 per room, but Thompson gave us the $850,000 number -- which is three and a half times the average.

To put that in perspective: Thompson's 31st Street Hilton hotel with 289 rooms cost about $20 million less to build than than the Cavalier. The Hilton's price tag is $60 million, and the Cavalier -- for now -- sits just under $80 million.

10 On Your Side asked Thompson about any looking back.

"Plenty of that," he replied. "You realize the route you took will be more challenging, and you may save more money by looking at total demolition than restoration and there's been a lot of that."

After WAVY's interview, Thompson met with Marriott International Executives. He was too busy to give Andy Fox a tour, but gave instructions not to let our crew go higher than the third floor, where we saw guest rooms and suites taking shape. When confronted with this, Thompson says he has "no clue" why we were told that.

Thompson looks at it this way: "We went into this eyes wide open, but then they got opened a little wider."

Andy Fox also asked Thompson about "capital calls" to get more money from the partners.

"Of course it happens, and they willingly give."

"Do they say, 'Bruce how many times are you coming back to us?'" Andy asked.

Bruce answered with a smile, "We are going to keep coming back until we get it open."

It should be noted the partners are digging deeper, not taxpayers.

Thompson kept his promise not to seek anymore city funding for the restoration. He also says rumors of partner dissension are false.

"Everyone is fully committed to the project... We have a 100 percent participation and excitement and enthusiasm from our partners."

Skeptics would challenge that enthusiasm, all things considered. In the end, it's highly unlikely the Cavalier will ever be financially successful, and Thompson knows that.

"If we could go back, we wouldn't do this project, of course. I am not sure this will ever be qualified as a loser from our perspective. A financial success, no, but as far as something we will be extremely proud to bring forward, yes."

10 On Your Side asked Thompson what is his biggest regret in the Cavalier restoration. It goes back to the beginning, and his failure to do more forensic analysis under a court order. Thompson says he wasn't given enough time to thoroughly inspect what he was getting himself into.

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