Dunedin's biggest hotelier, Scenic Hotel Group, yesterday rejected the idea the Dunedin City Council's public library building in Moray Pl could be turned into a hotel.
Director Stuart McLauchlan said the big hotel chains were interested in managing hotels, not creating them, and it would be difficult to find a developer for such a project.
If the council decides next year to relocate the library to the former chief post office in Princes St, it will need to find another use for the Moray Pl building.
Council property manager Robert Clark said last week two hotel chains had shown some initial interest in using it as a hotel and he is expecting a visit this week from "some people up north" interested in a hotel development there.
Mr McLauchlan suggested if the council pursued the hotel idea, Scenic Hotel would have to rethink its own plans to add "at least another floor" on top of its Dunedin City Hotel on the corner of Princes and Dowling Sts.
In June, it announced plans for 16 new rooms to be ready in time for the 2011 Rugby World Cup.
"You don't want to be building rooms if there's an oversupply."
However, Mr McLauchlan considered one of the big hotel chains would not be interested in developing the Moray Pl library building.
"No chain will put their own money into that.
They will all want a management contract.
"Under a management contract, the operator would insist the council spend the money fitting it out.
"So, that would be another $20 or $30 or $40 million," he said.
In the case of the failed chief post office venture, the Hilton Hotel was to manage the hotel but the development was being done by the McEwan Group, until it went into receivership earlier this year.
Mr McLauchlan did not believe a developer would be interested in the Moray Pl library building, because the numbers were unlikely to "stack up".
"It really comes down to the cost of the conversion.
"And there's a rule of thumb that for every thousand dollars you spend on a room, and that includes all your restaurants and all the common areas, you've got to get $1 of tariff at 60% occupancy.
"Around Dunedin, you are lucky to get $120-$130 on average [tariff] so you can only afford to spend $120,000-$130,000 a room and if you can't do it for that you are going to lose money."
The post office Hilton Hotel development had budgeted $600,000 a room, Mr McLauchlan said.
"So, that means, they had to get $600 a night just to break even."
The Hilton Hotel chain indicated yesterday it was "still strategically interested in Dunedin".
In a brief email to the Otago Daily Times, Hilton's Australasia vice-president Ashley Spencer confirmed the chain's continuing interest in the city but he did not indicate whether the chain was considering any specific proposals.
Until last December, Hilton was connected with the plans to turn the former chief post office into a hotel and apartment building.
Those plans foundered when Auckland developer McEwan Group struck financial trouble and the post office was taken over by primary lender South Canterbury Finance.
When asked if Hilton was involved in discussions over use of the Moray Pl library building, Mr Spencer said he did not know the building and "we have no communication with anyone from the council".
Hilton is reported to be planning a $55 million redevelopment of Taupo's 120-year-old Terrace Hotel, considering a six-storeyed, five-star hotel for Wellington's waterfront, and looking for a site in Christchurch.
In Queenstown, the McEwan Group was developing a Hilton Hotel before it went into receivership.
In 2008, Mr Spencer predicted a new Hilton Hotel in Dunedin would boost tourism to the city by 10% to 15%.
