‘It is what it is’: Cost blowout forces developers to abandon Hilton Karratha

A decade-long plan for a hotel in the heart of Karratha has hit another roadblock after the developers abandoned plans due to the untenable construction market situation. The $20 million four-star Hilton Garden Inn, proposed to be built at The Quarter on Sharpe Avenue, was initially expected to begin development in April 2020 before it was delayed twice as COVID-19 hit supply chains. However, Pacifica Developments told the City of Karratha in April it was “untenable” to build the hotel because construction costs had increased dramatically and it would be unable to satisfy the condition of the agreement to commence on-site construction by July 1. The local government then wrote to Pacifica to formally terminate the memorandum of understanding as of May 13. The City is now seeking new developers after passing a motion at the May 30 meeting to invite proposals for the project. Pilbara News reported last October Pacifica had put construction of the three-storey 100-room hotel on hold because the cost to build had increased by up to 40 per cent. Pacifica then received a new deadline from the City of Karratha in December, with local councillors passing a motion to amend the conditions for the project and to include a provision for on-site construction to begin by July. City of Karratha Mayor Peter Long said the MoU was terminated after Pacifica reached out to the City and informed them the cost escalation had been problematic to the project. “We had conditions which we’re not satisfied, and the City gave Pacifica formal notification of the termination of the MoU effective May 13,” he said. “Basically, they didn’t fulfil their conditions . . . over and over for a number of years. “They actually basically told us that they just couldn’t do it. So we went through the process and it was formally terminated.” Pacifica Developments project manager John Zendler said Pacifica notified the council in April that they would be unable to proceed. He said it was disappointing that the project would not be continuing, but “it just is what it is”. “We’re busy at the moment, but council, understandably so, wanted to continue and were pushing us to show meaningful progress . . . it just sort of came to a bit of a deadlock,” he said. “Council wanted to see our progress. The only sort of project progress would just be us, as I said to them, throwing money at a solution that doesn’t exist at the moment.” Mr Zendler said no amount of activity by the developers would alleviate the construction affordability crisis in the Pilbara. “It just was completely untenable to build a hotel in this construction market,” he said. Mr Zendler said the company had lost money on the project with pre-fabrication works already having commenced. “We tried everything. We tried numerous solutions, but we were just out of options,” he said. Mr Zendler said the only way to proceed with the development was to wait out the construction affordability crisis. “We still wanted to build the project, but we can’t build it in this market,” he said. It is the latest time an ambitious hotel project for the site has collapsed. In 2011, developer Mirvac was awarded a tender to construct a similar 150-room hotel at The Quarter Precinct site. A press release in July 2013 by then minister for housing; racing and gaming Brendon Grylls stated because of changes in Mirvac’s corporate structure LandCorp was seeking a new partner to build and operate the hotel. Ramtron was awarded the contract later that year but was unable to raise the funds for the project with then lands minister Terry Redman reopening the project for the market in 2015. Finally the City of Karratha and Pacifica Developments were given a six-month exclusive working period by LandCorp in 2018 before councillors agreed to invest up to $10 million from reserve funds in the facility in September that year and Pacifica began designs the following January. Despite the project falling through again, Mr Long said the City still felt a hotel on the site was viable and was pursuing new proponents. “It’s really an expression of interest, so they will give an overview of what they want to do and how they think they can fulfil our requirements,” he said. Mr Long said the City expected the occupancy for a hotel in the CBD to be very high. “We think that there won’t be a problem filling up — particularly over the next five years where there’s going to be so much work happening,” he said. “So we think that it will be viable, and certainly the proponents that have been approaching us they think they can do it.”