Evergrande debt crisis triggers worry, rot at iconic Chateau Montebello hotel

EDITOR’S NOTE: This article has been revised to include additional facts that Yu Zhao stated during her December 2020 deposition and clarify the status of hotel renovations.

China Evergrande Group’s massive financial and legal challenges in Asia are casting a long, dark shadow over the Chateau Montebello, the iconic Quebec log cabin resort which the developer owns.

Evergrande, a once fast-growing Chinese property company that became the country’s second-largest developer, acquired the 211-room Chateau Montebello hotel in 2014.

The deal earned headlines because the Chateau Montebello is the largest log cabin ever built. It occupies a special place in the Canadian psyche and the nation’s history. It has hosted G7 and NATO leader summits, prime ministers, presidents, movie stars and even royalty.

Now, however, Montebello municipal leaders, local workers, guests and even tourism rivals are increasingly anxious about the Chateau Montebello’s future and its deteriorating physical condition under heavily indebted Evergrande’s ownership.

“The Chateau is our biggest employer and largest taxpayer. We’re worried,” Montebello Mayor Nicole Laflamme says. “Hundreds of local people in the village work there.”

Edmond Kingsbury, who owns the rival Petit Chateau Montebello bed and breakfast down the road from the big Chateau, says village residents are keenly aware that Evergrande is, as he puts it, “in big financial trouble.” His friends include several resort workers.

“The Chateau needs a lot of maintenance, and they seem unwilling to pay for it,” Kingsbury says. “If you don’t maintain the wood, it’s an old wood structure, and it will rot. I talk to people who work at the Chateau, and that’s what they tell me is going on.”

The Chateau Montebello was built in 1930. Finnish immigrant Victor Nymark, a master log builder who came to Canada in 1924, oversaw its construction in just four months.

Loggers from Western Canada cut 10,000 red cedar trees, loaded them onto rail cars and shipped them over the Rockies to Montebello.

At a spot nestled on secluded shores along the Ottawa River, about halfway between Montreal and the nation’s capital, Nymark’s crew of 3,500 workers cut the logs and fashioned them into a rustic private club playground for wealthy corporate and political elites for the next 40 years. Its size and how fast it was built earned magazine cover stories and newspaper headlines around the world.

The 21-hectare property includes cross-country skiing and hiking trails, indoor and outdoor pools, an 18-hole golf course, skating and curling. The hotel opened to the public in 1970, and everyone can see its gem: a spectacular six-sided, three-storey stone fireplace. Its hearth and chimney tower 20 metres above the large lobby.

Among the famous who’ve enjoyed its charms are U.S. presidents George W. Bush and Ronald Reagan, Canadian prime ministers Lester B. Pearson, Stephen Harper, and Pierre Elliot Trudeau, U.K. prime minister Margaret Thatcher, Mexican president Felipe Calderon and Princess Grace and Prince Rainier of Monaco.

As China Evergrande’s woes mounted since late 2021, the developer cut capital expenditures and operations budgets, corporate secretary Jimmy Fong stated in a U.S. Bankruptcy Court affidavit filed in mid-August.

Though the Chateau continues to charm visitors with its rustic allure and kind staff who earn positive reviews, the condition of the central hotel lodge and its affiliated support buildings have begun to attract negative attention in online reviews because of the lack of maintenance and their deteriorating condition. Passionate guests say such spending cuts are hurting the Canadian icon.

One guest who posted her thoughts on TripAdvisor was a woman we will call Samantha. Global News contacted her and confirmed her identity using public records.

She and her husband had stayed at the Chateau several times over the years. Now retired, Samantha wanted to book another stay but was concerned about the online reviews. They drove from Ottawa for lunch and to check things out before booking.

“I was absolutely shocked. I was embarrassed for them,” Samantha said after her arrival. Lobby furniture was tattered and torn, carpets were taped, and exterior buildings were “a shambles,” she said. “It was shameful. I was horrified. People didn’t seem to care.”

Samantha posted her review and cancelled her plans for a stay.

A longtime Chateau Montebello employee says her reaction was not unusual. “A lot of people are making comments about the state of the buildings,” the worker said.

Nobody from Evergrande or its Canadian subsidiary responded to messages seeking comments, including Montreal-based vice-president Yu (Stephanie) Zhao.

However, in a December 2020 deposition filed in a Quebec Superior Court, Zhao confirmed this state of affairs even back then, saying that planned multi-phased renovations of the hotel had not yet been fully completed.

In her deposition, Zhao indicated that the hotel had renovated two of the hotel’s four wings but added the remaining two wings were not yet renovated, nor was the lobby. (The renovation of the third and fourth wings remain uncompleted in September 2023).

Zhao stated the hotel’s broader plans called for the company “to renovate the whole interior design, because the last one it was like, twenty (20) years ago, and we have a lot of complaints from the clients about our outdated status, and they say that we need urgent renovations. . . And the other part is the lobby, that, even though we haven’t started (its renovation), we also received some same comments, that the hotel is outdated and the carpet smells, the furniture is tearing down.”

The conditions Samantha and others described online were confirmed by Global News during our own recent hotel visit. Decay started at its front gate and continued to the main entrance.

A log cabin-style building that visitors drive through at the entrance to the hotel property displays multiple rotting logs and a partial roof collapse. Moss hasn’t been cleared from that gatehouse building (or from inside several rotting logs) in years.

Above the main front door entrance to the four-winged hotel, visitors can see four rows of rotted, decaying logs. They have crumbled, either from insects eating the wood or because they were drilled by creatures seeking insects inside it.

Inside the lobby, duct tape has been applied to multiple carpet areas to hide wear and tear and to stop older guests from tripping. Worn-out furniture — noted by guests in several online reviews — had finally been repaired or recovered, and some were moved (not far) when Global News visited. Chairs with shredded fabric were piled into an area behind a rolling bar after shocked guests started posting photos.

The exterior of the main log cabin structure looks equally tired and unloved. Multiple log tip ends on its walls are perforated by deep rot and exposed.

Though some repairs were done by a log cabin specialist woodworker in 2018-2019, the Chateau Montebello worker said, the man left for a higher-paying job.

Entire walls of the main resort lodge now have become so weather-beaten and dry that there’s little or no protective stain left on many cedar logs.

Hotel service and support buildings are faring worse.

Some have roofs that are rotting, with no moss removed in years. One garage area building has a tarp spread over its severely degraded roof to stop water leaks, but even that tarp was ripped, fluttering in the wind.

The longtime Chateau Montebello worker said Evergrande alone must not be blamed for this state of affairs.

Chinese owners inherited what he estimated was $30 million in deferred maintenance from the prior owners, the worker stated.

Evergrande bought the hotel from Oxford Properties, the real estate arm of the Ontario Municipal Employees Retirement System pension fund, in December 2014. (Oxford did not respond to a request for comment about deferred maintenance.)

No deal price was disclosed, but the Guangzhou, China-based developer’s acquisition was a showy symbol of corporate China flexing its geopolitical power and influence.

There were ambitious plans to build a new suites hotel, a senior’s residence and a swanky expanded spa on “excess lands.” Evergrande hoped those plans would transform an unprofitable operation into a very profitable one, documents show.

Now, that narrative has flipped. What was Evergrande’s first and only known Canadian investment seems an exotic symbol of its financial excess.

Evergrande now has US$328 billion in debt. It started defaulting on repaying those debts in late 2021. Efforts to restructure and defer them have made little progress and are now on life support. More payments were missed recently.

Evergrande executives have been arrested and detained amid several criminal probes. The firm is facing a securities probe. And it filed a U.S. bankruptcy protection case in August.

Against those dark skies, more than 1,100 furious Chinese consumers are suing an Evergrande subsidiary, alleging it took their money but never delivered apartments.

With all that, Montebello B&B owner Kingsbury says, Evergrande doesn’t care much about its small “$30 million investment in Montebello.”

The Chinese developer’s larger concern is the hundreds of billions of dollars it owes creditors in China and Hong Kong, the B&B owner says.

Indeed, Evergrande is now facing the prospect of forced liquidation.

The corporate intrigues and turmoil swirling around China Evergrande in Asia seem an ocean away from quiet village life in Montebello, population 983.

Nevertheless, the charm of foreign ownership has worn off among the 325 local residents who work at the hotel at different times throughout the year. They are worried about jobs.

One longtime Chateau employee, who spoke on condition they were not identified, said Evergrande leaders have tried to be reassuring.

“They told us not to worry. They said that they would keep sending money and pay people, and they are keeping us paid,” this person said.

The Chateau Montebello has operated under the Fairmont Hotels brand for years.

Fairmont Montebello general manager Steve Chang sidestepped interview requests. Calls to him were returned by Nathalie Beauchamp, the Chateau Montebello’s veteran director of sales and marketing. She would not discuss anything, either.

Asked whether Fairmont would continue its relationship with Evergrande, Beauchamp replied: “We will not be commenting (on) this situation. Any questions or any information regarding our owners should be going directly to our owners.”

Relations between Fairmont and Evergrande are strained, said two people, speaking on condition they were not identified. One source said Fairmont only permitted the Chateau Montebello to continue using its brand on condition the resort’s 211 rooms were all completely renovated and modernized.

In 2018, an Evergrande affiliate borrowed $13.5 million for room renovations from a Montreal-area Desjardins credit union.

Five years later, only rooms in two of four hotel wings have been renovated.

Builders encountered asbestos. That caused a government work stoppage, remediation, and greater-than-expected costs. Extended room closures cost badly needed revenue, two sources and court documents show. Then, the pandemic hit.

Desjardins spokesperson Jean-Benoît Turcotti declined to say if the hotel is making payments, citing its confidential business relationship. No papers have been filed suggesting arrears.

Municipal assessments indicate Chateau Montebello properties are worth $24.8 million. Its annual taxes are $435,000, almost 15 per cent of the municipal budget.

Montebello Mayor Laflamme says the hotel’s local taxes are paid.

Despite uncertainty and spending cuts, Laflamme says her village has levers to protect its landmark resort.

“Several of the buildings are classified as historic buildings in the municipality,” Laflamme says. “This gives us the power to inspect them to ensure they are properly maintained and renovated to preserve architectural heritage.”

Amid Evergrande’s ever mounting woes, Laflamme says she is not losing too much sleep about the Chateau’s longer-term prospects.

If China Evergrande goes bankrupt and its properties are liquidated, Laflamme says: “There would surely be takers to buy the hotel, if it came to that.”

Editor’s note: This story was updated to reflect that the Ontario Municipal Retirement System owns Oxford Properties.