Rehoboth BoA grants Coast Hotel variance request

The Rehoboth Beach Board of Adjustment unanimously approved a variance request for Coast Hotel that paves the way for an additional 10 rooms. The approval came with a condition that the facade of the addition look like the one shown as part of the applicant’s presentation.

Located at the corner of Rehoboth Avenue and Second Street, the hotel is the former Sandcastle Motel. New Castle County developer Harvey Hanna purchased the property in late 2021 for more than $10 million and soon after began a top-to-bottom, multi-million-dollar renovation. After nearly 18 months of construction, the 60-room hotel opened in July 2023.

Looking to recoup some of the unexpected costs associated with the renovation, the developer requested an increase to the structure's floor-to-area ratio so more rooms could be added. The city has a FAR of 2; however, the existing structure had a legal nonconforming structure with a FAR of 2.34. The request was to increase the FAR to 2.71 so 10 rooms could be added.

During a hearing April 29, which was a continuation of a hearing from March, Harvey Hanna Chief Financial Officer Murray Dingwall presented the board with financials showing the company had to spend an extra $2 million out of pocket to make necessary fixes. As a result, he said, the expected return on equity went from about 17% to about 5%.

The additional 10 rooms will bring the return on equity to a little more than 10%, said Dingwall. Even with the additional rooms, it will still be less than ideal, he said.

Will Harvey, Harvey Hanna vice president of property management, said the company probably wouldn’t have bought the property had it known the poor condition of the building. By the time the condition was revealed, the company was well into the project, and decisions needed to be made on how to move forward, he said.

Board member Mark Saunders said he had some concerns that the developer had plans to ask for the additional rooms all along.

Board member Edith Herron said there appeared to be a serious lack of due diligence on the part of Harvey Hanna.

Harvey acknowledged some mistakes on his company’s end, saying there have been some internal process changes within the company because of this experience. 

Board member Jan Konesey said it wasn’t up to the board to bail out the developer, but she also didn’t think the addition was obtrusive to the neighborhood. The problem isn’t what is being done, it’s why it’s being done, she said.

Ultimately, the board voted unanimously in favor of the variance request.

Following the meeting, attorney Vince Robertson, who represents the applicant, said he couldn’t provide any details related to when construction would begin because it looks like the project needs to go before the planning commission, he said.

It’s not clear when the project will go before the planning commission. The group has meetings scheduled for Thursday, May 9, and Friday, May 10, but the Coast Hotel project is not on either agenda.