History of The Inn at Spanish Head
The Inn at Spanish Head opened in 1969, more than 50 years ago. It is currently maintained and operated by two separate entities, the Association of Unit Owners (AUO), a condominium owners association, and 4009 S. Highway 101, Inc. (4009), an Oregon corporation.
The AUO is responsible for maintaining and ensuring the building itself and its common areas (hallways, stairway, pool and seawall area, spa room, fitness center, etc.) and for paying the utilities. The expenses of those activities, including contributions to a capital replacement fund and a flood reserve fund, are billed monthly to unit owners on a prorated basis. The costs of major improvements, other than those funded by the capital replacement fund, are charged to owners as special assessments after approval by the owners. The AUO is overseen by a board of six directors elected by the owners.
The corporation, 4009, owns and manages the hotel business at Spanish Head. It is the exclusive rental agent for those owners who wish to rent their unit to the public when they are not using it. It manages the front desk and bell service, operates the restaurant and lounge, and provides conference and banquet services and housekeeping services. A board of nine directors, elected by the corporation’s shareholders, oversees 4009. All directors and shareholders of the corporation must be Spanish Head unit owners.
Why are there two entities with separate boards? How are they different? Are both necessary? To answer those questions, we have to go back to the beginning. And, in the beginning, there was a man named Peter.
In the Beginning
Peter M. Gunnar was an Oregon lawyer and businessman and the first judge of the Oregon Tax Court. In the 1960’s, he purchased a parcel of land in an area known as Taft Heights in Lincoln City. The parcel included property at the top of a bluff and approximately 375 feet of beach front at the foot of the bluff. He didn’t have a specific purpose in mind for the land. He just thought it would be a good investment.
While vacationing in Hawaii, Gunnar became familiar with a business model popular with developers there. It involved the development of condominium resort hotels. The developer would build a resort hotel with various amenities such as a restaurant, bar, shops, convention facilities and recreational facilities. The developer would then sell the guest rooms as vacation condominiums but retain ownership of the amenities. After the resort opened, the developer would own and operate the hotel business at the resort. It would offer to rent out each owner’s unit when the owner was not using it and divide the rental proceeds with the owner, helping the owner cover the costs of owning a condo in Hawaii. The model was highly profitable for the developer, providing it with three revenue streams—profit on the initial sale of the condominium units, revenue from rental of the units after the sale, and revenue from the on-going operation of the resort’s restaurant, convention facilities and other amenities.
Gunnar believed this model would be successful in Oregon and would be a perfect use for his property in Lincoln City. He envisioned a condominium resort hotel rising up the bluff from the beach to the property at the top of the bluff and offering spectacular views of the beach and ocean from every room. His family called it his “impossible dream,” and some locals predicted it would wash out to sea within a year, but he was determined to make it a reality.
The Name and the Design
Many assume, incorrectly, that the Inn at Spanish Head got its name from its location. In fact, Gunnar just made it up. After researching the history of Spanish influence on the Oregon Coast in the 16 th and 17 th centuries, Gunnar decided his resort hotel would have a Spanish theme and design and be called “The Inn at Spanish Head.” The bluff had never been known as Spanish Head, but “The Inn at Taft Heights” just didn’t sound exotic enough for Gunnar’s resort hotel.
Gunnar retained architect Donald Richardson and engineer Warren Clark to design the Inn. Because of the site, Gunnar believed it had to be a concrete structure. Soil analysis by a geologist revealed a solid rock base beneath the project that would support a 10-story concrete building. The final plans called for a ten-story building, with two wings-built side by side, rising from the beach in two and three-story terraces, with only the top two stories rising above ground level at the top of the bluff. The space between the two wings was to be used for an elevator (yes, just one elevator), a stairway and access areas between the two wings. The design was to be Spanish-Colonial with sweeping arches, a red tile roof and extensive use of ironwork railings on the balconies.
The design called for a supporting seawall and recreational area around the base of the building with a heated swimming pool, shuffleboard, and other activities. However, the design had to be modified after the Oregon Beach Law passed in 1967, requiring that the seawall not extend to more than 14 feet above the mean high-tide line. There was still room for the swimming pool, but not for the other planned activities. There would be no shuffleboard.
Another last-minute design change involved fireplaces. The original Prospectus offering units for sale, dated June 27, 1967, provided that every unit, including studio units, would have a fireplace. The intent was for the fireplaces to be wood burning, as the estimated monthly cost of ownership included $2.33 for firewood. However, plans that included wood-burning fireplaces were not approved and the reference to fireplaces was deleted in an Amended Prospectus issued on June 14, 1968. Because most of the units had been sold before the Amended Prospectus was issued, the developer hung an electric “fireplace” on the wall in each unit. Some owners may remember these odd fixtures, which are now long gone.
Sale of the Units
In the summer of 1967, almost a year before construction began, Gunnar and his company, Condominiums Northwest, Inc. (CNW), began selling the condominium units. They built a model unit at the top of the bluff, near the spot where today the south driveway ramp from the front parking lot merges with the highway. It allowed prospective buyers to view the Mediterranean style envisioned for the units, which included dark cabinetry and gold shag carpeting. They sold quickly and most, if not all, were sold before construction started.
Recent purchasers may be interested to know the original sale price of the units. A deluxe studio sold for $16,500. A standard one-bedroom unit sold for $22,500. A deluxe one-bedroom unit sold for $27,800. And the deluxe two-bedroom suite, which included a studio unit, sold for $33,800. They go for a bit more today!
While offering the condos for sale to the public, the developer retained ownership of the land and various parts of the building through affiliated companies. The land was leased to the unit owners, through the AUO, under a lease that was scheduled to expire on December 31, 2033. More about that later. The restaurant and lounge, kitchen, offices, conference rooms and various other parts of the building continued to be owned by the developer’s companies, which intended to use them in their operation of the hotel business after the Inn opened.
The Construction
Construction began on April 26, 1968. The first concrete was poured on July 9, 1968, and approximately 7,100 cubic yards of concrete were used, along with 408 tons of steel.
After construction was underway, Gunnar realized that a single elevator would be inadequate for a ten-story hotel with more than 100 rooms. He decided to add a second. This caused a significant construction delay and Gunnar and his wife had to mortgage their home to cover the added cost.
Construction was completed in late 1969 and the Inn opened for owners on October 25, 1969. A Grand Opening celebration was held on December 6, 1969, when the Inn opened to the public.
The original structure did not include the Convention Center, now known as the El Toro Room, on the fourth floor. It was built a short time later by CNW and was owned by McMillan Inns, Inc., an affiliated company. The developer expected to derive additional revenue from rental of the convention center for banquets and other events.
The Association of Unit Owners
On October 23, 1969, two days before the Inn opened for owners, the Spanish Head AUO was formed as required by Oregon condominium law. In addition to its other responsibilities, described above, the AUO assumed the lease of the land and began billing lease payments to unit owners on a prorated basis as part of their monthly assessment.
Operation of the Hotel by McMillan Inns, Inc.
McMillan Inns, Inc., a wholly owned subsidiary of CNW, was organized for the purpose of managing the developer’s condominium resort hotels. When the Inn opened for business in 1969, McMillan was charged with managing the hotel business at Spanish Head, including the lodging business, the food and beverage business and the conference business. It also held title to most of the spaces in the building that were related to operation of the hotel business, including the restaurant and lounge, the kitchen, the offices and front desk area, the housekeeping facilities, the manager’s two-bedroom suite and other spaces throughout the building, as well as the Conference Center once it was built. The conference rooms on the first floor, Cortez and Balboa, were the only exceptions. They were owned by CNW.
Eddie Mays Enterprises, which operated many well-known restaurants in the Pacific Northwest, was expected to manage the restaurant and lounge, and those areas were leased to a new company called Eddie Mays at Spanish Head, Inc. That plan fell through, however, and when the Inn opened the restaurant and lounge were operated by McMillan.
In connection with the lodging business, McMillan entered Agency Agreements with owners who wished to rent their unit while they were not using it. Most did. The agreements appointed McMillan as the exclusive agent for renting the owner’s unit and provided for the division of rental proceeds between McMillan and the unit owner.
McMillan’s management of the hotel business at Spanish Head was successful and profitable for both the owners and McMillan. However, even before construction of Spanish Head had begun, Gunnar had moved on to develop other condominium resort hotels to be operated by McMillan. In mid-1968 they were already selling units at the Inn of the Seventh Mountain in Central Oregon. That was quickly followed by the Inn at Otter Crest, on the Oregon Coast south of Spanish Head. By early 1973, the fourth phase at Seventh Mountain was underway, Otter Crest had opened, and CNW was negotiating for the development of property on Kauai, Hawaii.
In hindsight, Gunnar may have tried to expand too quickly.
Bankruptcy of McMillan Inns and Creation of 4009, Inc.
By mid-1973, Gunnar’s companies were in trouble. McMillan incurred a cost over-run of $1,800,000 on the Otter Crest project, which consumed most of McMillan’s working capital and created a financial crisis for the companies.
In July and early August of 1973, with its capital depleted and no additional conventional financing available, McMillan attempted to borrow the necessary operating funds from unit owners of the three developments through reduced unit-owner share of rentals. The unit owners in the rental pools at Seventh Mountain and Otter Crest refused and terminated their Agency Agreements with McMillan. That left Gunnar’s companies with no alternative but bankruptcy.
In early August, Gunnar let the AUO board know that a bankruptcy filing by McMillan was imminent. He also let the board know that John Franswa, who would be named bankruptcy Trustee, had declined to continue hotel operations at Spanish Head after the filing. The Trustee intended to immediately shut down hotel operations and lay off all hotel staff.
The closing of hotel operations would have been catastrophic for unit owners at Spanish Head. There would be no one to rent out the rooms (there was no internet or Airbnb back then). There would be no front desk staff to handle reservations and check-ins. There would be no restaurant or lounge and no conference or banquet activities. And there would be no housekeeping services.
To avert this disaster, a group of seven unit owners conceived the idea of forming a new corporation to operate the hotel, at its own risk and with the consent of the Trustee, until a buyer could be found for McMillan’s Spanish Head assets. They named it 4009 S. Highway 101, Inc.
The seven founders were John Stendal, Sol Meyer, Rene Bergman, David Bogue, Loren Hicks, Don Georgeson and Robert Hallwyler. At least five of them were on the AUO board at the time. Before filing the corporate papers, the founders negotiated an arrangement with the Trustee that allowed the new company to operate the hotel, restaurant and lounge facilities after the bankruptcy petition was filed. Under the agreement, any profits realized during the bankruptcy were to accrue to the Trustee and any losses were to be borne by the company.
The 4009 Articles of Incorporation were filed on August 16, 1973. McMillan filed its bankruptcy petition the following day, August 17.
The new corporation took over hotel operations immediately. Because the founders lacked experience managing a hotel or restaurant, they retained D-Lee, Inc. of Eugene, which owned the Country Squire Motel and the Branding Iron restaurant, to manage operations.
Over the following months, the business operated on a shoestring. It had almost no capital. The seven founders had each paid $150 for 150 shares of stock providing the corporation with capital of just $1050. The hotel operation had a large payroll and a variety of other expenses. And the hotel business, which was seasonal, was about to enter its off-season when 4009 took over. To make matters worse, an oil embargo was severely limiting the availability of gasoline in the Northwest and hurting businesses on the coast, including the Inn. Between August 1973 and May 1974, the new company experienced a loss of over $90,000 (which was covered by unit owners agreeing to deferred payment of their share of the rental proceeds.) And the Trustee had still not found a buyer for McMillan’s Spanish Head assets.
In mid-1974, the founders of 4009 decided it was time for 4009 to become the buyer. They also decided it was time to open participation in 4009 to all Spanish Head unit owners. The possibility of those steps had been anticipated by the founders from the beginning. First, however, the founders had to negotiate a buy-out agreement with the Trustee.
Spanish Head Property Acquired by 4009 Inc.
Negotiations with the Trustee culminated in an agreed price of $50,000 for the Trustee’s interest in the Spanish Head property, including the restaurant and bar, managers apartment, offices, lobby, housekeeping rooms, convention center, a variety of other spaces, some equipment and other personal property and the rights to the name “The Inn at Spanish Head.”
On July 18, 1974, 4009 issued a circular offering 50,000 shares of common stock at $1.00 per share to all Spanish Head unit owners. A special meeting of owners was called to explain the offering. Each owner could buy up to 500 shares, with the founders limited to 350 shares each to bring their total to 500. Almost all owners subscribed and over 48,000 shares were sold, providing sufficient capital to complete the purchase from the Trustee.
The Trustee was only able to convey his equity in the property. Significant unpaid taxes, mortgages and other encumbrances had to be assumed or renegotiated for 4009 to obtain clear title to the property.
The restaurant, lounge and kitchen were subject to a first mortgage held by U. S. National Bank of Oregon. The company assumed that mortgage on June 25, 1974, and agreed to pay off the balance of more than $80,000 in 91 monthly payments of $1,240, including principal and interest.
The manager’s apartment was subject to a mortgage held by Benj. Franklin Federal Savings and Loan with an unpaid balance of more than $20,000. The corporation assumed that mortgage as well and made all payments due after August 17, 1973. The apartment was later converted to 4009 office space, as the manager no longer lived on site.
The real property consisting of the Convention Center (El Toro) was subject to a mortgage held by the Timber Operators Council Retirement Plan. As of May 1, 1974, it had a balance of more than $138,000. As the debt was also secured by other, non-Spanish Head assets, 4009 was eventually able to negotiate a pay-off of this encumbrance at a lower figure and obtain clear title to El Toro.
The property purchased by 4009 from the Trustee was also subject to significant unpaid real and personal property taxes for the current and past tax years. The taxes were eventually paid by 4009 on a schedule designed to avoid foreclosure proceedings by Lincoln County.
Because McMillan did not own the conference rooms on the first floor, Cortez and Balboa, 4009 was unable to acquire those spaces from the Trustee. They were owned by CNW, which was involved in a separate bankruptcy proceeding. At its annual meeting on October 26, 1974, 4009 authorized board member Gordon Olsen to begin negotiations for acquisition of the conference rooms. The negotiations were successful, and Cortez and Balboa became part of 4009’s ownership of units at the Inn.
In 1975, 4009 continued its buying spree. Recognizing that more space was needed for the kitchen on the 10th floor, 4009 began negotiations to purchase the three units next to the kitchen that had been owned by a Mrs. Eubanks. They were in probate at the time, but 4009 eventually obtained title to all three units. They are now used for kitchen storage, a dining room for restaurant staff and the accounting office.
When the dust settled, 4009 held clear title to 18.588% of the unit space at Spanish Head.
4009’s Responsibility for the Units it Owns
Like all unit owners, 4009 is responsible for the costs of maintaining, furnishing, and renovating the units it owns. When new windows are installed in Fathoms or El Toro, for example, 4009 pays for them. When new flooring is installed in Fathoms, the bar, or El Toro, 4009 pays. When new equipment is purchased for the kitchen, 4009 pays. Major expenses are first approved by the 4009 board, then paid for with 4009 funds.
Because 4009 is responsible for maintaining the units it owns, it is billed by the AUO for maintenance work performed in its spaces by the Inn’s maintenance department, which is funded by the AUO. Like other unit owners, 4009 is billed on a time and materials basis.
4009’s Responsibilities as a Member of the AUO
As a unit owner, 4009 is a member of the AUO and pays its 18.588% share of AUO monthly assessments and special assessments.
From August 1, 1974, through July 31, 1975, its first year as a member of the AUO, 4009’s monthly AUO assessment was $2,052. In 2023, its monthly assessment is a bit higher. For the month of March 2023, its assessment was $25,951.59, which included $21,310.31 ProRata, $2013.70 Capital Replacement, $968.13 Flood Reserve, and $1659.45 for utilities.
4009 has also paid its 18.588% share of all AUO special assessments, including assessments for the land purchase in 2001, an elevator upgrade in 2002 and construction of a service elevator in 2008-09. More about those later.
Renovations and Upgrades
Over the decades since the Inn at Spanish Head opened for business in 1969 there have been many improvements to the building and its amenities that have enhanced the appearance and functionality of the Inn.
The restaurant and bar have been renovated several times by 4009, including a major renovation of Fathoms, the lounge, the kitchen and the 10 th floor lobby completed in 2000 at a cost of $800,000. The rooms were renumbered in 1998 to assign numbers that indicate the floor the room is on (before that, rooms were designated by their original unit number from the design plans (100 through 258) which did not reflect the floor on which the room was located—a bit confusing for guests). The west side of the building was finally painted after remaining bare concrete for many years (the explanation given for not painting the west side was to have it look “natural” and blend in with the sand, the real reason was that the developer and owners did not believe paint on concrete would survive the harsh conditions on the ocean side of the building). The spa room was added several years ago (how many owners remember the small hot tub it replaced?) And the Inn’s original generator and transformers were replaced in 2016 with a pad-mounted transformer in the front parking lot and a 375 KVA natural gas-driven generator capable of carrying the entire power load of the Inn (a project that took more than two years to complete).
Other improvements made over the years are too numerous to cover here, but three are worthy of mention: the railings, the land, and the elevators.
The original black iron railings, though integral to the Spanish design, proved to be a poor choice for a building on the Oregon Coast. They began to rust and corrode almost immediately. At the 1974 Annual Meeting, the AUO chair, John Stendal, reported that “the railings are rusting and practically impossible to keep painted.” At the 1975 Annual Meeting, the owners considered two options for solving the railing problem: having them professionally repainted at a cost of $4.90 per foot or replacing them with anodized aluminum railings at a cost of $19.84 per foot. With 2800 feet of railings involved, it was a costly fix either way. The owners opted for painting. Before long, the railings were replaced with the anodized aluminum railings we have today.
As previously noted, the land beneath the Inn was leased to the AUO under a lease set to expire on December 31, 2033. In connection with the bankruptcies of McMillan and CNW, adjacent land under the parking lots was acquired by 4009, but the land under the building continued to be owned by a third party, Trans-Pacific Resorts. In 2001, the AUO purchased all of the land for about $1,350,000. Approximately $325,000 was paid to 4009 for the land it owned and the rest was paid to Trans-Pacific. Funds for the buy-out were raised through a special assessment paid by all owners, including 4009. Ownership of the land is now vested in the unit owners based on each owner’s percentage ownership of the common elements. “What happens in 2033 when the land lease expires?” is a question that no longer haunts owners at Spanish Head.
Finally, the elevators. Gunnar’s decision to add a second elevator during construction was a great catch. Current owners can scarcely imagine what it would be like if the Inn had only a single elevator. However, the original elevators were small and slow, often resulting in long waits for an elevator. In 2002 they were upgraded at a cost of approximately $125,000, which required a special assessment. An even more important upgrade came in 2008-09 with the addition of a service elevator at a cost of approximately $775,000, which also required a special assessment. This important addition was a major undertaking. Construction of the new elevator shaft required removal of the garbage and laundry chutes and encroached on various spaces on each floor (including part of an owner’s unit on the 9 th floor), construction of a pit in the bedrock at the bottom of the shaft, relocation of sewer and water lines, and construction of a steel-beam reinforced shaft through all 10 floors of the building. The result was a large (6 feet wide by 4 feet deep) service elevator with a capacity of 2,500 pounds, a 9-foot ceiling and a speed of over 200 feet per minute. The new elevator was named “The Bolton Express” in honor of long-time owner and board member, Dr. Tom Bolton.
Just as important as these improvements by 4009 and the AUO are the dramatic upgrades unit owners have made in their own units at their own expense. Units have been renovated and updated, in many cases more than once, over the years since Spanish Head opened in 1969 with rooms that featured dark kitchen cabinetry, Formica countertops, shag carpeting, and fake fireplaces.
Epilogue
Even after the bankruptcies of CNW and McMillan in 1973-74 ended his control of the resort hotel operation at Spanish Head, Peter Gunnar continued to be a unit owner and a loyal and valued consultant to the AUO and 4009 boards. In 1974 he was nominated to the AUO board (a nomination he declined.) When the Inn celebrated its 25 th anniversary during the weekend of November 19, 1994, Gunnar was a special guest and speaker and shared several anecdotes of how the Inn at Spanish Head became a reality despite formidable odds and predictions it would “wash out to sea” within a year.
Peter M. Gunnar passed away on March 24, 2006, at the age of 82, but his “impossible dream,” the iconic Inn at Spanish Head, is more vibrant than ever and continues to be the most unique resort hotel on the Oregon Coast.
This History of the Inn at Spanish Head was written in 2023 by Graham Hicks whose parents, Loren and Muriel, purchased their units in July 1967. Loren served several terms on both the AUO board and the 4009 board and was one of the seven founders of 4009. This account of the Inn’s history is based primarily on extensive original records kept by Loren and passed on to Graham and his wife, Teckla, when they purchased the units from his parents in 2006.