The Crown asset, which has been losing about $2 million annually for the last 10 years, will operate as a Marriott hotel, Tourism Minister Trevor Holder announced Friday.
"Last year, the province was confronted with the reality of owning an aging hotel that lacked amenities that many visitors now demand ... a hotel that was falling into a state of disrepair year in and year out, and was costing the province money," Holder said Friday.
Under the deal, the government would collect 20 per cent of any profits the hotel generates within 30 years. In exchange, the province will provide New Castle Hotels and Southwest Properties with a $21 million loan to be repaid within that same time frame.
The government has said the hotel needs at least $20 million in repairs and upgrades.
The province began the search for a new operator in February of last year after Fairmont Raffles Hotels International announced it would not renew its management agreement beyond the end of 2011.
Holder said he is confident the agreement will secure the future of the hotel for many years.
"This will ensure we get the marketing ability on one hand and a consortium with a track record of taking historic properties and respecting their historic nature," he said.
The 234-room, Tudor-style hotel opened in 1889. It features a golf course and has hosted the likes of Sir John A. Macdonald, Theodore Roosevelt and Princess Diana.
The provincial government has owned the Algonquin Resort since 1971. The resort employs 60 people year-round and 250 during the tourism season.
David Buffam, CEO of New Castle Hotels and Resorts, said renovations will begin immediately.
"We are going to create a completely different feel which will be more in keeping with what we call the four-star customer," Buffam said. "We'll be catering — because of the Marriott reservation system — to a somewhat higher-ticket visitor."
The renovations include all new windows, new decor, and an indoor pool. Buffam said some of the work will require the hotel to close in September and reopen June 1, 2013.
Buffam said $4 million will be spent upfront to get the work started.
The deal comes as the province, facing a projected deficit of $471 million this fiscal year, seeks to cut costs and rein in spending.