The Continental the latest in the grand redevelopment of the Mornington Peninsula

• The hottest new opening around Victoria's coast

It's the eve of the summer holiday crush in Sorrento and I am stepping gingerly through the innards of the Continental Hotel. Which is something many of the generation who came of age in the 1980s might have done previously when "The Conti" was a raucous bar and nightclub.

But this time it's different. This time as I step over mounds of sand and through limestone-edged doorways and talk over the cacophony of drills and hammering, I am witness to the beginnings of this beautiful pub's $85 million rebirth into what is hoped will be Sorrento's entertainment hub and a cornerstone of the Mornington Peninsula's booming tourist economy.

There's a lot of fixing-up going on in hospitality right now, and it's a good news story: developers are getting it right. Top of mind is the Esplanade in St Kilda. Next up is this 1875 hotel built by businessman, comedian, philanthropist and Sorrento legend George Coppin.

The Conti is a rare surviving example of a four-storey building constructed of limestone. "It was a bold statement back in 1875 by George Coppin," says my tour guide, Steller group general manager Duncan Thomson. "It launched Sorrento as Melbourne's playground and we want to bring that back. We want it to be a seamless connection and a respectful one because the bones of the building are so beautiful."

There have naturally been challenges in respecting the past but ensuring the future. "A lot of the old building needed to be rebuilt," says Thomson.

The new buildings housing most of the 100 hotel rooms – 16 will be located in the old building – will provide the scale, but it's the heritage building that remains the star. Developer Julian Gerner and his team feel strongly the responsibility to get it right. "This building could have only happened during Marvellous Melbourne during the gold rush period," says Gerner. "We've worked closely with Heritage Victoria and we are painstakingly committed to the complete restoration of the original limestone structure. It's gone through a slow decline. We are left with the bones of an original building which is pretty wonderful."

Gerner, who, with the Melbourne Pub Group, restored such places as the Albert Park Hotel, acquired the property in 2015 along with a neighbouring parcel of land. He received permit approval for the redevelopment of the heritage building and 45 apartments to be developed at the back.

But he hoped to find an investor to be able to fulfil his vision of bringing The Continental back to life. Enter Steller property group. Gerner formed a joint venture partnership with the Steller, which extended Gerner's original permit for the apartments and changed the usage into a 100-room hotel as well a wellness and hospitality establishment.

Work is well under way in the $85 million transformation. Included are casual restaurants and cafes, a public bar and bistro (called Coppins Public Bar and Bistro), a champagne bar, a signature restaurant called 1875 (in honour of its founding date) and function rooms. The old ballroom will be brought back to its 19th century glory, retaining original features.

It will inject substantial economic energy into this historic coastal town, with locals involved both as patrons and staff.

The Continental is the latest example of developers showing respect for the area's history. The Baths restaurant on the Sorrento foreshore, which was destroyed by fire in 2015, is thriving in its rebuild, and the Portsea Hotel, opened in 1876, reopened in early December after a $7 million, historically sensitive five-month redesign including the decking of the hotel's beer garden with its famous view of Portsea front beach.

It is heartening to see these iconic and much-loved Victorian buildings with such deep emotional connections to so many of us being gently coaxed back into life by owners and developers. The story of the remaking of St Kilda's beloved Esplanade Hotel falls happily into that category, complete with its own ghostly overseer, Alfred Felton, who lived there for 20 years at the turn of last century.

Indeed, the parallels between the two hotel rebuilds are interesting. The colourful George Coppin is said to still inhabit the hotel. "I'm not a ghost man myself but there are strong stories circulating that he still walks the halls," says Gerner.

Gerner says he will commission an artist to make a bronzed statue of George Coppin, which will sit out the front. "We hope to make him proud."

"Julian's passion and wealth of knowledge of George Coppin and the original building was really quite inspiring," says Thomson. "I've since become a bit of a student of George Coppin. We're finding parts of his personality in each of us. We had some good chats over a few beers about how we're trying to bring a bit of his energy to life. There's a bit of talk that he still lives upstairs in one of the rooms." He smiles. "We can go meet him."

If only we could. George would tell us stories of his Sorrento in the 1850s when well-heeled Melburnians were ferried across from St Kilda on paddle steamers and, the 150-metre walk up the hill to the hotel being a bit much for the toffs in their finery, then take the tram that Coppin built. At night there would be an ornate party in the ballroom upstairs.

Winding through a few corridors, past what will be hotel rooms, I'm now as close to George as I ever will be. I'm standing in what was once old George's bedroom. There's the fireplace he warmed himself in front of when the tourists had gone home and the wind whipped off the bay, possibly enjoying a whiskey and reflecting on the glamorous seaside town he put on the tourist map.

In the rebuild George will be everywhere, including "George's Whiskey Bar", complete with old chesterfield lounges. "We imagine that's the sort of place he would have liked to sit in," says Thomson.

The first stage, which will include the heritage building, will open in September this year, with the remainder – the complete hotel operation – to follow in September 2020.

Gerner says the rebuild is a game changer for the town. "Now the peninsula has become such a thriving tourist economy it's time for Sorrento to really put its stamp as a premier position on the peninsula. I think what we're seeing is probably the strongest tourism region in Victoria and we think we're arriving at the right time to cater for that growing segment."

Meantime, George's ghost is said to be project managing from up in that bedroom. "Although a lot of it will be modernised there will an element of the building which will be like walking back in time," says Gerner. "We are trying to put ourselves in Coppin's shoes and deliver something is that is true to the era."