A big gamble?

While few would disagree with the need for a new luxury hotel in Bermuda, quite unfortunately something just doesn’t sit right with the recent announcement of the proposed Starwood/St.Regis hotel.  Again we bear witness to shady acts that only raise questions as to why they’re necessary.  Further we are presented with yet another government plan with ties to questionable credentials on the part of the developers and SDOs used to thwart proper studies that could increase costs later.  Then there is the larger question of where the funding is coming from for surely it is hard to come by lately.  Finally, we can wonder that if this doesn’t all work out as rosy as planned, who ends up holding the short end of the stick?  Let’s hope that it doesn’t end up being the taxpayer, which of late has become the norm.

The announcement of a five-star St. Regis in Hamilton would be tremendously welcome if it weren’t marred in the kind of controversy that has become typical of a Brown Premiership.  Questions are circling as to why the Corporation of Hamilton was kept out of the announcement when it has been suggested that they were a crucial factor in the development of this deal.  Further, the timing of this announcement leaves much to desired after the government announced only last week its intent to shut down the Corporations of Hamilton and St. Georges.   Despite claims of a ‘miscommunication’, something seems awry.

Reports that Unified Resorts, the US developer in the deal, “has been mostly a US government defence contractor” is concerning as a lack of experience in hotel developments, especially in a Bermuda construction environment could point to yet another Bermuda project that runs over time and budget.  We can however take at least some comfort that Unified Resorts’ investment partner, Sagewood Investments LLC has an executive or two with at least some resort development experience.  Still questioned however are the eventual impacts of having provided an SDO such that we could end up with problems that end up costing far more after the fact like has happened with cruise ship pier in Dockyard.  Who ends up footing the bill if we have to rework things to repair damage to traffic flow or any other mishap that will be overlooked on the part of the SDO?

Questions of funding may well be what takes the cake however as we can wonder where the equity to fund this project has come from in a time when the world is in an economic crisis.  This as U.S. hotel occupancy rates are at lows not seen since the 70s and Bermuda occupancy rates are equally low while compounded with seasonal downturns.  Who, one could ask, would want to take a gamble in a hotel in a market that has shown mediocre performance in comparison to its rivals?  Starwood seems unlikely to be investing much capital when a Starwood managed hotel in Hawaii has been foreclosed on and a five star St. Regis in Orange Country looks due for the same fate.  While Starwood may still be announcing a new hotel or two they are being downgraded by analysts which makes them less of a candidate to be reaching out with funds.  Thus, who is footing the bill for this project to get it off the ground in these rocky times?

When queried on the backers of the project Unified Resorts President Ted Adams is suggested to have stated that a local bank and international backers are involved.  This sets off alarm bells as we wonder which local bank is tied to this project.  When considering that The Royal Gazette suggests the project will cost at least $200 million we can wonder what local bank would have access to that kind of capital.  Then of course we can recall the Bank of Butterfield preferred shares deal and wonder how deep the rabbit hole goes.

Let us presume for a minute that perhaps the Bank of Butterfield has a hand in this project.  They’ve notably run into difficulties having acquired a guarantee from the Bermuda Government on their preferred shares deal and subsequently had to freeze their Liquid Reserve Fund.  Let us consider for a moment the scenario that perhaps in exchange for the guarantee offered by the Bermuda Government that the Bank of Butterfield would use some of the proceeds to fund a much needed hotel project.  If this were the case, said hotel project could prove to be quite the gamble as if it goes over budget, Bermuda’s economy doesn’t recover quickly enough or any of a raft of other potential mishaps occur, the already troubled bank could find itself even more troubled.  Let us remember, the Bermuda government has guaranteed that in 10 years those Bank of Butterfield preferred shares will be worth that original $200 million along with the extra $200 million paid out in dividends.  Meaning essentially if things go bad, the Bermudian taxpayer needs to come up with the money.  Some food for thought perhaps?

While we desperately are in need of a more luxurious product on the island, this hotel deal still raises far too many questions, especially given its rather questionable introduction.  Yet again we find ourselves presented with a government plan with ties to questionable credentials on the part of the developers and SDOs used to thwart proper studies that could increase costs and risks later.  Then we face the question of where the funding is going to come from and finally wonder, if things don’t pan out according to plan, who is going to end up paying for this?  Let us hope that we the taxpayers have bailed out our last overdue, over budget construction project; though you probably shouldn’t hold your breath.

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