Curtis Dickinson, Minister of Finance

Amid concerns that the Caroline Bay Development at Morgan’s Point will become an even bigger white elephant than Grand Atlantic, Finance Minister Curtis Dickinson told MPs today that the stalled development is in need of a major rethink.

In a Ministerial Statement delivered on the floor of the House of Assembly today, he said the hotel development with condominiums had to be “recast and devised with a realistic view”.

“The land at Morgan’s Point continues to represent an important opportunity for Bermuda to renew its claim to being a luxury destination,” said the Minister.

“The economics of the development must be recast and devised with a realistic view of the world economy and the value proposition we need to present in order to be successful in tourism, business and economic diversification.

“This opportunity is too important to squander,” he added.

“We do not do justice to the people of Bermuda by continuing to shore up a vision that no longer matches reality and which cannot be sustained on any applicable metrics.

“It is well past time to approach this development differently.”

While noting that it was the former One Bermuda Alliance government administration and the developers who wanted to renegotiate the terms of the financial agreement as far back as 2013.

He also noted that the Caroline Bay Marina was completed in time for the 2017 America’s Cup races, while a number of the multi-million dollar condos on the marina remained unsold.

The original plan, he said, was to have the new development open for business the year after the 35th America’s Cup, held for the first-time, for one time only, operational the year after the big race series.

The first phase of that part of the development was said to consist of 35 branded condominium residences and a five star 79-room Ritz Reserve hotel.

ET Bob Richards, OBA MP, Former Minister of Finance

But he said: “What the people of Bermuda did not know was that even before the marina had opened, the Caroline Bay project was experiencing difficulty.

“This had to have been known to the then Cabinet and the developers who persisted in providing public updates on the project which were inaccurate.”

He also stated that “the developers asked to meet with the then Premier and Minister of Finance to advise that there were significant funding issues and that in all likelihood work would slow down and eventually cease without an injection of capital”.

Since then, Caroline Bay Developers announced that they secured financing. But any offer put forward would have to comply with regulatory requirements, with “the approval of the Government of Bermuda who, through the terms of the guarantee, is a full partner at the table in matters related to the financing of this development”.

On that note the Minister said: a term sheet or draft terms of agreement “do not represent irrevocable funding and should not be termed as such”.

And then there is the case of a host of contractors and sub-contractors who have yet to be paid for work already done, which the Minister said was “disturbing”.

But he said that was not a responsibility on the part of the Bermuda Government. And he said much of the lending for the construction of this development was “founded, unfortunately, in a Government of Bermuda guarantee to the tune of $165 million”.

Moving forward, the Minister said the Government will support developments that provide investment opportunities for Bermudians and growth for small to medium-sized businesses and “medium-sized businesses” and “an increase in economic activity arising out of a sensible, fair immigration policy”.

Said Mr Dickinson: “Where these ideals are embraced by developers, existing or prospective, we are open to working together.”

Former Premier Michael Dunkley, OBA MP

In his Ministerial Statement today, he also stressed that “successive governments have confronted the challenge of hotel development in Bermuda”.

But in the last two decades , said: “Words like ‘stack hotel’, ‘fractionals’, ‘condo-hotel’ and ‘boutique hotel’ have all been employed in a national dialogue aimed at producing a fresh hotel accommodation product to assist in stemming the decline of our tourism fortunes”.

“Developments have met with mixed results. Historic properties that were renovated have still been unable to achieve workable profit margin.

“New properties that pursued a mix of traditional hotel rooms and freehold ownership have found construction costs discouraging and units slow to sell.”

He also noted that “sites zoned for tourism development have lain the wake of the effects of the global economic downturn of 2008 and the concurrent ultra-conservative lending approach of financial institutions around resort and hotel development”.

In that regard he added: “It is against that background and with that context in mind, that I feel it necessary to provide this Honourable House and the people of Bermuda with the facts surrounding the former Morgan’s Point, now known as Caroline Bay”, see Ministerial Statement in full.

The Caroline Bay development covers approximately 180 acres of land formerly held by the US Naval Annex in Southampton, a land mass with filled with toxic waste left by the US Military, including aviation fuel with a kerosene base that would cost millions to clean up.
“Any development on the site would require remediation to a standard commensurate with its intended uses,” said the Minister.
In 2011, he said: “It was largely through the efforts of the former Honourable Member and Premier Alex Scott that by an agreement…that the land at Southlands was swapped for land at Morgan’s Point.
“That agreement set out the terms and conditions of the swap and was discussed in this Honourable House as part of an Act of the Legislature to enshrine the permissions and rights over the land to the benefit of the developers,” he added.
Moving back through the record, he said: “It is important to note that in the 2011 Agreement, the scope of the proposed development at Morgan’s Point included an 80 room boutique hotel with 313 additional residences, and a 325 room luxury hotel with 337 additional residences.”
Additionally, he reminded the House to note “that under section 2.1.1.6 of the Morgan’s Point Exchange Agreement, the Developer has the right to sell land, condominium units and villas in the project to non-Bermudians. However, this clause does not specify undeveloped land”.
On that note he said: “The Government of Bermuda assumed the responsibility to remediate the site and did so at considerable expense to the taxpayer.
“In the wake of that remediation construction commenced on the site, is difficult to trace the progress on various units but there are some buildings on the site today.”
As early as January 2013, he said: “Both the Government and the developers wished to renegotiate the terms of the agreement to take account of fiscal realities.
“The originally intended scale of the development was already seen as not financially viable and revisions to the master plan were submitted by the developer which included the deletion of the proposed golf course.”
In 2011, the Act “was repealed and replaced by the Morgan’s Point Resort Act 2014 which gave, among other things, in principle
planning permission for much of the work required at the site as well as subdivision permission and various hotel concessions”.
“By July 2014 the then Government announced that the remediation of two parcels of land at the site had been completed and would then be handed over to the developers,” said the Minister.
“In spite of privately expressed misgivings about the scale of the project and its financial viability, phase one as announced at that time was still said to consist of “a boutique hotel…of 235 units.
“In November 2014, Mr. Speaker, reinsurance company Arch Capital provided lead financing in support of the first phase of construction on the project with an initial tranche of $5m.
“By 2016 Arch had been joined by Axis and Validus Reinsurance Ltd. for a total of $25m in financing in respect of the Morgan’s Point Development.”

 

 

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