The following Op-Ed was released today (May 17) by One Bermuda Alliance MP Craig Cannonier, Shadow Minister of Tourism…
Bermudians should pay close attention to the issue of the Government issuing a Special Development Order (SDO) to Westend Properties Ltd which is owned by Gencom Ltd. The issuance of this SDO would be giving a green light to Gencom to develop the Fairmont Southampton property according to the terms, including those made public, by the Government.
But there could be others that we don’t know about.
There is one thing we all can agree on, and that is reopening of the Fairmont Southampton is key to the revitalization of our tourism sector.
The critical questions are How, How many and Who?
How? Clearly, these days, hotel development in Bermuda requires an accompanying condo component. The sale of these condo units, which can form part of the hotel pool, helps with the financing of the project.
How many? Well, on the face of it, this is the crucial question, isn’t it? The only thing we know is what they’ve told us and it’s 261 units, and as per their public meeting recently, the developer has made it clear that they want what they want and nothing less.
In fact, many believe they have issued Bermuda tourism an ultimatum. Ultimatums are very serious things. In geopolitics, ultimatums are tantamount to declarations of war. Ultimatums are issued by those that see themselves as having all the cards with the other having nothing. Ultimatums are certainly not issued to friends, neither are they issued by people wanting to have an ongoing partnership with the recipient of the ultimatum.
The question remains, how do we know the package encompassed in the SDO is what is financially required for Gencom to make a reasonable rate of return for their investors. Perhaps it is, or perhaps it is way more than what is required for a reasonable return, with the rest being a large helping of gravy.
Put another way, is the proposed scale a question of need or greed. We really don’t know because the deal is 100 percent opaque – no transparency whatsoever. We’re just supposed to take their word and obey.
That brings us to the third issue: Who? All transactions, be they simple or highly complex, require a measure of trust. As Ronald Reagan said: “Trust, but verify.”
The amount of trust you have with a person you’re doing a deal with depends on who that person is. What do we know? We know that the developers DEFAULTED on a written obligation of $11million to Fairmont Southampton staff when they closed the hotel and laid them off. It was the Bermuda Government that honoured that commitment to spare hardship for the laid off workers.
It’s no wonder that the former Minister of Finance, a 30-year financial and banking veteran, refused the deal.
If you were a lender and you had a client that had recently defaulted on a written obligation, would you then lend that person more money? They defaulted on $11 million obligation and now want the Government to guarantee a loan to them for $75 million, an amount almost seven (7) times larger than the amount they defaulted on.
Here is a quote from the former Minister of Finance: “It is a matter of public record that the employees were paid only after the Bermuda Government stepped in to provide direct financial support to the employees and then supported the pursuit of statutory demand to recoup those funds. This should be a cause for concern and result in an increased focus on ensuring that the necessary protections are put in place to protect the Government’s and the people of Bermuda’s interest.”
And now, David Burt’s Government wants Bermuda to be comfortable with the developers handling a deal valued at over $400 million. That’s over 36 times the amount they defaulted on.
Furthermore, there have been so many false start-up dates given for this project, they are too numerous to mention. What Bermuda wants is for the Hotel to be built and more transparency as to why the need for 261 units to justify the start of renovations on the Hotel.
Additionally, it is ironic that the same people that they defaulted on, ie unionized workers, are content, in fact, enthusiastic supporters of this project. They either have very short memories, or they, in the back of their minds, are confident that the Government will make good on any shortfalls by the developers, like the Government did when they closed the hotel. Again, you can tell why the former Finance Minister said no.
The developers indicated that when they first bought the property, interest rates were extremely low and credit conditions were loose. They point out that now interest rates have risen dramatically and that credit conditions are tight. They used these facts to seek to justify why they apparently need to build more condos.
But this is a false argument because when interest rates were low, the developers were proposing to spend $200 million, but now they propose to spend over $400 million, double the initial amount.
The effect of high interest rates and tight credit conditions cause people to borrow less, not more! So, in spite of tight credit conditions, the developers say that they can borrow twice as much as before. How do we make sense of this contradiction? Perhaps the extra condos that they want the SDO to approve is the sweetener that makes a sour deal palatable.
One also wonders what the nature of negotiations between the Government and the developers is, when the application of common-sense financial principles are overruled.
Given the considerable lack of transparency, it is no wonder people are upset. There is a serious trust deficit that needs to be repaired. Bermudians need to continue to question our Government and demand more answers.
Craig Cannonier, JP, MP, Shadow Tourism Minister