Taxpayers ‘Dodge Bullet’ On $65m Lucayan Deal


Tribune Business Editor


BAHAMIAN taxpayers “will dodge a bullet” if the Wynn Group can complete its $65 million ‘all-cash’ Grand Lucayan purchase, a prominent QC says.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business he was “overjoyed” that the Government will seemingly not have to acquire Freeport’s ‘anchor resort’ itself, thereby sparing the Public Treasury from having to both finance the acquisition and subsequent maintenance/operating losses. But he also described the Wynn Group deal as “a band aid fix” to Grand Bahama’s wider economic problems, and urged the Minnis administration to focus on holding both the Grand Bahama Port Authority (GBPA) and Hutchison Whampoa to account for their developmental obligations.

Mr Smith was speaking out after the Prime Minister last week revealed that the Toronto-based Wynn Group has signed a new Letter of Intent (LoI) to purchase the Grand Lucayan from its current owner, Cheung Kong (CK) Property Holdings.

CK Property Holdings is the entity into which Hutchison Whampoa spun-off all its real estate assets, and Dr Hubert Minnis expressed hope that the resort’s acquisition could be completed within the next one to two months.

This places the deal’s closing near end-February 2018, with Wynn Group required to negotiate a Heads of Agreement and investment incentives with the Government in that time period.

Tribune Business sources close to developments revealed that the Heads of Agreement will be “conditioned” upon Wynn hiring recognised resort brands and operators to ensure the Grand Lucayan’s sustained profitability under its ownership.

These contacts, speaking on condition of anonymity, said it was vital for these brands have the necessary links and clout to attract sufficient airlift to Grand Bahama. And several suggested that, based on their previous success, the Memories/Sunwing combination was top of the Government’s list for potential Wynn partners.

Mr Smith, meanwhile, expressed relief that the potential Wynn Group purchase likely prevents a return to the ‘bygone era’ of the 1980s, when the Pindling administration managed and owned numerous resort properties via the Hotel Corporation.

“I am overjoyed as a taxpayer, a licensee and a property owner in Freeport that the Government has found a private purchaser instead of it having to buy that hotel,” the QC told Tribune Business.

“History has shown that whenever the Government is involved in private enterprise it discombobulates the economy to the detriment of everyone concerned. It breeds corruption, it takes away the profit motive, and it embeds bureaucratic slackness; all features that are anathema to a free market, prosperous economy.”

The Prime Minister announced in late July that the Government planned to take an ownership stake in a bid to purchase the Grand Lucayan. This was justified on the basis of Grand Bahama’s deepening economic plight, with the resort’s re-opening a matter of urgency given the resulting business closures (especially in the Port Lucaya Marketplace) and job losses.

The Grand Lucayan’s closure has cost Grand Bahama some 59 per cent of its total hotel room inventory and over 1,000 jobs, with declines in visitor arrivals and related spend mirroring almost exactly the percentage fall in available accommodation.

Many observers, though, feared any government equity involvement meant a return to the Hotel Corporation days, when taxpayers consistently incurred annual multi-million dollar losses from government ownership and management of numerous resorts.

“If the Wynn Group does indeed close in a couple of months, Grand Bahamians and taxpayers throughout the rest of the Bahamas will have dodged an economic silver bullet,” Mr Smith added.

“But the purchase by the Wynn Group is a band-aid fix to the Grand Bahama economic body politic, which is bleeding from every pore. So I urge the Government to take a far more drastic investment incentive paradigm.”

Mr Smith told Tribune Business it was especially sad to walk around the Port Lucaya Marketplace and “see the remnants of a bygone era”, with some Tribune Business sources suggesting stores there are closing at the rate of one per week.

Expressing optimism that it could yet be revived under the right Grand Lucayan owner, he added: “It is a public amenity feature which has the greatest potential in Grand Bahama and must be capitalised upon.”

K P Turnquest, the Deputy Prime Minister, told Tribune Business that the Grand Lucayan LOI signalled to residents and business owners that there was “light at the end of the tunnel” over the hotel’s near-15 month closure.

He cautioned, though, that the Government and wider Bahamas now needed to learn the Wynn Group’s plans and strategy for renovating, then re-opening, the island’s ‘anchor property’.

“I think it obviously signals good news,” Mr Turnquest said, “and it gives some hope to the residents as well as those business owners in the Port Lucaya area. It suggests that there is light at the end of the tunnel.

“We still have to understand the details and timing of when the purchaser will start renovations and re-open. It’s [the LOI] a positive forward, and we look forward to having this property re-open as soon as possible.”

Mr Turnquest, also the east Grand Bahama MP, added that it was “in the best interests of all parties” that the Grand Lucayan be purchased and operated by private sector investors, rather than the Government.

Tribune Business sources familiar with developments confirmed that the purchase price is $65 million. While this represents a significant reduction on the $110 million that Wynn and CK Property Holdings agreed in their first, failed deal, the difference this time is that the former’s offer is ‘all cash’.

This means that CK Property Holdings will receive its entire purchase price upfront, which represents an improvement on the $110 million ‘paper’ deal previously on the table.

The LOI, which only represents an ‘agreement in principle’, effectively returns negotiations between the two sides to where they were eight-nine months previously under the former Christie administration.

Wynn was then unable to both ‘seal the deal’ with CK Property Holdings and convince the Government that it was the right purchaser, with the latter understood to have been deterred by the multi-million dollar taxpayer subsidies it was seeking.

But the Toronto-based group, headed by Paul Wynn, submitted a revised offer that appears - for the moment at least - to have won both parties over.

Tribune Business sources also revealed that among the last issues to be settled by both parties was who will take responsibility for paying severance and associated benefits to the Grand Lucayan’s staff, which is the normal practice whenever a hotel’s ownership changes hands.

They added, though, that the Government would tie approval of the Wynn Group’s purchase to it bringing back the Memories/Sunwing consortium, which had enjoyed previous success in revitalising the property and Freeport’s wider tourism product.

“All this is conditional on that arrangement with Sunwing and other players,” one source said. “The Heads of Agreement is going to be conditioned on all of that. There’s no point in recycling that property three to four years down the road.

“It has to be tied to an agency deal, with players in the resort and hospitality industry attached to that agreement. It is a tied hospitality agency arrangement. That will be spelled out in the Heads of Agreement.”

Magnus Alnebeck, the Pelican Bay resort’s managing director, yesterday told Tribune Business that Wynn’s choice of hotel operating partners could make the difference between success and failure.

He said a Memories-type operator, which was part of a vertically-integrated group that encompassed airlift and tour operators, would be the ‘best fit’ for the Grand Lucayan.

“That would be a very wise decision,” Mr Alnebeck responded, when informed the Government was looking towards a Memories/Sunwing return. “That would be very encouraging if that’s the case.

“The most important thing is an operator who knows what they’re doing, and is part of a vertically-integrated group with airlift and tour operators. It cannot just be any brand. If it is someone like Sunwing and Memories, maybe they are able to open in three-five months. That would be fantastic.

“The question most of us have is who is Wynn going to choose to operate these hotels. He’s not going to operate them himself; he’s going to be the landlord. We need an operator who knows what they’re doing, can build a sustainable model and can get it off the ground as soon as possible.”

Mr Alnebeck added that there “needs to be a pretty quick deal” between Wynn and CK Property Holdings if Freeport’s tourism product is to revive. “It’s very tough at the moment, but at least there’s positive news,” he said.

“We have to be ready for a tough winter season, and maybe they can get some of the property open for late Spring and early summer.”

Another source close to Grand Lucayan developments, speaking on condition of anonymity, confirmed that Memories/Sunwing were the leading contenders to brand the Grand Lucayan under the ownership of Wynn Group, whose speciality is in redeveloping distressed properties.

“Memories is the leading candidate because they have recent experience up there,” the source said. “That will be the first place up and running.

“The good news is that there are a number of possibilities, a number of companies that are quite eager to come in once the deal is done. We have choices, and are able to cherry pick the best ones who have familiarity with operating in island destinations, which are very peculiar.”

The source expressed hope that Wynn’s previous due diligence on the Grand Lucayan, conducted in relation to the aborted first deal, would help to shorten the typical three-month closing period associated with major resort purchases this time around.

“The period for closing is going to come quite rapidly, as a lot of the heavy lifting has been done,” they added. “We don’t want to wait too much longer, as we want to get the New Year off to a good start for the Grand Bahama economy.”


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