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Condo Owners Fearing 1,500 Room Night Loss

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Old Bahama Bay resort faces “irreparable harm” through having to place 1,500 room night reservations “on hold” due to uncertainties over its imminent sale, its condo owners are alleging.

John MacDonald, president of Island Ventures Resort and Club (IVRC), the entity formed by the 73 condo owners to keep the Grand Bahama resort open following Ginn’s 2011 default, alleged that its 2019 business has been endangered by lack of clarity over its fate under a new buyer.

Besides the room rentals, he claimed in an affidavit that 945 already-booked marina dock slip leases have also been jeopardised by unknowns relating to Skyline Investments’ plans for Old Bahama Bay as part of its wider $2.8bn investment to revive for former Ginn project in West End.

IVRC has been operating Old Bahama Bay’s marina, retail and restaurant facilities and other amenities under the terms of a June 2012 lease with Lubert Adler, Ginn’s former financing partner.

The US-based investment bank has now moved to terminate that arrangement, and repossess the resort and its amenities, in a bid to facilitate Old Bahama Bay’s sale to Skyline Investments so that the Toronto-headquartered developer can proceed with its vision for West End.

Mr MacDonald, though, is claiming that the lease termination and subsequent sale will be “unjust and inequitable” since it will essentially “give away for free” the business built up by IVRC over the past six-and-a-half years of its lease.

He and IVRC, in their writ of summons that effectively seeks to block Lubert Adler/Skyline repossessing Old Bahama Bay (see other article on Page 1B), are also seeking reimbursement for $500,000 they spent on repairing the resort’s marina and $1.6m spent on Hurricane Matthew repairs.

Detailing the background to the dispute, Mr MacDonald said the terms of the condo owners’ property purchases from West End Resort Ltd (WERL), Old Bahama Bay’s initial developer, allowed the resort to place their units in a rental pool and lease them out to other visitors. In return, all condo hotel users had full access to the resort’s amenities, such as the pool and marina.

The agreements also promised the condo owners a $20,000 “base annual rent”, payable in equal monthly sums, and if gross rental income exceeded this by 2.5 times’, WERL would pay owners 40 percent of such excess.

Then Ginn appeared. It signed its Heads of Agreement for the $4.9bn West End development on December 9, 2005, before taking over Old Bahama Bay’s operations and management on New Year’s Day 2007 via a lease agreement with WERL.

Ginn then acquired Old Bahama Bay outright one year later, on New Year’s Eve 2007, but it was not a happy experience. “In 2009, after operating the property for approximately three years, due to financial difficulties Ginn closed many of the operating amenities on the resort property,” Mr MacDonald recalled in his affidavit.

He identified these as the Dockside Bar and Grill; Aqua Restaurant; and the Resort Sundry Store. “This closure was devastating to the local economy as well as the owners of the Old Bahama Bay condos and stakeholders generally in the West End,” Mr MacDonald alleged. “The staff at the resort property was instantly reduced from 114 to 29.”

Old Bahama Bay’s problems multiplied after Ginn’s 2011 default, which led to the resort and 280 acres of land being taken over by Ginn’s financing partner, Lubert Adler. “In November 2011, Lubert Adler announced to the owners of... condos that it was its intention to permanently close the resort on December 31, 2011, largely because they were losing several millions of dollars per year,” Mr MacDonald added.

IVRC was thus formed “in an effort to avoid the complete demise” of Old Bahama Bay, and take over its operations and management as a condo hotel through the June 1, 2012, lease with Lubert Adler that was extended six times - the last one to August 31, 2019, subject to its termination provisions.

Further lease modifications also saw IVRC take over more Old Bahama Bay amenities, such as the Dockside Bar and Grill; Aqua Restaurant; dive operation building; back of house facilities and repairs to facilities such as the marina.

“At the time that IVRC took over the resort property in 2012, the property was in disrepair and many industry stakeholders believed that [it] was due to close due to the rapid downturn in the local economy and Lubert Adler’s public statements in the national news that they were closing the resort,” Mr MacDonald recalled.

“Notwithstanding Ginn’s effective abandonment of the development, IVRC was able to maintain the website in order to continue to accept further bookings and to establish a popular condo-hotel resort community in West End which attracted numerous repeat visitors to the community.... Old Bahama Bay became the hub of the West End community.”

Mr MacDonald argued that as a result of IVRC’s efforts, Old Bahama Bay’s employee numbers increased almost four-fold from the 29 it inherited to 103. Spin-off benefits were felt by suppliers, tour and transportation operators. as condo owners pooled their own monies to pay for needed maintenance.

“To date, IVRC has expended approximately $1.6m on renovating and developing the resort property into a profitable business,” he alleged. Such enhancements include repairs to the Dockside Bar & Grill and the adjacent office/retail building, the main pool, marina and Teasers [bar].”

And while Old Bahama Bay was “substantially damaged” by Hurricane Matthew in October 2016, Mr MacDonald said the resort was able to recover “within a year” as he personally made 37 flights to bring in supplies.

He alleged that Lubert Adler “made no repairs to the resort property” following Matthew, and was informed by Lorne Bassel, of Crave Group, the US financier’s agents and master planners, that several parts of the resort were not insured.

IVRC “once again took the lead” by spending $600,000 on Matthew-related repairs, with $500,000 going on the marina. “As a result of IVRC’s tireless efforts the resort property has become profitable again,” Mr MacDonald said.

“IVRC has since decided to pay the Old Bahama Bay condo owners a $400 dividend a month in an attempt to compensate them for their initial financial investments in support of IVRC’s operation and stabilisation of the resort property over the past six years.”

Touting IVRC’s accomplishments, Mr MacDonald added that the resort had been ranked as the 11th and 12th best hotel in The Bahamas by US News and World Report in 2017 and 2018, respectively, and rated 4.5 out of 5 on Trip Advisor.

“IVRC has been able to create a sustainable business with many recurring guests,” he added. “For example, many reservations have already been booked for 2019. IVRC has already received reservations for room rentals which total approximately 1,477 nights and 945 dock slip rentals.

“However, due to the lack of communication on Lubert Adler’s part about the future of the resort property, IVRC has been forced to put all of its upcoming 2019 reservations on hold, which will cause irreparable harm to the community of West End and IVRC as this is tantamount to a closure of the Old Bahama Bay resort.”

As the dispute over the lease termination intensified, Mr MacDonald said Lubert Adler’s attorneys wrote on October 15, 2018, that IVRC was to be treated as “a tenant at will” from October 18 with the rent set at $35,000 per month plus VAT.

Matters then escalated to the point where Michael Scott, Lubert Adler’s attorney, on November 20, 2018, wrote that IVRC was “in an illegitimate and unlawful occupation” of Old Bahama Bay.

“IVRC was always of the view that the lease agreement between IVRC and Lubert Adler would be on similar terms to WERL,” Mr MacDonald alleged, namely that Old Bahama Bay would not be sold without the condo owners’ consent.

“IVRC’s repair and renovation of the resort property were carried out on the premise that it would remain in occupancy of the same permanently,” he added. “Otherwise, IVRC would not have expended so much money and time on a property that it could be prevented from using and having access to on a long-term basis.

“Unfortunately, by its conduct Lubert Adler wishes to renege on the previous common understanding between the parties. Lubert Adler indicated that IVRC’s guests will not have access to any facilities or property owned by Lubert Adler upon termination of the lease agreement.”

Mr MacDonald alleged that the value of Old Bahama Bay’s condos will “undoubtedly diminish” as a result, with resort guests having to drive for an hour to find a restaurant and having nowhere to check-in or park their vehicles.

“Overall, it is unjust and inequitable for Lubert Adler to attempt to give away for free or offer up for sale to Skyline or any other entity IVRC’s ready-made and profitable business without IVRC receiving compensation in return. This was never the intention of the parties,” he continued.

“In short, there will be irreparable harm to IVRC’s reputation and business if Lubert Adler and/or Skyline are allowed to seek to tale control of the property without considering IVRC’s position.

“Further, it would be unjust and inequitable for IVRC’s business to be disrupted and possibly destroyed after IVRC spent so much time and money in ensuring the viability and sustainability of the resort property.”

Mr MacDonald said IVRC had made “several attempts to negotiate in good faith” with Skyline, but alleged that the Canadian developer had interfered with - and disrupted - its business to the extent of telling Freeport Oil Company (FOCOL) to move the fuel pumps and tanks to a different location on the property.

He also claimed that Skyline executives had “an adverse effect on staff morale” at Old Bahama Bay by telling workers they will be replaced when it takes over, and accused it and Lubert Adler of “brazen” actions that had created a “hostile environment” - which resulted in guest reservation cancellations and claims it was seeking to obtain IVRC’s proprietary information.

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