After several extensions to the due diligence period for the Grand Lucayan resort sale, there is still no indication that the sale of the troubled Freeport property to Electra America Hospitality Group for $100 million will close anytime soon – if at all.
Last week Thursday, Lucayan Renewal Holdings Limited (LRHL), the special purpose vehicle created to oversee the sale and manage the resort’s operations, announced a further seven-day extension for the due diligence period.
LRHL promised to update the public further “in due course”.
When the deal was announced in Grand Bahama on May 11 with great fanfare, officials said the government’s agreement with Electra was subject to a 60-day due diligence period with closing no later than 120 days.
In mid July, LRHL Chairman Julian Russell said, “We are still positive about closing the deal.”
However, he said this week the parties were bound by a confidentiality agreement so he could not speak to it.
An update was, however, promised for yesterday, but none was received.
The failure of officials to announce a closure of the deal to date has left some people wondering whether the parties involved have hit roadblocks and whether they will be able to close the deal at all.
Former Chairman of Lucayan Renewal Holdings Michael Scott, KC, said yesterday he is not surprised the sale has not yet closed.
“A key to any large scale resort development in Grand Bahama generally and specifically the Grand Lucayan, is going to depend on infrastructure,” said Scott, speaking with The Nassau Guardian.
“The most important infrastructure in the context of a touristic development is the airport, not just having cruise ports up and ready to go, but the bulk of visitors, in particular stayover visitors in The Bahamas arrive via air.
“Now the airport in Freeport – and I said this when my side was in office – looks like a Red Cross relief center. It doesn’t look like an airport and it certainly does not look like a 21st Century state-of-the-art airport with which the government will be able to ensure that [US] pre-clearance is restored to the facility.
“Without that, you don’t have a revenue stream of any consequence, which will support the kind of investment that I understand is contemplated by the project in relation to which there is at least an agreement in principle, namely $100 million toward the acquisition of a hotel.”
The government of The Bahamas owns the property, which many agree has been a noose around the necks of taxpayers.
The Minnis administration bought the resort from Hong Kong conglomerate Hutchison Whampoa in August 2018 for $65 million.
In March 2020, the government signed a heads of agreement with Royal Caribbean Cruise Lines (RCCL) and the ITM Group, which promised to invest more than $300 million in the redevelopment of the property, and construction of a cruise port.
The final buying price was $50 million.
The redevelopment never took place and the Davis administration canceled that deal late last year.
Scott said it makes no sense for anyone to now pay $35 million more for the resort than the former administration paid as the property has deteriorated even more since 2018.
Electra has committed to a $300 million development of the property, officials announced in May.
Scott said it does not seem likely that given the current state of affairs with the airport and the deteriorated property any developer would get a return on investment.
“For anybody who’s in the business, whether you are a developer or are funding a project, you have to look at a return,” he said.
“That is so fundamentally basic, so if you had to draw all of those threads together, my conclusion is, until there is an ironclad commitment, mainly in a heads of agreement to begin the reconstruction or renewal of an airport within a finite period of time, meaning that there is a contractual long-stop, meaning that whether it’s six months, a year or 18 months, you are not going to get that kind of commitment, and I would be shocked if they did.”
Scott said Grand Lucayan is not worth anywhere near $100 million.
“I was responsible for the last appraisal, in fact. And that was $40 million,” he said.
“The last government overpaid for that. That’s because Hutchison, they didn’t need to sell, and if we [didn’t want] to buy it, they could just close it and sit on it forever, but that wasn’t politically expedient to do, as you know, because that would have put a ton of people out of work, and so it would have blown out the candle of whatever remained at the time of Port Lucaya and by extension a Grand Bahama tourism sector.
“And that’s why the government stepped in, so even at $65 million … my political side overpaid for the hotel, and I remember having this discussion with senior members of government at the time. ‘Why would you pay more?’
“Would you go in the food store and pay $5 more for a loaf of bread or a gallon of milk? It would be stupid. And then on top of that we were trying to flag the hotel as part of a redevelopment project of Port Lucaya and Grand Bahama.
“It always came back to this — which is one of the reasons why we got in trouble with the RCCL deal — how do you get people there?”
At the time the sale to Electra was announced in May, Minister of Tourism, Investments and Aviation Chester Cooper acknowledged that airlift is a critical component to the revitalization of Grand Bahama. The airport was badly damaged in Hurricane Dorian in 2019.
The government has committed to rebuilding and reopening a world-class airport by 2025.
This week, Cooper said there are two bidders for the airport. He said the Freeport Airport Development Company could make an announcement on the successful candidate in a matter of weeks.
He explained that the development company is looking at a public/private partnership (PPP) model with the successful entity.