Nassau, Bahamas – Continuing in his government’s commitment to make public in the House of Assembly all agreements with international investors, Prime Minister Hubert Ingraham tabled agreements and communications on the Albany, Norman’s Cay and Baha Mar projects Monday.
Mr. Ingraham also tabled a list of Agreements concluded under the Hotels Encouragement Act between the Government of The Bahamas and Resort Developers since May 2, 2007.
Eleven of these Agreements have been concluded with international owners and operators of resorts in The Bahamas. Seven have been concluded with Bahamian owners and developers, while one involves a joint venture between a Bahamian and a foreign investor in a Family Island Resort.
Supplemental Heads of Agreement between the Government of The Bahamas and Baha Mar Development Company:
THE PRIME MINISTER: Mr. Speaker,
The Government of the Commonwealth of The Bahamas (the Government) entered into a Heads of Agreement dated 6th April, 2005 with Baha Mar Development Company Limited (Baha Mar) to redevelop the Cable Beach area into a world-class resort. On the same day, 6 April, 2005 the Government and or its agencies issued a number of related Side Letters to Baha Mar. Copies of the Agreement and the Side Letters were previously tabled in Parliament by the Honourable Member for St. Anne’s.
- Ministry of Finance Side Letter confirms a deferred payment schedule for Baha Mar of $10.1 million in stamp tax due and payable on various land transfers, and deferred payment of annual casino taxes of $2.1 million until the Crystal Palace casino moved to smaller premises (projected by April, 2007) or the opening of the new casino (projected at 1st April, 2009). After completion of the new casino, these deferred casino taxes were to be made by installments over a period of four years.
- Side Letter from the Ministry of Tourism agreeing to a cooperative marketing campaign including Baha Mar and resort owners in Cable Beach on a matching fund basis to which the Ministry and Baha Mar would each contribute $20 million. The campaign for the re-launch of the resorts in Cable Beach was to take place over a two year period.
- Side Letter from the Ministry of Transport and Aviation confirming the Government’s commitment to make improvements at the Nassau International Airport (now the Lynden Pindling International Airport).
- Side Letter from the Ministry of Works & Utilities relating to the construction of temporary housing for non-Bahamian construction workers at the Project site, if Baha Mar was unable to locate appropriate housing elsewhere in New Providence.
- Side Letter from the Hotel Corporation of The Bahamas relating to the Corporation’s undertaking to Baha Mar to complete an assessment and remediation of the discharge of diesel fuel at the Radisson (now the Sheraton) Laundry Facility.
Contemporaneously with the execution of the Heads of Agreement and the issuance of these Side Letters Baha Mar also entered into Agreements to purchase certain Cable Beach properties:
- Agreement with the Hotel Corporation of The Bahamas (HCB Agreement);
- Agreement with the Crown (Crown Agreement); and
- Agreement with the Treasurer of The Bahamas (Treasurer’s Agreement).
Summary of Land Transfers
- HCB Agreement
Under the HCB Agreement, the Hotel Corporation of The Bahamas (HCB) agreed to sell, and Baha Mar Development Company Ltd. (Baha Mar) agreed to purchase, the following properties for the aggregate purchase price of $39 million:
(1) Real property, comprising (i) the Radisson Cable Beach Hotel with ancillary facilities and
(ii) the Cable Beach Golf Course together with:
(a) HCB’s right, title and interest in licences, permits and Government approvals and authorizations used in connection with the ownership, use, or operation of the properties;
(b) HCB’s Personal Property used in connection with the ownership, use or operation of the hotel property, namely, furniture, fixtures and equipment;
(c) HCB’s right, title and interest in Assumed Contracts, Assumed Leases and Advanced Bookings;
(d) Intellectual Property being HCB’s right, title and interest in any trademarks, trade names, logos, copyrights or other intangible property used in connection with the ownership, use or operation of the real property;
(e) HCB’s goodwill with respect to the Radisson hotel business;
(f) HCB’s Consumables on hotel property being (i) operating, maintenance, cleaning and household supplies, (ii) retail merchandise located on the Property for sale to hotel guests and to the public, and (iii) food and beverage items.
(g) The Radisson Hotel, Tennis Courts, Sports Centre, Laundry Facility and Sewerage Plant on an aggregate of 5.698 acres of the original Hobby Horse Hall land.
(2) HCB’s real property, comprising the remaining portion of Hobby Horse Hall (70.964 acres) subject to certain Conditions Precedent to which reference will be made later in this communication.
(3) HCB’s Remainder interest in the Wyndham Parcel. This is also subject to certain Conditions Precedent to which I have referred. In the interim, a 99 year Ground Lease (Wyndham) has been executed by HCB in favour of BMP Three Ltd. (a Baha Mar affiliated company) to replace the Ruffin Leasehold Interest.
(4) HCB’s Remainder interest in the British American Bank Parcel. This aspect of the Agreement was also subject to certain Conditions Precedent to which I have referred.
The purchase price of $39 million for the HCB properties was allocated to the various properties as follows:
Properties/Purchase Price Allocations
- Radisson Hotel – $30 million
- Golf Course & Contiguous Properties – $ 3.175 million
- Hobby Horse Hall Parcel – $ 3.425 million
Properties/Purchase Price Allocations
- Wyndham Fee Simple – $ 2.250 million
- British American Bank – $ .150
- Total – $39 million
Also, the Gaming Board and Development Bank properties were to be transferred to Baha Mar subject to Baha Mar constructing, at its own costs, a new Gaming Board Building and a new Bahamas Development Bank Building on land to be provided in the project area (or to be paid for) by Baha Mar. Upon completion of these buildings, there was to be an exchange of land by HCB and Baha Mar of the existing Gaming Board/Development Bank Parcels with the new replacement buildings.
2. Treasurer’s Agreement
Under the Treasurer’s Agreement, the Government agreed to sell, for an expressed consideration of $5.962 million and the satisfaction of the conditions precedent under the HOA:
(i) a portion of the JFK Connector Road;
(ii) Old West Bay Street; and
(iii) The median between the Gaming Board Building and the eastern most property line of the Hubbard Cottages property;
(iv) The Cecil Wallace-Whitfield Centre and the Cable Beach Police and Fire Station;
(v) Property currently utilized by the Bahamas Electricity Corporation as a Substation and Wayleave and any other parcels owned by the Government or by any other Public Corporation (including the Water and Sewerage Corporation) within the Project area.
Under the Treasurer’s Agreement, Baha Mar agreed to construct, at its own costs, a replacement Cable Beach Police and Fire Station and a replacement new Cecil Wallace-Whitfield Centre on land to be provided (or paid for) by Baha Mar.
3. Crown Agreement
Under the Crown Agreement, the Crown agreed to transfer the Remainder Interest in Nassau Beach Hotel for an expressed consideration of thirty seven thousand five hundred and fifty dollars ($37,550.00) and the satisfaction of certain conditions precedent under the HOA. In the interim, a 99 year Ground Lease (Nassau Beach property) was executed by the Crown in favour of the N.B.H. Holding Ltd. (a Baha Mar affiliated company) in replacement of Ruffin Leasehold Interest.
New World Class Cable Beach Golf Course Joint Venture
The Government also agreed to enter into a Golf Joint Venture with Baha Mar by contributing to the venture 103 acres of land presently owned by the Water and Sewerage Corporation. Baha Mar had the option of including such portion of the 103 acre parcel (by means of a 99 year lease) into the joint venture as would be required for a World Class signature golf course. Baha Mar also had an option to purchase the unused balance of the 103 acre parcel for residential and resort development.
Project Scope & Construction Schedule
Baha Mar undertook to spend a minimum of $1 billion on the first phase of a world class resort project; to commence the project within 18 months and complete it by December, 2009.
The Conditions Precedent which were to be met by Baha Mar prior to the Government’s and the Hotel Corporation’s meeting obligations with respect to certain remaining property transfers, concessions and infrastructure expenditures are set out in the Heads of Agreement.
The Conditions Precedent obligated Baha Mar to provide the Government within 18 months from the date of the Heads of Agreement that is, by October 2006, reasonably satisfactory evidence of the following:
(a) commitment by Baha Mar of the required equity in the Project of $400 million including equity participation by world class international hotel and casino partners;
(b) adequate funding for the $1 billion project;
(c) the commitment of world class hotel and casino partners to the Project; and
(d) preparation and delivery to the Government of detailed plans and specifications to meet projected start dates.
Baha Mar did not satisfy the terms of the conditions precedent.
Expansion of Project & Identification of Joint Venture Partners
Instead, after some delay, Baha Mar made a number of changes to their Project plans and submitted to the Government a Revised Project Plan for an expanded project dated February 17, 2007.
The Developer identified Harrahs Entertainment (Harrahs) and Starwood Hotels and Resorts Worldwide, Inc. (Starwood) as their world class hotel and casino joint venture partners.
On 12th January 2007 Baha Mar JV Holding Ltd. entered into a Joint Venture Investors Agreement with Caesars Bahamas Investment Corporation and formed the company pursuant thereto. The company will be owned 57% by Baha Mar JV Holdings Ltd. and 43% by Caesars Bahamas. Starwood Hotels and Resorts Worldwide, Inc. has arranged to have certain of its affiliates operate hotels at the Project.
Baha Mar and the joint venture partners proposed to the Government an expansion of the Project and an increase in the expenditure from $1 billion to $2.6 billion.
The proposed expanded project includes:
(a) a Westin Hotel with a minimum of 700 rooms including a minimum of 80 and a maximum of 150 condominium units
(b) a St. Regis Hotel with a minimum of 200 rooms including a minimum of 90 and a maximum of 150 condominium units
(c) a W Hotel Baha Mar with a minimum of 300 rooms including a minimum of 100 and a maximum of 150 condominium units. (These hotels are to be operated by Starwood.)
(d) a Caesars hotel with a minimum of 1,000 rooms
(e) a Caesars casino with a minimum of 95,000 square feet of gaming floor area. (The Caesars hotel and casino are to be operated by Caesars.)
(f) a commercial village of approximately 60,000 square feet to be operated by Baha Mar
(g) aggregate meeting space of 200,000 square feet
(h) 18 hole Jack Nicklaus Signature Golf Course to be owned by a joint venture with an agency of the Government
(i) a refurbished western portion of the Wyndham Nassau Resort with a minimum of 550 rooms
(j) Radisson Hotel refurbished as a Sheraton Hotel with a minimum of 700 rooms to be operated by Starwood
When compared to the 2005 proposed project the expanded Project will result in:
- An increase in the number of hotel rooms at the Project from a minimum of 2,700 to a minimum of 3,450;
- An increase in the size of the Village from a minimum of 30,000 square feet to a minimum of 60,000 square feet (excluding the straw markets);
- An increase in the size of the Convention Facilities from a minimum of 100,000 square feet to a minimum of 200,000 square feet;
- An increase in the size of the new casino operations from a minimum of 75,000 square feet to a minimum of 95,000 square feet of gaming floor area; and
- An increase in the number of permanent jobs for Bahamians by approximately 5,000.
Additional Concessions and Changes to Heads of Agreement Requested by Baha Mar
In consideration of its proposed expanded project Baha Mar requested:
(a) An extension from 21 years to 35 years for permitted deduction from the Annual Casino Licence Fee as contained in the Heads of Agreement.
(b) An additional special concession on casino taxes during the first three years of the new casino operation of 66 2/3 in years one and two and 50% in year three.
(c) An increase in the agreed Government contribution to cooperative marketing activities of $4 million per annum from 8 years to 16 years at double the previously agreed sum, i.e., an increase from $4 million to $8 million.
(d) An increase in the cooperative marketing re-launch of the Cable Beach resort area from $20 million to $40 million
(e) The government’s contribution of 50% of public infrastructure costs relating to the Project up to a minimum of $45.3 million be increased to $50 million
(f) The Government agreeing to refund to Baha Mar the cost of building a tunnel or bridge, if the Government did not agree to the closure of a portion of Skyline Drive to facilitate the expanded new cable Beach Golf Course.
(g) The sale to Baha Mar of 70 acres of Crown Land on Gladstone Road at $100,000 per acre with an option to purchase an additional 60 acres to accommodate back-of-house operations.
Supplemental Heads of Agreement
After an intense period of negotiations, the previous administration left office without reaching agreement with Baha Mar on the terms of a Supplemental Agreement.
In continuing negotiation with Baha Mar, my Government took the decision that it would not agree any additional concessions for Baha Mar. We held, and still hold the view, that the concessions granted Baha Mar in the 2005 Heads of Agreement represented the limit and the extent of concessions which ought to be extended for the development.
We made it abundantly clear that, subject to Baha Mar’s meeting the Conditions Precedent and other pertinent obligations contained in the 2005 Heads of Agreement executed by the previous Government, my Government was prepared to honour the Agreement.
Notwithstanding, Baha Mar proposed the negotiation of a Supplemental Heads of Agreement.
We therefore set about to negotiate in good faith a final Supplemental Heads of Agreement which would be acceptable to Baha Mar, its strategic partners and the Government of The Bahamas.
We welcomed the opportunity to improve certain terms for the Government, especially as they related to the reduction of the quantum of Government land being disposed of; leasing as an alternative to fee simple transfer wherever possible; preservation of wet lands for public use in perpetuity; triggering of certain Government financial and other obligations conditioned on the developers vertical construction performance; enhanced financial benefits for the Government; and a reduction in some concessions granted by the 2005 Heads of Agreement and the side letters.
With these principles and goals in mind, my Government concluded the Supplement to the Heads of Agreement with Baha Mar.
I now lay on the table of this House the following documents:
- Supplemental Heads of Agreement dated 31st January 2008 between the Government of the Commonwealth of The Bahamas, Baha Mar Development Company Limited and Baha Mar Joint Venture Holdings Limited. Caesars Bahamas Investment Corporation, as a shareholder of Baha Mar Joint Venture Holdings Limited has acknowledged in the Supplemental Heads of Agreement that it has reviewed and approved the terms and conditions of the Heads of Agreement as modified by the Supplemental Heads of Agreement.
- Letter from Harrahs Entertainment Inc. dated 31st January 2008 confirming:
(a) the execution of the Joint Venture Agreement dated January 12, 2007 between Harrahs and Baha Mar to be known as Baha Mar Joint Venture Holdings Limited;
(b) that its subsidiary, Caesars Bahamas, will be sufficiently capitalized by its parent company to meet its obligations in connection with the joint venture. In this regard, Baha Mar and Harrahs plan to contribute $493 million in equity financing for the Project with Harrahs contributing $212 million or 43% of such amount, with the remaining project costs being funded through borrowings by the Joint Venture;
(c) that the Joint Venture will construct a 95,000 square foot casino and Caesars branded hotel with at least 1,000 rooms to be operated by Caesars , with construction scheduled to start around April 2008 and completion of construction around April 2011.
The Supplemental Heads of Agreement envisages work on the Baha Mar Project starting immediately and being substantially completed by November 2011.
My Government has been able to negotiate some very notable improvements in the Supplemental Heads of Agreement, some of which I highlight:
The Government did not:
- accede to Baha Mar’s request to permit additional deductions from annual casino Licence Fee by an additional 14 years.
- grant additional special concessions on casino taxes for 3 years
- increase the co-operative marketing support by 8 years at a cost of $32 million
- provide $40 million in co-operative marketing for the re-launch of the Cable Beach resort area
- increase its contribution to public infrastructure costs
- sell 70 acres of Crown land on Gladstone Road to Baha Mar
The level of the investment in the revised and expanded Phase 1 of the Project is increased from a minimum of $1 billion to a minimum of $2.6 billion.
- The Government will lease, for an initial term of 50 years, 50 acres of Crown Land on Gladstone Road to Baha Mar commencing at such time as the concrete superstructure of the 1,000-room Caesars Hotel is constructed 100 feet above grade.
- The Government is zoning Baha Mar’s 71.40 acres of environmentally sensitive land, situate on the western side of Malcolm Avenue (the original Back of House Site), “no build” and designating it for use as a public park only. Baha Mar shall invest a minimum of $1 million in improving and developing the park for appropriate recreational use as a wild life and wetlands sanctuary. Baha Mar will also donate $1 million to a trust for the perpetual maintenance of the improved site. The trust will be managed by The Bahamas National Trust or by another entity agreed by the Government and Baha Mar.
- The Gaming Board and the Development Bank buildings and parcels which adjoin Goodman’s Bay will no longer be sold to Baha Mar but instead, remain public properties.
The following additional lands previously agreed to be sold will be retained by the Government:
(a) the portion of West Bay Street and the median strip located between the Gaming Board and the eastern boundary of the project site on the southern side of West Bay Street.
(b) Real property, subject to a lease of approximately 140,000 square feet.
At the time when the concrete superstructure of the 1,000 room Caesar’s Hotel is constructed 100 feet above grade, the Government will, subject to Resolution of Parliament, close a portion of Skyline Drive to facilitate the expansion of the new world class Cable Beach Golf Course.
With regard to the terms of the Heads of Agreement with respect to the land to be acquired from the Water and Sewerage Corporation to facilitate the new Cable Beach Golf Course and golf-side guests units, the Supplemental Heads of Agreement provides for (i) the lease of the land to the JV entity, and (ii) for any portions of the Water & Sewerage Corporation lands on which may be constructed golf-side units to be exchanged for an equal amount of contiguous acreage owned by Baha Mar.
In this way, Water and Sewerage Corporation will always retain fee simple interest in its 99.78 acres of land.
The Government prefers for Baha Mar to compensate it for the Cecil Wallace Whitfield Centre. The Supplemental Heads of Agreement makes provision for Baha Mar and the JV Company to (i) pay the Government the sum of $17.686 million for the building; and (ii) convey to the Government 2.259 acres of replacement land along the new West Bay Street.
The Heads of Agreement provided for Baha Mar to bear the reasonable costs of relocating and replacing the Cable Beach Police Station. The quality and size of the station is to be upgraded and expanded. The Government undertakes to pay 50% of the increased costs of the expanded facility.
Only those condominium units within Starwood operated hotels that are in their hotel rental pool for a minimum of nine months of any calendar year will now qualify for real property tax concessions under the Hotels Encouragement Act.
The Supplemental Heads of Agreement provides inter alia for Baha Mar to pay the costs associated with construction of a new BEC substation within the project area and of decommissioning the Leisure Time Substation. When the new substation is completed, the Hotel Corporation will convey, at no cost, Way-leave Parcel to Baha Mar.
The Supplemental Heads of Agreement now provides for the Government to reimburse Baha Mar for the applicable costs once the concrete superstructure of the 1,000 room Caesars Hotel is constructed 100 feet above grade.
Baha Mar and its Joint Venture partner, and not the Government, will bear the cost of burying all the utility lines on the JFK Connector Road.
The Supplemental Heads of Agreement provides for Baha Mar to assume responsibility from the Hotel Corporation for the balance of the Oil Spill clean up at the former Radisson Laundry facility site. Oil spillage occurred both prior to and since the sale of the property. It is reasonable for both the Hotel Corporation and Baha Mar to share in the costs of remediation.
The Government, by way of Contingency Warrant, allocated $5.16 million in 2006 for the remediation exercise. To date over $3 million have been spent on Phase 1 and the costs to the Government of completing the exercise are likely to significantly exceed $5 million.
With Baha Mar taking over immediate responsibility to complete the remediation in a revised plan to be approved by the Department of Environmental Health Services, the Hotel Corporation is terminating its contract for this work. The Government will only pay $500,000 of the expenditure going forward and Baha Mar and or its Joint Venture Partner will pay the remainder.
The section of the Heads of Agreement relating to the construction of suitable sewerage and water supply systems has been modified by the parties in the Supplemental Heads of Agreement.
Baha Mar will, in collaboration with the Water & Sewerage Corporation, contract for a turnkey construction on land owned by the Corporation, of a centralized sewerage collection and treatment system, and a reverse osmosis plant of sufficient size to meet the needs of the Project and the wider community.
Baha Mar commits to the turnkey contractor to purchase services and water and the Water & Sewerage Corporation shall do likewise to purchase services and water for wider community use, in each case on the same terms and conditions.
The Joint Venture Agreement between Baha Mar and Harrahs contemplates a closing conditioned upon the execution and delivery of the Supplemental Heads of Agreement, and the contribution of the site for the joint venture project at the closing.
My Government will be seeking the appropriate Parliamentary resolutions relating to the disposition of any Government owned lands within the Project area, which are vested in The Treasurer.
Most critically, the Government extended to March 2009 the deadline for Baha Mar and its Joint Venture Partners to meet the Conditions Precedent with regard to the funding for the project and visible evidence of the project going forward – one year from now.
My Government regards Harrahs and Starwood as very desirable partners of Baha Mar.
I believe that they are capable of making an invaluable contribution to the expansion of our vital tourism industry, and of bringing great benefit to our national economy.
In moving forward with this massive project at this time they are manifesting great confidence in The Bahamas and in the future of our tourism industry.
It is our expectation that they will honour their part of the bargain. We will certainly honour our end of the bargain. In any event, in one year from now the facts will be known.