Tuesday, December 5, 2017
By NEIL HARTNELL
Tribune Business Editor
SELLING the Grand Lucayan to a "destination builder" is the only way to place Freeport "back on the tourism map", a prominent hotelier warned yesterday, after the Government paused its own acquisition bid.
Magnus Alnebeck, Pelican Bay's managing director, told Tribune Business that "whoever" acquired Freeport's 'anchor resort' property needed to "bring the airlift with them" otherwise it would likely add one-two years to the city's tourism recovery.
Mr Alnebeck's comments are significant given that multiple sources yesterday informed this newspaper that the Toronto-based Wynn Group was "back in the game", and negotiating with Cheung Kong (CK) Property Holdings over a new, revised offer to purchase the Grand Lucayan.
Several contacts said that as a result the Minnis administration has placed its own takeover offer on hold, in the hope that Wynn or another private investor will successfully conclude a deal with Hutchison Whampoa's real estate arm, thus limiting the taxpayer's potential financial exposure.
The Government's seemingly revised strategy was yesterday challenged by several observers, with some suggesting that Freeport's economic deterioration means "time has run out" to re-open the Grand Lucayan, while others questioned whether Wynn is the 'best fit' for the property.
Mr Alnebeck's comments feed the latter concern, with the Pelican Bay chief suggesting that "the very best we can hope for" is a 'soft opening' of the Grand Lucayan in fall 2018.
Arguing that the peak winter 2017-2018 season was lost, he said: "It's pretty grim at the moment to be honest with you.
"This winter season is gone. That is gone. The very best we can hope for is a soft opening next autumn. It's going to be interesting to see how we rebuild."
Given the tourism industry's steep decline since the Grand Lucayan's post-Hurricane Matthew closure in October 2016, Mr Alnebeck said the purchaser of Freeport's 'anchor property' had to be an entity with a "proven record" of building destinations from scratch.
"It's easier to rebuild something that's a little bit alive as opposed to dead," he told Tribune Business. "Whoever come in has to have the contacts to come in with the flights, charter flights and distribution channels, because by then we will have been off the map for two years.
"We don't really have any tourists any more. There are very few tourists around in Grand Bahama. We [Pelican Bay] are surviving fine on corporate business and the Grand Bahama Shipyard. If you look at the room nights for hotels that are open, the Shipyard probably represents 60 per cent for the last three-four months."
Mr Alnebeck said the Grand Celebration's return to Grand Bahama on December 24, on a a three-year contract, would help to boost occupancies and business at properties such as Island Seas and the Lighthouse Pointe, the latter being the only part of the Grand Lucayan that remains open.
The Grand Celebration's owner, Bahamas Paradise Cruises, has also committed to bringing another vessel to Grand Bahama from April 2018, but Mr Alnebeck said much depended on the Grand Lucayan's ultimate buyer if the island's tourism industry is to successfully rebuild.
"It's going to need somebody who can bring the airlift with them, and that's why I believe somebody like Sunwing/TUI are the best people interested who could do that," he told Tribune Business.
"Getting a brand who negotiates with scheduled airlines, and gets them interested, is going to add one to two years to it. It's not a Nassau scenario where you have a mature destination and scheduled airlift coming in."
Mr Alnebeck said commercial airlines, such as Spirit and Jet Blue, would not commit to providing airlift to Grand Bahama until they knew the new owner's identity and its business strategy.
"They will say: 'Come back when you have something to tell us'," Mr Alnebeck said. "Whoever get their hands on that [the Grand Lucayan] has to be someone with a proven track record of being able to build not only a resort but a destination.
"The best case scenario is that we are back running by the next winter season if a deal happens very soon, but we have lost several months already, which is part of the problem."
Memories' all-too-brief success was based on the fact it was part of a vertically-integrated group, which provided both airlift (Sunwing) and sales/distribution through the parent, TUI.
This enabled the group to better control costs and margins, something that is critical to ensuring sustainable profitability in the Bahamian tourism industry. A standalone buyer such as Wynn, though, would have more work to do in securing the necessary airlift.
The Pelican Bay chief expressed concern that Freeport's depressed economy was becoming deeply ingrained in the psyche of Grand Bahama residents.
He explained: "The scary thing is we are now almost 14 months after the Hurricane Matthew, so it's almost mentally accepted as the new normal. It's 14 months that we have been battling this. Let's hope that our government realises the need to try and get this moving as soon as possible."
The Prime Minister had pledged in his July national address that work to re-open the Grand Lucayan would begin in August, with the Government prepared to take an equity stake in the resort's purchase to ensure its swift opening.
Such work has yet to start, while multiple sources yesterday told Tribune Business that the Government had paused its effort to purchase the resort - a temporary "bridging" move it had sold as essential to get Freeport's economy moving and re-employ Bahamians.
It had compared the move to the US and UK government 'bail outs' of the auto and banking industries, but it is understood to have stepped back to avoid getting in the way of the Wynn Group's negotiations.
The Toronto-based real estate developer emerged as the 'front-runner' to acquire the Grand Lucayan under the former Christie administration, having agreed a $110 million deal in principle with CK Property Holdings.
Wynn, though, was unable to seal the deal, with the Minnis administration sceptical about whether it had the necessary financing, and cool towards the level of government subsidies it was seeking.
A key government objective is to wean Grand Bahama/Freeport's tourism industry off multi-million dollar taxpayer subsidies, and create a sustainable, profitable destination that can stand on its own.
Wynn withdrew its initial offer and sought to recover its deposit, but re-emerged months later with a revised offer that has now become the leading contender to resolve the Grand Lucayan impasse.
"It appears Wynn has sufficiently altered their offer this time around to make it quite attractive for Hutchison and the Government," one source familiar with developments told Tribune Business.
"Wynn in all truth has never left. It was a matter of them coming back and making some modifications to the offer they made initially, and seeing if there's any interest. I think there is a commitment to move this forward rapidly."
The source, speaking on condition of anonymity, added that Wynn had provided its financing sources to prove it 'has the money'. The Canadian group was now exchanging offers and counter-offers with CK Property Holdings, in a bid to reach agreement on the purchase.
Emphasising that no deal had been sealed yet, the source said: "It's getting closer and closer, but until it is signed we don't have anything. The Government is aware speed is of the essence here, so they're making sure Wynn or whoever is next in line puts something forward that is acceptable to both the Government and the vendor.
"I think it's pretty close in being able to come to some conclusion. I think we will find out how close they are this week, and whether it will conclude in a reasonable period of time."
Should Wynn and CK Property Holdings seal a sales agreement, the former will likely be granted a 60-90 day period to conduct enhanced due diligence and then close the transaction.
Tribune Business sources said the Government was making sure that work was "starting ahead of time" in providing the necessary approvals from its side, should a Grand Lucayan sale be concluded, given the urgency for Freeport's economic well-being.
One contact, suggesting that other private investors were also interested, said: "As in all these things, there are a number of people coming around and kicking the tyres, and seeing what the possibilities are."
They added that the Government had 'stepped back' from its purchase offer in the hope that Wynn, or another investor group, would consummate a transaction.
"The Government is only in the game if no private investor is found," the source said. "That is the last resort. They'd rather have someone like Wynn moving along with it with an operating company that can develop a sustainable operation.
"The Government has spent a great deal of time looking at what the acquiring company is asking for, so we don't find ourselves in a situation where Hutchison says 'yes' and the Government says 'no'. We are getting close, and are hoping this is the last go around for this."
Wynn's renewed involvement brought mixed reactions. One Freeport-based businessman, speaking on condition of anonymity, said the Government was 'out of time' in waiting for a private purchaser due to the ongoing business closures and jobs losses in the Port Lucaya Marketplace and elsewhere.
"Port Lucaya is losing tenants by the day. It's getting very serious. Government is going to have to take some serious steps," they told Tribune Business.
"This [the developments with Wynn] are wonderful, but time is flying by. We need action. Hutchison could stretch this out for another three months. It's a disaster in the making. Most of our condo and winter resident people are coming back this winter.
"The hotel can't open before June anyway, and this will have dire results for Freeport. The situation is getting more and more critical."
The closure of the Grand Lucayan's Breaker's Cay property, and much of the Lighthouse Pointe section, together with Memories subsequent pull-out has deprived Grand Bahama of more than 1,000 hotel rooms - around 59 per cent of its inventory.
The post-Hurricane Matthew hotel closures, and loss of hundreds of jobs, have had a devastating effect on Freeport's economy and society
Other observers familiar with the Grand Lucayan situation questioned whether Wynn was the 'right fit' for the Grand Lucayan, given that it would act as a real estate owner and have to contract hotel brands to manage the resort and generate airlift.
Wynn's previous plan called for the construction of one-two new hotel towers. It had also been talking to AM Resorts as a potential operator for the Grand Lucayan.
AM Resorts owns and operates numerous resorts in Punta Cana, Mexico; Montego Bay, Jamaica; and the Dominican Republic via five-six different brands, and is part of a vertically integrated resort/leisure company due to their ownership of vacation wholesalers and affiliation with the Apple Leisure Group.
However, one observer said of the proposed deal with Wynn: "The bottom line is there's no point in simply buying the hotel.
"It's a lateral move. It's not advancing the dynamics of Grand Bahama at all. It's not going to remodel the paradigm, redevelop the Grand Lucayan as a hub, transform it into an entity that will put people back to work. You're just going to move the problem laterally."