|The Bahamas Investor Magazine
January 1, 2006
January 1, 2006
A massive transformation is poised to begin on a popular beach in The Bahamas to attract future generations of sun worshippers and holidaymakers. Several resorts along the Cable Beach shores of New Providence are being primed for a US$1.6-billion hotel and casino redevelopment that aims to achieve the same epic scale as Sol Kerzner’s Atlantis on Paradise Island–just out of view, across Nassau Harbour.
The massive Cable Beach revamp is only the largest in a string of projects underway that are drawing renewed interest into this venerable income-tax-free and lifestyle haven nation of some 700 subtropical islands and cays that start just 50 miles off Florida’s east coast. An unprecedented flow of direct investment has been drawn to The Bahamas over the past 18 months. Nearly US$3 billion in projects were either underway or had been given the go-ahead by government by mid-2005. And another $7.8 billion in projects were under “active consideration” by the government’s approval-granting National Economic Council (NEC), according to figures cited in the ’05 budget communications.
“Prospects for the Bahamian economy for the second half of ’05 and ’06 remain generally favourable, reinforced by foreign investment inflows in tourism-related projects and construction for both the domestic residential and the foreign second homes markets,” according to an August 2005 economics forecast by The Central Bank of The Bahamas.
So, it’s no wonder that a favourite visual aid used in show-and-tell presentations by the country’s Minister of Financial Services and Investments, Allyson Maynard Gibson, is a map of The Bahamas mounted on foam-core and spiked with more than 80 multi-colour push-pins. Almost every major island is stuck with one or more pegs–each denoting a project in development, approved for development or under review by the NEC.
The scale of investment ranges from mega-projects like the Cable Beach Resorts on the island of New Providence, a $730-million third-phase expansion of Atlantis on neighbouring Paradise Island, to a host of projects scattered through the country’s less populated islands–known collectively as the Out Islands or Family Islands.
In the $1.6-billion redevelopment of the already well-established Cable Beach, local Lyford Cay resident and Armenian-born businessman Dikran Izmirlian and his son Sarkis plan to replace three tired hotels and raise an authentically Bahamian getaway and residential district under the name Baha Mar Resorts Ltd. They are partnering in a joint venture with Harrah’s Entertainment, Inc and Starwood Hotels & Resorts Worldwide, Inc.
“Kerzner came in and did it and that was successful,” says Michael Sansbury, executive vice-president of Baha Mar. “Our difference is, the Izmirlians aren’t coming in from some foreign place, they’ve lived here for some 20 years. And the reason why [they’re doing this here] is that they believe in The Bahamas. That’s why they live here. The government has been stable, they have established relationships, and it’s an attractive destination,” he says.
Policy for growth
That attraction of The Bahamas for domestic and foreign investors is being fuelled by market factors including a steady stream of international tourists and business visitors from the US and around the world: Just over five million people in ’04, which was a record year. Local realtors report a growing appetite for second homes and vacation properties.
There’s a built-in business connection for entrepreneurs who already use services in The Bahamas for corporate or personal asset management–the country has long been a leading offshore financial centre for private banking and wealth management. Other pluses are investment essentials like a stable government, a currency pegged to the US dollar and one of the highest standards of living in the region.
Attention from abroad is also being brought in by a government investment strategy launched in ’02 to woo domestic and international dollars. In particular, the policy aims to entice entrepreneurs and developers to launch their ventures in the Out Islands, the more isolated and less economically advanced islands in the archipelago. The government hopes that an “anchor project” on each island will buoy local economies and create jobs. Right now more than two-thirds of the country’s 325,000 population is concentrated on New Providence, in and around Nassau, where many people migrate for jobs and education.
With incentives designed to bring foreign and domestic investment into these less-developed Bahamian islands (see sidebar), Maynard Gibson discounts any charge that still-pristine islands are being auctioned off to the highest bidder. The strategy’s goal, she says, is not to focus on creating single-family residential enclaves cut off from the local population. Rather, it is to encourage the building of tourist-friendly communities that don’t shut down with the turn of a key.
“If you look at all of what’s on our map, [you see] that second-home developments are linked, almost without exception, to a hotel-type facility,” Maynard Gibson says. “The second home market, or what you [can broadly] call real estate development, is only a subset of our overall investment strategy.
“We’re not talking about it as a development in the way you or I would own a home, but [rather] a second home that’s tied into something that really does in a serious way impact the Bahamian economy,” says Maynard Gibson. “Let’s say you own a home in Exuma. If it’s not tied in to a hotel-type product and you close your home, that’s it. You lock it and go away. But, if it is tied to a hotel-type product, that home is open 24/7, 365 days a year. Therefore, not only are you employing people on a regular basis in your home, but there’s a spin-off effect … landscaping companies, plumbing companies, home maintenance companies, all those kinds of things.”
Interest in the Out Islands
Projects currently underway in the Out Islands are varied in scale, but almost all of the largest include some combination of a resort or vacation club, residential community and recreational attraction.
In 2005, Michael Meldman’s San Francisco-based Discovery Land Company began field work on a planned $400-million luxury residential community called Baker’s Bay, an 18-hole golf course and a 180-slip marina on Great Guana Cay off Abaco island. Also on Abaco, near Marsh Harbour, UK business personality Peter de Savary has opened The Abaco Club on Winding Bay, a private members’ golf, retreat and residential community with a budget now slated at $250 million. On Eleuthera, construction has started on a $300-million development called Cotton Bay Villas, steered by Eleuthera Properties Ltd, a development company owned by about three dozen Bahamian and overseas shareholders. It will include private villas and a 73-room resort, branded as a member of the Starwood Hotels & Resorts Luxury Collection. Just 48 miles east of Miami on the island of North Bimini, Hilton Hotels’ luxury brand Conrad has said it will take on management of the Bimini Bay Resort and Casino, part of a seaside village in the works.
In contrast to the mega-projects on the more urbanized New Providence, Grand Bahama and Paradise Island, projects in the Out Islands are often adjacent to small communities of just dozens or hundreds of residents. Developers have to consider the logistic, social and environmental effects of bringing people to work and play in relatively untouched destinations.
“It is virgin territory. It is pristine. And, of course, this is what attracts a lot of people,” says Wim Steenbakkers, managing director of Eleuthera Properties Ltd. “I think development is inevitable, but we say do it in the most conscientious way,” says Steenbakkers, who says the company has plunged ahead with the first $10 million of what is anticipated will grow to a $300-million project. In contrast to the over-the-top theme resorts, Cotton Bay Villas aims to capture the intimate charm of an earlier era for investors, visitors and residents. “Eleuthera has a legacy that goes back to the Cotton Bay Club, which was a booming place through the ’50s and ’60s,” says Steenbakkers, referring to the now-defunct club (just south of the Villas development) that was the weekend retreat built by aviation pioneer and Pan Am Airlines founder Juan Trippe.
“One of the drawbacks of The Bahamas is that it has a population of only 325,000 people, and mega projects require a tremendous amount of skilled labour,” says Steenbakkers.
The Atlantis factor
But it is those mega projects fuelling interest in all regions of The Bahamas. The marlin-topped towers of Atlantis across Nassau Harbour on Paradise Island stand as the country’s most obvious beacon to foreign investment. Still growing, a $730-million third-phase expansion is underway, including a 600-room all-suite hotel plus a 400-unit condo hotel in partnership with Turnberry Associates. Kerzner International’s interests have expanded to include some two-thirds of Paradise Island. It has a joint venture with a subsidiary of Starwood Hotels & Resorts in the 392-unit timeshare Harborside at Atlantis, which took in record sales of $22.5 million in the second quarter of ’05. Kerzner also has a management stake in the celebrity-sanctioned One&Only Ocean Club resort, plus a joint-venture in the Ocean Club Residences & Marina project, a $130-million condominium development on the island. Kerzner is the country’s single largest private sector employer. And the whole world gets to peek into its resorts regularly thanks to constant publicity that includes reality TV weddings, films such as Pierce Brosnan’s After the Sunset and celebrity swimwear fashion shoots at Atlantis.
“In the resort business, Atlantis is one of the all-time success stories,” says Sansbury, with would-be competitor Baha Mar and the Cable Beach Resorts. “They took some run down … hotels, completely renovated them and added on to them and created a wonderful destination.”
Similarly, Baha Mar won a competing bid in April ’05 to purchase The Wyndham Nassau Resort & Crystal Palace Casino and Nassau Beach Hotel from American hotelier Phil Ruffin for $150 million, later buying the adjacent Radisson Resort and an 18-hole golf course from a state-run hotel company. The three hotels, next to each other on the resort-packed strip of West Bay Street, had been allowed to run down – becoming less competitive for the high-end tourist dollar. Baha Mar has enlisted a roster of hotel executives and design experts with track records from Vegas to Orlando. Sansbury previously oversaw the launch of three new resort hotels at Universal Studios, Orlando, FL, worth a combined $580 million. He has also helped run the 3,000-room Mirage resort in Las Vegas, and was named Hotel Executive of the Year in 2003 by the US Resort Management Conference. The Izmirlians rounded out Baha Mar’s executive team with executive vice-president of development John Kristich, who was involved in the Mandalay Bay and Monte Carlo resorts in Vegas. In-house design and architectural expertise was recruited from the Jerde Partnership, which designed the Bellagio and Treasure Island resorts, also in Las Vegas.
Today, a $15-million facelift is underway to renovate rooms and function space in the three existing Cable Beach properties. These hotels will continue to operate while Baha Mar and its hotel and casino partners set out to construct all-new accommodations, set further back from the beach. On the drawing board are 3,550 hotel rooms, a 100,000-sq-ft casino that will be larger than any in the Caribbean, 175,000 sq ft of convention space, and a new West Bay Village complex to house offices, restaurants, nightclubs and shops.
“This is going to be a really good thing for The Bahamas,” says Sansbury. “These hotels have been neglected. And that is not good for the image of the country as a destination. So they’re going to be upgraded for the short term. Then once we replace them for the long term it’s going to be a huge asset that all Bahamians will be proud to have right here on Cable Beach.”
Sansbury says seeing the numbers on Atlantis helped seal the deal for investment partners and backers like Toronto-based ScotiaBank, the project’s key lender. In mid-05 publicly traded Kerzner International reported an average room rate of $294 and occupancy of 87 per cent for the resort.
“We looked at that quite honestly and said that if they can do that well … then there is room in the market for some competition because, at those numbers, there is unfulfilled demand,” says Sansbury. “And, by the way, we think we’ve found what is arguably a better location in terms of its proximity to Nassau International Airport, in terms of not having to go through downtown Nassau traffic.”
Infrastructure to diversify
One of the leading challenges for the government of The Bahamas is the balancing act of investment that relies on tourism, yet yields returns that can be applied to diversify the economy and support social programs.
“In the foreseeable future, [The] Bahamas has to rely on its main industry, tourism, to be the engine of growth,” says the country’s Minister of State for Finance, James Smith, underlining the importance of the sector to the economy. “[The] Bahamas also recognizes that, despite its natural attributes of sun, sea and sand, it is a high-cost area,” he says, since the nation has to import nearly all its food and manufactured goods from abroad. What’s needed is to bring wealthier tourists, who spend more per day, plus the kind of long-term or repeat visitor who stays in a second home or vacation property on a regular basis, he says. “There’s been an effort to create an environment within which it’s easy for a person to own a second home in The Bahamas,” says Smith.
With tourism driving 50 per cent of The Bahamas’ gross domestic product (GDP), according to the Ministry of Tourism, the country’s ability to sustainably exploit its natural assets to kick-start other economic sectors is essential. The construction industry alone now accounts for an estimated 10 per cent of GDP, with demand coming from hotel and tourism projects around the country and generous incentives for first-time home construction in the less-developed Out Islands. It’s also being buoyed by major industrial projects like the ongoing expansion of a 10-year-old commercial shipping container port by Hutchison Whampoa of Hong Kong in Freeport, Grand Bahama, The Bahamian government is also courting foreign investors around the world and has hosted trade missions to the Far East, Europe, Latin America and Canada. In ’04 and ’05, the government paid particular attention to China, making multiple trips to that nation to encourage tourism and investment. And according to figures by the US Department of State, there are currently about 110 US-affiliated businesses operating in The Bahamas, most associated with tourism and banking.
Investment is being made in other sectors as well, particularly the telecommunications infrastructure. Cable service across the islands is being upgraded to digital by Cable Bahamas. And in August ’05, The Bahamas Telecommunications Co Ltd announced a $60-million deal with US-based TYCO Telecommunications of Morristown, NJ, to install underwater fiber-optic cables and connect the most-populated islands of The Bahamas by mid-06. This upgrade will allow the state-owned telecommunications company to bring GSM cellular technology and DSL high speed Internet services to 14 islands.
“We stand out heads and shoulders over our competitors in the region in terms of infrastructure,” says Maynard Gibson. “For example if you look at Cable Bahamas in terms of capacity, we are ‘first world’ in that 95 per cent of our homes [across all of the islands] have the capacity to hook up to cable. That’s unusual anywhere in the world.”
In this scenario, wealth will build on itself, suggests Maynard Gibson, as one economic sector helps fuel the next–from tourism to the demand for construction to the need for financial services. “We’re very blessed,” she says. “People actually do want to live and work and invest and have a second home in the Bahamas. Inevitably a second-home owner will say, well why can’t I protect my family’s wealth from here too?”
Starting a Bahamian business for fun, sun and profit
Want to stake your own claim in an island paradise? Even if you’re not a billionaire with ambitions to recreate the lost city of Atlantis, there are endless islands of opportunity for those with an appetite for offshore living and at least US$250,000 in capital to invest.
As a nation with a developing economy, The Bahamas is particularly open to direct investment projects that help fuel economic growth and employment. Establishing joint ventures with Bahamian partners is encouraged, although areas protected for Bahamian-owned businesses include retail operations, publishing, fishing and public transportation among others. Exceptions allow for foreign ownership of speciality, gourmet and ethnic restaurants or restaurants operating in a hotel, resort or tourist attraction, and for construction companies bringing needed expertise in “special structures.”
Four things are taken under consideration in the review of investment proposals by the National Economic Council and members of cabinet, says the Minister of Financial Services and Investments Allyson Maynard Gibson: employment, opportunities for local entrepreneurship, protection of the environment and education in vocational/technical fields.
“We want to build Bahamian entrepreneurship. We recognize that mid- and small-sized companies make an economy strong and able to withstand external shock.”
Here, a list of major policy incentives of interest to both domestic and foreign investors:
International Persons Landholding Act
Regulates purchase of real estate by foreigners by allowing for the purchase of residential lots with the stipulation only that the acquisition be registered with the Investment Board.
Hawksbill Creek Grand Bahama (Deep Water Harbour and Industrial Area) Agreement
The port area and surrounding free trade zone of Freeport on Grand Bahama enjoys freedom from all taxes such as property tax until 2015, and from excise taxes, stamp duties and most customs duties until 2054.
The Tariff Act
Provides customs duty exemption on certain raw materials, supplies and equipment for agriculture, floriculture, horticulture, fisheries, forestry, cottage and light industries, and commercial printing.
Export Manufacturing Industries Encouragement Act, Agricultural Manufactories Act and the Spirits and Beer Manufacture Act
If your dream is to make, grow or brew, investment incentives under these acts include exemption from customs duties on building materials, equipment, approved raw materials and real property taxes for up to 20 years.
The Investment Funds Act, 2003
For mutual fund and hedge fund sponsors, this recent legislation helped streamline fund licensing, earning The Bahamas a second look as a competitive offshore alternative.
For more information and details on how to land yourself or your business on a Bahamian isle, start with resources on the Ministry of Financial Services and Investments website at: www.investbahamas.org; find related links at the Bahamas Financial Services Board at www.bfsb-bahamas.com; or visit www.thebahamasinvestor.com.