|The Bahamas Investor Magazine
August 21, 2017
August 21, 2017
The importance of the success of the Baha Mar resort on Cable Beach on New Providence in terms of economic impact on The Bahamas cannot be underestimated. It is an immense investment, one which potentially could contribute hundreds of millions to the government’s coffers and directly employ upwards of 5,000 Bahamians. It is a transformative vision. But as with any investment of this size it is not without risk.
Financed by the Exim Bank of China and now owned and operated by Chow Tai Fook Enterprises (CTFE), the sprawling megaresort complex reportedly cost circa $3.4 billion to build. When completed, it will host three world-renowned luxury hotel brands–Grand Hyatt, SLS and Rosewood–with a total room inventory of 2,300. With the neighbouring Paradise Island already playing host to the 3,500-room Atlantis Paradise Island resort, it is significantly boosting visitor capacity of the country’s capital.
Open for business
Originally planned as a single-phase opening project, the thinking on how Baha Mar should progress was overhauled when the Chinese stakeholders and the government acquired full control of the resort in 2015. After several months of inactivity while the original developer BMD Holdings Ltd filed for bankruptcy, the decision was made that the opening of the already completed section of the development should be a priority.
April this year saw the soft opening of a significant proportion of the site, including a part of the flagship Grand Hyatt hotel, conference centre and casino, and an 18-hole signature golf course designed by Jack Nicklaus.
Since the soft-opening, Baha Mar has brought on stream the El Jefe beachside bar and restaurant, and the European- themed Café Madeleine. The Tiffany & Co outlet has also joined the resort’s luxury retailers outlets.
Speaking at the soft-opening in April, then Prime Minister Perry Christie said: “For many, many, many Bahamians, today is more than a dream come true; it is the unfolding of a bold vision.” He said that the existing offering would be joined over the ensuing months by the completion and opening of other upscale brands and facilities, including Rosewood in spring 2018 and SLS in autumn this year, a spa, racquet club, restaurants, entertainment and shops set in 60,000 sq ft of retail space.
The opening was cause for relief as much as for celebration, as the project had been stop-start since ground was first broken on the site in 2011. With the colossal resort now up and running, a line can be drawn under the uncertainty of the past few years and Bahamians can view the project with more optimism.
“Baha Mar emerges today as the only integrated resort destination in the world delivering such diverse selections of exceptional experiences that are inspired by the warmth of The Bahamas’ culture, people and magnificent beauty,” said Baha Mar president Graeme Davis at the ribbon-cutting ceremony. “The Baha Mar dream and the Bahamian dream are intertwined and today we illustrate that dreams indeed become reality.”
The money trail
The investors making this dream a reality are predominantly Chinese. The Exim Bank of China has been involved in the project from the beginning, financing the initial phases of construction with a loan to BMD Holdings of $2.45 billion in 2010.
When the deal turned sour, the bank stepped in, providing access to additional funds, which were then partly bolstered by government funding.
But funds alone would not be enough to get a hospitality project of such enormity operational. With BMD Holdings out of the picture, The Bahamas government was looking for an able suitor. It needed a major player in the sector that had the resources and the know-how to operate a resort of this scale.
Following a high-profile trade mission to Asia towards the end of last year, a deal was struck with CTFE–a Hong Kong-based conglomerate with investment interests in fields as diverse as transportation, jewellery retail, global hospitality and mixed-use development. Most importantly, it has an established network within luxury hospitality operation through its subsidiary Rosewood Hotel Group, which manages 55 hotels in 18 countries under three different brands.
On December 12 last year, CTFE signed an agreement to purchase and operate the hotel and casino complex.
“CTFE is looking forward to having Baha Mar join its portfolio of world-class integrated resort development projects,” said Henry Cheng, chairman of CTFE, at the time.
As a mark of its intent, the Chinese investment firm poured millions of dollars into the Baha Mar project pre-opening and was instrumental in renegotiating deals with hotel brands previously involved in the project, including Hyatt and SLS Hotels. CTFE also re-engaged its Rosewood subsidiary as a luxury hotel operator at Baha Mar.
For its part, The Bahamas government was assured of CTFE’s ability to run the flagship resort saying: “The government is confident that CTFE has the precise capabilities and track record to successfully complete and operate Baha Mar resort from both a lodging and casino perspective. We look forward to having such a renowned and experienced company turn the vision for Baha Mar resort into reality.”
As tourism is the primary income driver and employer for the island nation, Baha Mar stands to have significant impact on Bahamian economic prospects. The resort is expected to generate in excess of $700 million in direct annual economic output and $1.1 billion in indirect and induced output. It is expected to contribute more than $45 million in taxes annually, just from resort operations and national insurance contributions. Baha Mar president Davis estimates the resort will contribute as much as 12 per cent of the nation’s GDP.
Upon the resort’s opening, then chairman of the Bahamas Chamber of Commerce and Employers’ Confederation Gowon Bowe said that now the resort was “ramping up,” the economic effects would be felt. “It will start contributing to the GDP, as it receives more guests and we see an increase in visitor spend. It will also contribute to government coffers through taxes such as room taxes and VAT on food and beverages. Employment levels should increase, as will national insurance contributions.”
As regards employment, president Davis says that the resort already employs 1,500 Bahamians and 100 expatriate staff and is looking to increase that to 6,000 as more facilities come on stream.
Given the importance of Baha Mar, the government has been quick to cement the partnership with the Exim Bank of China to secure funding for the next phases of opening, signing a heads of agreement with the bank days after the April soft opening.
“Not only has funding been provided to fund all remaining construction costs to complete the project, but some $101.5 million has been injected into the Bahamian economy towards payment of employees and unsecured creditors,” said Christie. “This sum represents an unprecedented ex gratia payment made by the Exim Bank of China to unsecured creditors to accommodate the request of my government.”
Having sunk time and resources into the project, CTFE has also renewed its intention to support and develop Baha Mar and tighten ties with The Bahamas. “We are fully committed to this project and plan to hire as many Bahamians as possible to work at the property,” says Cheng.
Baha Mar under construction
Without actually visiting the site, it is hard to imagine the size and scale of the Baha Mar project. It covers 1,000 acres, encompassing half a mile of prime beachfront. The extent of the landscaping required highways to be redirected, Crown land to be acquired and government buildings to be relocated. It has already taken millions of man-hours to build, covering 3,000,000 sq ft of construction, using 6,000 tons of structural steel, 260,000 cubic yards of concrete, 400,000 tons of sand and stone and 500,000 sq ft of glass. On an island only 34km by 11km, it is an imposing landmark.
The resort’s design, style and architecture is as grand in vision as the project is in size. When completed, the resort will include around 20 acres of landscaped beach and water features, including 11 pools and an eco-water park amidst more than 250 palm trees. Three distinct hotel areas will host 42 restaurants and lounges; 30 luxury retailers including Rolex and Bulgari; and an Espa brand spa with 24 treatment rooms.
New market appeal
The Bahamas tourism market has been relatively stable despite the recent economic uncertainty, with visitor arrivals hovering around the six million mark for the last few years. However, with such a large room inventory coming on stream, Baha Mar’s success will depend on significantly increasing airlift from existing markets and developing new ones–both geographically and demographically.
At Phase 2 opening, Baha Mar is projected to generate an additional 315,000 air passenger seats annually, an increase of 19 per cent over 2015’s record of arrivals. The Ministry of Tourism says that it is continuing to negotiate increasing airlift and direct flights from many US and other destinations.
Efforts are being made to target China, but the length of the flight and brand awareness present considerable barriers. Then Prime Minister Christie urged Nassau Airport Development Co (NAD), which operates Lynden Pindling International Airport, to take the lead in “cultivating relationships” with airlines, particularly Asian and European carriers to maximize air passenger delivery to the megaresorts and boutique hotels of The Bahamas.
For its part, NAD says that it collaborates with its strategic partners, the Ministry of Tourism and the Nassau Paradise Island Promotion Board, to determine the airlift needed for the destination to meet demand. “The key word here is ‘demand,’” says NAD chief executive officer Vernice Walkine. “We expect that with the opening of the rooms at Baha Mar there will be significant additional demand for the destination. Baha Mar will attempt to grow its share and the destination has an airlift plan to meet this projected demand.”
The degree to which airlift is sought from Asian and additional European markets will be determined by the demand for the destination in those gateways, adds Walkine. “Asia, in particular, is challenging in that the distance will need to be rationalized based on sustained demand and the commensurate yields for the carriers. The smart approach, in the first instance, to attracting the Asian traveler is to enable very convenient connections via major gateways such as Los Angeles, Toronto, London and New York, to allow for demonstrated demand to support non- stop air service, which would be a very large aircraft at some cost.”
There is also the danger that the new addition to the marketplace could cannibalize the existing customer-base and Walkine suspects that there will be a marketing push by Atlantis to protect its market share. The key, the government says, to avoid direct competition is to accentuate the diversity within the tourism offering.
“Baha Mar’s first-phase opening ushers in a new era in our tourism industry, as it will consolidate over 40 per cent of Nassau’s and Paradise Island’s total room inventory in the upscale and luxury product category,” says former Prime Minister Christie. “This shifts this destination’s international lodging profile towards a more high-end, upscale market with added international brands. This is critical not only to improving brand recognition and experience, but also to increasing airlift capacity and delivery of sustainable upmarket ADR [average daily rate] for the destination.
“Through reaching markets that are not in direct competition with other local megaresorts, Baha Mar will have enormous consequences for Bahamians, improving livelihoods and delivering opportunities,” he adds.