Dear Source,
For many, many months the St. Thomas-St. John Chamber of Commerce has been working with all the relevant parties involved in the proposed Crown Bay development to seek an outcome that is in the absolute best interest of the Virgin Islands. This has not happened, and the proposed development is moving forward in a way that could have disastrous effects on the economy of the Virgin Islands. The time has now come for the Chamber to speak out publicly on this issue, and we will do so forthrightly.
First, everybody agrees that there is an absolute need to provide additional docking facilities for the larger cruise ships in the Charlotte Amalie harbor. Crown Bay is the obvious choice to effect the improved docking facilities. However, the letter of intent between the Port Authority and the two cruise lines was an ill-conceived attempt to respond to this issue.
More than a decade ago, the people and government of the Virgin Islands clearly felt that a political and economic imperative was owning its docks and controlling its ports. A major investment was made to acquire the Havensight docks and surrounding shopping center from the Danish West Indian Company. The letter of intent entered into by the Port Authority clearly abrogated this philosophy of governance for our ports. Implementation of the letter of intent would have ceded control over the Crown Bay docks to the two cruise lines for 50 years. In addition, the proposed agreement puts at risk the very investment made over a decade ago in the Havensight docks and shopping complex.
We are pleased that the government and Port Authority have moved away from the letter of intent. It should have never been executed in the first place. However, as we now understand it, the Port Authority's proposed development continues to pose the same risks for the WICO investment and the major downtown shopping area in historic Charlotte Amalie.
The revised project now being pushed by the Port Authority includes not only the dock expansion but also a 95,000-square-foot shopping complex at Crown Bay. This is a serious mistake. There is no excess demand for retail space in St. Thomas. We are not at full capacity at Havensight or in downtown Charlotte Amalie. The proposed new shopping area at Crown Bay will create significant additional supply but no new demand and will only transfer demand from areas such as downtown Charlotte Amalie and Havensight.
Some of the facts
– 1,862,395 cruise ship passengers arrived in the Virgin Islands in the period Oct. 1, 2000, through Sept. 30, 2001. The West Indian Co. received over 1,585,000, or 85 percent of all Florida-Caribbean Cruise Association passengers. Under the letter of intent between VIPA and Carnival Cruise Lines and Royal Caribbean International, the proposed guarantee to WICO by the cruise lines of 1.3 million passengers essentially would have resulted in an immediate loss of passenger traffic to WICO.
The resulting loss of 285,000 passengers per year represents a 17 percent reduction in cruise ship passengers to The West Indian Co. This would have had a significant and negative impact on WICO marine revenues, Havensight Mall tenant revenues and GERS' dividend payment. The decision to proceed without the cruise lines as direct partners does not minimize this potential threat.
– If VIPA develops Crown Bay unilaterally without entering into an operating agreement with WICO, the Virgin Islands will essentially lose "effective control" over the Port of Charlotte Amalie (at both WICO and Crown Bay) and the ability to negotiate with the cruise lines from a position of strength. The cruise lines should not be given the opportunity to have The West Indian Co. and the Port Authority bid against each other for business.
– VIPA will have a powerful need to dock as many ships as possible at Crown Bay in order to meet debt service obligations, since VIPA is financing the project. This incentive to drive cruise traffic to Crown Bay will have an adverse impact on Havensight Mall, which is owned by GERS.
– The West Indian Co. could potentially lose the following revenues:
Lost wharfage fees — $997,500 a year, or $29,925,000 million over 30 years.
Lost tonnage fees — $948,600 a year, or $28,458,000 million over 30 years.
Therefore, total dockside revenue losses — $1,945,000 a year or $58,365,000 over 30 years.
– Rents per square foot are based on maintaining passenger traffic. Less traffic would force Havensight Mall to lower rents. Less rent equals less profit for the GERS-owned Havensight Mall! Every $10 per square foot reduction in rent equals $2 million in lost rental income per year, or $60 million over 30 years.
– The combined loss to The West Indian Co. and GERS for the dockside and land-side operation could add up to $3,945,500 per year or $118,365,000 over 30 years — at a minimum.
– Reduced passenger traffic at Havensight Mall has a direct and immediate impact on the financial security of the benefit plan currently supporting 11,000 retired government workers on St. Croix, St. Thomas and St. John, in addition to the same number looking forward to pension support from GERS.
– There are approximately 1,500 retail employees in Charlotte Amalie and Havensight Mall. Businesses in Charlotte Amalie and Havensight represent hundreds of millions of dollars in investments. These businesses pay full taxes, employ thousands of Virgin Islanders and support small businesses and professional services. Many of the stores at Havensight are branches of companies located in Charlotte Amalie.
– VIPA’s economic impact analysis is missing crucial components and does not consider the financial impact on the V.I. economy, the retirement system, the existing retail and real estate industry and other major pending capital projects. Moreover, it does not consider the impact of the $127 million in Port Authority revenue it gives up under the proposed Crown Bay agreement.
– Gov. Charles W. Turnbull’s decision not to proceed with the letter of intent was in the best interest of the Virgin Islands. According to our estimates, the fees that would have been retained by the cruise lines under the original letter of intent over the 30 years of the agreement could easily surpass $100 million, while costing WICO and GERS an estimated $118 million minimum over the same period. There are alternative ways to finance a $15 million investment in a new dock which are financially sound.
The common grounds for a solution
There are certain fundamental principles that must be part of any agreement to develop the Crown Bay dock extension and shoreside amenities if there is to be a "win-win" outcome.
– The V.I. government must control Crown Bay, both the dock and shoreside development. It is a critical point of entry into the Virgin Islands and must be managed in a pro-business, professional and impartial manner along the lines of WICO’s management of Havensight Mall for GERS.
– Berthing decisions must remain as they are now, in the hands of The West Indian Co., and be managed to maximize returns to the Virgin Islands economy while meeting the operating needs of the cruise lines.
– Shoreside retail development at Crown Bay must complement and not detract from existing retail investment at Havensight Mall and in Charlotte Amalie. This is why the retail component should be limited to an amenity center, as well as providing opportunities for Virgin Islanders to showcase locally produced products.
– The development at Crown Bay must add to the tourism infrastructure and add to economic activity and add to government revenue, not shift economic activity from one area to another, resulting in diminishing returns.
– The V.I. government (including VIPA) can no longer look at proposals without consideration of the impact they will have on other projects, investments, government revenues, the environment, the historic districts, traffic, parking and employment, to name just a few of the factors that are relevant to the success of the Virgin Islan
ds now and in the future.
– The government, the private sector and the cruise industry are in unanimous agreement that the dock extension is of vital importance for the V.I. to maintain its competitive position as an important cruise port. Although these facilities are on St. Thomas, the revenues generated ultimately are for the benefit of all the people of the Virgin Islands.
Cassan Pancham, President
St. Thomas-St. John Chamber of Commerce
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