Dear Honorable Senators of the 32ND Legislature of the Virgin Islands:
The Port of Charlotte Amalie Cruise Ship Task Force members support the proposed hotel project at Yacht Haven Grande (YHG). While there is uniform support and recognition in the community of the need for more hotels in the St. Thomas-St. John district, some members of the community and politicians have expressed opposition to the terms of the deal and questioned why the Virgin Islands Government (GVI) would loan the developer $10 million to move forward with this project when the Government has so many outstanding debt obligations. (It should be noted the loan would not come out of the general fund which covers payroll and other day to day expenses, but through the Public Finance Authority whose mandate is to generate economic investment activity in the territory.)
According to the Bureau of Economic research there were 2915 hotel rooms and 818 condo and time share units for a total of 3730 available rooms in the STT/ STJ district at the end of 2016. AS a result of the hurricanes, unofficially according to the hotel association only fifty percent of the inventory of rooms have come back on line as of this date, or roughly 1865 rooms. These closures have had a devasting effect on our economy, employment, hotel room tax collection, and tourist spending in our local economy.
Our premiere hotel, the Marriott Frenchman’s Reef, has yet to announce a firm date for re-opening; the Ritz Carlton has indicated its plan to open late 2019. The situation with Caneel Bay has been well documented in the media, and it would appear that this iconic property will not reopen according to the developer unless the lease is extended beyond 5 years.
Commissioner Valddamier O. Collens in his recent senate testimony July 20, 2018 said: “private investment has failed to produce a single new hotel property in the territory since approximately 1990. The economics have simply not worked.” In 2012-2014 the Hyatt Corporation proposed a mega resort in Mandal Bay area with a proposed investment in the hundreds of millions. There was widespread opposition based on environmental concerns from home owners. The senate at the time did not ratify the deal negotiated between Hyatt and the GVI, and Hyatt ultimately walked away. That hotel was in fact built on the island of St. Kitt’s and now contributes to the economy of that island.
YHG has proposed building a branded 125 room hotel, the first new hotel construction in 30 years. It is most likely a Hilton property with a roof deck overlooking the harbor. According to Tom Mukamal Chief Executive officer of IGY Marinas the hotel will lead to a minimum of 35-50 permanent new jobs. The hotel room rates are scheduled to be $200 plus dollars which is an extremely attractive price point and will surely bring new travelers to the territory. In his July 20, 2018 senate testimony Mukamal conservatively estimates that the contribution to the local economy will be at a minimum $8,400,000 including hotel room tax, guest spending on the island, and gross receipts taxes paid by local merchants on sales to guests. Other beneficiaries include taxi drivers, wait staff, tour operators, local food and beverage vendors, hotel repair and maintenance personal, rental cars agencies, fishing and dive charters and countless other segments of the community’s livelihood will depend directly or indirectly on this new hotel project.
YHG is partnering with Polcom Group a European company for the construction project. According to Mukamel Polcom is a “leader in modular construction in the hospitality industry” As a result the hotel could be built in a 14-18 month accelerated timetable. The modular product is built off island and assembled on site. Mukamal goes onto say the modules are “CAT 5 rated and therefore has broad applicability in the Caribbean Market”. This project has a proposed budget of $38 million and will create construction jobs for the duration of the build out. This project is already permitted and shovel ready with no environmental concerns.
The Government has proposed to make a $10 million dollar interest bearing loan to the developer to achieve the Territory’s strategic goal of new hotel construction. According to the term sheet, the GVI will receive 5% of the net cash flow of the hotel as well as the rights to 7% of the profits if or upon a sale of the hotel after the GVI’s loan is repaid with interest. Commissioner Collens stated in his senate testimony, “this is not a hand out. The Government will invest ten million in exchange for a promissory note, on terms under which the Government’s capital will be repaid first”. The GVI loan will be secured with a first priority mortgage against the hotel and the land the hotel is built upon. The collateral for this loan is substantial and the risk factor is marginal.
Lending institutions see the USVI and Caribbean as a high risk environment as a result of weather disturbances which can destroy an islands economy overnight as evidenced by the effects of hurricanes Irma and Maria throughout the region. Furthermore, Construction costs are exorbitant, as is the extremely high energy costs, which is essentially a Wapa tax on businesses and individuals. Sky high Insurance premiums add further challenges to a business’s ability to operate profitably. It is in this context that YHG has asked the GVI to partner with them and have skin in the game. They have also stated without this loan the project will not go forward.
Since 2005 Yacht Haven Grand has invested in excess of $100 million dollars into the Virgin Islands economy. The property is well maintained and an important part of our quality of life and economy, and has helped bring back the marine and yacht industry, albeit seasonally. On any given night locals and visitors can be seen dinning or exercising on the property or shopping in the retail outlets. They are a good corporate citizen who allow nonprofit fund raisers to occur, art gallery shows, farmer’s market events, concerts and other community activities. However, as a result of the global recession and other factors YHG has lost money according to Mr. Mukamal Chief Executive Officer. A hotel on property would be a game changer for YHG and would allow them to revitalize the property, attract new tenants and stores to the island. The benefits to the USVI of a new hotel with respect to job creation, new hotel room taxes, guest spending, and increased visitor arrivals are obvious, and ever so critical at a time when our hotel room inventory is severely diminished.
We hope the senate will unanimously support and ratify this exciting business opportunity. We need to send a message to the global markets that the Virgin Islands is open, business friendly and ready to make deals, after the devastation of two back to back hurricanes. Investment leads to more investment and an upward cycle of growth, economic activity and job creation. Government support of hotel development projects is not uncommon in the region, the neighboring island of Puerto Rico has a number of such private / public hotel ventures.
We would respectfully ask the Senators of the 32nd Legislature to vote yes to the $10 million dollar loan request from YHG. Let’s vote yes to Prosperity by allowing this critical infrastructure project to go forward.
Richard Berry, Filippo Cassinelli, Michael Creque, Vivek Daswani, Pash Daswani and John Woods