After Canadian regulators panned a union pension fund for making "imprudent" investments in Bahamian hotels during the 1990s, a team of development consultants is deciding the future of two landmark properties on New Providence.
The Ontario Financial Services Commission recently cited poor investment decisions and potential conflicts of interest by the Canadian Commercial Workers Industry Pension Plan – one of the largest private-sector funds in Canada.
The CCWIPP manages a billion dollars in assets on behalf of more than 180,000 members of the United Food and Commercial Workers Union. And after regulators urged the fund to conduct a "complete, independent due diligence review" of it's Bahamian interests, big changes are in the works, sources say.
Neither the British Colonial Hilton nor the South Ocean Beach Resort has so far earned a return on investment for the beleaguered Canadian pension fund – which assumed full liability for the properties after the owner defaulted five years ago. But a Coral Gables consulting firm called Allen & Co has reportedly been working on an "exit strategy" for the fund.
Larry Smith – Tough Call
The Sins of the Father
The fund's Bahamian investments were part of a multi-million-dollar lending spree to a former priest named Ronald Hubert Kelly, who had remade himself into one of Canada's top real estate tycoons in only a few short years.
Kelly is an interesting story in his own right. As a small town parish priest, he pleaded guilty in 1979 to indecently assaulting five boys, was pardoned a few years later and went on to become a top aide to Toronto's Cardinal, Emmet Carter.
He left the priesthood in 1990 and launched a meteoric career as a real estate developer. Risking his life savings to pull together enough financing to buy a bankrupt Toronto hotel, he went on to buy more properties and eventually began rubbing shoulders with Canada's business and political elite.
Kelly's company, RHK Capital, acquired malls, hotels and office buildings across Canada and became the pension fund's biggest investment partner. According to the Toronto Star, the CCWIPP bankrolled Kelly's early hotel acquisitions and the union gained new members in return. By the time they parted ways a few years ago, the fund had invested over $200 million in Kelly's projects.
High on the list was the $90 million acquisition and redevelopment of the landmark British Colonial Hotel in Nassau, which Kelly bought in 1997. The following year he borrowed more pension fund money to buy the bankrupt South Ocean Beach Resort for $18 million.
Former finance minister Sir William Allen recalls that the government was pleased when contact was first made with Kelly on the British Colonial project: "At the time we were keen to get foreign investment and the BC was seen as a possible catalyst for the redevelopment of the city, which was even more depressing then than it is today…But it seemed to me that the critical mass required by the South Ocean project was never contemplated by RHK Capital."
According to a former local banker, "The BC project had a very positive impact on the Bahamas. There are many reasons why it was not a roaring success, but most relate to the country and the way it frustrates developers in doing business. Kelly actually made a contribution and did not benefit personally."
The 'New' Colonial Hotel
The British Colonial was built in 1922 by the Munson Steamship Line, with the help of a government loan. For years it was the centre of Nassau's social life, and was owned by the Oakes family for more than half a century. But by the mid-1990s it was almost derelict, giving rise to fears of demolition. The main building had been mothballed for years while the newer wing – where BISX is today – was operated as a Best Western motel.
RHK Capital took over in 1997, planning to invest $40 million to fix the hotel and build adjacent condos and a marina. It took two years of painstaking work to restore the BC to its former glory. And in early December, 1999 Ron Kelly hosted government leaders and VIP's (including his former boss, the Cardinal of Toronto) to a lavish opening party. It was a glittering affair, made even more so by the knowledge that the restoration had ended up costing over $90 million.
"The resurgence of the British Colonial symbolises the resurgence of the Bahamas," Mr Kelly told the assembled high and mighty at the opening event. "The BC is the heart and soul of this country…and the whole concept was to preserve the history and integrity of the building. It is one of the big names in the global hotel market."
But even before the restoration ended, Kelly had run into financial problems. When he defaulted on his loan in July, 2000, the CCWIPP – through a subsidiary – stepped in to take over. It has since met all obligations and maintained the hotel at a high standard, despite not receiving "a single dollar" from the business over five years.
According to a recent report, the pension fund "maintains a long-term view of its investments (and) has not abandoned its vision (for) the British Colonial site, which still stands as an intended, although very lonely, catalyst to downtown development and renewal."
Michael Hooper, the Hilton-appointed general manager, confirmed that the hotel was trading well this year, with 88 per cent average occupancy: "But I can't speak for the owners."
Nor could the owners themselves. So Allen & Co spoke for them. According to Chris Allen, the BC's performance over the past five years was disappointing: "This year Hilton has done well, but the owners have not received a single dollar in fees since the hotel reopened. The contract still has a ways to go, but they will have to perform. The offices have good tenants and are doing exceptionally well."
He told Tough Call that the fund's restructuring of its investments includes an agreement with a "two billion dollar New York company" to build an international yacht club and marina complex plus condos on land to the west of the hotel – as had originally been planned by RHK Capital.
"We should be able to apply to the government for a heads of agreement on this $150 million project within 30 days," he said. "Davis & Davis are the lawyers."
New Providence's Second City
In the late 1960s, another Canadian investor – E. P. Taylor, the man who built Lyford Cay – began planning a "second city" on the largely uninhabited southwest coast of New Providence. In 1972 his South Ocean Golf Club opened for play, followed soon afterwards by the 120-room South Ocean Beach Hotel, all for an investment of just under $6 million.
Over the years Taylor's company – New Providence Development – had assembled some 5,000 acres in the area, much of it carved out of the old Clifton estate. He envisaged an entire community with shopping centres, schools, churches, industrial parks and even an inland port, as well as more golf courses and hotels.
"It is our objective to build a well-balanced, integrated community," he told the Tribune in 1972. "There is a shortage of housing for Bahamians and we hope to have homes at popular prices. We have confidence in the future and have spent over $10 million on land since 1967 and as yet we have received no return on our money."
And he never did see a return. The project foundered and New Providence Development eventually tired of supporting it, selling the resort to Divi Hotels in 1986. When Divi went belly up in 1990 the property was picked up by Ramada, which flipped it to a Canadian company called WinFare five years later.
In fact, the South Ocean Beach Hotel has never made money. Analysts say it needs a huge investment like Atlantis to achieve critical mass. The pension fund lost $20 million at South Ocean between 1998 and 2003 alone, and finally closed the hotel last summer, putting 85 people out of work. The plan was to upgrade the golf course and renovate the hotel for a winter re-opening this year, but there were justifiable fears that the owners were abandoning the investment.
Not yet, it seems. Consultant Chris Allen says a joint venture has been arranged with one of the world's biggest real estate firms to redevelop the 200-acre hotel and golf course property. Greg Norman Golf Design has already started work on the links, and a top Canadian contractor has been lined up to build a new 500-room 4-star hotel with casino, spa and marina. An open residential community is also planned.
"The golf course and marina are expected to open in early 2007 and the hotel should be ready for the 2007 winter season," Mr Allen told Tough Call. "This property has great potential and the Bahamas is red hot right now. The government is being very supportive and the pension fund will retain a stake in the developments, which we think will be very successful."
A Happy Meeting in Heaven
Meanwhile, New Providence Development – now controlled by another Lyford Cay bigwig named Joe Lewis – is planning a billion-dollar golf and residential community nearby dubbed the Albany Project. And NPD is also working with the government to create a new port at Clifton, between the power plant and the brewery, with a new road corridor into the city.
The port will remove the shipping terminals from downtown Nassau – a pre-requisite for any redevelopment of the city itself. A public/private partnership has already been formed to spearhead this multi-million-dollar project, which is expected to transform the downtown area, as well as the shoreline from Montagu to Cable Beach.
So it seems that E. P. Taylor's original vision may finally comes to pass – albeit 40 years behind schedule – and all will live happily ever after.
New Providence Development will achieve its long-held dreams. Ron Kelly – now said to be in Panama – will no doubt breathe a sigh of relief. The fund managers who backed him will be able to look their subscribers in the eye again. And Bahamians will have a brand new capital city and port.
Sounds like it's time for a general election.
What do you think? E-mail your comments to: email@example.com
The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.
This article was first published in The Tribune on Wednesday, July 20, 2005.
The column 'Tough Call' by Larry Smith is published in The Tribune every Wednesday and is reprinted here as a courtesy. Mr. Smith founded and successfully grew an advertising agency over 20 years. Under his direction Media Enterprises diversified into short-run commercial printing and publishing, and is now the largest non-fiction book wholesaler in the Bahamas. He has 30 years experience as a journalist and publicist and has contributed numerous articles and columns to the Bahamian press. A former reporter at the Nassau Guardian, local correspondent for Reuters and editor at the Bahamas News Bureau, he conceived and edited the Bahama Almanac (published 2000 by Media Enterprises), wrote the commentary for Mike Toogood's Portrait of an Archipelago (published 2004 by Macmillan Caribbean), and edited the Bahamas Environmental Handbook (published 2002 by the government). In 2003 he took a year's leave of absence from Media Enterprises to lead a transition management team at the Nassau Guardian after the paper was acquired by local investors. After leaving the Guardian he was contracted by the Tribune as online manager/editor and columnist. He has a degree in political science and journalism from the University of Miami. Mr. Smith can be contacted at: firstname.lastname@example.org