Baha Mar faces major challenges, high stakes
 
Baha Mar faces major challenges, high stakes
24 MARCH 2015 5:41 PM
The 2,200-room megaresort faces new delays, which means key stakeholders will have to wait longer still to realize the development's full impact. 
Updated 8:57 p.m. Eastern Daylight Time, 24 March 2015
NASSAU, Bahamas—Baha Mar’s soft opening has been pushed back from the original target date of Friday, 27 March, according to a statement provided to Hotel News Now by Baha Mar spokesperson Alyssa Bushey.
 
The statement reads, in full:
 
“From its inception, Baha Mar has committed to creating a gaming resort destination that will be unparalleled in the world. In setting our opening date for March 27, we relied in good faith on the representations of the resort’s construction manager and lead contractor. Last Friday (3/20), based on this party’s repeated assurances, Baha Mar announced that it would begin a paced opening beginning March 27 and culminating in its grand opening scheduled for early May.
 
“Subsequently, it has become clear that the contractor has not completed the work with an attention to detail consistent with Baha Mar standards of excellence. Anything less than a world-class facility and best-in-class guest experience is not acceptable to Baha Mar. As a result, Baha Mar will not begin its paced opening on March 27.
 
“Baha Mar expects to celebrate its grand opening the first week of May 2015, as planned.”
 
Originally Posted 6:41 p.m. Eastern Standard Time, 24 March 2015
GLOBAL REPORT—Baha Mar’s stakeholders will have to wait a bit longer to realize the full impact of the $3.5-billion megaresort. 
 
Billed as the most expensive project in Bahamian history, the 2,200-room resort complex hit another round of delays ahead of its 27 March opening, Hotel News Now learned exclusively. 
 
The latest snags mean the 300-room SLS Lux at Baha Mar and the 200-room Rosewood at Baha Mar won’t have rooms ready for accommodation until “shortly after” the opening this Friday of the 1,000-room Baha Mar Casino & Hotel, according to a statement issued last week by the developer. Baha Mar declined to confirm how many rooms or restaurants, clubs or entertainment venues will be open this week. When it is completed, the four-hotel Baha Mar complex will feature 40 restaurants and clubs, as well as an ESPA spa, Jack Nicklaus-designed golf course and what is being touted as the largest casino in the Caribbean. 
On 20 March, Rosewood Hotel Group confirmed in an email to Hotel News Now it will open 7 May. SLS declined comment, but rooms are available as of 29 April, according to Baha Mar's website. 
 
The project’s 700-room Grand Hyatt at Baha Mar previously had delayed its opening until 1 May. 

Sources interviewed for this report concurred it is not at all unusual for a major resort project to miss its original completion deadline.
 
The project is primarily funded by a $2.5-billion loan from the Import-Export Bank of China and is being built by China State Construction Engineering, which holds $150 million in preferred equity. The other $850 million in equity investment is being led by Swiss-Bahamian developer Sarkis Izmirlian.
 
According to an economic impact analysis conducted by the project’s organizers, Baha Mar’s forecasted impact is even greater:
  • The megaresort is expected to account for 12.8% of the Bahama’s annual gross domestic product in its first full year of operation;
  • during 20 years of operations, Baha Mar is expected to generate $25.3 billion in international visitor spending; and
  • each year, more than $50 million is expected to be spent off site by Baha Mar guests, which will benefit other Bahamian businesses.
Delays mean those benefits will take even longer to realize, with at least one observer now saying the Bahamian government will miss its revenue target for the year, according to a report from Bahamas-based Tribune Media
 
“The government’s revenue targets depend heavily on taxes from Baha Mar. With this delay, we’ve already lost the first quarter and we are potentially going to lose the remaining six months, and it means the government is likely to miss its targets for the fiscal year 2014/2015. I expect that they are actively adjusting their spending patterns to ensure they don’t blow the budget too bad,” opposition Deputy Leader Peter Turnquest told the Tribune. 
 
Beyond the budget, also at stake is the “the perception of the Bahamas as a destination,” Scott Berman, principal and industry leader, hospitality and leisure, at PricewaterhouseCoopers in Miami, told HNN. “If Baha Mar falters or fails, the perception will have a trickle-down effect. The Bahamas brand itself is at stake, not just the Baha Mar brand.”
 
Scott Smith, senior VP at Atlanta-based PKF Consulting and an expert on Caribbean tourism, also cited perception issues when he told HNN that he would advise Baha Mar to postpone its scheduled 27 March opening if it were his call to make.
 
“It would be better to delay the project rather than open prematurely, because if you open prematurely and you have guests that experience poor quality or service, or the property does not exceed their expectations, they are going to go to TripAdvisor and they're going to complain. They run a much higher risk from opening a partially completed resort than they do by waiting and having a great opening,” Smith said. 
 
Hurdles and delays aside, Berman said he thinks the megaresort will succeed based on its conceptual innovation and the quality of its hotel brands and core amenities, such as an ESPA spa and Jack Nicklaus-designed TPC golf course. 
 
“But,” he said, “it might require a couple of write-downs to get there.”
 
A write-down means reducing the book value of an asset because it is overvalued compared with the market value.
 
A rocky road
Last August, Baha Mar—citing the challenges and obstacles often faced by large hotel development projects, especially in the Caribbean— announced its December opening would be delayed until late this spring.  
 
Last April, Morgans Hotel Group, which had signed a 20-year management deal to operate a 300-room Mondrian Hotel at Baha Mar, terminated its agreement because Baha Mar failed to deliver a non-disturbance agreement that was part of its terms. An NDA assures an operator it cannot be ejected even if the project goes bankrupt, as long as the protected operator is current in its own financial obligations. 
Part of that dispute focused on concerns expressed by Morgans, based on slower than expected progress toward completion, that the December opening would not happen. Baha Mar executives at the time insisted the opening would happen on time. Then it replaced the Mondrian hotel with the SLS Lux and about three months later announced the delay.
 
On 6 January, Baha Mar announced in a statement it would open “all hotels, along with most amenities on March 27.”  
 
On 10 February, after he traveled to China to meet with officials of the Import-Export Bank of China and China State Construction Engineering Corporation, the project's general contractor, which holds $150 million in preferred equity, Bahamian Prime Minister Perry Christie told the Bahamas-based Guardian newspaper that he had serious concerns about the 27 March opening date being met. 
 
The next day, however, he and Swiss-Bahamian developer Sarkis Izmirlian released a joint statement that once again assured that the opening would occur as scheduled. 
 
Hotel News Now confirmed on 16 March* through separate phone calls to the SLS and Rosewood that neither property would have rooms open at that time.
 
Baha Mar, the Bahamas Ministry of Tourism and Nassau-Paradise Island Promotion Board did not respond to multiple requests for comment.
 
Ongoing are disputes between Baha Mar and China State Construction Engineering, its construction workers, local vendors such as a landscaping company, the operator of an adjacent hotel, and the Bahamian government. The government claims Baha Mar reneged on a financial commitment to pay its share of the costs of re-routing a main road that leads to Baha Mar and owes the government more than $19 million. Baha Mar denies the allegation.
 
As of press time, Superclubs Breezes, which operates a nearby all-inclusive resort and executed a land swap deal with Baha Mar to facilitate its optimal development, claimed Baha Mar has breached the agreement. Superclubs Breezes is attempting to win a court injunction that will force Baha Mar to halt construction.
 
Build it, but will they come?
From its inception, one of the questions surrounding Baha Mar is whether it could create enough new demand to fill its rooms, which would be in competition with the nearby 3,400-room Atlantis, Paradise Island.
Hotel demand in the Bahamas is basically flat from 2013 to 2014, said Jan Freitag, senior VP of STR, parent company of Hotel News Now. Demand was up 8.9% for 2014, but that was basically a "rebound" number, Freitag said, because it had been down 5.7% in 2013.  
 
The total number of tourism arrivals in the Bahamas declined 4.4% to about 1.4 million during 2013, according to the latest data from PKF Hospitality Research.
 
PwC’s Berman said that because Baha Mar adds more than 15% to the 13,252-room inventory the Bahamas had at the end of 2014 (according to STR) it's an open question whether the new resort can create enough new demand to avoid competing with Atlantis. 
 
“If anybody you talk to does not agree with that (assessment),” Berman said, “they need to go back to the classroom.”
 
Jonathan Kracer, managing principal of Sion Capital, a Miami-based hospitality, real estate, and advisory and investment firm (who is also an HNN columnist), said: “I don't think that the things the government and Baha Mar are doing will generate significant new demand. But I do think they will help create incremental new demand from feeder markets that are already delivering business and from any new markets that get opened up. But the real question is whether the things the government and Baha Mar are doing are going to be enough to fill Baha Mar. And I don't think so." 
 
A possible rate war
As a result of the difficulty in creating major new demand for the destination, Baha Mar will indeed likely compete head-on with Atlantis, Kracer said. 
 
In a January 2013 interview with the Tribune, George Markantonis, former president and managing director of the Atlantis, dubbed that scenario "a nightmare" and predicted it would lead to a rate war that would damage both Atlantis and Baha Mar.  
 
“There will be an absorption period for the new inventory,” Kracer said. “So at this point, I don't think anyone can really predict what the impact of that will be on Baha Mar or Atlantis. If they go after the same markets, such as family business or meetings and conferences, they will cannibalize each other. But Atlantis has a very strong market position and they have taken defensive measures, such as joining Marriott's Autograph Collection, to protect themselves.” 
 
Paul Burke, current president and managing director of Atlantis, told HNN that he and his team have a solid strategy in place to compete with Baha Mar if it comes to that. On 16 October, Atlantis officially became a member of Marriott's Autograph Collection.
 
"Our strategy is to continue our capital expenditure commitment to keeping our facility in a first-class condition," Burke said. Current plans include renovations of guestrooms and public areas at The Cove tower. Several new celebrity chef restaurants are in the works and a new, high-end private gaming area of the Atlantis casino is expected to open by the end of this year. A complete renovation of the Royal Towers is also under consideration. 
 
Burke declined to disclose the total capital investment.
 
"And all of that is just on the capital investment side," he said. "For us, the defensive option—or being on offense—is leveraging the group relationships that Marriott and the Autograph Collection have, not just in the Caribbean, but also in our key feeder markets. Their global sales offices and their salespeople's ability to understand our facility is the result of countless familiarization trips. We feel that our affiliation with Marriott and their marketing capabilities was a very 'offensive' move for us. We like that relationship, in terms of recognition and reputation, in terms of how that helps us stack up against our competition in this market." 
 
If Baha Mar does not create a lot of new demand and maintain its rate integrity in the market, “then everybody is going to suffer,” Smith said
 
Other challenges
Aside from the critical issue of new demand versus direct competition with Atlantis, Baha Mar faces other major challenges.
 
A December 2014 ratings report from Standard & Poor's cited "growing concern that (airlift) capacity is not sufficient in light of the upcoming Baha Mar opening."
 
That is a significant and important concern, Smith and Berman said.
 
“If you look at the Bahamas today, (the market) is largely a northeast U.S. and Florida destination,” Berman said. “There is a need to open up the Midwest, the Southwest and the West. And you do that by working with the airlines by providing incentives and subsidies. A government plan is now in place to do that, but I cannot speak to the execution of it.”
 
The Bahamas Ministry of Tourism declined requests for specific information related to the $410-million expansion of Lynden Pindling International Airport and progress toward securing more incoming flights.
 
“When there is demand for Baha Mar, the question is will the airlines provide the airlift because that will be more profitable for them?” Smith said. “But if they do that, that is going to suck airlift from other destinations within the Caribbean. That's one way Baha Mar could have an impact on other Caribbean destinations, such as Dominican Republic, Jamaica and other places where that airlift now goes. That's what I'm really worried about, which is the impact on other destinations. But the question that has to be answered for the Bahamas is where is the new airlift going to come from?”
 
Yet another obstacle Baha Mar must overcome is a recent history of power outages from Bahamas Electricity Corporation. “They are undergoing a restructuring and have recently had several power outages that affected hotels,” Kracer said. “That shows the seriousness of the issue of a troubled utility.”
 
The December report from Standard & Poor's highlights the power grid issue: “Some question whether The Bahamas can accommodate another project as large as Atlantis despite the potential boon it could be to the economy. The cost and availability of energy has been a long-standing complaint and impediment to the Bahamian tourism sector. Pressures have continued to rise this year (2014) with increased short-duration power outages.”
 
In mid-March, Atlantis went dark at a number of its facilities, including two room towers and many restaurants, when its back-up generators ran out of fuel after the electric grid went down for an extended period.
 
“On the evening on March 13, Atlantis had a power outage that affected both Nassau and Paradise Island, including two room towers and many restaurants, when the (backup) generators did not fully activate. The resort was operational on March 14,” according to a statement from the Atlantis. 
 
With Baha Mar expected to soon come online with 2,200 new rooms and 40 restaurants and clubs, as well as a spa and golf course, until the power grid problem is fixed, the risk of frequent power outrages will probably get worse before it gets better, Kracer said.
 
“That's especially true in terms of the impact of outages on upmarket hotels like the Rosewood at Baha Mar, where you're paying those kinds of rates and expecting a certain level of quality,” he said. “So that's one of the major challenges that is weighing on Baha Mar from the beginning.”
 
The other key issue Kracer cited is an official warning from the U.S. State Department that cautions American tourists about rising crime in the Bahamas. 
 
“These crime warnings and security alerts definitely affect the Bahamas as a destination,” Kracer said. “And they also definitely affect Baha Mar as a resort, even though it's an upscale resort. But for people from key feeder markets like New York, a State Department crime warning does not help you. It's a major issue.”
 
HNN’s Patrick Mayock contributed to this report. 

Correction, 25 March 2015: An earlier version of this story stated HNN confirmed with SLS and Rosewood on 13 March.
 

8 Comments

  • Former Atlantis guest March 25, 2015 11:59 AM

    Having been at Atlantis on Mar 13th and living through the island power outage I was astounded at how ill-prepared Atlantis was in dealing with the outage. For the kind of money I was paying to have my family at the resort for a full week, I was expecting nothing less than an uninterrupted 5-star experience regardless of what was happening outside the resort with street power. Instead, we were faced with dangerous conditions, black outs throughout our hotel, no emergency lighting, no back-up power, a complete lack of support from resort employees (they suddenly disappeared when the outage reached it's zenith), unworkable elevators, questionable water .... a complete &*&( show! Despite what Burke says about their capital investment strategy, I saw no evidence of it. Having been to Atlantis 3 previous times over 10 years (the last time in 2011) the feeling I went away with is the resort is tired and out-of-date. The chaise lounges on the Cove Beach were weather, tired, canvas ripped with hotels and generally in very poor condition. The landscaping facades depicting volcanic lava rock around the resort are weathered, faded, cracked, some have holes in them, a general look of malaise throughout the resort....Burke's words are just that, words, they're not actually demonstrated in facts. I'd steer clear of Atlantis for a while, it sounds like the whole island's going to be off-kilter for some time until they figure out this power generation thing, Baha Mar will never realize its full potential unless it's off the power grid and has its own power generation capability....the Chinese probably forgot about that.....

  • Anonymous March 25, 2015 2:14 PM

    This is a very comprehensive article and brings to light a few things going through my mind as a Bahamian resident. Can the airport handle it ? Can the taxis and roads handle it? Can the electricity company handle it? and will people come if something is not done about this crime issue???

  • Anonymous March 26, 2015 1:28 PM

    I have been saving for this BAHAMAR vacation, fron 5/14 -5/19. I hope it was not a waste of my time and money. I have been coming to the Bahamas science 2007 and staying at the Whyndam casino tower and this would have been preferable to the excuses that thie MEGA RESORT have been saying.

  • JFK March 26, 2015 2:49 PM

    This project has been badly managed from the start. The owners have sold out to the Chinese and the Chinese will eventually control this project. The management should have got the casino off to the first start to generate income. Looks like a lot more problems to come, inclusive of the lack of infrastructure and law and order.

  • BobSonn April 6, 2015 6:32 AM

    Everyone loves to throw stones at a new AMBITIOUS project. Over time, BahaMar will turn out to be a GREAT resort. So what if they are 1-2 months late! You're not a partner there. Its not your problem. Celebrate this project as a fantastic new development. We need more of these across the Caribbean. PS. For those of you with these ANTI-Chinese feelings, Boy did you pick the wrong DECADE to be in real estate! Good luck 2 U....B.S.

  • canada April 17, 2015 5:36 PM

    Fools looking for a pot of gold

  • Jeff June 16, 2015 6:57 AM

    Terrible resort they will never open.melia is hell on earth as well.atlantis and ocean club the only good places to visit.

  • Anonymous June 30, 2015 5:00 AM

    I wrote on June 16th they will never open and on June 29th they filled for bankruptcy. There is no chance this resort can open in the next 2-3 years unless they can sell it to someone with experience. Jeff.

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