Premier David Burt - Fairmont Southampton Hotel Legislative Brief

11 May, 2022

Mr Speaker, I am grateful for the presentation from the Honourable Member, the Minister of Tourism. His framing of this debate provides the ideal point from which I can turn to the fiscal aspects of this redevelopment.

Mr Speaker, Black’s Law Dictionary defines a “fiduciary duty” as: “A duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person.” The parties to whom this duty of care is owed are called principals.

Mr Speaker, we in this Honourable House are charged with the duty to act for the benefit of the people we serve, subordinating our personal interests to the interests of the people of Bermuda who are our principals. There are some who might say that this duty is more significant in the office of Minister of Finance, and there is an argument to be made in this regard. But Mr Speaker, that argument cannot be used as a shield to defend against the realities of leadership in these times.

That argument cannot be used as a sword to strike out, suggesting that one individual gets to define how that duty is discharged. That, Mr Speaker, is not our system of Government. The duty to act for the benefit of the people we serve is borne equally and rests as heavy on the shoulders of a Minister of Finance as it does on the entire Cabinet, our respective Caucuses, and individual members.

Each Member must give an account of their stewardship to their constituents. And in the case of this Bill, the question to be asked is whether we are prepared to act to the benefit of our principals, the people of Bermuda, setting aside our narrow political motivations.

Mr Speaker, the central theme of the Bill before this Honourable House and, in fact, the fundamental negotiating position of the Ministry of Finance, on behalf of the Government of Bermuda, is and has been: maximum protection to appropriately mitigate risk. As the Honourable Member, the Minister of Tourism, outlined, this Bill contains the oversight and protections set out in the 2017 Tourism Investment Act.

Mr Speaker, this Honourable House and the people of Bermuda will painfully recall the reckless guarantee pledged by the former Government in support of development at the former Morgan’s Point. Mr Speaker, the One Bermuda Alliance Government guaranteed 100% of the debt financing for that project. I repeat, Mr Speaker - they guaranteed 100% of the debt - with a guarantee that was put in place for that project. The balance sheet of the Government of Bermuda confirms that decision was indeed reckless and now serves as a weight around the neck of the treasury & the neck of the taxpayers of Bermuda.

What is essential to note Mr Speaker, is that the Morgan’s Point project was not fully funded which means that the developers were relying on residential sales to earn the funds necessary to complete the project. So honourable members, I want to set the table - the former Government guaranteed 100% of the debt for a project that was not fully funded, without the necessary and requisite protections that were needed to protect the taxpayers of this country. They cannot escape that fact, and no matter what excuses are made by the party opposite in this debate today those are the facts - and it was left to this Government to clear up that mess. This Government will not make the same mistake. In this deal - from the start of negotiations, this Government has stated that any government support of the project would require the development to be fully funded.

Mr Speaker, there has been much discussion in this honourable house and other places around the country about the size and scope of government support for this project. It has been stated that the government will provide a guarantee to assist the development of this project which is undoubtedly of national importance. What has been a fierce matter of debate is whether or not there was an agreement to provide the Fairmont Southampton development with a guarantee as part of a 2019 agreement to purchase the hotel.

Mr Speaker, I can confirm, just as the honourable member for constituency 21 confirmed in his personal explanation of March 25th, that there was a commitment to provide a guarantee. Yes, Mr Speaker, that commitment was subject to conditions, and yes Mr Speaker those conditions were not met. But Mr Speaker it is important to note why those conditions were not met, and that is because we all know what happened in March of 2020, a once in a century global pandemic. Any developer would have struggled to raise funds at a time when the future of tourism was in doubt while the world battled the coronavirus and countries had closed their borders.

Mr Speaker, that letter of intent expired in December 2020, and so in 2021, when the Government in response to a question from the media replied - “The Government of Bermuda has not provided, and is not committed to provide, any form of financial guarantee to Westend Properties Limited, Gencom or any other companies related to the Fairmont Southampton Hotel.” - that was factual because the letter of intent had expired the Government was not under any commitment to provide a guarantee.  Additionally, members have raised questions as to why no guarantee was tabled in this Honourable House in line with the requirements of the Government Loans Act 1978. That is simple Mr Speaker, as guarantees are only tabled in this place when they are fully executed, and given the guarantee commitment never made it to be fully executed - it would not have been tabled in this house, and therefore it was accurate to say in March 2021 - that no guarantee was provided.

However Mr Speaker, despite the expiration of the letter of intent, the developers kept working to put together a package that would complete the re-opening of the hotel.   

Mr Speaker, much noise has been made about whether myself or the honourable member for constituency 21 are correct - and Bermuda’s daily newspaper has relished in running stories with questions about “who is telling the truth”. To put aside all doubts so that this debate today can focus on facts and not conjecture - as rumour and innuendo is not what the people of this country elected us to focus on; I will, for the information of this Honourable House and the people of Bermuda, table the Letter of Intent executed by the then Minister of Finance on behalf of the Government of Bermuda that supported the purchase the Fairmont Southampton Hotel by Gencom in 2019.

As part of the negotiations to support the purchase of the hotel, in 2019 the government committed to providing, subject to conditions, credit support in the amount of 50 million dollars - to take the form of a Government Guarantee. At that time, the project was estimated to be a $300 million project, which included the purchase price, hotel renovation, and the working capital necessary to ensure that the project was a success. The proposed $50 Million guarantee was to represent 17% of the project's total cost at that time.

Mr Speaker, during that time between 2019 and 2021, when the project was brought back to the Government, the developers expanded the scope of the hotel to add more amenities such as an additional pool and additional areas for meeting spaces to better aid the project's success and to make this hotel a truly iconic property to enhance the tourism product here in Bermuda.

It was the intention of the developers, the lenders, and the Government to have a deal agreed upon in December 2021 - and it was my hope that agreement would have been announced in this place before we adjourned for the Christmas break but that did not happen.

What is also essential to note Mr Speaker, is that the more time that went on where there was no agreement, the more difficult finding an agreement became. Why is that the case Mr Speaker?

We all have witnessed the global supply-chain challenges brought on by the pandemic, the increases in shipping costs and the increasing costs of materials. All of these put additional pressure on the developers, and in addition to additional interest costs that were being incurred - the need to come to an agreement became even more urgent.

Mr Speaker, no deal is perfect, and there were three real options that faced the Government of Bermuda:

  • First, demand that the developers downsize the project to remove the additional amenities added
  • Second, require the developers to put even more additional equity into the project than the additional equity they had already committed since 2019
  • Or third, enhance the government's credit support to ensure that this redevelopment took place and the hotel reopened.

Mr Speaker, there was a fourth option, and that was to not re-open the hotel and let it sit there as a monument to Bermuda’s tourism past, but that was never under consideration by the Cabinet as we all know how essential the Fairmont Southampton is for our country’s tourism future.

Mr Speaker, I will repeat what I said earlier, “We in this Honourable House are charged with the duty to act for the benefit of the people we serve, subordinating our personal interests to the interests of the people of Bermuda who are our principals.”

So yes, Mr Speaker, the Cabinet decided to extend the period of concessions to ensure that this hotel redevelopment, with its attendant investment in jobs, airlift and additional revenue to the Government, could become a reality. And yes, Mr Speaker, I decided, supported by my Cabinet colleagues, to increase the size of the guarantee - given the increased project size, scope, increase in cost and the need to get this deal done.

Mr Speaker, governing is not easy, but what I want for the people of this country is a bright future - and this Government will fight for that future!

Mr Speaker, given the above facts, which set the context for the decisions the Government was required to make, I can advise this Honourable House and the public that the redevelopment of the Fairmont Southampton Hotel is to be supported by a Government Guarantee. That guarantee is proposed to be for a maximum of $75m, and I will speak to this further later, which represents 21% of the revised cost of the total capitalisation of the project which is now estimated to be $376 million. Yes Mr Speaker, that 21% is more than the 17% in the 2019 agreement, however this limited exposure on behalf of the Government of Bermuda is in direct contrast to the actions and decisions of the OBA Government symbolised by their former Minister of Finance where all of the debt was subject to a guarantee, and who, after taxpayers were required to pay over $200 Million, unashamedly said that he “would do it all again”.

Mr Speaker, just as it was in the 2019 commitment that I tabled in this Honourable House earlier, the mechanics of that guarantee will see that $75m loaned to the developers and the repayment of the loan financed by the taxes collected through the operation of the hotel.

Let me repeat Mr Speaker, because this is important. The mechanics of the guarantee will see that the $75 million loaned to the developers, and the repayment of the loan is going to be financed by the taxes collected through the operation of the hotel.

So, Mr Speaker, there is no tax giveaway for wealthy foreigners,  what we have is a structure crafted to ensure that all parties do everything possible to finish the  redevelopment and open the hotel for operations. Taxes will be collected in the usual way, but they will be used for the repayment of the guaranteed loan which will have been used to redevelop the hotel - that redevelopment will provide jobs & more tourists for Bermuda.

Mr Speaker, this structure known as Tax Incentive Financing, is common in many developments around the world, and I suspect this hotel will not be the only hotel to use this form of financing as the Hon. Minister responsible for Tourism will  look to advance additional Tourism Investment Act Orders to renovate existing properties, or build new hotels in Bermuda.

Mr Speaker, in this instance, this loan is being guaranteed by the Government of Bermuda, as in this particular setting it is recognised that having Bermuda’s largest hotel, with the capability of accommodating large groups, upgraded and fully operational is critical for Bermuda’s tourism economy and critical for Bermuda’s future.

Mr Speaker, getting to this point has been the result of considerable time invested in negotiations to achieve the best deal for the people of Bermuda, having considered all of the relevant risks and benefits. As a Government, we learned from the past and focused on ensuring there were appropriate protections in place. However, during the negotiations to come to an agreement, we also worked on adding additional benefits for the people of Bermuda that were not part of the agreement that I tabled in this Honourable House earlier today.

One of those additional benefits is a profit-sharing component within the deal so that the people of Bermuda can benefit from any future success of the hotel. The agreement in place calls for 10% of profits in excess of the equity invested into the project to be shared with the people of Bermuda.

Mr Speaker, in the Progressive Labour Party Government’s 2020 Election Platform we promised to:

“Create a national fund called The Bermuda Trust Fund that will benefit economically disadvantaged Bermudians to reduce generational income inequality.”

Mr Speaker, the proceeds of this profit sharing will be pledged to the Bermuda Trust Fund on behalf of the people of Bermuda. The Progressive Labour Party Government believes that if the Government supports projects of this nature on the people’s behalf, with a sovereign guarantee, then the only benefit to citizens cannot just be the opportunity to work in construction and hotel operations. There must be a lasting legacy and benefit to future generations, and in this revised deal, we are seeding this legacy, and I look forward to bringing legislation to establish the Bermuda Trust Fund to this Honourable House in the future.

Mr Speaker, also in keeping with the Progressive Labour Party’s 2020 platform, this Government is keeping its commitment to building a nation of owners. This revised agreement advances that objective by making provision for Bermudians to directly invest up to $10 Million in this hotel redevelopment. If the amount of this investment is fully subscribed, the Guarantee amount pledged by the Government of Bermuda will decrease from $75 million to $65 million Mr Speaker.

Mr Speaker, it is time for a new paradigm and for us to approach these situations differently and to allow Bermudians to have the opportunity to invest in major local projects that are guaranteed by the Government.  We have listened to the concerns expressed by Bermudians who wonder why they do not have the opportunity to invest their own hard-earned money in government-supported projects in their own country. In this agreement, we will work to turn that desire into a reality.

Mr Speaker, this bill represents yet another step in the move to close the financing for this project, as it is a part of the framework that will facilitate the renovation and upgrading of a hotel property that is a central part of Bermuda’s tourism sector. The development plans for this property will create a luxury resort with first-class amenities aimed to increase Bermuda’s attractiveness as a tourism destination and play a critical role in the rebranding of our tourism product.    

In this project, the Government is partnering with a developer with significant experience in the tourism industry who has successfully built and operated hotels in key tourist destinations in the US, Caribbean, and Latin America. And since its inception, has completed, directly or indirectly, over $7 billion of real estate transactions, including the Rosewood Bermuda at Tucker’s Point. That level of expertise was vital in determining the nature and scope of support the Government  was willing to give to this project. As these developers understand what is necessary to make a hotel property work and are intimately familiar with the needs and desires of their customers and the Bermuda market.

Mr Speaker, as noted earlier, it has taken considerable time to negotiate a deal - that if successful represents significant upside for Bermuda. Still, in an effort of complete transparency, as in any case involving a Guarantee, there is a risk to the Government that this guarantee could be called. The Government would have to find the funds to either buy out the other lenders and complete the renovation work or work with the senior lenders directly to complete the project.  Mr Speaker, the critical factor here, unlike the situation with Morgan’s Point, is that the property already exists, and the work is being done to enhance and upgrade the property. Therefore, in a worst-case scenario, the plans, in case of difficulty, could be scaled back and still provide benefit to the people of Bermuda.

Mr Speaker, as I close, I would certainly like to address some questions that were raised by Honorable members and also the statement made by the Leader of the Opposition in a press statement yesterday where he said the Government would be giving up revenue that could be used for other purposes.  Mr Speaker, let me answer that in 2 simple ways.

  1. The first, and I believe that everyone in Bermuda understands this, with the exception of the Opposition. If there is no hotel operating, which is supported by this bill, there are no taxes. You cannot give up something that you do not have! If there is no hotel operating, there are no taxes, simple.
  2. And this is also important Mr Speaker, the Government would earn MORE MONEY if this hotel were to open with this bill than if it remained closed. That means this bill EARNS money for the Government and for the country, it does not lose money for the Government or the country and that is an important distinction!

Mr Speaker, if this hotel is not to be redeveloped, the impact on our economy is significant:

  • There will not be the 650 direct jobs in construction
  • There would not be the estimated 800 total jobs when the hotel opens for operations
  • The tourism sector is also a feeder to many other industries- taxi drivers, souvenir shops, restaurants, and sightseeing sites, to name a few. - Those businesses would lose out on additional tourism dollars
  • And, we would still have to pay Skyport the minimum revenue guarantee - which has cost taxpayers more than the $43 million we have already had to pay.  This is really “lost” revenue to the Government Mr Speaker, and there is no tangible benefit to offset it.

So it is straightforward Mr Speaker; without this bill, the Government loses, businesses lose, families lose, Union members lose, individuals lose, and Bermudians loses.

On the other hand, Mr Speaker, if the hotel is redeveloped, the Government & Bermuda will benefit!

  • The Government will collect revenue from the employee payroll tax for the estimated 800 staff expected to be employed - which would not be collected if the hotel remained closed.
  • The Government will collect customs duty on items not related to hotel development and upgrades such as items to support the operations of the hotel.
  • The Bermuda Tourism Authority will get more money from the Visitor Fee, meaning they can enhance the marketing efforts for the island
  • Bermudian businesses will benefit from the increased visitors to the island who will spend money around Bermuda
  • And most importantly, the Government will no longer have to pay:
    • Skyport for the Minimum revenue guarantee
    • Financial assistance for those who find employment at the hotel

Again, Mr Speaker - this bill is not a money loser; it is a money earner for BERMUDA! The success of this project will put the country in better financial and economic shape Mr Speaker!

The questions that were asked earlier, which I addressed earlier in my brief, where I stated that this money is not going to the developer, this money is going to pay off the guaranteed loan to ensure that we are protected and that this hotel can be built.

The calculations Mr Speaker is that the tax concessions would amount to $121 million.

So guess what Mr Speaker, that covers the payments of the loan which are expected, and if interest rates change almost about equally Mr Speaker.

That is what we are looking at Mr Speaker. And, so when we talk about this, it is no surprise that other countries are able to build hotels but we cannot agree amongst ourselves that we must match the concessions, and do what other countries are doing to make sure that we can attract that investment. We are not afraid Mr Speaker, we are to press forward because I know that your constituents, my constituents, and every single one of our constituents Mr Speaker, want the jobs and the opportunities that this hotel provides.

So again Mr Speaker, based upon the release last night from the leader of the Opposition - the Opposition wants to have it both ways, but they can't. They either support the reopening of the hotel or they don't. There is no in-between Mr Speaker - no middle ground. If they support the reopening, they will support and vote for this bill today

If they do not support this bill today, the hundreds of Bermudians who will be employed by the hotel in both construction and when the hotel reopens, the multiple businesses that support the hotel operations, and the taxi drivers who will transport the guests that will stay at the hotel will always remember that the One Bermuda Alliance didn't support the bill in Parliament necessary to re-open Bermuda's largest hotel.

And Mr Speaker, remember when we were in opposition we supported the St Regis development and guess what Mr Speaker, that bill gave tax concessions in excess of what was allowed in law at the time and contain a provision for an extension of those concessions to 20 years Mr Speaker. So what the Opposition is talking about, they are trying to have it both ways.

The work we do in this Honourable House matters Mr Speaker, and the jobs that will be provided will provide hope for a better future for the people of this country who believe in a better future for this country. We have been through a lot Mr Speaker - but today we can demonstrate our unity and we can advance this project in the interests of the people who put us here in this Honourable House. To grow this economy and to restore hope for a brighter future.

Mr Speaker as I finish, I must take this opportunity to thank the team within the Cabinet Office, the team at the Ministry of Finance, my Cabinet colleagues, the team at the Bermuda Tourism Authority, the leadership of the Bermuda Industrial Union and other stakeholders for their tireless efforts to get us to this point. There is still more work to be done, but today’s progress and the passage of this bill today genuinely signals that we are moving beyond the pandemic and on the path to economic recovery.

Thank you Mr Speaker.