Baha Mar Hotels Open Due To Family Funding

Baha Mar's two existing Cable Beach resorts are only still open because their owner's family has used their own money to cover "significant multi-million dollar losses", particularly over the last two years, something that has made the Izmirlians the "largest private investor in the history of the Bahamas".

Sarkis Izmirlian, Baha Mar's chairman and chief executive, told Tribune Business in an exclusive interview that there was "no way" the Bahamian hotel industry could maintain its long-term competitiveness unless its operating cost base - chiefly labour and utilities - were brought into line with this nation's rivals.

He added that, together, the combined cost of acquiring the now-Sheraton Nassau and Wyndham Resort & Crystal Palace Casino plus associated land (estimated at near $200 million); the $150 million investment in upgrading those properties; Baha Mar development costs; and covering the existing resorts' losses (probably at least $40-$50 million) since the 2005 acquisition, had made the Izmirlian family the largest private investors in the Bahamas. Tribune Business estimates that investment to be around at least $500 million.

"Those hotels have lost money for the past four years," Mr Izmirlian said of the Sheraton and Wyndham. "In the past two years, they've lost significant amounts of money because of high operating costs in the Bahamas and the recession in the US. The only reason they're still open is because my family has covered those losses - significant losses."

Mr Izmirlian declined to give figures for those losses, or how great a subsidy his family had been forced to inject, but added: "All I can tell you is that the amount of money invested in buying the land, renovating the hotels and covering the losses makes us by far the largest private investor in the history of the Bahamas. Those are big losses."

The Baha Mar chairman's remarks imply that the continued employment of Sheraton and Wyndham/Crystal Palace staff - some 1900 persons in all - is totally reliant on his family's ability and generosity on covering the annual loss deficits, not a comforting position to be in. They also hint at a problem many Bahamian hotel industry executives are all too well aware of, namely that many properties have suffered continual annual net losses and exist thanks only to the relatively deep pockets of their owners. Ultimately, the Bahamas' largest private sector industry and employer is in danger of becoming a welfare industry.

"The Bahamas is a very challenging environment to run a hotel in, and as an industry we need to realise that to be competitive in the long-term, there's no way, unless we can have competitive costs, we will be able to be successful long-term in the Bahamas as a tourism destination," Mr Izmirlian told Tribune Business.

"Another competitive advantage we need to create is guest service. Visitors don't see it as a luxury; they see it as a necessity. One of the goals of Baha Mar is to constantly train staff and ensure guest service is the best in the country and, hopefully, the Caribbean."

Asked how the Sheraton and Wyndham were currently performing, the Baha Mar chairman replied: "Given the current environment they're doing as one would expect, not very well. 2010 is going to be a very difficult year. Until the US economy picks up, we will not see tourism in the Bahamas being impacted.

"One thing this economic cycle has demonstrated is how hard it is to run a tourism business in the Caribbean. We've all suffered; the Bahamas is suffering, and all Caribbean destinations have suffered."

Mr Izmirlian praised Scotiabank, which put together the syndicated loan to finance the initial purchase of the Cable Beach resorts and has acted as their main banker, for "working very closely with us over the past six months".

The bank had given Baha Mar "the all-important financial flexibility to weather the recent difficult economic environment", and Mr Izmirlian said: "This is a very difficult environment in which to operate a resort, and Scotiabank, being a long-term financier in the Bahamas and tourism, understands this a marathon and not a sprint". Tribune Business had previously been told that Scotiabank had refinanced the original loan, although Mr Izmirlian did not go into detail

Asked whether he would have acquired the two Cable Beach properties and associated land had he known the protracted delays and Harrah's withdrawal that the $2.6 billion Baha Mar project would encounter, Mr Izmirlian joked that had he seen the current recession coming, he would "probably have gone into a bunker" and made no investments. However, as negotiations with Baha Mar's Chinese partners appear likely to reach a promising conclusion soon, he told Tribune Business: "We are as committed to making Baha Mar happen as we were in the past, and are very close to making that happen."

Mr Izmirlian said both the China Export-Import Bank and China State Construction shared "the vision and common goals" of Baha Mar, and were aware of both the project's potential and its likely "transformative" impact on the Bahamian economy.

"Over the construction and life of the project, we're going to be creating thousands of Bahamian jobs," Mr Izmirlian said. "It's wider than a simple resort. It's going to have such an economic impact on the island of New Providence and the wider Bahamas.

"This project is going to create an iconic destination with world-class, extraordinary experiences, getting people to come to the Bahamas over and over again. Regardless of the environment, this is an important project for the Bahamas."

He added: "We're going to have the original concept behind Baha Mar, which was to create a destination, and within that destination to have multiple experiences, so people come back over and over again to the Bahamas and Baha Mar - the casino resort, the convention resort, the hip hotel. All those destination will be under the Baha Mar umbrella, creating a destination.

"The impact of having a world-class Las Vegas casino is still there, the restaurant brands, the golf brands, are still there. It's all combined in the best destination, with beautiful beaches and the best weather."

Mr Izmirlian said Starwood and its hotel brands were still on board with the Baha Mar project, and he added: "We're going to have a new casino strategy, which we're going to disclose after the financing is in place."

The Baha Mar chairman, after the withdrawal of Harrah's and its brands, had previously said the developer was even mulling the development of its own casino brand, but he now added: "It is going to be the right strategy for a world-class casino resort in the current environment, and where gaming has evolved to today. The gaming industry is very different, and strategy and branding has to evolve with it."

Mr Izmirlian said he was also "very keen to create a resort that is environmentally conscious", adding that Baha Mar would work with the Government on the use of solar power and deep sea water cooling.

Source: The Tribune