Sale to Petters Group Worldwide latest to falter, as resort's difficulties undermine 'mega resort' strategy for Family Islands * PwC appointed to sell $320m Exuma resort after numerous previous deals fall through

The troubled Four Seasons Emerald Bay Resort's main creditor has appointed receivers for the $320 million property's holding company in a bid to sell the Exuma development, after it defaulted on its repayments in April 2007, a move that highlights the flaws in the 'anchor property' strategy for the Family Islands.

It was confirmed yesterday that Wayne Aranha, a partner in the PricewaterhouseCoopers Bahamas (PwC) accounting firm, together with London-based PwC accountant Russell Downs, had been appointed as receivers of Emerald Bay Resort (EBR) Holdings on June 22, a development that will come as little surprise to those in the know - including this newspaper.

Tribune Business revealed as far back as 2005, and regularly throughout 2006, that the EBR investor group was attempting to either sell the resort or attract additional investors and capital, with the project failing to generate a profit.

The receivers' appointment is understood to have come after the latest attempt to sell the Four Seasons Emerald Bay Resort to a Minnesota-based company fell through within the past two weeks, the latest in a series of potential deals to seemingly bite the dust.

Sources told The Tribune that EBR Holdings had been negotiating to sell the 500-acre property, which charges a $375 per night room rate, to Petters Group Worldwide, and had halted work on Phase Two of the resort's build out in the hope that the deal would go through.

But a source told The Tribune yesterday: "This one looked very close, and fell through a couple of weeks ago."

It is likely that this was the `final straw' for the Four Seasons Emerald Bay Resort's' main creditor, and prompted the decision to appoint the receivers to oversee a sales process that would result in success.

The source confirmed: "Emerald Bay has been seriously for sale for one-and-ahalf years."

The Tribune previously revealed that a sale to Goldman Sachs' real estate private equity fund, Rockpoint fell through last year

This newspaper also learnt that the Philadelphia based Adler Group, the financial backer and supplier of seed capital for Ginn Clubs & Resorts' $4.9 billion project in Grand Bahama, was approached to see if it was interested in acquiring Emerald Bay. The offer was understood to have been declined.

Although the receivership announcement did not identify the main creditor, The Tribune has been informed that it is the London branch of a Japanese financial conglomerate called Sumitomo Mitsui.

Appointment

Through the appointment of the receivers, and the hiring of London-based Cairn Financial Products Ltd as its corporate advisor, Mitsui is understood to be trying to put as much distance between itself and the Four Seasons Emerald Bay Resort, but it will not allow the assets on Exuma to deteriorate while it seeks a buyer -especially if the sales efforts are protracted or unsuccessful.

"There are people who believe that if PwC is not able to find a buyer for Four Seasons in three months, then Mitsui might send its own people in and manage it itself." the source said.

The reasons behind the collapse of the deal with Petters Group Worldwide are unclear. although there was a suggestion that the potential buyer had offered a sum that would have cleared Mitsui's debt -alleged to be around $117 million - only for the bank to reject that.

One Bahamian-based executive, who was acting for a group interested in acquiring the Four Seasons Emerald Bay Resort, told The Tribune that his clients "kept being given the runaround" by EBR Holdings because they were convinced the agreement with Petters Group Worldwide would go through.

However, he suggested that Petters had pulled out of the original deal in the knowledge that receivers would be appointed, hoping that they would be able to better negotiate with them and arrive at a lower price for the resort.

Yesterday's statement said the receivers had been appointed to oversee the sales process, and that neither this nor their appointment would have any impact on the resort's staffing levels or daily operations, with Four Seasons continuing as the management/operating partner.

Mr Downs said: "Our objectives are very clear. We will be wroking to ensure the continued smooth running of hte master development and the Four Seasons hotel. As faras employees, customers and suppliers are concerned, it will be very much business as usual at the resort development.

"At the same time we will be seeking buyers for the assets of the master development. It is rare that a resort development of this scope and quality and in such an exceptional location comes onto the market.This is a valuable asset, which has alreadt attracted significant interest. I am confident that a sale can be achieved with the minimum disruption and in a relatively short time frame."

David Henriques, of Cairn Financial Products Ltd, added: "We have been working on the refinancing of EBR Holdings for a number of months, and have been talking to several parties who are interested in purchasing the master development.

"The Four Seasons hotel is profitable and performing well, but there are certain circumstances surrounding the master development loan that facilitates a disposal through a formal receivership process.

"As PwC commence the sale process, it is encouraging that they have already received significant interest and potential buyers are not viewing this as a distressed sale despite the presence of a receiver."

Yet sources said an investment of about $7 million would be needed to complete the 23-acre marina, which can accommodate vessels up to 200 feet in length.

The resort has acted as Exuma's main economic engine, attracting additional foreign direct investment to the island. It employs almost 500 staff, and features an 18-hole Greg Norman Golf Course, two restaurants, three pools, spa, six meeting rooms and 450-person capacity ballroom.

Other investment projects attracted to the Emerald Bay vicinity include the resort's Pinnacle Entertainment-managed $5 million casino, the $110 million Grand Isle Villas development, plus the 80/50 fractional ownership component.

A shopping complex has also opened at Emerald Bay, the anchor retailer being the Emerald Isle supermarket. The complex also includes businesses such as Scotianank and Mail Boxes Etc.

Yet as one source said of the receivership announcement: It sends out a very bad signal to the world."

It also seemingly has shot a big hole in the 'anchor property' strategy of establishing mega resorts on the Family Islands to act as economic engines.

Policy

The policy was started under the first FNM government and pursued even more vigorously by the former PLP administration, with the Four Seasons Emerald Bay resort acting as the model or 'poster boy' for the plan.

David Johnson, deputy director-general in the Ministry of Tourism with responsibility for planning, investment and business developement warned ealrier this year that the Four Seasons needed to become sustainable, profitable resort, and the Bahamas could not afford for it to fail.

He said then that factors such as building costs being about 40 per cent higher per square foot than they are in NAssau, had retarded Emerald Bay's growth and kept it from reaching the development its owners had previously predicted.

Mr. Johnson siad of Emerald Bay: "The property was conceived to be a mixed-use project, with 185 keys under the Four Seasons brand. The vast majority of the property was to be for mixed-use, condos and hundreds of lots sold for significant family homes.

"After four years of operation, they have developed very little of the sold inventory. There's been a lot of trading of the land by the owners, but the cost of building is prohibitive.

"The buildings costs, the numbers suggest. are in excess of 40 per cent higher per square foot to build."

Mr Johnson explained that due to Four Seasons' reputation and marketing positioning at the five-star, luxury end of the market, properties constructed there would be similar to those built on Kerzner International's Ocean Club Estates on Paradise Island.

Costs to construct such properties in Nassau were $500 per square foot, while in Exuma the price was $800 per square foot.

Mr Johnson also underlined the impact the relatively high building costs on Exuma, compared to Nassau, were having on Emerald Bay's margins. He pointed out that concrete there cost $200 per yard, whereas in Nassau it cost $125 per yard.

Hotel

"The hotel, with a golf course and spa, as a 185-room resort of Four Seasons' calibre, can only be profitable if it has a much larger customer base outside those rooms," Mr Johnson said.

He added that the resort needed to build out to 700-800 units to get close to profitability, whereas it was currently closer to 300-400 units.

Simply put, the costs of putting in infrastructure at Emerald Bay, such as roads and all the utilities - paid for at least in part by the developers - coupled with the high operating cost environment both inside and outside the resort, have made it difficult for the owners to generate a return on their investment and profit.

While Four Seasons, as the operating/management partner, may be earning a profit because it collects its money as a percentage of the gross revenues and operating profits, the resort's owners - like so many in the Bahamas - are not and are losing money.

Their failure to generate sigificant critical mass through real estate and land sales, the sectors most likely to give them an instant - and greatest -investment return have also contributed to the difficulties.

Critics have argued that the 'anchor project' strategy has done little to diversify the Bahamian economy, and that the scale of some investments is completely out of proportion to the islands and populations being asked to support them.

As a result, concerns have been expressed about how some investments have changed the character of their respective locations ,potential environmental damage,and the inability of the public sector - utility corporations and other infrastructure - to keep pace with private sector development.

The experiences of the Four Seasons Emerald Bay resort provide a salutary warning for other investors contemplating, or in the stages of constructing, similar mega projects on other Family Islands.

These include the Boston-based I-Group, joint 50/50 partners with the Government on Mayaguana; Montana Holdings' $700 million Rum Cay project; numerous projects on Eleuthera: and the Ritz-Carlton branded Abaco Club at Winding Bay and Discovery Land Company's Baker's Bay development in Abaco.

Source: The Tribune