Long lease will equal loss

| 03/12/2010

(CNS): The dangers of giving a developer too long a lease on crown land are evident in Cayman’shistory books, a number of concerned citizens have stated. The current impasse between government and DECCO, the developer of the proposed George Town cruise berthing, revolves around the length of the lease, which many people have said should be no more than 30 years as anything more would equate to an ultimate a loss of that public property. Charles Clifford, who had begun negotiations with Atlantic Star to develop the cruise port when he was tourism minister, says that if the developer cannot make the project work in 25 years, the plan is not a viable business option.

Pointing out the historical dangers of long government leases, Clifford told CNS that a 99 year lease is tantamount to the sale of crown land, or public property.

“If the current cruise port facility proposal was a viable project, the developer should be able to get a return on his investment in less than 25 years; if not, it is evident the business plan is not suitable,” Clifford said. “A 99 year lease is completely ridiculous and is akin to handing over ownership. History tells us that every time government has entered into such long leases, when they begin to fall back they are generally topped up.”

There are a number of prime sites across Grand Cayman that belong to the people but the land has been leased to developers over long periods which are constantly renewed well before the time is up, making the lease agreements essentially into sales for nothing more than a few dollars.

Sources told CNS that in the 1950s the colonial government leased out land along Seven Mile Beach where the Coralstone Condominiums, the Westin, Villas of the Galleon and the Ritz are all located — land that government is unable to now profit from – and where the lease has been constantly topped back up. When government is short of cash there is a temptation to renegotiate these leases for just a few dollars each time, returning the lease back to 99 years almost perpetually.

Although it is unclear exactly what lease term DECCO has requested, as the time frame ranges from 20-99 years, it is understood that whatever time has been requested, government is reluctant to agree and the negotiations with the developer are near collapse. Almost a year after government was hoping to break ground on the facility, the project is stalled before leaving the starting gate.

Clifford said that he had warned the government in the wake of the UDP winning the election that the negotiations regarding the port would be lengthy and complex. Having gone a fair way down the road with Atlantic Star, Clifford said he had offered to assist the Port Authority with the project but he said his offer was ignored.

“I believe if government had picked up the plans which were started during the previous administration it is likely at least one of the piers would have been completed by now,” Clifford told CNS. “I am not surprised by the current situation, however, as I do not believe the government understood at the outset the incredible complexities involved in such a project.”

Clifford noted too that government had not taken the environmental impact assessment (EIA) seriously.

“From the very beginning the premier said he believed enough assessment had been done in the area in the past and he was going to get the cruise terminal done. However, I took the approach that the environment had to inform the project and we would seek to mitigate any negative impact in the design of the development. However, we said from the get go any threat to Seven Mile Beach would be a show stopper.”

The former tourism minister said that the meetings he held to gather the information just to lay out the terms of reference for the EIA were extremely difficult but he said it was essential that every possible contingency was covered and that the Department of Environment (DoE) were involved in the process. He queried how thorough or revealing the current EIA would be since it is paid for by a private company without supervision from the DoE.

Clifford still believes it is essential for the country to develop the piers, especially since the cruise industry faces a potential 25% decline next year as the cruise lines deploy to the bigger ships which will not call in Grand Cayman, but he says he had always warned that the project had to be handled with care. 

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  1. Anonymous says:

    ‘Yet the development of Seven Mile benefitted the whole islands population one way or the other.’ – Look at the state of it now.

    ‘….to an area that is lightly populated and despite what Mr. McLean says, is not too pretty either. With the greatest of respect to Mr. McLean, if it is an area of such outstanding natural beauty, how come nothing much is there?’ – XXXX Do you think SMB looks pretty but East End doesn’t?  Exactly – it is an area of outstanding natural beauty, that’s why nothing much is there and hopefully will not be destroyed by over development.

    ‘In Hog Sty Bay’s case, the reefs that were there have been largely destroyed by the commercial traffic of these last thirty years.’ – Yes, so you want destroy up East in the same way?

    The dump can go West Bay!

    XXXXX

    • Alan Roffey says:

      I didn’t say that "East End doesn’t look pretty" but we’re not talking about "East End".

      The property under discussion is that flat ugly low lying swampy bit about a mile east of Frank Sound where the old beat up house with grafitti on its walls and a lonely cow tied to it was, just before the road that got washed away in Ivan rises to the junction with High Rock Road. It has little or no value as it is. If it did, it would not look so.

       

  2. Anonymous says:

    What business is it of the government’s how much profit a developer makes?  If this was such a cash cow our government would have tried to mismanage it to a half hearted completion long-ago.  The only reason the developer is even looking at the dock is because it is dollar cost averaging the break-even business of the dock against the profit benefit they expect from added tourists to their other business ventures. There is a definite complacency on Grand Cayman that everything here takes care of itself, but the shrinking in our economy shows that is not the case.  We have never been closer to a tipping point where that shrinking accelerates and we then need to react to it. Far better to feather our nest for the future by giving up something today and acting deliberately to make a deal.

  3. Alan Roffey says:

    During a recent visit to St. Maarten I was amazed at the positive transformation of the Philipsburg waterfront and tourist town centre brought about partly by the construction of their Cruise Ship landing facility. The separation of the tourist docks from the commercial docks was also a benefit.

    There are huge risks associated with the two proposed dock ventures and the entrepreneurs who are prepared to take those risks deserve a reward that is commensurate with those risks. The cost of original construction is only the first element of the equation. The maintenance of those piers and channels will cost a lot of money every year too.

    60 years ago, no person born and living their life in Grand Cayman would have paid much money for Seven Mile Beach property. But other entrepreneurs saw the potential and risked their time and money betting on it. How many Caymanians have I heard saying "Boy, I wish I’d bought a piece of that back in 1965!" (I can hear my old friend the late Elgin Coe saying it to me now, as I write this). Yet the development of Seven Mile benefitted the whole islands population one way or the other.

    We are in a similar situation now. Mr. Dart and Mr. Imparato see the potential, one for a massive improvement of the cruise ship tourist experience in Grand Cayman, and the other for the commercial and practical advantages of decentralizing ugly, dangerous and space hungry industrial activities out of the tourist heart of George Town and South Sound to an area that is lightly populated and despite what Mr. McLean says, is not too pretty either. With the greatest of respect to Mr. McLean, if it is an area of such outstanding natural beauty, how come nothing much is there?

    It is not consistent for the Eastern District’s politicians to bemoan their constituents’ employment opportunities and yet attempt to block such a bold initiative. The same thing goes for the proposal to build a waste management facility out east. Where else can it go!

    The Eastern Districts need the employment and the areas chosen are not the most beautiful or environmentally important parts of these Islands. In Hog Sty Bay’s case, the reefs that were there have been largely destroyed by the commercial traffic of these last thirty years.

    Therefore, If Messrs Dart and Imparato want to take those risks, and the independent Environmental Impact Studies are positive, then the Government should do all in its power to facilitate their developments, just as they are for the Dr. Shetty Hospital.

    Government should only concern itself with the construction and environmental regulatory environment as well as requiring a financial bond in escrow sufficient to finish the job should those companies fail to do so.

    It should not concern itself at all with the amount of profit the entrepreneur might make over however many years.

    Now if only we can only get the dump sorted out in the same fell swoop, but I see that’s the subject of the next story.

    • Anonymous says:

      There are huge risks associated with the two proposed dock ventures and the entrepreneurs who are prepared to take those risks deserve a reward that is commensurate with those risks.

      Generally speaking your statement holds true for any venture where the entrepreneur takes the initiative, but in this instance you are twisting the facts.

      Many companies expressed an interest in taking that risk, but they were summarily eliminated from contention and the job awarded to DECCO, as was foretold by the Jeremiahs amongst us.

      Now government representatives are negotiating with DECCO over exactly what the risks are and what the rewards should be. Some of the more cynical Jeremiahs believe those negotiations to be nothing more than trying to decide how much the people will put up with before marching in protest.

       

  4. My2cents says:

     Not sure how the island gaining a much needed new cruise ship terminal can be considered a "loss" for the island?

  5. Lazarus says:

    Chuckie is almost getting as dangerous as Hazzard.  At least Hazzard makes positive proposals (most of which are nonsense).  Chuckie just moans at the actions of politicians from parties he has walked away from.

  6. Anonymous says:

    THE TRUE PERSPECTIVE

    When you are foolish enough to hand the largest project in the history of the country to an organization with absolutely no experience or track record in biulding large ports or similar marine projects, you are opening yourself to financial abuse of over inflated costs.

    A no tendered price for a design build and finance project will remove all competitive incentive to develop at the lowest most economical cost budget and will result in over inflated design, build and financing costs which alows the developer to take his profits out on the front end of the project. The cost of the project will be inflated and the time required to recover the highly inflated costs will be longer, like 99 years.

    WAKE UP CAYMAN A CRIME IS BEING COMMITTED HERE AND YOU ARE EFFECTIVELY BEING ROBBED IN BROAD DAYLIGHT

  7. Anonymous says:

    Has anyone thought to ask the professional opinion of Government’s real estate valuation team btw?

  8. Anonymous says:

    If the Government think that a 25 year lease will suffice for a project of this magnitude they are seriously misguided.  Whilst Dart’s deep pockets may lessen the requirement somewhat, any normal developer will need bank financing, and banks will not in general finance development of any property with a lease of less than 75 years, because unlike freehold property, leaseholds tend to become perceived or actual wasting assets at that point in time (ie. their value goes down year to year when compared to a freehold equivilent).  When on a 25 year lease those decreases in value are even more pronounced.

  9. Anonymous says:

    It should be known that Chuckie was offered US$300m by Carnival and Royal Cruise lines when he was minister. and you know what he did? Told the cruise lines to go and take a hike, and now he has the audacity to tell the country he wants to assist.

    • Anonymous says:

      Yeah but do you understand what the cruise lines demanded in return ?

      If you did you would understand why Chuckie told them to take a hike. You should be grateful that we had someone like Chuckie in office protecting our interests and ensuring that we didn’t sell our souls to the cruise lines.

      Lets see how much Mac will sell us for. Because with Mac the question is never whether he will sell us, the question is always how much will he sell us for ?

  10. Anonymous says:

    dart should tell cig to take it or leave it,   let them sink….

    cayman is so ungrateful for what dart and foreign investment has done for this place

  11. Anonymous says:

    If they had followed Mr. Clifford’s plan there would be no need to propose a development in East End that will destroy our pristine environment and way of life.

    It ain’t happening Joe ! We have The Action Man, The Ez and The Chuckster fighting for us. You don’t want to get on the wrong side of either of these Caymanian men…….Trust me on that !!!

  12. Greed Monitor says:

    Now, now, now – let’s not be so greedy and fearful of someone else making a better profit than our own. Cayman will profit from this and that is what matters. Stop peeking over the fence at the greener pastures and ignoring your own piece of the pie. Why should it matter if the entity fronting this deal makes a better profit than we do? So what!!! They are the ones taking the biggest risk in a shaky economy and we have no money to do what they are willing to do even if we wanted to. So good on them!!!! 99 years – so what???? If this project is not endorsed, Cayman will be the big winners of 100% of nothing for 99 years or maybe even longer. Perhaps the iguanas will still be around to chat about what could have been in the old days of 2010.

  13. Caymanians for Good says:

    It is amazing how Mr. Clifford has suddenly become a cruise business expert. His government spent and spent putting our country into the situation it is today where the Port Authority cannot even borrow a $1M dollars and are at the mercy of private developers. Let us not forget that.

    The Atlantic Star ‘MOU’ was never taken to the point where they completed a business model. It is highly likely that their proposal would have also needed more than 25 years of payback without a government guarantee-maybe that was the plan. That MOU was signed without anyone even knowing that it was happening until after the fact. At least in this situation, we knew who the PA was entertaining signing the MOU with.

    Clifford can afford to sit back now and talk about this situation as some newly found Guru. We will not forget the fact that Clifford hardly spoke to the cruise lines for 4 years setting up a rift that had to be undone by this government. It is too easy to be concerned now.

    • Anonymous says:

      I see you drank Mac’s cool aid too !!! Poor you….you are beyond help.

  14. Hot Lunch says:

    Seems to me like a lot of people are looking to have their cake and eat it too with respect to this project.

    Someone should tell them that there is no such thing as a free lunch anymore, only a hot one.

  15. Anonymous says:

    Thanks Chuckie,

    Those idiiots are giving away everything we have.

    somebody’s got to stop them. You think I’m joking, If we don’t force the Premier and his illiterate crew out of office before 2013, we will live to regret it!

  16. Anonymous says:

     Unless I am missing something here surely the developer would like to see his investment capital repaid over a period of time as well as a reasonable return on the investment made.  You really cannot expect the developer to lay out the money for the development and simply hand it over to the Government/people as a gift.  If this project is to cost 100 million, and that may be low, a twenty five year lease will require payments back of 4 million a year or 333,333 per month without interest or any other expense. Methinks Mr Chuckie, yet another guru with years ofentrepreneurial experience and particularly in port development is a mouthpiece for another party who is trying to get in the act again having failed once before.

  17. Anonymous says:

    None of this makes any sense to me.

    Leasing land is an opportunity to receive income while still owning it.
    In other words, sit back and collect the money.

    The term of the lease does not matter in the slightest. All that
    matters are the criteria for extending the lease after the term is up.

    Leases can be for any number of years, can be extendable or not, and the
    criteria for extending can be anything both parties agree to.

    Why does ownership matter in the slightest?

    Is it not far better just to sit back and collect the income without
    any worries or obligations in return?

    Guaranteed income is what this Government, or any government, needs the most.

    Why anyone would actually stand in the way of this is incomprehensible.
     

    • John Evans says:

      Sadly, the recent history of the Cayman Islands suggests that the only people who profit from leasehold sites are the developers and/or property owners.

      Look at the re-negotiated leases on Crown land along Seven-Mile-Beach. Those involved must have made a killing when new 99-year leases were granted on property that had previously had just over 40-years left to run but very little of that money is likely to come back to the islands.

      In fact when I was at Net News we had a number of complaints from Caymanians about lack of consultation over this move. Some felt the plan was simply illegal but others thought that the original leases should have been allowed to run their full term so that CIG would negotiate the renewal from a position of strength and get the best deal for the islanders.

      Leasing is certainly a better option than selling the land but, unless the deal includes a realistic long-term income, not much. The problem right now is that the developers seem to have been given the upper hand and they are now using that as leverage to get a deal that may favour one side to the disadvantage of the other.

       

  18. Bobby Anonymous says:

    Put Clifford in charge of the project!

    He is obviously the only one that seems to have any knowledge of this type of thing and has the welfare of public property at hand.