As published in the Cayman Compass: FRIDAY FEBRUARY 6, 2015
The government has reached a resolution in the lingering negotiations over an agreement between Cayman’s National Roads Authority and Dart Realty, with each side getting something it wanted.
In his State of the Nation address at the annual Fidelity Cayman Economic Outlook conference at The Ritz-Carlton, Grand Cayman on Thursday, Premier Alden McLaughlin said the government had been working to finalize the third amendment to the NRA deal, particularly renegotiating a provision that would have effectively waived half of the tourism accommodation tax for all of Dart’s hotels for an extended period of time.
“My government listened to our tourism industry, our investors and to our constituents,” he said. “Dart Realty, always an engaged corporate citizen, listened to us. The tax rebate is gone; the tourism playing field remains level.”
The 50 percent hotel tax rebate was proposed in the agreement as a way of enabling Dart to recover some of the infrastructure investments made under the NRA agreement, which was originally signed in December 2011, and formed part of a larger ForCayman Investment Alliance agreement. The latter was never completed, primarily because it involved closing the George Town Landfill and establishing a new landfill in Bodden Town, something that current government administration has said it will not do.
The NRA agreement, however, did involve having a section of West Bay Road closed from Public Beach going north, the expansion and improvements to Public Beach; the extension of the Esterley Tibbetts Highway from Raleigh Quay to Batabano Road in West Bay; and a new leg of Reverend Blackman Road to Willie Farrington Drive.
A second amendment to the NRA deal was signed in September 2012 and a third amendment, which at one time widened the scope of roadworks Dart would construct considerably, was discussed.
Soon after the Progressives-led government took office in May 2013, it stated that it wanted to renegotiate the third amendment, particularly the 50 percent hotel tax rebate element. Since then, the government has stated on several occasions that it was hopeful of a speedy resolution. In the end, the government allowed Dart to recover some of its infrastructure investments made as a result of the NRA agreement – which through the end of 2014 amounted to more than US$106 million – in another way.
“In place of the tax rebate, Dart will receive an increase in the NRA Agreement recovery cap, as well as duty abatements and waivers for 30 years,” Mr. McLaughlin said. “This will serve both to incentivize development and provide a means to recover investment made through the agreement.”
Dart Realty subsequently gave some details about the increase in recovery cap.
“The third amendment to the NRA agreement includes a $13.1 million increase in the development duty waiver cap already in place through the NRA agreement, as well as other duty abatements and waivers related to Camana Bay development over the next 30 years,” said Dart Chief Operating Officer Jackie Doak, noting that the $13.1 million was the estimated value of the tourism accommodation tax rebate on the Kimpton hotel alone for its first 10 years of operation, according to a report by PwC. Those calculations were based on a 10 percent tourism accommodation tax, which was since increased to 13 percent, meaning the government will save even more than the $13.1 million estimated.” Dart CEO Mark VanDevelde said his company understood the government’s desire to replace the 50 percent hotel room tax.
“At government’s request, we were open to alternative recovery and incentive methods, and feel this has been achieved in the agreed third amendment,” he said.
Freehold ownership
The third amendment of the NRA agreement also includes a provision that will allow Dart to purchase freehold title to the SafeHaven property currently held on a 99-year lease, Mr. McLaughlin said Thursday.
“Dart already holds the leasehold to the former SafeHaven property and subject to compliance with legal requirements with respect to the disposition of Crown Land, Government has agreed to the sale of freehold title to this property, inclusive of the North Sound Golf Club.”
When Dart confirmed it had “invested” in the North Sound Club in 2012, it did not discuss to what level or if it had also invested in the rest of the SafeHaven property, which at the time was known as Dragon Bay. However, former Dragon Bay developer Mike Ryan confirmed on Thursday afternoon at he was no longer involved in the property and had not been “for a number of years.”
Speaking on Thursday, Mr. McLaughlin said the result of the sale of freehold title to the SafeHaven property would provide revenue to help fund government’s much-needed infrastructure projects.
“It will also deliver long-term economic benefit from direct investment in real estate, the associated stamp duty revenues from a new source and the future cycle of land sales,” he said.
In an interview with the Compass in 2011, Mr. McLaughlin conceded that it was unlikely the government would ever get developed Crown land back from lessees, but at the time he said he thought there was still a benefit of holding the leases because of the revenue injections lessees would make “every 40 or 50 years” when they wanted to extend the term back to 99 years.
Mr. McLaughlin was speaking about the entire Dragon Bay development, which at the time included The Ritz-Carlton, Grand Cayman, since acquired by Five Mile Capital.
Commenting after the conference on Thursday, Mr. McLaughlin said the government wasn’t in any discussions with Five Mile Capital about the purchase of freehold title to the Ritz property.
“There is a real distinction,” he said. “The property on which The Ritz-Carlton is built is, well self-evidently, developed. The SafeHaven property has been stagnant for 25 years, principally because potential residential owners would not buy homes there on leasehold property.”
Dart did not discuss immediate development plans for the property, but acknowledged that freehold title will be useful when it is eventually developed.
“The real estate market has proven that both international investors and local purchasers can be hesitant to buy leasehold property, no matter how long the lease period,” Mrs. Doak said. “By agreeing to buy the property outright at fair market value, we will not only provide government with a revenue injection from the initial purchase price, but also improve government’s opportunity for ongoing revenue from the real estate activity that will result from eventual residential developments.”
The bigger picture
Mr. McLaughlin now sees a developer that is ready to invest, according to Dart, an additional US$1.3 billion over the next 20 years, in its Camana Bay development alone. In addition, in the northern part of the Seven Mile Beach corridor, Dart owns about 300 acres of land it bought from distressed developer Stan Thomas in 2011, about 220 acres that comprise the SafeHaven lands, plus a number of smaller properties it has purchased over the past four years.
“Development will … extend into Dart lands in other areas of Cayman, filling a pipeline with continuous economic stimulus, work for local companies and employment opportunities for the Caymanian people,” Mr. McLaughlin said.
Addressing another concern expressed by the public as a result of the closure of a section of West Bay Road, Mr. McLaughlin said Dart had committed to construct, at its own expense, an emergency access road passing through the Kimpton property to allow public vehicle access in the event of an emergency that closes the Esterley Tibbetts Highway.
“This is necessary because of the closure of the remaining part of West Bay Road, as agreed in the original NRA agreement,” he said.
Because Dart Realty plans to develop Camana Bay on an “elevated plane” that will pass overhead of sections of West Bay Road and the realigned Esterley Tibbetts Highway, Mr. McLaughlin said the government would draft new legislation to allow Dart Realty to buy the land over the two roads that pass through Camana Bay, something known as “air rights.”
“By agreeing to draft legislation for air rights,” Mrs. Doak said, “government has proven that it is prepared to be innovative and flexible in offering solutions to the committed investors that are contributing to Cayman’s long-term success.”