Newstead Belmont Hills was the first new hotel in Bermuda in 35 years when it opened its doors in 2008.Three years later, when it was one of the top-rated hotels on the Island with a restaurant named among the world’s best and a fractional development that was 80 percent sold, Butterfield Bank put it in receivership.It’s understood from sources that several investors have looked at the hotel, which cost about $70 million to build, and one group came close to buying it for less than $15 million, but just could not make the investment work and walked.In 2009, Rosewood Tucker’s Point, which replaced the former Marriott resort, was the second new hotel to open in Bermuda.But it too ran into problems and Tucker’s Point Resorts fought for a special development order to build dozens more luxury homes on the property that it said would be sold to help repay an initial $85 million loan with HSBC Bermuda.Pink Beach Club, in a prime beachfront location, was also put in receivership by Butterfield and has been unable to find a buyer since it closed in 2010, though a group is said to be interested.If Newstead and Pink Beach failed, and Tucker’s Point struggled, it begs the question, what’s the incentive to build another new hotel in Bermuda, and how can it succeed?And why is it that so many real estate investors, before they finish crunching the numbers, are half away across the Causeway to catch the next flight out of Bermuda?Hoteliers and international developers who spoke to us for this series, said clearly the industry was in a state of crisis and nothing short of radical steps were needed for it to come back from the brink. Industry sources estimated hotels in Bermuda were carrying at least half a billion dollars in debt from various lending institutions here and overseas, and that may even be “light”, one source said.The sources questioned how some of the hotels will ever repay that kind of debt and said it may be the case that they end up being put into receivership and/or bought by new owners at cents on the dollar until they finally get to a position where they are a reasonable investment that isn’t saddled with massive debt.The estimated debt is on top of the provisions for credit losses related to hospitality loans of more than $100 million written down by Butterfield Bank in 2009, and the bank’s actions in 2010 and last year.As Butterfield explained to us for this series: “In 2010 and 2011, the bank took decisive actions to address non-performing loans associated with two hotel properties in Bermuda, with the result that those properties were placed in receivership. The Bank has substantially reduced its credit exposures in the hospitality industry.“As is standard practice, in the normal course of business and as is disclosed in our audited financial statements and notes, the Bank takes provisions against non-performing commercial loans. Management believes the current level of provisioning is sufficient to address any inherent risks in the commercial loan portfolio.”The bank added: “We continue to welcome applications from businesses engaged in the hospitality industry.”Whether it makes such a loan is another story.You need only travel the South Shore to see how paralysed tourism has become.Properties once busy with visitors now sit empty in a state of disrepair, from the once top-notch Ariel Sands resort to the beachside Grape Bay Hotel.Others like the former Club Med, Lantana and Sonesta Beach have been razed to the ground, waiting years now for a new developer to break ground, while Elbow Beach remains half-closed.And 9 Beaches, created from a failed eco-resort, was closed in 2010 and won’t reopen until it undergoes a multi-million-dollar redevelopment.The string of closures are a terrible indictment on a tourism industry that was once the envy of the world, and that in 1980 attracted nearly 500,000 air arrivals - or 600,000 total vistors if you count cruise passengers.Even top-rated The Reefs and the city’s only resort hotel, the Fairmont Hamilton Princess, have had challenges.David Dodwell, owner of The Reefs, has said that he had made a significant investment in the infrastructure of his resort with the $52 million Reefs Club fractional ownership development. But he said last March membership in the club was below initial expectations, and as of January the resort said the fractionals were 40 percent sold. Meanwhile, the Fairmont Hamilton Princess is listed for sale, though it says it’s just looking for an equity partner to “fast track” a $50 million project to expand and upgrade facilities, including adding dozens of marina slips.A slew of new resorts was promised by former Premier Ewart Brown to usher in his “platinum period” legacy of restoring Bermuda tourism.None has ever materialised althought two of the most high profile, Southlands Ltd’s Morgan’s Point resort and Carl Bazarian’s planned Park Hyatt project, are still being actively worked on.Asked what were the challenges in making a hospitality project work in Bermuda, Mr Bazarian told us number one was construction costs.He added: “Generally, not specifically, equity and long-term debt are difficult in the Caribbean and North America for new-build resorts because of high inventory of distressed properties which has not burned off.”He said plans for the St George’s resort, first announced in late 2007 and supposed to open this year, were “going good...we are still designing and pricing construction”.If you look at Tourism Department statistics, the number of hotel-staying tourists has dwindled to less than 180,000, when we once enjoyed close to 500,000 guests.It should be noted that of the some 236,000 air arrivals recorded in 2011, 57,000 said they stayed in private homes.The statistics also show the number of hotel properties on the Island has fallen from more than 100 in 1980 to 48 last year, although the website TripAdvisor.com only lists 29 being actively reviewed and the Tourism website lists only about 40, of which several no longer appear to be taking tourist bookings, or are very small guest houses.The number of hotel beds, around 5,000 last year, is half of what it once was in the 1980s and hoteliers say probably far less in 2012 than even that number.According to US real estate developer and owner of Bermuda’s Munro Beach site, Sam Byrne, the tourism industry in Bermuda needs an overhaul.“Bermuda did not encourage ownership schemes, in fact prohibited them in most cases, and was too expensive for mid-market hotel operations to succeed,” Mr Byrne told The Royal Gazette. “Thus, the bed base reduced, airlift declined and the overall industry suffered. The economy still succeeded with global business, particularly reinsurance, thriving in Bermuda, but the tourism market suffered to the point that it requires complete rebuilding from the ground up with new thinking and creative incentives to attract outside capital.“ (See much more of Mr Byrne’s interview tomorrow)Other industry stakeholders said Bermuda needed to understand the multitude of challenges facing hotels.“I think profit is a word we have almost forgotten,” Cambridge Beaches president Michael Winfield said. “It has been many years since most hoteliers realised even a reasonable return on their investment. Right now we are working to stay in the business, to stay viable.”Developer Kevin Petty, who said he personally lost millions in his Newstead development, said in this climate: “There is no reasonable return for an investor, over a reasonable period of time, based on the high costs associated with building a new product.”Mr Winfield agreed, saying: “No investor is going to consider an investment unless he can see a reasonable return. The answer for new development thus must be that we need to get the existing hotels profitable.”Mr Winfield added: “Unless and until we can see our costs reduced and the demand for our product increased, we have huge challenges.”He added: “Electricity is one of those costs that are far higher in Bermuda than almost anywhere else.” (See more of Mr Petty’s and Mr Winfield’s comments on Monday)