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Developer: Municipalities law may jeopardise hotel project

A new law aimed at reforming the municipalities may have inadvertently delayed a job-creating hotel project in the City of Hamilton.

And taxpayers could end up compensating developers for damages relating to both the waterfront redevelopment project and the City hotel project, in the aftermath of the passage of the Municipalities Amendment Act 2013.

Developer Michael MacLean, who is the key principal for both projects, has told The Royal Gazette that the hotel project is now compromised and any compensation for the loss of either of the leases will involve more than what he has spent on developing the two projects.

But he warned that compensation could be due even if the leases are not voided.

“The mere fact that the Act has been tabled and passed by the Senate prejudices our position,” he said.

“From an investor and developer's standpoint, if there's a piece of legislation hanging over the development opportunity, it puts the development in a compromised position. The development is no longer standing on solid ground.”

Government had agreed with the City of Hamilton that the law governing the municipalities would be amended to allow it to use its property as financial guarantee.

This was crucial to the Par-la-Ville hotel project which needed a bridge loan of $15 million to raise full financing, and the City had offered to assist with a guarantee.

Government lived up to its pledge to bring legislation to allow the City to guarantee loans with its property but another provision of the landmark municipalities reform bill, which was passed by parliament this month, requires all agreements involving City property leased for at least 21 years since January 2012 to be approved by Cabinet and ratified by parliament.

The process could end in such leases being voided (see sidebar).

In July, Premier Craig Cannonier confirmed to this newspaper that his administration would be bringing forward the necessary legislative changes in order to assist with financing arrangements for the hotel project.

“The promise that was made to Par-la-Ville and the public in July was not provided for in this legislation, because the Corporation of Hamilton was not authorised to pledge the property,” said Mr MacLean.

“One would have thought that the legislation would have made provision for the Corporation to pledge the property and Par-la-Ville would have been allowed to go ahead — which is the understanding that everyone had.”

Par-la-Ville Hotels and Residences Ltd had renegotiated the lease for the hotel project in April 2012 with the City Council headed by then Mayor Charles Gosling.

He told The Royal Gazette that he has already expressed to the Government that “my investors have lost comfort in negotiations with us and discussions with the Government because promises haven't been kept”.

The developer said he and the Corporation became aware that there was a problem with the bill before it was tabled in the House of Assembly.

“Ultimately, it's the lenders' attorneys that need to be satisfied with it, not mine. And it's the lenders' attorneys that said ‘our client can't take a mortgage based on the way this bill is written'.”

Efforts to reach Home Affairs Minister Michael Fahy last night were unsuccessful.

The developer said that amending the bill in November would be too late for his investors and another way forward must be found.

Mr MacLean's Allied Development Partners won the right to develop waterfront property and was given a 262-year lease in a process which has been criticised as lacking in transparency.

Mr MacLean revealed that the lease of the Par-la-Ville hotel site is for 120 years in the first instance but renewable to 262 years, pending Government approval as required by the law governing companies.

He took a different tack for the waterfront property which is being leased for 262 years by a private trust he set up and not a company.

He stressed that other City of Hamilton administrations and the Government had entered into such leases.

“I can't put a dollar figure on it because I have professionals putting a figure on the actual dollar value,” he said when asked how much compensation would have to be paid should his leases be voided.

But he did state that the potential returns of his investments would have to be taken into account.

“If you look at a billion dollar development and my potential for equitable interest, profit, construction work that I could get out of this deal — if for some reason, anyone finds it necessary to take away my property, then under the Constitution I am looking for compensation. And reasonable compensation.”

He said: “You are looking at not just the loss of the property, but the damage that the bill does to my ability to develop this property.

“Whether or not the Government decides to move forward on taking the lease — or leases — away from us, there's still the damage to prejudices my ability to raise investment for this project. I can't go to investors and say this thing is subject to the Government taking it away from me at will and say lend me hundreds of millions of dollars.

“Unfortunately, investors are a lot smarter than that.”

Mr MacLean went on to say that retroactivity in legislation is normally an extreme measure.

“I have yet to see the justification from (Ombudsman) Ms Brock or the Government in their due diligence process,” he said. Ombudsman Arlene Brock has investigated governance issues at City Hall, with a particular focus on the processes involved in the waterfront redevelopment project. Government has indicated that it is waiting on Ms Brock's report before moving on the waterfront project.

Asked if he was more concerned about the impact of the reform bill on the hotel project than on the waterfront project, he said that the hotel project could start much sooner.

“There's enough in place where a shovel can get in the ground within two months and if it was given the correct and the required support that it needed, then this project could be on the way to bringing in foreign capital and creating jobs for Bermudians which we desperately need right now.” On the waterfront project, Mr MacLean questioned why the Government had not approached him to discuss any concerns or their preferences.

“This is the most expensive and iconic project in the history of Bermuda. I've been awarded the project by the owner of the property and the Government has never sat and met with me once about it — officially.”

Instead, he said, he had heard “derogatory, second-hand comments” about his ability to deliver the projects.

“And that the Corporation has done something so wrong which till today no one can say what it is,” he added.

Mr MacLean bought some preferred shares in Par-la-Ville Hotels and Residences to secure a stake in what he felt was a promising investment. The investment was critical in keeping the $350 million project alive, and once the financiers became aware of his role, they insisted he take over the lead role from US developer Ted Adams.

The 38-year-old entrepreneur then set about negotiating with Mr Adams and ended up with an 80 percent share of the company last summer.

Plans for a hotel at the Par-la-Ville car park site were first announced in 2007 with Ritz Carlton attached. Starwood Hotels and Resorts, which owns the luxury St Regis brand, was named as a new partner in 2009 when it was stated the hotel would open in 2013.

Mr MacLean was encouraged by the hotel project financiers to submit a proposal to redevelop the waterfront when that opportunity came up.

Developer Michael MacLean
What the Act says

Municipalities Amendment Act 2013

Disposition of Land - Part 2 (Summary of highlights)

1. Land sales or lease agreements of more than 21 years, and related agreements, will be void unless approved by Cabinet and the legislature.

2. Agreements entered into by the Corporations after 1 January, 2012, to be submitted to the Minister within 14 days of the law coming into force.

3. Minister to publish a notice in the official Gazette which identifies the property and the parties to the agreement, and advising that any related agreements to be submitted within 14 days.

4. Agreements not submitted within the 14 day notice period are void.

5. Minister is required to bring the agreements to the legislature “as soon as practicable” after receipt. The legislature (both the House of Assembly and the Senate) must either approve or reject the agreement.

6.Persons with interest in land which has been the subject of an agreement which has been voided by the legislature then have 21 days to notify the Minister of their interest and their claim. They then have another 42 days to agree on compensation and damages.

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Published October 17, 2013 at 9:00 am (Updated October 17, 2013 at 12:53 am)

Developer: Municipalities law may jeopardise hotel project

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