Gencom says investment of more than $300m secured for Fairmont Southampton revamp
More than $400 million is expected to be spent on the redevelopment of the Fairmont Southampton by the time it reopens next year, its owners said last night.
Gencom added that the figure included the acquisition of the landmark resort by its subsidiary Westend Properties.
The firm said more than $300 million in finance had been secured.
A Gencom spokeswoman added: “Due to Bermuda’s high-cost structure and seasonality, it is very difficult to attract institutional investors for a project of this size.
“It has taken some time due to the pandemic but thanks to Gencom’s strong lending relationships worldwide, it has secured highly reputable blue chip lending institutions, who have never invested in hospitality projects in Bermuda before.
“Westend has obtained third-party institutional debt and equity investors for the Fairmont Southampton in excess of $300 million.”
The news came after it was confirmed in the House of Assembly last week that the Government would provide financial guarantees to the developers although David Burt, the Premier, was vague on how much.
The spokeswoman said: “Despite local fears that the Southampton Princess may be left abandoned, there was never an intention to walk away or leave the hotel closed for an extended period of time.
“While the original timeline for the hotel’s redevelopment was delayed due to circumstances beyond Gencom’s control, the Gencom-led ownership truly believes that the success of the hotel, once it is redeveloped, will outweigh the difficulties and significant increase in costs and additional investment.”
She added: “We believe so strongly in its success that by the time the hotel reopens, the Gencom-led investment group will have invested in excess of $400 million in the overall development including the acquisition.”
The hotel was bought in 2019 and funding commitments for the redevelopment were identified.
But the firm said that the closure of the property in 2020 because of the worldwide coronavirus pandemic “triggered the loss of the initial financial backing”.
The spokeswoman explained: “Due to worldwide travel restrictions implemented in March 2020, the reality was that the hotel was only in operation for two off-season months, January and February 2020, before Bermuda’s borders closed and the hotel shut down.
“January and February are always the slowest months of the year and produce operating losses.”
She added: “Economic instability caused by the pandemic made investing in the hotel much riskier so when our original financing partners pulled out, we were back to square one and had to place our redevelopment plans on hold.
“In addition to the loss of revenue, we have been responsible for the significant operating losses of the hotel since its closure, which we have been covering for over two years now.
“This includes things like maintenance of the building, electricity, continued operation of the golf and Boundary restaurant, and a limited team to manage the hotel and property.”
Gencom insisted there was no comparison with the failed Morgan’s Point development, as suggested by Curtis Dickinson, a former finance minister, last week.
The spokeswoman said: “The likely Government guarantee is a small fraction of the project’s capitalisation, and unlike developments in the past, the Fairmont Southampton is an existing iconic hotel that has a significant influence in Bermuda’s economic future, both directly and indirectly.”
She added that the Fairmont Southampton and Morgan’s Point had “completely different risk profiles and are not comparable”.
The spokeswoman said: “The Fairmont Southampton is an existing hotel that upon reopening will have immediate operating cash flows.
“Morgan’s Point was a much riskier brownfield development which needed to be cleaned up and decontaminated.”
She added the Government had negotiated “important protections that were not in place with Morgan’s Point, in addition to the previously publicised profit-sharing element agreed between Westend and the Bermuda Government”.
The spokeswoman said: “The financial benefits to Bermuda are expected to far outweigh the cost of the government support package provided for the Fairmont Southampton.
“Likewise, the terms agreed with Government to date represent a win-win for both sides, with the process focused now on related documentation and meeting conditions to close on the financing.”
She added: “Upon reopening, the hotel will create over 800 direct employment opportunities and many more jobs for local restaurants, taxicabs, and other related businesses.”
Plans for the hotel include 593 “completely refurbished and modernised” guest rooms.
The spokeswoman said: “One of the key and exciting elements of the development plan is execution of a reimagined Beach Club, which will feature new indoor and outdoor event spaces with the conversion of the Ocean Club to an events venue, and the construction of a new outdoor events lawn."
* To read the Gencom statement in full, click on the PDF under “Related Media”.