Over $300 Million Obtained For Fairmont Project

Westend said they have “obtained third-party institutional debt and equity investors for the Fairmont Southampton in excess of $300 million,” and noted that the “target is to commence the re-development this summer with a plan for a grand re-opening in 2023.”

This was part of a full statement provided by the developers, who also noted that “upon reopening, the hotel will create over 800 direct employment opportunities and many more jobs for local restaurants, taxicabs, and other related businesses.”

The full statement follows below:

On Friday, Westend Properties Limited released a detailed video of the renovation plans for the Fairmont Southampton. Following the announcement of the agreement with Government, Westend Properties Limited shares more information on the journey to successfully raising funds for a multimillion-dollar redevelopment during a global pandemic, together with further information about plans for the redevelopment.

When compared to the many successful luxury resorts in Gencom’s global portfolio, inclusive of Four Seasons, Ritz-Carlton, Hyatt, Rosewood, and Auberge, the Fairmont Southampton has faced a set of unusual circumstances that have made its redevelopment incredibly challenging.

Due to the global pandemic Westend was forced to close the hotel earlier than originally planned, which in turn triggered the loss of the initial financial backing for the hotel’s redevelopment. In the subsequent two years, plans for the hotel’s redevelopment were repeatedly frustrated due international lockdowns and other COVID related disruptions to the global economy.

However, Westend Properties Limited has continued to work diligently to manage an exceedingly difficult and unprecedented economic situation and proactively worked hard to find solutions which would revive its original business plan. The purpose of this release is to set the record straight on a few common misconceptions.

Who is Gencom?

Gencom, through its family of companies, is a multi-faceted, international investment firm specializing in hospitality and hospitality-related residential projects. Its portfolio encompasses properties across the U.S., Caribbean, Latin America and Europe. The firm has a 35+ year track record in the industry having led significant hospitality projects and resort developments worldwide. It has established a universe of long-standing partnerships that spans public and private equity partners, high net worth investors and family offices, leading brands and institutional lenders. Gencom’s “out of the box” thinking has established its properties as iconic resort destinations.

Gencom has a successful track record in Bermuda

An opportunity presented itself five years ago in Bermuda for a Gencom-led investment group to purchase the very distressed Rosewood hotel and the Tucker’s Point Club. Gencom believed it had the skill set to successfully turn the property around. The Gencom-led investment group accepted the risk by purchasing the property and completing a major $25 million renovation of the hotel and Tucker’s Point Club. The project was executed on time and with momentous results, bringing the hotel out of receivership and creating many new opportunities for Bermudians and Bermuda’s tourism industry. Throughout the life of this particular investment, Gencom has also maintained a positive working relationship with HSBC Bermuda and has successfully worked hand-in-hand to navigate the pandemic and remain in good standing as a partner.

The hotel will reopen

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 lead 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.

A spokesperson comments, “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.”

A very difficult road but finances are secured again

When the hotel was acquired in December 2019, funding commitments were identified for the redevelopment, which was due to start at the beginning of 2021. Government offered some financial support if conditions were met and a letter of intent was executed. At this point, everything was in place for continued operations in 2020, with plans to start the redevelopment in early 2021. Most of the design, planning, scheduling and budgeting was to be completed during 2020.

A spokesperson comments, “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”.

“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.

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. This is very encouraging for the success of future projects in Bermuda as well.

Unfortunately, given the delay and shut down from the pandemic, the letter of intent with the government expired, so we worked with the government to reinstate a new financial support package which satisfied all parties. On a positive note, despite these circumstances, Ownership in conjunction with Fairmont, was able to successfully negotiate a new, mutually beneficial Collective Bargaining Agreement with the Bermuda Industrial Union, which was a significant endorsement of our plans for the property and its future success

Timing of redundancy payouts

The hotel redundancy payout was the largest Bermuda has ever seen, and due to the pandemic, the timing was extremely unfortunate. An allowance for full redundancy payouts had been built into the projected total development cost budget. However, given the abrupt capital market freeze worldwide due to Covid-19, once the initial financing partners pulled out, the planned funding for redundancy payments was no longer available. Coupled with the unexpected earlier closure of the hotel in March of 2020, significant operating costs also had to be covered without the benefit of having generated any hotel cash flow since acquisition.

When the redundancy payout deadline was approaching in October, Westend was aware that it would not have the cash immediately available to make the required payout of over $11 million given the above noted circumstances completely beyond its control.

A spokesperson commented, “We were always fully committed to reimbursing the redundancy payout once the finances were secured. It was simply a timing issue and a highly unusual circumstance, and we appreciate the Government’s assistance in this matter.”

This is not Morgan’s Point

Financing development projects of this scope and caliber is typically conditioned upon securing some level of financial support from the respective country’s government. The likely government guarantee has been the subject of a lot of speculation and scrutiny up until this point. It should be made clear that Bermuda government has supported other recent hospitality developments. It is not unusual for governments to provide some financial support for developments that have a direct economic impact in its jurisdiction.

A spokesperson comments, “The likely government guarantee is a small fraction of the project’s capitalization, 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. It accounts for 25% of Bermuda’s hotel inventory, 31% of its hospitality’s industry workforce and 35% of all air visitors to the island who stay in hotels or similar. Upon reopening, the hotel will create over 800 direct employment opportunities and many more jobs for local restaurants, taxicabs, and other related businesses.” The much-needed renovation will once again attract leisure and especially group business it has been losing to competition outside of Bermuda because of its declining state.

A lot of the comments that have circulated have compared Fairmont Southampton to the failed Morgan’s Point development. These two projects have completely different risk profiles and are not comparable. 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. It had no operating hotel in place, and the project costs had not been fully accounted for prior to construction commencing. The amount of debt covered by the government guarantee in that instance covered nearly all of the debt taken on by that project.

The partnership between the Bermuda Government and the Fairmont Southampton is of a totally different character. The parties have conducted extensive negotiations with the assistance of skilled advisers. As a consequence, the Bermuda Government has negotiated important protections that were not in place with Morgan’s Point, in addition to the previously publicized profit-sharing element agreed between Westend and the Bermuda Government.

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.

Plans for the Hotel

There is still work yet to be done to finalize the documentation of the financing given there are multiple parties involved. However, the target is to commence the re-development this summer with a plan for a grand re-opening in 2023.

Fairmont Southampton will be completely repositioned, and the renovations will turn the iconic property into a world-class, luxury destination resort. The hotel will continue to feature 593 guestrooms, all of which will be completely refurbished and modernized with the latest technology. The existing restaurants and bars will be updated and there will be additional venues, for example, a new upscale Beach Club grill concept that will cater lunch and dinner.

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. These additions will add 17,500 SF of indoor/outdoor event space to the existing 41,000 SF.

Upon completion of the redevelopment, we expect this iconic resort to sit among the best within the Fairmont system and within the local Bermuda market. Westend Properties Limited and Gencom continue to be firm believers in the long-term success of Bermuda as a destination and look forward to continuing the vision and working closely with the Government of Bermuda, the Bermuda Industrial Union and more importantly, the Bermuda community for many years to come.

#BermudaTourism #FairmontSouthampton #HotelNews

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