Bermudiana Resort To Convert To Rentals
A “decision was made to pivot the Bermudiana Beach Resort to residential rental units,” Minister of Public Works Lt/Col David Burch has confirmed, adding that “by December of this year, this new proposed direction will see 94 studio, 1, 2, and 3-bedroom residential units.”
The property, originally called Grand Atlantic, was built over a decade ago as a housing development, only one unit was sold, the plans were then adjusted to make it a hotel development, and the plans have now adjusted to make the property into residential rental units.
“All these changes come at a significant cost—overall, $100 million plus will have been spent on this property over the 12 years,” the Minister said. “Clearly, no one would set out to spend this kind of money on such a project, but at each juncture, those making the decision believed it was the right one and funds would be recovered. An equally incredible set of circumstances has beset this project, and the aim now is to get as high a return as one can to mitigate the investment.”
“We believe the market research indicates that these units will help equalize the rental and buying market costs across the country and will promote better quality and standard of living overall,” he added.
Minister of Public Works David Burch stated, “Today, I want to report on the refocusing of this project, but first – some history is in order so that there is a full understanding of the journey to this point.
“In 2007, the private sector Grand Atlantic Residences project was a 78-unit development to add additional freehold condos to the housing market. To assist the project’s progression in 2009, the Bermuda Housing Corporation [BHC] became involved to purchase the development expected to be completed in 2012.
“However, in 2013, the global crash of the housing market, including the decline in housing prices, decline in demand for housing, and a false narrative over the safety of the cliffs, to name a few, had an impact on unit sales—only one was sold. The then OBA Government elected to place the sale of condo units on the property in abeyance while a reassessment of the direction was considered.
The Minister’s press conference
“A request for information [RFI] on the property was issued in March 2013, with submissions due by May 2013. After analysis, meetings, and a review of the submissions, the then Government entered into a memorandum of understanding [MOU] with the selected proponent to convert the property into a condo hotel. The MOU was initially for a period of 120 days and was then extended to March 2015. After the expiration of this MOU, the BHC negotiated with the bank to obtain a term loan to refinance the short-term loan used for the original purchase of the Grand Atlantic condo units.
“Following this, a second RFI was issued in May 2016, with submissions due by the end of June 2016. After analysis, meetings, and a review of the submissions, a proposal was selected and approved in October 2016 to convert the property into a residential condo boutique hotel, with units available for sale.
“In July 2017, an election was held which resulted in a change of Government. The new PLP Government continued negotiations with the selected co-developer, who was approved by the previous Government to develop a condo hotel on the Grand Atlantic site, and up until 2019, the project progressed well, including the Government announcing a brand deal with Hilton Resorts to increase the caliber and attractiveness of the property.
“However, in early 2020, the COVID-19 pandemic started to take hold on the world, which made meeting sales targets virtually impossible. The pandemic resulted in those targets not being reached to meet debt financing conditions, and therefore an alternative financing facility was negotiated with the bank.
“After this, and again attributed to the COVID-19 pandemic, in 2021, the co-developer, which was selected in 2016, and the current Government agreed to an amicable separation. The Government and the BHC remained committed to the completion of this project, as at the time there was a need for additional hotel beds as the Fairmont Southampton Hotel was shuttered. As you can tell, there have been a lot of ups and downs with this project.
“More difficulty came with the startling post-COVID inflation boom, which saw the cost of building materials soaring over 50% in some instances for basic supplies such as concrete and steel. Two loans totaling $35 million dollars were secured to continue construction – they remain in place.
“Despite these challenges, the project continued, but with pre-sales still not materializing and costs increasing, the Government decided to investigate the business model of the property.
“The Ministry of Public Works retained an expert who found that there was an inherent failure in the current business model. In general terms, the root cause of many of the issues associated with the project, including the lack of sales, stemmed from the direction set by the former development partner.
“The former developer’s projections were overly simplistic, and the current team followed the same plan but lacked the experience to navigate what would have already been an extremely challenging brownfield hotel development project from inception.
“After this assessment, the Government engaged the international accounting firm Ernst and Young [EY], who have a unit that specializes in evaluating distressed hotel developments, to conduct an evaluation to determine if the Bermudiana Beach Resort project was still viable.
“The assessment looked at four options: i. To continue the existing course [a boutique hotel with condominium sales]; ii. Upon completion of construction, sell units individually as condominiums; iii. Upon completion of construction, run as a standard boutique hotel; or iv. Convert units into residential rental apartments and complete construction.
“Based on this analysis of market dynamics, supply and demand trends, product fit, and strategic alignment with key initiatives, the two most viable uses determined to be Options 3 and 4. In performing a financial assessment of the two most feasible options, the apartment scenario [Option 4] provides the highest net present value as a result of strong demand, limited comparable supply, high rental rates, and significantly reduced operating risks as compared to the hotel option.
“While generating revenue to pay back outstanding debt remains a priority, the analysis indicated there was substantial resale value to be gained by holding the asset until cash flows stabilized and returns from the apartment scenario approached sufficient levels to meet the government’s financial objective of retiring the $35 million debt in its entirety.
“To accomplish Option 4, there remains the requirement to complete the construction. Given the proposed product can fit with the current development profile, apartment rentals would help to minimize capital investment with minimum additional expenditures required beyond the completion budget while also providing the opportunity to reduce investment further by limiting some of the proposed amenity space. Therefore, the Ministry will provide the BHC with additional funding to the maximum amount of $5,000,000.00 to complete the construction. This is compared to the approximately $9 million that would be needed for the hotel completion.
“With this recommendation and taking into consideration the recent announcement for the commencement of the Fairmont Southampton redevelopment project, which would see 593 new hotel beds becoming available by the end of 2026—and reflecting on the priorities and principles of this Government, a Cabinet decision was made to pivot the Bermudiana Beach Resort to residential rental units.
A Difficult Decision
“This was a difficult decision, as much effort was placed into converting the property into a hotel, but when presented with the data and the expert advice, the government chose to change course yet again, but one that we believe is in the best interest of the country and one that will prove beneficial to the economy in the long term.
“Now, all these changes come at a significant cost—overall, $100 million plus will have been spent on this property over the 12 years. An incredible sum that reflected the change in direction with each pivot of the project to respond to the prevailing circumstances at each juncture. Clearly, no one would set out to spend this kind of money on such a project, but at each juncture, those making the decision believed it was the right one and funds would be recovered. An equally incredible set of circumstances has beset this project, and the aim now is to get as high a return as one can to mitigate the investment.
“The challenge with housing impacts all segments of our community, which includes our international business sector as well. The need to house this sector puts pressure on the local housing market. The analysis indicates that this change in direction would provide a means to cater to this sector directly and thus indirectly free up the local housing market to be accessed by more Bermudians.
94 Studio, 1, 2, And 3-bedroom Residential Units
“Therefore, by December of this year, this new proposed direction will see 94 studio, 1, 2, and 3-bedroom residential units of beachfront property added to fulfill a market demand for additional rental housing.
“The Bermudiana apartments will be a multi-family community catering to young professionals and couples, with amenities including beach access, indoor and outdoor fitness areas, a pool area, with the potential for a restaurant, and a spa in the future.
“While no firm decisions have been made regarding rental pricing, we recognize the added amenities, location, convenience, and money already invested will necessitate a certain price tag—the projections estimate rental values between $3,000 and $7,000. Nevertheless, we believe the market research indicates that these units will help equalize the rental and buying market costs across the country and will promote better quality and standard of living overall, ensuring that people from all economic standings can secure a property at a reasonable and affordable price.
“To more directly assist, however, the government will consider how it may provide means for families already on our list to gain access to the property through existing BHC housing initiatives and support.
“Announcements will be made in due course regarding the management of the property and when the apartments will be available for rent.
“In this Government’s 2020 Election platform under the category for ‘Improving the Quality of Life for All Bermudians’—this Administration pledged to continue increasing the stock of affordable housing throughout the country, expand rent-geared-to-income programmes, and construct residential developments in Bermuda’s Exclusive Economic Zone to increase the supply of quality, affordable residential accommodation and drive down rental costs.
“This move does just that. As the old saying goes, a rising tide lifts all boats, and by adding to the housing market, regardless of the sector, we are helping to address the needs of all residents.
“On Monday, I met with the Board of the Bermuda Housing Corporation to advise them of Cabinet’s decision, and subsequently this morning I have met with the staff at both Bermudiana Beach Resort and the Bermuda Housing Corporation. Following this press conference, Hilton will be advised, and there is a break fee that will be payable.
“There will likely be separations at BBR, but those will be discussed with staff individually. We will operate fully under the terms of the Employment Act, but our actions will be carried out with compassion and sympathy for the affected staff. Over the next several weeks, as this new direction evolves further, there will be additional public announcements.
“This government is committed to doing all we can to increase the adequate housing options for Bermudians, and we will not stop delivering on this mandate. Thank you.”
“A “decision was made to pivot the Bermudiana Beach Resort to residential rental units,” Minister of Public Works Lt/Col David Burch has confirmed”
So the PLP Government has decided to “pivot” the White Elephant/Grand Atlantic/Bermudiana Beach Club to the same “affordable housing” it was intended to be a dozen years or so ago.
Minister Burch, please will you explain how spending $100 million plus on 78 residential units – $1,282,051.28 per unit – is “affordable?
Correction. 94 residential units.
We do not know enough about the various units or the true cost of the development, so let’s use averages and round numbers.
We know there are 94 residential units. $100,000,000 ÷ 94 = $1,063,829.80 average cost per unit. If we want to “equalise” the cost, let’s look at what a mortgage on the average cost would be over 30 years. But let’s not use commercial mortgage rates (6.5% to 6.75%), let’s use discounted mortgage rates in order to keep the units affordable.
$1,063,829.80 at 5% over 30 years would mean monthly payments of $8,412.70.
I do not think many people would find that “affordable”, not even for a 3 bedroomed apartment.
Or another way to look at it. We the taxpayers are on the hook for a debt exceeding $100m that Burch said would be recouped by the sale of the units. No sales, so the debt remains, plus the maintenance costs, and the rental income will barely cover the interest on the debt. Burch says the units will be rented to IB staff. So the debt has been incurred to provide Government housing for non Bermudians. So much for helping Bermudians. Add to this the SP guarantees and tax breaks and it is sinful how the PLP are falling over themselves to help non Bermudians, and hurting Bermudians.
I thought the below summed up the history pretty well.
Conclusion this has cost you and me at least $149 million. (as it will take $9 million to convert into rentals (OP have $140, but missed the $9M.
$40 to buy the original, $100M to convert into resort, $9M to convert to rent (this is ignoring maintenance costs incurred over 10 years too.
I read an interesting timeline on this property).
Don’t forget, this was all borrowed money.
The original Grand Atlantic was completed in 2011. Thirteen years ago.
Let’s call it $100m compounded for 13 years, plus $49m compounded for 4 years (since not all expenses happened at the start).
At 5.5% interest rate, $100m borrowed for 13 years costs $85.6m in interest.
$49m borrowed for 5 years costs $11.7m.
So the total costs incurred by Bermuda’s taxpayers, including the costs of borrowing, have amounted to
$149m + $85.6m + $11.7m = $246m.
$246M, for a bunch of government housing units that have been empty for 13 years. A total and complete failure.
A shining example of PLP stupidity, and a monument to the PLP’s total fiscal incompetence.
If it wasn’t so tragic this whole 12 year saga of misstep after misstep would make an amazing comedy, starring, of course, the Colonel.
What a monumental example of the PLP’s incompetence and stupidity. And we’re back where we started and $100m worse off.
“Clearly, no one would set out to spend this kind of money on such a project, but at each juncture, those making the decision believed it was the right one and funds would be recovered“
Yes, because you’re all complete idiots.
Another PLP Disaster, the list of failures goes on and on. they are spending taxpayers money, YES, YOUR money that has been collected by the government in the form of payroll tax, vehicle licence, duty, etc etc to turn this into a rental site after three prior project failures at the site. Now thy claim it will equalize rents, What the hell is equalize, we don’t want these rents to be equal to current rents current rents are unaffordable!!!!!!!
Rent of $3,000 to $7,000 is not going to equalize any renting market. those rents are too high. they need to be $2,000 to $4,000 to bring rentals to a reasonable level.
Agin the PLP talking about making a fairer Bermuda, whist doing the opposite !
Wow. You can’t make this stuff up! Queue the popcorn…