The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar discussed delaying its target December 1, 2014, opening date with at least one of its proposed resort operating partners, court documents have revealed.

Morgans Hotel Management Group, the intended operator for the 300-room ‘Mondarin at Baha Mar’ property, alleged as part of filings related to the two sides’ dispute over their Hotel Management Agreement that they had discussed a later opening date.

“There have been discussions between Morgans Management and Baha Mar that the actual opening date of the hotel will be delayed past the projected opening date of December 1, 2014,” Morgans alleged in an April 23 filing with the New York State Supreme Court.

The claims raise fresh doubts over Baha Mar reassurances, given less than three weeks ago, that the $2.6 billion Cable Beach redevelopment was on schedule to open by the projected December 1, 2014, start date.

Denise Godreau, Baha Mar’s chief marketing officer, told reporters on April 10 that the developer was on course to meet its construction completion. She also dismissed reports that Baha Mar will open in stages, rather than at one time.

Ms Godreau said then that “millions of dollars” in group reservations have so far been accumulated at Baha Mar, with leisure bookings set to begin on July 1.

She added that the resort’s “almost 3,000 rooms” will be filled, and said: “There is a specific marketing plan for each of the four hotels.”

But the current dispute with Morgans, and possible loss of the Mondarin brand, appear likely to disrupt this initiative.

There will be no impact on Baha Mar’s construction schedule, but Morgans’ comments about discussions over a delayed opening will raise concerns about when the projected positive impact from 5,000 new Bahamian hirings - and spin-offs for new and existing businesses - will materialise.

If Morgans exercises its right to walk away from what is a 20-year hotel management agreement, something that is subject to an arbitration hearing, Baha Mar will likely incur extra costs and time in having to find a replacement high-end brand/operator.

Several real estate industry sources yesterday expressed concern to Tribune Business about the impact the Morgans dispute will have on efforts to market the 300 luxury ‘Residences at Baha Mar’, given that the Mondarin’s presence was part of the existing sales effort.

According to the court documents, the dispute relates to Baha Mar’s failure to fulfill certain conditions contained in a July 31, 2011, hotel management agreement with Morgans.

In particular, the 20-year agreement for Morgans to provide “direction, management and supervision” of the Mondarin property required that Baha Mar obtain a “non-disturbance agreement” from its financiers within six months of the deal’s signing.

Such an agreement, which Baha Mar had to obtain from the China Export-Import Bank, its multi-billion dollar lender, would have allowed Morgans to continue uninterrupted management of the Mondarin even if the developer defaulted and the Chinese institution had to foreclose.

“Baha Mar failed to obtain a non-disturbance agreement or to inform Morgans Management of its failure to do so within six months of the date of the Hotel Management Agreement,” Morgans alleged.

“Instead, Baha Mar repeatedly assured Morgans Management that it would obtain such an agreement and requested additional time to do so.”

Implying that Baha Mar ultimately conceded defeat in its efforts to obtain such an agreement from the China Export-Import Bank. The developer allegedly gave Morgans notice of this failure on March 20, 2014.

Morgans, exercising its 15-day right under the agreement, then gave notice on March 26, 2014, that it would terminate the Hotel Management Agreement on April 25, 2014.

Morgans alleged, though, that Baha Mar “improperly retaliated” by seeking to then draw down a $10 million ‘Letter of Credit’ that the Mondarin operator had posted with Deutsche Bank Trust Company Americas.

The $10 million represented ‘Key Money’ owed by Morgans to Baha Mar, and which was to be paid to the latter in stages in the run-up to the Mondarin’s opening.

Some $3 million was to be paid 180 days prior to the December 1 opening (June 4, 2014); with a further $3 million paid 90 days out (September 2, 2014); and the final $4 million balance due on the opening date.

Morgans alleged that the ‘Letter of Credit’ had been extended several times from the August 8, 2012, original expiration date, with July 23, 2014, the final agreed timeline.

The hotel operator then claimed that the”two limited circumstances” upon which Baha Mar could draw upon the Letter of Credit had not been met, meaning there was “no justification” for the developer to issue an April 17, 2014, demand letter to Deutsche Bank Trust Company Americas requesting payment.

Morgans moved quickly to prevent Baha Mar getting its hands on the $10 million, obtaining an injunction from the New York State Supreme Court that effectively freezes the funds until a June 5, 2014, court hearing.

This was designed to preserve the ‘status quo’ until the arbitration hearing, with Morgans alleging that the $10 million “will likely be unrecoverable” should it be transferred to Baha Mar.

“Baha Mar is a Bahamian company that does not disclose its financial condition or its financial performance, which has borrowed large sums of money from its lenders to finance its projects, and on information and belief has given liens to its lenders on virtually all of its assets,” Morgans alleged.

“There is no reason to believe that Morgans could ever enforce an arbitral award to recover the $10 million Baha Mar is seeking to wrongfully obtain.”