The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sir Sol Kerzner and his partner have replied that “our hands are tied” over a Baha Mar bid because they have not been provided with enough information to make an informed offer.

Andrew Farkas, Island Capital Group’s principal, confirmed that he and the former Atlantis owner had submitted numerous proposals to solve the $3.5 billion development’s predicament.

While these had been designed to provide the China Export-Import Bank with options, Mr Farkas said Baha Mar’s financier had yet to enter into meaningful negotiations with their joint venture.

He told Tribune Business that the bank’s only response to himself and Sir Sol was that it wanted to “be made whole”, and to-date it has yet to submit any counter proposals to their offers.

Mr Farkas added that the China Export-Import Bank had yet to provide any detailed information to them on the project, including its current value and everything that is required to complete construction and get it open.

Typically, owners of distressed assets such as Baha Mar provide a complete prospectus to potential investors, so that they can undertake due diligence and develop an appropriate bid.

With the bank and its Deloitte & Touche receivers seemingly yet to do this, Mr Farkas said it was impossible for Sir Sol and himself to make an informed offer, and determine how much it will cost to complete and open the so-called ‘Bahamian Riviera’.

He added that the Government, in the shape of Prime Minister Perry Christie and his key advisers, had “tried but failed” to address this with the China Export-Import Bank.

“We made a series of proposals, major proposals, but we were not successful in getting their attention, notwithstanding our efforts,” Mr Farkas told Tribune Business in an exclusive interview.

“They [the China Export-Import Bank] would simply say ‘no’. That was the answer they always gave us, but they never gave us a counter-proposal, other than: ‘Buy the mortgage at par or pay it off’.

“Anything short of that would not be entertained. That’s the way it’s been so far. I can tell you that despite our best efforts, we did not get anything at all from them with regard to getting the information requested.”

Mr Farkas said he and Sir Sol had not had any contact with the China Export-Import Bank for eight to 10 weeks, but remained more than willing to help it achieve its desired resolution for Baha Mar.

He added that the duo were likely “among the first” to approach the state-owned bank, disclosing that the initial contacts occurred last year after the development was placed into Chapter 11 bankruptcy protection by its initial developer, Sarkis Izmirlian.

Mr Farkas and his real estate merchant bank, Island Global Capital, were first approached in relation to Baha Mar by the project’s main contractor, China Construction America (CCA).

The latter subsequently issued a press release, announcing that Island Global Capital had been appointed as its restructuring agent and financial adviser over Baha Mar.

Mr Farkas, though, told Tribune Business that there was “never a formal written agreement” to act for CCA, although his bank did provide it with informal advice.

Mr Farkas has enjoyed a 16-year friendship with the Kerzner family, especially with the late Butch Kerzner, and his bank took a small equity stake in Kerzner International when the company went private almost a decade ago.

A partnership with Sir Sol was thus a natural fit, with Mr Farkas providing the financial expertise and the former Atlantis principal offering his Bahamian hotel insights.

“It was to have been a joint venture that Sol and I had created,” Mr Farkas explained. “The joint venture was going to provide both financing and operational expertise.

“We also made proposals to the bank, pursuant to which, if they were not interested in selling, we would be willing to provide management-type services to get it open; up and running.”

Mr Farkas told Tribune Business that he and Sir Sol were “uniquely positioned” and qualified to help both the China Export-Import Bank and the Bahamas, but added that greater transparency was needed if the Baha Mar “standstill” is to be properly resolved.

“The bottom line is that we don’t really know, and I don’t believe anyone knows, what the project is really worth right now,” he explained.

“That is because no one has received adequate information from anybody to do the required homework to make a determination.”

Mr Farkas said he was unaware of any other Baha Mar bidders receiving such information, and explained how its absence had complicated the due diligence he and Sir Sol needed to undertake.

“I have walked through the property several times, but that’s all,” he told Tribune Business.

“I spent maybe an aggregate of five-six hours on site. In five-six hours there’s no way anyone could competently, and properly, say they have a thorough feel of what’s needed to complete it.

“We have spent hundreds of hours working on it, having made several trips to the Bahamas, several trips to Beijing, spending God knows how many hours on the phone with the bank in China, and we have yet to be provided with a shred of information,” Mr Farkas continued.

“This [Baha Mar] is amongst the most complex hospitality projects undertaken in a single phase anywhere. Certainly, it’s the most complex and sophisticated in the region ever.

“The amount of homework necessary to fully understand the programmes that bring the project to profitability is enormous. Just to do the homework properly will cost millions of dollars.”

Mr Farkas said he had met “several times” with each of Prime Minister Perry Christie, Attorney General Allyson Maynard-Gibson and the former’s senior policy advisor, Sir Baltron Bethel, to discuss Baha Mar.

Despite informing them of his inability to conduct proper due diligence, their efforts to intervene with the China Export-Import Bank had not succeeded.

“It’s important to point out that I believe the Government tried,” he added. “They tried to help get the information we required, but were unsuccessful in doing so.”

Giving further insight into the complexity involved in reviving Baha Mar, Mr Farkas said: “There are 40 restaurant leases and operating agreements to be reviewed alone.

“You’re going to have to review and understand the agreement with the operator for the casino. To the best of my knowledge, some of the operating and franchise agreements with some of the hotel flags may not be enforceable.

“We have heard that possibly Rosewood is out. There are the retail shops, concessions, tax agreements, the physical plant itself. It’s a very sophisticated environment,” he added.

“It will take someone a great deal of time and potentially millions of dollars to develop a fully integrated business plan for the property.”

Mr Farkas said he and Sir Sol had “offered many times” to do this work for the China Export-Import Bank, adding: “We are very experienced at this.”

His Island Global Capital Bank manages more than $100 billion in capital and owns C-III, which Mr Farkas described as “one of the biggest non-bank owner of commercial mortgages in the US”.

He added that C-III also operated the “largest special servicer” in the US, an entity that is responsible for working out troubled commercial mortgage loans.

C-III has refinanced around $40 billion worth of such credit, and Mr Farkas said: “We are in a highly specialised business, and it’s precisely this kind of work” that’s required at Baha Mar.

As for his partner, he added: “Sol Kerzner is the only man in the history of resorts ever to have successfully designed, developed, built, operated and profitably operated a resort of this complexity in this region.

“It would stand to reason to someone that, having the combination of resources myself and Sol have, we would be somewhat uniquely positioned to do what is precisely required to address these problems as expeditiously as possible.

“We are also uniquely positioned to bring the capital to the table to make this work, once we understand what the value of the proposition is. Our hands are tied because we’ve not gotten the information and time necessary to make the assessment.

“That said, we continue to stand ready to do so as soon as the bank is ready to engage.”