The Ghosts of Baha Mar: How a $3.5 Billion Paradise Went Bust

This tenet is true which says – “an organization, no matter how well designed, is only as good as the people who live and work in it.”

At the time of the conception of this mega Resort idea, the intentions at the time seemed trans formative, innovative and one that was projected to stood the test of time, launching the tourism DNA of the Bahamas into the 21st century. It was a mega idea designed to take an existing stretch of hotels on the prime real estate strip, Cable Beach, demolishing them and create super Resorts to rival that of Vegas.

It was an idea no one with cash could afford not to take a bite. Serving this  delicious piece of pie with tasty side bowls of mouth watering dips to push the other competing prime real estate Paradise Island, further down on the chess board , it was like business caviar served with the  golden fleece.

But as it turned out, if these super money barons when embarking on their mega yacht with their mega idea do not  know which port they are ultimately sailing to, no wind is going to be favorable.

At the end of the day business is about taking risk and there is no business that does not possess a great amount of risk. But it is also good business to minimize the risk that will certainly come your way and one such way is to invest and work with people or companies with understandable business models.

The curious business models of an Armenian hand in hand with the Chinese and embraced by a Bahamian seems like a culture clash that is terribly  dramatic. Because when you have millions of people with this kind of need for gratification, and the culture is saying that it’s possible for everyone to satisfy all of their needs and desires all of the time, there are obviously going to be clashes – clashes of ego.

In the end leadership is not about the self aggrandizement of personal egos vying in a popularity contest. As Quincy Jones did when he gathered one of the greatest assembly of egomaniacs for a project,  he wrote a simple rule posted above the studio door for all to see- “Leave Your Egos At The Door”.

This did not happen in The Baha Mar project. Egos went flying, actions were perceived as betrayals and jostling for public support became the classic “Its not my fault ” reality show. The minute this starts, where all parties are compromising for the sake of massaging their egos, that’s it, game over.

baharma

Baha mar Resort- photo Dawn McCarty/Bloomberg

 

 

Beyond the tropical waters, across palm-fringed sands and behind locked gates, looms Baha Mar — the largest and, at $3.5 billion, priciest resort in the Caribbean.

Here, no one frolics pool-side, pina colada in hand, or hits irons on the Jack Nicklaus golf course. No slot machines jingle-jangle in the casino. The Flamingo Bar, the Brasserie des Arts and the Cartier boutique lie dark. On this bright October morning in the Bahamas, all 2,200 guest rooms are empty.

The quiet is almost spooky here on the outskirts of Nassau, where the waterscape frills of nearby Paradise Island give way to the vast ghost-resort that is Baha Mar.

 Just how the place ended up like this — in a bankruptcy so colossal that it’s jeopardizing the Bahamas’s credit rating — is the biggest business story to hit this Caribbean nation for as long as anyone here can remember. It stretches far beyond the white beaches and across time zones, to none other than the State Council of China.

‘Big Boys in the Room’

Turns out that even in paradise, local aspirations can collide with China’s global ambitions. Baha Mar may have been dreamed up in the vacation land of the Bahamas, but the central government in Beijing controls the development bank and construction giant that will determine its fate. And China, some Bahamians say, is playing tough as its state-run enterprises project money and influence around the world, including to this small island 180 miles off the coast of Miami.

“Their attitude is, ‘We’re the big boys in the room, we’ve got the money — so you do what we say,’” says Dionisio D’Aguilar, a prominent businessman and former Baha Mar Ltd. director.

Time is short. Bahamian officials have been counting on Baha Mar to invigorate the tourist economy. The developers claimed the resort could single-handedly generate 12 percent of the country’s gross domestic product — provided it ever opens.

Li Ruogu, Brent Symonette, Sarkis Izmirlian

FILE – In this Feb. 21, 2011 file photo, Baha Mar Resorts CEO Sarkis Izmirlian, center, stands between Export-Import Bank of China President Li Ruogu, left, and Bahama’s Deputy Prime Minister Brent Symonette during the groundbreaking ceremony for a Baha Mar resort in Nassau, Bahamas. In 2015, a Bahamas judge ruled that a U.S. bankruptcy filing by the developer of its unfinished mega resort will not be recognized in the archipelago, meaning the developer won’t get a new loan to pay for daily operations. The resort was billed as the largest project of its kind in the Caribbean. (AP Photo/Tim Aylen, File)

Understanding the island’s predicament requires going back more than a decade to 2005 when Prime Minister Perry Christie reached an agreement with a local businessman named Sarkis Izmirlian to help revitalize Cable Beach, the most popular beachfront destination on New Providence Island.

Izmirlian, then just 32, seemed a natural choice. He’s from a wealthy family — his father is Armenian peanut tycoon Dikran Izmirlian — and lives on nearby Lyford Cay, a billionaire enclave. Izmirlian sank nearly $900 million into Baha Mar and recruited marquee-name partners like a Caesars Resort hotel.

Then the 2008 financial crisis hit, and would-be partners balked. When China State Construction Engineering Corp., the world’s second-largest contractor, approached Izmirlian about stepping in, he said yes. The company directed him to Export-Import Bank of China, or Exim, which promotes trade and investment under the direction of Beijing.

Seeing a way into U.S. markets, China State Construction promptly invested $150 million. Exim kicked in $2.45 billion in construction loans — with the proviso that Izmirlian could never fire the Chinese builder, no matter what, and that workers from China would do the job. Flush with Chinese money, Izmirlian declared four Baha Mar hotels would open by 2014.

All this was documented in court filings, and supported by interviews with Christie and other Bahamians. The Chinese and Izmirlian declined interview requests.

Endless haggling complicated by language barriers ensued — about payments, invoices, workmanship, on and on. Deadlines were set and promptly broken. Emails flew back and forth to Beijing.

Burst Pipes

In May 2014, Izmirlian appealed to an independent mediation service based in Washington, D.C., but the troubles multiplied. Pipes burst when inspectors tested the fire sprinklers and faulty balcony railings had to be reinforced, people with knowledge of the construction said. When Izmirlian complained, China delayed its money, one said.

As construction dragged on, Izmirlian and Christie flew to Beijing. There, officials assured them the resort would be ready to open on March 27. Upon his return, the developer hired 2,070 hotel workers, ran a global ad campaign and stocked the casino with $4.5 million in cash.

For Izmirlian the affair was becoming the ultimate contractor nightmare. He was spending an additional $4 million a month to pay staff for a hotel with no guests. Concerned that China State Construction might gain a tactical advantage by filing first, he secretly planned to have Baha Mar declare bankruptcy in the U.S. rather than the Bahamas, whose laws would make liquidation all but inevitable.

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He didn’t even alert the prime minister for fear he would tip off the Chinese, says D’Aguilar, the former resort director.

Baha Mar Ltd. filed for bankruptcy in Delaware on June 29 — and all hell broke loose. China State Construction accused Izmirlian of disrupting the project with endless design changes.

“Baha Mar Ltd.’s decision to file for bankruptcy is the direct result of its failure to secure adequate financing and its mismanagement,” the Chinese company told the court.

Christie’s foreign minister, Fred Mitchell, spoke out in an August speech celebrating the end of slavery on the island, saying “the attempt to keep us bondsmen and slaves does not and has not stopped.”

At the Emancipation Day Service, Mitchell continued, saying: “It is therefore no surprise then that an investor — because he has the word billionaire behind his name — would think, would have the temerity to believe, that he can challenge the leader of our country.”

As the dispute dragged into September, a Delaware judge dismissed the U.S. bankruptcy and a Bahamian judge put provisional liquidators in charge, rendering Izmirlian’s $900 million investment nearly worthless. In October, they hosted negotiations at a nearby hotel. It was a bizarre scene, with Bahamian dancers gyrating in hot pants in the lobby as Chinese men in black suits hunched over laptops.

Still Negotiating

In November, Izmirlian said he was still negotiating with Exim and hoped to remain involved. Failing that, he’s also sued in the U.K., claiming about $192 million in damages for a breach of contract, a figure that could grow as another winter tourist season passes with the resort still in limbo.

How it’ll end is anyone’s guess. Fernando Menendez, a senior fellow at Washington think tank Center for a Secure Free Society, says the episode says less about the Bahamas or Izmirlian than it does about China and its state-owned enterprises.

China Exim wielded billions to guarantee work for one of its biggest customers, China State Construction. How and when that work got done didn’t really matter: Exim made sure the state-run company could never be fired.

“State-owned enterprises don’t function as competitive entities,” Menendez says. “They’re protected from failure.”

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Christie says he’s still optimistic the resort can open. In December, Exim said a number of potential investors had expressed interest. These include Guo Guangchang, chairman of a non-state Chinese conglomerate called Fosun Group, people familiar with the situation say. Fosun already owns stakes in Club Mediterranee SA and Cirque Du Soleil Group.

Back in Nassau, people worry that even with new investors, the promised economic boost will take time. It could be 2018 before Baha Mar makes a meaningful contribution to the economy, according to Standard & Poor’s, which lowered its Bahamas rating to BBB- and warned it could be heading for junk.

For now, Baha Mar faces mold and corrosion as it bakes in the tropical heat. Its pink and cream towers are ringed by a chain-link fence and blue tarps cover unused supplies. At night, lights pop on in several rooms — a move the Bahamians hope will ward of the desolate air of this Caribbean ghost.

(The following was taken form Bloomberg Business website . It was written by johnmlippert   and BcyDawn . Please visit the website for more business news. )

One thought on “The Ghosts of Baha Mar: How a $3.5 Billion Paradise Went Bust

  1. The British mastered this in the late 1800s. One example is of their various banks (Lloyds, Rothschilds etc) lending Argentina, a whole bunch of money to develop their agriculture and railways. Those railways would then be used to send cheap meat and grain to England as their only market (part of loan agreement) for dirt cheap prices. Yeah, they have a railway, but that is now Argentina’s agri-business has only one customer for all intents and purposes. They used to call this “Imperialism on the cheap.” Looks like the Chinese are learning from history…unlike some people.

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