The Cayman Islands government is talking with the new owner of The Ritz-Carlton, Grand Cayman about stamp duty payments that could total up to CI$17 million, in theory.
Cayman Islands Premier McKeeva Bush said the CI$6 million in deferred stamp duty payments the government claimed was owed by the receivership companies formerly owned by Ritz developer Michael Ryan is part of a continuing legal dispute that is “still outstanding”.*
“I suspect that the new owners will live up to the contract. It’s a legal document, and the government cannot afford to wipe it out,” Mr. Bush said.
Built in 2005, the Ritz and associated properties were sold at auction 31 October for US$177.5 million to RC Cayman Holdings LLC, an affiliate of American private equity firm Five Mile Capital Partners LLC. At the new uniform rates for property transfers of 7.5 per cent, the stamp duty tax for the sale would be US$13.3 million, or roughly CI$10.9 million. (Under current law, some of the non-waterfront Ritz properties may have a duty rate of 6 per cent. Additionally, although included in the sales price, the value of “chattels”, such as furniture, would not factor into the amount of duty owed.)
IRG broker and owner Jeremy Hurst said there is precedent for government to agree to waive the stamp duty charge to encourage the sale of valuable property in similar circumstances.
Mr. Bush said, “Our law says on any transfer, there is an element of stamp duty to be paid. That’s the law – but we will be a good partner. And I think they want to be a good corporate citizen and expect to have a good partnership with them.”
Mr. Bush said government has been talking with RC Cayman since before the auction, but has not agreed to any definite breaks on stamp duty. He said his first priority is to ensure the Ritz stays viable.
“This country cannot take a hotel closing at this time,” he said.
Noting that countries from Taiwan to the United States regularly offer incentives for private investment, Mr. Bush said the Ritz has received relatively minor concessions compared with other projects over the years.
“When I supported building the Ritz-Carlton, I supported that project because I recognised that the quality that they were starting with it would bring our tourism to another level that catered to the high-wealth individuals that we are promoting as a tourism destination,” said Mr. Bush, who is Minister of Tourism. “The Ritz-Carlton over the years has lived up to that expectation.”
Mr. Hurst said the net positive impact of the Ritz has been far more massive than the outstanding CI$6 million.
“We are willing to be the kind of partner that we have always been when we attracted the hotel. We will continue to be that partner,” Mr. Bush said. “The new owners have said they will continue to be that partner as well.”
In March, as the property’s secured lender, RC Cayman filed a writ demanding the immediate repayment of nearly US$234 million from Ritz developer Michael Ryan, and appointed Kris Beighton and Keith Blake of KPMG as joint receivers of companies, formerly controlled by Mr. Ryan, that were behind the development and ownership of the Ritz.
Court documents contain a review by the Deloitte accounting firm showing the Ritz receivership companies to have been “insolvent to the tune of” more than US$340 million on a balance sheet basis, with about US$261 million in assets, US$250 million claimed by secured creditor RC Cayman and US$351 million in unsecured credit.
A complex legal case is before the Cayman Islands Grand Court, pitting the receivership companies against Mr. Ryan and companies he still controls. Each side argues the other owes money, including an allegation that Mr. Ryan and one of his companies received US$44 million over seven years from the Ritz companies before he lost control of them.
When the Ritz auction was announced in September, the reserve price was set at US$240 million. In October, the reserve price was cut to US$177.5 million. If the property had sold for the original reserve price, the 7.5 per cent stamp duty would have been about CI$14.8 million, or about CI$3.8 million greater than the hypothetical duty on the actual sales price.
A Five Mile representative said the initial reserve price was set before the appraised value of the property was known, and was revised downward after the appraisal.
“The US$177.5 million reflected the appraised value,” he said.
The auction, which was the largest public real estate auction in Cayman’s history, drew one other qualified bidder in addition to RC Cayman, each of whom had to submit a refundable advance deposit of US$8.875 million. While the Five Mile representative declined to name who the other bidder was, he did say it is a Cayman-based entity.