New owners discuss Ritz plans

The new owners of The Ritz-Carlton, Grand Cayman, said they plan on investing in improvements to the resort over the next several years, possibly including new hard court tennis courts and creating an 18-hole golf course. 

While specifics would be determined in conjunction with The Ritz-Carlton management company, representatives from owner Five Mile Capital Partners tossed out figures in the range of US$7 million to US$10 million in the near term, and US$20 million to US$30 million during the next few years. 

 

Keeping it fresh 

James Glasgow and David Lattimer of United States-based private equity firm Five Mile sat down with members of the Cayman Islands media Wednesday morning. Five Mile is the parent company of RC Cayman Holdings, which bought the resort property at auction 31 October for US$177.5 million. 

RC Cayman was the secured creditor of some US$250 million for receivership companies formerly controlled by Ritz developer Michael Ryan. Mr. Glasgow and Mr. Lattimer characterised their company’s acquisition of the Ritz as positive news for the territory, and the rendering of a “solvent, viable asset which was previously insolvent”. 

Mr. Glasgow said it would be a win-win situation for the company and the Cayman Islands if they were able to take a resort with a value of US$177.5 million, invest some US$20 million to US$30 million into it, and sell it for, say, US$400 million. 

In a previous conversation with the Caymanian Compass, a Five Mile representative said the firm’s plan is to hold the asset for five to 10 years – in line with all of its acquisitions. 

Mr. Glasgow and Mr. Lattimer pointed to recent improvements as indications of how the resort will operate under the company’s ownership, including renovations to Seven steakhouse. 

Jaime Moench, director of sales and marketing for The Ritz-Carlton, Grand Cayman, said workers just completed renovations to Seven, Silver Palm Lounge and Tycoon sushi restaurant. She said Blue by Eric Ripert is undergoing renovations and is set to open in early December. 

“We’re looking forward to a guest rooms renovation starting early next summer,” she said, which will be conducted in conjunction with ongoing improvements to the pool and beach area. 

Ms Moench said the renovations are part of the resort’s long-term management strategy, and that the hotel has never fallen behind on planned improvements during the life of the property. 

“The renovation projects have been ongoing for several years and have been planned for several years,” she said. 

She said that, generally, the management company works in partnership with the owners to plan and execute the projects over the long term. 

Echoing the owner’s and management company’s statements that it has been “business as usual” at the resort throughout the ownership transition period, Ms Moench said, “We’re very excited about the fresh product that we have and are looking forward to the guest rooms renovation to keep the resort fresh and current.” 

 

Additions, streamlining 

In addition to what might be considered routine ongoing renovations, Mr. Glasgow and Mr. Lattimer mentioned the possible addition of hard court tennis courts, building out the Deckhouses and turning the nine-hole Blue Tip golf course into an 18-hole course with the cooperation of the “neighbouring landowner”. 

To the north of Blue Tip is the 18-hole North Sound Golf Club, which was also developed by Mr. Ryan and in which the Dart Group invested earlier this year. To the south of Blue Tip is vacant land. 

Mentioning some of the Ritz’s events, Mr. Glasgow said Five Mile fully supports the Cayman Cookout, Legends Tennis and Cayman Alternative Investment Summit. 

Mr. Glasgow said his company will not assume the role formerly played by Mr. Ryan’s companies in providing various services to the Ritz property, for example water sports, car rentals or alcohol provision. 

“We are not an individual entrepreneur. Mr. Ryan had a lot of businesses at this hotel. We are streamlining it.” 

Aside from the management company, at least one other entity is continuing its relationship with the resort through the ownership change. Mr. Glasgow said US-based Marvin M. Schwan Charitable Foundation now has an 11 per cent ownership stake in the property. 

 

‘We do not owe the duty’ 

During the meeting at the offices of Five Mile’s local attorneys Conyers, Dill and Pearman, Mr. Glasgow and Mr. Lattimer reiterated the company’s position that it does not owe government $6 million in deferred duty payments, and that the US$177.5 million auction price of the resort property was based on an impartial valuation agreed to by government. 

“We do not owe the duty that Mr. Ryan owes,” said Mr. Glasgow, referring to the deferred duty payments that government alleged it was owed by receivership companies formerly controlled by the Ritz developer. 

Mr. Glasgow and Mr. Lattimer said local firm Chartlerland pegged the value of the property at US$177.5 million, and that value was OK’d in writing by the government’s Valuation and Estates Office. 

Last week in Legislative Assembly, Cayman Islands Premier McKeeva Bush said the auction price was far lower than the US$468 million value assigned by a valuer in 2007, apparently referring to a January 2007 valuation performed by property consulting firm BCQS. 

Saying that 2007 valuation may have been used to obtain the US$232 million in credit from Credit Suisse that was eventually acquired by Five Mile, Mr. Lattimer said, “At some point, someone believed that was the value.” 

However, in today’s situation, Mr. Lattimer said an attempt by the government to collect stamp duty on the Ritz sale based on a US$468 million value, rather than the US$177.5 million price, could lead to litigation and might cripple the company’s plans for the Ritz. 

“The hotel might shut down,” he said. 

The Ritz owners later sought to clarify that remark in the following statement sent to the Compass on Thursday. 

“Five Mile Capital LLC have no intention of shutting The Ritz-Carlton, Grand Cayman down. Nor does the company want to imply in any way that this is the case. 

“To clarify, Five Mile’s objective is to direct capital investment into the asset so that its current Five Diamond rating can be maintained. Five Mile has been advised that the loss of the Five Diamond rating would be damaging to the resort and its overall value and global standing. Without the necessary capital investment the Five Diamond rating would be in jeopardy. 

“Five Mile is prepared to pay the requisite stamp duty based on the current appraised value of the hotel. It fears, however, that a tax based on a 2007 valuation, premised on projected revenues that never occurred, will negate the ability to make the necessary capital improvements to preserve the Five Diamond rating.” 

On island from Monday to Wednesday, Mr. Glasgow and Mr. Lattimer visited with the Ritz management company, toured Grand Cayman by helicopter and met with the media. They also planned to meet with Cayman Islands Governor Duncan Taylor and perhaps Deputy Governor Franz Manderson, but not with the premier or members of his government. 

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9 COMMENTS

  1. Good that the company agree that stamp duty is due and payable to the treasury. Not sure how this 177 million VS the government appraised value of over 400 Million will fly though. I purchased two acre of land, got a very good deal for 45 grand, the government appraised the property and I had to pay stamp duty based on their finding of over 80,000 market value. If the government accept the 177 Million value from the Ritz, should I be looking for a rebate?.. Will this leave the government appraisal process failing?.

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  2. Mr. Glasgow said it would be a win-win situation for the company and the Cayman Islands if they were able to take a resort with a value of US177.5 million, invest some US20 million to US30 million into it, and sell it for, say, US400 million.

    Clearly the 177.5 million is a business valuation only, stamp tax is based on real property value and nothing more.

    Imagine how can 20 to 30 million improvements will rise up the value of the building to 400 million. One thing for sure, if you buy a land and construct a building today at the same place, similar to Ritz, would incur you more than 400 million than it was constructed 5 years ago because of inflation and interest rates.

    Duty tax is capitalized cost as part of building, if building construction cost is 100 and incurred 20 duties on importation of materials, the total cost of building is 120. Meaning wherever the building goes it has a duty on it.

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  3. Outrageous, presume for a moment that a property had a suggested valuation of 2 million and I list that property with an agent and it sits for 2 years without attracting any offers.

    Exasperated I decide to reduce the price to 1.5 million and along comes an offer at 1.2, I decide to get out after 2 years in the open unfettered market and take that offer.

    The duty could be on the sale price for arguments sake 7.5% x 1.200,000.00 = 90,000.00

    Along comes Mr. Goverment at closing or shortly thereafter and says sorry we feel the market value of the property is higher, the duty should have been paid on 2,000,000.00 x 7.5% = 150,000.00.

    As a Buyer I would be horrified to find out I was suddenly exposed to a cost of 60,000.00 and if I had known I would never have bought the property.

    This kind of uncertainty in an open democratic free market is ludicrous, it begs the question why would you purchase property or invest with such uncertainty.

    Moreover, you would be hard pressed to find a sale that took place in the last 4 years at or above the appraised or market price normally obtained for for financing and insurance purposes.

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  4. Time for this ongoing saga to be put to bed.

    DonQuijote – you seem to be mixing up replacement cost with market value – two totally different concepts. Stamp duty is assessed on market value. According to previous press reports the 177.5m value was arrived at between the company’s independent valuer and the government valuer and the auction seems to bear out that that is the market value since no one bid higher than that. I’m not sure why you believe that it is a business valuation only.

    This looks like it is going to get ugly.

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  5. This is disheartening to say the least, how will anyone have confidence in purchasing Cayman islands real estate if they know that on a whim the CIG can milk them of more money by just saying the price they purchased it at was to low to they have to pay stamp duty on a higher number. This stinks of a corrupt Government where anything goes, I wonder how much the legal fees will cost on this one. It also brings the whole issue with CUC to mind, I wonder how much the CIG stands to get out of them mysteriously finding millions in under payments and forcing their customers to pay it.

    After years of being ran by 5 year old acting politicians with their own tit for tat self-agendas at heart and using Cayman as their own personal playground these islands will have an incredibly hard job regaining the confidence people used to have in its stability.

    I do not see one politician in Cayman that I believe truly wants what’s best for Cayman if there is where are they. They all fight like cats and dogs and pit Caymanian against Caymanian , brother against Sister as well as Us against them all in an effort to fulfill their own political agendas.

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  6. The Stamp Duty payable has always been based on the purchase price or market value, whichever is greater.

    So this is not CIG taking action on the whim.

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  7. Atticus, I understand what you are saying, but were not these prices set prior to the sale by appraisers both from the government as well as the buyers? what I do not understand is why the price is now being disputed. It seems to me the since Bush didn’t get his way he’s now using Gangster style tactics such as saying he will not let them get any permits to do business unless they pay what he decides they owe. If this is how business is going to be done now in Cayman everyone needs to be worried.

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  8. Premier Bush’s statements are laughable. What business school did he go to again? Bush should be thankful someone bought the hotel and made a considerable investment in Cayman saving lots of jobs in an already depressed market, his actions are very disconcerting.

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