Dart deal gives value, makes concessions

An agreement between Dart Realty [Cayman] Ltd. and the Cayman Islands government does provide some value for money, but it also proposes several concessions that an independent review noted could lead to significant competitive disadvantages for other players in the local hotel and tourism market.  

That’s the general conclusion of two separate reviews performed by accountants at PricewaterhouseCoopers, which was hired to evaluate the National Roads Authority agreement between Dart Realty and the Cayman Islands government. The agreement encompasses the closure of a section of West Bay Road in the Public Beach area of Grand Cayman and the extension of the Esterley Tibbetts Highway into West Bay. It also involves a number of tax breaks and other concessions given for the development of a four/five-star hotel property on the site of the old Courtyard Marriott, as well as several amenities for government and Cayman Islands residents.  

“The NRA agreement provides for significant financial benefits for the [government] in the short term, particularly in the form of road construction to be carried out by Dart Realty,” the PricewaterhouseCoopers evaluation read. “In return for these benefits, the NRA agreement requires [government] to incur certain costs and divest assets to [Dart].”  

Late Friday, the government released two separate NRA documents. One was the full text of the National Roads Authority agreement approved in October; another a draft updated agreement completed this month. Talks on the updated agreement went pear-shaped last week when Dart Realty’s Chief Operating Officer Jackie Doak withdrew from negotiations.  

Mrs. Doak said late Friday that government and her company had actually agreed to the latest version – a third amendment of the NRA deal – in April after “several months of negotiations”. 

“But that was then taken off the table by the current Cabinet, seeking yet more last minute changes, at which point negotiations broke down,” Mrs. Doak said. A representative for Dart said the third amended portion of the agreement had received approval “in principle” on 12 April, but that Cabinet tried to change the deal on 23 April without getting Dart Realty’s approval.  

It was only following Dart’s withdrawal from the talks that the PwC value for money reviews were made public.  

Tourism Minister Cline Glidden Jr. said last week that the main sticking point was about $16 million in proposed concessions for the Seven Mile Beach hotel Dart plans to build on the site of the now-demolished Courtyard Marriott. 

Whatever was discussed as part of the $16 million concession dispute is not considered in the PricewaterhouseCoopers review.  

As part of its evaluation, PwC attempted to put a price tag on the benefits derived by the Cayman Islands government out of the National Roads Authority agreement and compare that to what the deal would cost government.  

In the most basic of terms, the amendments approved in October 2012 would have provided $67.6 million in benefits to government, while costing it $90.7 million in divestments and other costs. For instance, the extension of the Esterley Tibbetts Highway into West Bay was calculated as a $37.3 million benefit to the government, which could not possibly have constructed such a road on its own as quickly as Dart Realty has done, reviewers noted.  

However, PwC counted the divestment of land involved in the West Bay Road closure to Dart Realty as a $73.3 million “cost” to the government, including the property value increases it provided the company, which owned land on both sides of the road – now made far more valuable with its closure.  

Other benefits to Cayman’s government noted on the list were a cash grant of $5 million paid by Dart, land for a new public beach section, payments for leasehold arrangements on land near the new hotel site, public beach park development costs, West Bay pedestrian and bike paths, and land for other community purposes including the potential development of a new Sunrise Adult Training Centre in George Town.  

Costs to government included $4.5 million to operate and maintain the new road into West Bay; the closure of Old Barkers Road in West Bay and divestiture of some land there to Dart Realty; $7.3 million in rebates for hotel development fees in the Seven Mile Beach area; and $3.1 million in estimated costs due to extinguishing certain public rights of way to the sea along West Bay Road where the new hotel will be built.  

The updated May 2013 evaluation evened out the respective benefits vs. costs scenario to $78.1 million in amenities to the Cayman Islands government compared to $78.2 million in costs. The proposed amendments included an additional $10 million spent by Dart Realty for the widening of the Esterley Tibbetts Highway at its southern end in George Town and the transfer of land to government in Smith Cove [$3.5 million].  

PwC also decreased the value of the West Bay Road land divestiture to $55.4 million, but increased the duty and development fee rebate for the new hotel to $10.5 million.  

Evaluators were quick to point out that other factors had to be taken into account when considering value for money with regard to the National Roads Authority agreement.  

The divestiture of the West Bay Road land, for instance, did not require any disbursement of funds by the Cayman Islands government. Moreover, the current value of the land to government, with a private entity owning land on both sides of it, may have been quite small. To Dart Realty, on the other hand, the road had significantly greater worth and made its holdings in the Public Beach area far more valuable.  

“This value uplift, while real, is difficult to estimate and does not constitute an immediate source of cash for Dart Realty,” the PwC report noted, adding that “substantial investment” was still to come if Dart was to ever reap the benefits of this land transfer.  

In addition, economic benefits of the new hotel site were calculated at $755 million over a 20-year period and those benefits could be much higher if Dart Realty were to continue with other construction plans identified in the report – including the construction of five new hotels and condominium complexes around Grand Cayman. However, the report also pointed out that there is no requirement in the agreement for Dart to build anything other than the initial hotel in the Public Beach area.  

“The infrastructure and Seven Mile Beach hotel development component of the NRA agreement provides value for money to the Cayman Islands Government,” PwC noted.  

The international accountancy firm was less certain about the value provided by various concessions proposed as part of Dart Realty’s development plans.  

Both the October 2012 agreed amendments and the May 2013 proposed amendments provided tax “abatements” to Dart including; a 100 per cent waiver of development fees and import duties for all Dart Realty [and affiliated] properties, a 100 per cent waiver of related stamp duty for the development projects and a 50 per cent waiver of stamp duty payable for all leases at the West Bay properties owned by Dart.  

In the October agreement, those concessions were up to an amount of US$24 million. In the latter proposed agreement, that amount had increased to nearly US$53 million. 

PricewaterhouseCoopers questioned whether these “abatements” would act as true incentives to spur development of the various hotel and condo related pro
jects proposed by Dart “rather than acting as subsidies for future development that would have been undertaken in any event”. The firm recommended “better targeting” of those tax abatements by the Cayman Islands government.  

In addition, PwC said a proposed hotel tax rebate as part of the deal might not provide value for money at all. In both versions of the National Roads Authority agreement made public Friday, a 50 per cent rebate for all Tourist Accommodation [Taxation] Law levies was proposed for up to 10 years at each Dart hotel property including those newly opened, renovated or refurbished. The 10-year rebate period would be considered good at any time within 30 years of the National Roads Authority agreement being signed.  

All hotels must now pay a 13 per cent tourism accommodation tax to government. If a Dart hotel received a half-off rebate for 10 years, it would only pay a 6.5 per cent rate during that period. This could cost government nearly $24 million, by PwC estimates. Accountants noted that government might have little control over the rebate’s application to new hotels, or to existing hotels, under the deal with Dart Realty. Also, it was not certain what other hotel developers or existing tourism accommodation operators might demand if such an agreement was made for Dart Realty and its associated companies, the PwC review stated.  

“Owners of existing hotels or other potential investors could make demands for similar rebates, at a cost unknown to [government],” the evaluation noted.  

As part of its conclusion in reviewing both the October 2012 NRA agreement and the May 2013 proposal, PricewaterhouseCoopers made several recommendations:  

The hotel tax rebate, as proposed for Dart, should be made available to other potential investors or developers and clear rules should be developed for eligibility requirements.  

The government needs a mechanism to track the US$53 million [previously US$24 million] for tax abatements or hotel tax rebates received by Dart Realty to ensure those claims do not pass already set limits.  

The government should also change the Public Management and Finance Law and regulations for approval processes for projects, like this one, where competitive bidding is not feasible. More disclosure should also be made to government by Dart with regard to its competitive bidding process.  

Consider linking items like the hotel tax rebate incentive to efforts to hire Caymanian employees.  

Dart will retain complete control over the routes for the pedestrian and bike paths in the West Bay/Public Beach area. Government should seek to enhance its control over this project.  

Government should ensure that development the West Bay Road closure area should be predominantly hotel/tourism-related. 


  1. Seems hardly fair to other hotels already doing business here that they will have to compete with a government subsidised business.

    I do however take the point that on the one hand the slice of road given to Dart increases the value of their land on both sides enormously. But on the other what is the value of that road to the government to whom it has no development value?

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