There are claims that issuing a Special Development Order (SDO) for Tucker's Point Resort will help tourism, the economy and the workers. The Bermuda Environmental Sustainability Taskforce (BEST) asked an analyst. Here is the response:Why Granting an SDO for Tuckers Point to build additional houses is bad for Bermudian homeowners, bad for tourism, and bad for the workers employed at Tucker's Point.Rosewood Tuckers Point, the new manager of Tuckers Point Resort (TPR), is arguing that the granting of a Special Development Order (SDO) to build residential homes on land presently protected by various environmental zoning orders is good for Bermuda because it will allow TPR to pay down some of the $85 million debt it owes HSBC (total debt is $150 million).It further argues that it will also “help bring more people to our resort to play golf, use our spa and go to our restaurants”.To determine whether the granting of such an SDO is good for Bermuda or merely good for the owners and creditors of TPR we need to look at the negative and positive results that will likely flow from (i) the SDO being granted and (ii) the SDO not being granted; and then determine which result is better for Bermuda.First some background. Over the past 16 years TPR has been granted two SDOs to build houses surrounding the hotel, which were sold mostly to foreigners and generated significant profits for TPR. Yet even with these added profits from the sale of houses, TPR was unable to cover the losses it generated at the hotel.The hotel has two huge costs to cover before it can generate a profit: it must cover all the operating expenses of the hotel (wages, electric bills, etc.) and it must also cover the interest on its $150 million debt now outstanding, much of which it borrowed from the bank to build the resort. Unfortunately, these amounts (particularly the interest on the debt) are so high that the hotel suffers big annual losses.If the SDO is granted, TPR hopes it will be able to pay down some of its bank debt. How much it will be able to actually pay down is unknown because it depends on the amount of profit it generates on the sale of the houses that it wishes to build and that depends on whether house prices in Bermuda will rise or fall.Generally, if you add to the supply of houses in a falling market, you will cause prices to fall even further, which means that not only will the houses built by TPR attract a lower price than similar houses presently on the market, but it also means that this increase in housing will likely cause a large number of other houses in Bermuda to fall in value.This obviously will hurt many Bermudians who are presently trying to sell their homes or merely hoping to keep their house prices above their mortgage debt so that the bank won't force them into foreclosure.Further, if the SDO is granted, Bermuda will have lost a vast amount of protected land that was set aside as a healthy environmental buffer for the benefit of present and future generations of Bermudians.Unfortunately, most, if not all, of the houses being built on that land will be sold to foreigners. Bermudians will have lost the land without gaining housing for Bermudians. While this may be good for TPR, it's hardly good for Bermuda.But TPR has argued that the granting of the SDO will allow it to bring people to its resort, which will be good for tourism. Let's now look at that side of its argument.Right now TPR has to charge very high room rates in order to cover its operating expenses and the interest it has to pay on its huge debt. Unfortunately, as TPR has learned all too well, very high room rates result in very few tourists. But if the SDO were not granted and TPR were to go into receivership, something very interesting would happen. It's called “creative destruction” and is a fundamental tenet of our capitalist system.The bank would put a receiver manager in place (as was recently done for Newstead Belmont) and the receiver manager would run the hotel while the bank searched for someone to buy the hotel. (It should be noted that the receiver manager would continue to keep the hotel operating during this period because it is much easier to sell a hotel that is operating than one that is dormant, particularly a new luxury hotel like TPR. Current staff will be needed to ensure the smooth continuation of operations.)In this economic environment, the purchase price for the hotel would be significantly less than the cost of building the hotel. This would mean that the new purchaser would incur significantly less debt to buy the hotel than the present owners incurred to build the hotel.That means that the new cost of running the hotel would be significantly less than before (the operating cost would be the same, but the interest on the debt would be much less) which would mean that the new owners could charge significantly lower room rates and still generate a profit. And lower room rates would mean even more tourists for Bermuda. Further, higher profits would give hotel workers a better chance of negotiating higher wages.So the likely results of refusing to grant the SDO to build more houses are that (i) Bermuda homeowners will not suffer additional downward pressure on the price of their homes, (ii) present and future generations of Bermudians will be able to enjoy and benefit from the open spaces that are now environmentally protected, and (iii) the new owners of the hotel (who purchase the hotel out of receivership) will have less debt burden, which means two things: (a) they will be able to charge lower room rates and thereby attract even more tourists to Bermuda, and (b) they will have larger profits available, which gives workers a better chance of negotiating higher wages.By comparing the likely results of granting the SDO to the likely results of not granting the SDO, it becomes clear that Bermudians have much to gain if the SDO is refused and much to lose if the SDO is granted.