A package of tax incentives is e​xpected to support the redevelopment of the Fairmont Southampton, according to the head of the company that owns the hotel.

Karim Alibhai, the principal of Gencom, also insisted that the Government will not be providing a completion guarantee to lenders for about $200 million of renovations at the 593-room property.

He said that a “very big difference” to the failed Morgan’s Point development, which left the Government on the hook for $165 million, was that the Fairmont Southampton scheme was “fully capitalised … with all the financing in place when we start, to complete the project”.

The businessman added that his company had a significant track record and experience in hotel development.

He highlighted that Gencom is issuing a completion guarantee for the project that is being underwritten by “institutional blue-chip lenders … that have much, much more high risk for the project than Government has at all”.

Mr Alibhai said: “When the word ‘guarantee’ was mentioned, I think there was a lot of confusion — ‘oh my God, if the project doesn’t get completed, what happens to the Government?’

“Well, no one, including the former government people, mentioned that, no, we have insulated ourselves and structured this in the smartest way possible, just like major projects in the United States would get done, where we have third parties who are underwriting, taking the lion’s share of the risk and getting completion guarantees for the project.”

He said there was a financial institution prepared to loan against the tax receipts to provide part of the capital needed. He added: “The risk of completion is being borne by us.“

Mr Alibhai, who founded Miami-based Gencom in 1987, explained that, around the world, levies such as hotel occupancy and payroll taxes generate funds that are typically handed over to governments.

He added that “no matter what the project cash flow or bottom line is, those tax receipts come in every time a dollar is spent at the property, so it’s the safest income stream, whether the project is successful or not, that goes to the Government”.

“That’s the tax receipts that the Government [is] using to incentivise people to come and develop, or spend money on projects on the island,” he explained.

Mr Alibhai said: “If you look at it from a practical perspective, let’s say if this project were not to open, there is no tax receipts.”

He added that the hotel’s reopening would create jobs directly as well as lead to indirect benefits such as business for taxi drivers and restaurants, or increased airlift.

Mr Alibhai said: “From the Government’s perspective, not only has it provided immediate benefits to the economy, but long term — after the tax receipts that they have allocated to rebate to us to finance the development — all of it continues to go to Government for ever and a day.”

Although he wanted to wait for the Government to announce the predicted value of the assurance against tax receipts, the businessman said he “would hope” it was worth more than $50 million.

Mr Alibhai added that it was “a lot less” than $100 million.

The Fairmont Southampton was acquired by Gencom — also the owners of Rosewood Bermuda — in 2019 when the investment firm bought Westend Properties, a local entity.

Mr Alibhai said that the hotel was “doing close to $100 million revenues” at the time but added that cash flow was only $2 million, or 2 per cent.

He explained that other resorts in Gencom’s portfolio typically earned 20 to 33 per cent in “bottom-line numbers”.

Mr Alibhai added: “We’re hopeful that the revenues will grow by at least 50 per cent or $140 to $150 million once you go through the ramp-up period, which will take probably three years or so.”

He explained that an “institutional senior debt package” involved two lenders and would cover between 55 and 58 per cent of the financing for the project.

Mr Alibhai said that the remainder of the financing was a combination of equity from five investors, including Gencom, as well as "the tax relief plan that the Government has, that bridges the balance“.

The businessman highlighted that the components of the government package were “very similar” to elements outlined in earlier tax relief policies.

He said: “Clearly the Government has been providing support to the tourism and hospitality industry in the form of tax relief and other concessions, so we obviously had to sit down with Government and say, look, as now part of this overall project, here’s what we need.

“So in principle a package has been agreed that has to still go through its legislative process.

“Should that be successful, we then have to marry these pieces … together to work as one unit for us to restart the development of the project.

“We’re hoping that in the next 90 days that can all be done and we can commence this summer and still be open for 2023.”

Mr Alibhai credited David Burt, the Premier and minister responsible for finance and, formerly, tourism, as well as Marc Telemaque, the Cabinet Secretary, and others for negotiating the package.

He added that Gencom conceded to a profit participation plan, which is a first for the company in more than 30 years of operating.

Mr Burt said last month that the Government will “pledge the proceeds” of the profit-sharing arrangement to the Bermuda Trust Fund.

The fund was promised in the Progressive Labour Party’s 2020 General Election platform to “benefit economically disadvantaged Bermudians to reduce generational income inequality”.

Mr Alibhai would not say what the forecast return would be for the public purse but said that the Government’s advisers had carried out their own studies.

He added: “Suffice to say it’s quite a meaningful number … when you take it as the ratio of whatever exposure the Government might have.”

The businessman confirmed that the amount was expected to be in the “millions” each year.

He said that the profit-sharing element was not part of a 2019 letter of intent between the Government and Gencom, which expired at the end of 2020.

Mr Alibhai said: “The fact that’s on the table today actually substantially enhances, I think, the Government’s overall package back to the Government as far as the benefits that Bermuda and the people of Bermuda will get.”

Mr Alibhai said he believed that at least 70 per cent of Fairmont Southampton staff were Bermudian before the coronavirus pandemic hit in 2020, which forced the early closure of the hotel for renovations and triggered 714 redundancies.

He expected the same ratio when more than 800 full-time jobs are created by the reopening and added that training in other Gencom and Fairmont properties overseas will be available to Bermudian staff.

* See our coverage tomorrow to read about planned residential development at the hotel.