It has long been billed as a game changer – a project that could at once revitalize the economy and transform the face of Hamilton, Bermuda.
But local and central Government in Bermuda bungled a bid to redevelop harbor-front property in the island’s capital in maneuvers that could end up costing taxpayers tens of millions of dollars.
Developer Michael MacLean’s Allied Development Partners is claiming compensation of $156 million – an amount equivalent to about ten percent of the country’s gross debt as of the end of fiscal 2012/13 – after the Government voided its 262-year lease of the 20-acre waterfront property last year.
That’s just for losing its contractual rights to the property. Court action could follow seeking compensation for loss of potential profits that would have flowed from the redevelopment project.
MacLean is also looking to challenge the law that allows the Minister in charge of the municipalities to take stewardship of the Corporation of Hamilton, joining forces with about seven City Council members in an almost identical action now before the courts.. In addition, his lawyers plan on arguing that the lease can not have been properly voided and is still in effect.
Control of the City’s waterfront is critical for the Government of Bermuda which has made certain commitments with the America’s Cup Event Authority concerning the use of City property.
MacLean reported to broadcast media last summer that he secretly recorded some of the talks to settle the matter – conversations which included “private citizens” acting on behalf of government officials. He declined to release the recordings or say who the private citizens were, but claimed that improper demands were made of him during the settlement talks.
Our inquiries have found that Stephen DeCosta – a friend of then Premier Craig Cannonier – played a role in discussions about the waterfront project between Government Ministers and Michael MacLean before the development deal was voided. DeCosta is not a civil servant or employed in any official capacity by the Bermuda Government.
He was at the center of the “JetGate” scandal which led to Craig Cannonier’s resignation from the premiership.
Cannonier told Politica that he did not know if DeCosta was involved in talks on the waterfront project.
“Not to my knowledge at all. Never knew of that,” said Cannonier shortly after being sworn in as Public Works Minister on January 15.
Home Affairs Minister Michael Fahy has, however, acknowledged that he had shared useful “information” with the Government.
MacLean, on the other hand, indicated that it was made clear to him by “certain people” that DeCosta had to be involved from the earliest days of the new One Bermuda Alliance government if his project were to succeed.
It is not clear what role DeCosta played during the settlement talks.
As the country transitioned to new political leadership in December 2012, City Hall quietly signed away waterfront leasehold rights to ADP.
And soon, DeCosta would contact MacLean, ostensibly as the new Premier’s liaison, according to information received by Politica several months ago.
MacLean has been reluctant to go public on the details of his dealings with the Government over the waterfront project but has now broken his silence on the matter to confirm that DeCosta was in fact involved in talks on the deal.
DeCosta even accompanied MacLean to New York meetings with potential financiers and attended a meeting at Hamilton Princess at which the then Premier – Craig Cannonier – was present, according to the developer.
“He knew about an engagement and he asked to come along,” said MacLean of the New York trip which took place in early summer of 2013.
“You think I had a choice? The Government was against my project” was his response when asked why he agreed to the request. “And it was clear to me that the only way to get my project is to conform to whatever rules certain people are imposing. What am I supposed to do? What choice was I left with?”
DeCosta was vague about his involvement and would only say that he was friends with MacLean when contacted last year.
MacLean and DeCosta did have an indirect business relationship when DeCosta’s mobile catering service, Eat N Run, supplied food to construction sites. But DeCosta sold that business in the early 2000s and there was little to no contact between the two until after the 2012 general election, according to an earlier conversation with MacLean.
MacLean has also revealed publicly that among those who attended the secretly recorded “off the record” settlement talks were “private citizens who were representing government officials.”
“If you look at JetGate, and put all the pieces together in JetGate, this went down the exact same way,” he told radio talk show host Sherri Simmons without identifying the individuals involved.
Municipalities Minister Michael Fahy ignored a list of emailed questions on the waterfront.
“He had some information that was useful to us,” is all the Minister would say about DeCosta when we caught up with him at the final Senate sitting of the legislative session last summer. He did not elaborate but denied that DeCosta played a role in talks on the waterfront.
The “JetGate” scandal – detailed in our story Selling Bermuda – featured DeCosta in meetings between Government Ministers and developer Nathan Landow who had an interest in having a casino in Bermuda. It later emerged that DeCosta had enjoyed a brief consultancy on Landow’s payroll and was one of the managers of an “underground” campaign account funded by the developer and other US businessmen.
In early 2013, MacLean’s Allied Development Partners was contracted as the lead developer for the waterfront redevelopment project following a deeply flawed bidding process.
The process, which featured a “Request for Proposal” consisting solely of a small ad in local newspapers, also landed MacLean’s ADP a 262-year lease of 20 acres of City property.
As part of a raft of reforms intended to address maladministration, Government subsequently passed a law giving it the right to void certain agreements for the long-term lease of City of Hamilton property. The law also provides for a 42-day period of negotiation for compensation for parties affected. That window expired in May last year and an arbitration panel appointed by the Governor will soon make a binding recommendation on what compensation is due to MacLean.
Bermudian lawyer Geoffrey Bell, QC, has been chairing the panel which also comprises George Bartlett QC and Norman Rose – both of the London public law firm Francis Taylor Building.
MacLean’s claim of $156.2 million is based on a valuation conducted in March by US consultants HVS Consulting and Valuation Services, a choice agreed to by both the former premier Craig Cannonier and Cabinet Minister Michael Fahy, whose Home Affairs portfolio includes the municipalities.
But the bungling began months before the new One Bermuda Alliance Government took office in December 2012. According to the Ombudsman’s report of her investigation into the matter, the new administration at City Hall decided to go it alone with the project shortly after being elected in May 2012.
A Waterfront Development Steering Committee (consisting of the Premier, business representatives and the Mayor) had been working on options for managing the island’s biggest infrastructure project in its 400 year history – options that would have prioritised national over municipal interests. In September, 2012, one month after the Mayor attended his third WDSC meeting, City Hall issued its “Request for Proposal”.
By December that year, a ground lease and development agreement had been signed with ADP.
In interviews conducted over the summer of 2013, MacLean said that Government could have taken over the lease for far less than what he is now claiming.
One offer – for $17 million – could have been refunded by a new developer of the Government’s choosing, he said. A subsequent offer would have seen the Government take possession of the property in exchange for a sovereign guarantee for a bridge loan to develop a hotel in the city centre.
Both offers were rejected by the Government of Bermuda. But Government did eventually pass a measure which allowed the Corporation of Hamilton itself to provide the financial guarantee for the hotel bridge loan.
MacLean has now raised the $18 million and negotiations for full financing of the $400 million hotel development is underway.
MacLean first came to public consciousness early last year when it emerged that his company Allied Development Partners had been contracted to lead the billion dollar waterfront redevelopment project. By then he had also managed to secure first position with Par-la-Ville Hotel and Residences, Ltd, which had won the right to build a $400 million hotel on City of Hamilton property. The PLV hotel project had been years in the making but then principal developer Ted Adams was unable to raise the seed financing being demanded by financiers for the project.
According to MacLean, the potential financiers insisted he take over as lead developer when MacLean – whose company M & M Construction had been earmarked by Adams as the lead contractor for the hotel – stepped forward in the summer of 2012 with the seed money. Subsequent negotiations with Adams left MacLean with an 80 percent share of the company slated to build the hotel. And when the waterfront development project was tendered by City Hall, the financiers encouraged MacLean to put in a proposal, making an upfront commitment to back him if he were to win.
But the neophyte City Hall administration – in its own series of administrative bungles, including the issuance of the waterfront “RFP” that consisted solely of a small ad in a local newspaper – would soon attract the attention of the Ombudsman.
Par-la-Ville Hotel and Residences Ltd assets included a 262-year lease of City property and a partnership agreement with Starwood Hotels and Resorts, owners of the luxury St Regis brand. MacLean took steps to raise bridge financing off the lease – and received one of two necessary permissions from Government to do so. But a change in Government just days later brought his financing strategy to a screeching halt.
Almost two years later, Bermuda’s Opposition Progressive Labour Party would find itself vigorously opposing the bill which would void certain contracts entered into by the municipalities – a measure targeted at MacLean’s waterfront agreement with the City. Junior Minister Sylvan Richards who led the debate in March last year defended the bill by citing the Ombudsman’s report on governance concerns at the Corporation.
It says, and I quote, “If development of Hamilton Harbour is indeed a priority of the Corporation of Hamilton, Government and people of Bermuda, then ideally, we should start over.” And that is what we are doing tonight,” Richards told legislators.
MacLean points out that Richards ignored the very next paragraph of the recommendation which warns of a “massive hiccup” if starting over meant adversely impacting third party rights bestowed by valid contracts.
The Ombudsman also suggested that Government get legal advice on the validity of ADP’s contracts with the Corporation of Hamilton.
While there were widespread concerns about the process of awarding the development contract, no one argued in parliament that the contract itself was invalid. And it is unclear what steps, if any, had been taken by the Government to clear up this point.
MacLean blames much of his troubles on a form of personal discrimination that excludes entrepreneurs who are not part of an old boys network.
Former Premier Sir John Swan who publicly criticised the Corporation’s RFP process and presented his own vision for the waterfront, rejected MacLean’s suggestion that he had exerted pressure on the Government.
I have no issue with Mr MacLean. That’s a matter for him, the Corporation and the Government. I have for ten long years encouraged Bermuda to try to find a way to develop the Hamilton waterfront as we are a maritime destination and a place for people to come here and enjoy. All I have done is presented a plan on what can be done with the waterfront. If that plan has had any influence, I don’t know. I have not enjoined into conversation with the government. I have not been a party to anything to do with MacLean.”
Finance Minister Bob Richards has ignored multiple requests for an interview about the matter.
While MacLean is confident that he will eventually get compensation, he told us that he has paid a heavy personal price for his involvement in both projects.
For now, the waterfront is now back under the control of the City of Hamilton, itself under stewardship of the Municipalities Minister, and Bermuda’s taxpayers await the bill for what many residents see a preventable fiasco.
Meanwhile, Craig Cannonier is fully engaged in serving the taxpayers as the country’s new Public Works Minister.
This article belongs to Politica ! The original article can be found here: How Bermuda bungled its waterfront redevelopment project
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