Travel Agents: Baha Mar Will Still Be A Success

July 2, 2015By: Joe Pike

Travel Agent chatted with some notable Caribbean specialists to see how agents and operators are viewing Baha Mar Ltd.’s decision to file for voluntary bankruptcy Monday and subsequently sue the Chinese construction company working on the project on Tuesday.

The consensus?

While this is a major setback for a project that means so much to The Bahamas, agents are highly confident that the $3.5 billion Baha Mar project can rebound from this fiasco and still emerge someday as one of the best resort developments in the world.

“I think this is going to be spectacular,” says Julia P. Douglas, president of Jet Set World Travel in Chicago, “and I think the voluntary bankruptcy makes perfect logic.”

Sarkis Izmirlian, chairman and CEO of Baha Mar Ltd., the developer of the Baha Mar resort, announced Monday that, in order to complete construction and open Baha Mar “as soon as practicable,” Baha Mar Ltd., and entities associated with it, are voluntarily undertaking the process of Chapter 11 under the U.S. Bankruptcy Code.

The Meliá Nassau Beach resort will continue to operate normally during the Chapter 11, the company said in a statement announcing the decision. According to Bloomberg.com, Baha Mar hired and trained about 2,000 employees at a cost of about $4 million a month to prepare for the March opening, Izmirlian said. Those people have been kept on. Bankruptcy protection will provide the time needed to complete the project, according to the statement.

“This was the logical outcome,” says Jack E. Richards, president of Pleasant Holidays. “(Izmirlian) was faced with a payroll of $4 million a month and he was getting no customers. But I have a lot of confidence in the management of Baha Mar. I’ve worked with them in the past. These are some of the best travel professionals in the business. They are doing everything right. You only get one chance to make a good first impression. They want to do this the right way.”

Perhaps the most frustrating factor about this whole ordeal, Richards says, is that the resort was about 97 percent complete. And Travel Agent can confirm after visiting the resort in March that only minor interior work, including laying down carpets, was all that remained to be completed.

“I was there in late May and spent several hours walking the property,” says Richards. “To me, it looked like it was more than 90 percent complete. There were really just some small, finishing touches. Really no big deal.”

On Tuesday, just one day after Baha Mar Ltd., and entities associated with it, announced it was voluntarily undertaking the process of Chapter 11 under the U.S. Bankruptcy Code, the company filed a claim in English High Court against China State Construction Engineering Corporation Limited.

The claim asserts that, among other things, “the defendant is liable in respect guarantee and performance obligations related to the construction of the project, and that Baha Mar Ltd. is entitled to and claims against the defendant a variety of financial remedies.”

Douglas says, although she expects the property to overcome this situation, she did note that if there weren’t any red flags for specialists before, there certainly are now.

“I think now there will be more of a wait-and-see mentality then there would have been if this didn't happen,” says Douglas. “I think the alarm bells are going off for wedding planners, for travelers. It will be an uphill struggle. But I think that it will eventually be a huge success and will even improve the infrastructure of the island. I think [Baha Mar] is also an incredible source of pride for the Bahamians.”

Baha Mar, a $3.5 billion integrated gaming and luxury resort in Nassau, The Bahamas, was orignally set to open March 27. That opening date was pushed back in late March, and again in mid-May.

“When I walked through I thought this is far ahead of a lot of other projects I’ve seen and let's remember that this is a $3.5 billion project, not a $500 million project, not a $200 million,” says Richards. “This is $3.5 billion so delays are not unexpected, but repeated delays are unacceptable.”

When complete, plans call for 2,200 luxury guest rooms across four hotels – in addition to its namesake, the Baha Mar Casino & Hotel, the resort also includes Rosewood at Baha Mar, Grand Hyatt at Baha Mar and SLS LUX at Baha Mar.

Baha Mar Ltd. moved forward with its Chapter 11 process Wednesday, receiving court approval for, among other key initiatives, the continued payment of salaries and benefits, payment of ordinary course suppliers and vendors for any post-petition claims, and the operation of certain customer loyalty and other programs.

To enable Baha Mar to undertake these initiatives, the court approved the interim Debtor in Possession (DIP) financing arranged by Izmirlian. Specifically, the total DIP facility is up to $80 million of which up to $30 million will be utilized by Baha Mar over the next 30 days.

“Our goal is to complete construction and successfully open Baha Mar as a world-class destination resort that will attract guests from across the globe and serve as a key economic sparkplug in The Bahamas,” said Izmirlian in a written release. “The Chapter 11 process provides us the best path to position us to achieve this goal.”

Milbank, Tweed, Hadley & McCloy, LLP and Kobre & Kim, LLP are acting as legal advisors, and Moelis & Company is acting as financial advisor to the filing entities. Baha Mar has created a new website at www.bmpathforward.com that will provide resources for the resort's stakeholders and the latest updates on the bankruptcy process.

Is Booking a Hotel Before It Opens a Good Idea?

This isn’t the first time a project in the Caribbean has been delayed, but it again raises the issue of whether an agent or operator should book a hotel or resort before the project is finished.

Many agents told us they like to wait until the property has been open for at least a few months or wait until they have seen the property for themselves. Other agents, like Andrey Zakharenko of Always Travel in San Francisco, however, says you can’t deny the client want he or she wants and anything new is usually on top of a client’s wish list of destinations.

“Everyone loves new stuff, new resorts, new cruise ships, new hotels and Baha Mar is a big ‘new,'” says Zakharenko. “For the agent, a new resort provides a great reason to reach out to their clients, educate them about a new destination of the resort and an opportunity to up-sell the clients to a higher level of accommodation by taking advantage of the discounted opening day rates. All of this does come with a risk. The resort may not open on time. Usually you wont get much advance warning, and will have to find a last-minute substitute, explain the situation to the clients and try to manage their disappointment.”

Douglas, however, says she does not sell a hotel unless it has been open for at least six months.

“My general rule of thumb is we don't book [hotels] unless they are at least open for six months,” she says. “Whether it's staff turnover or just developing your personality as a brand or as a property, I’ve never seen someone walk away with a rave review when they stay within six months of opening.”

Ryan Mielke of Regency Travel in Fort Lauderdale says he would have no issue booking a client at Baha Mar so long as the client is well aware of the risks.

“I would have no issue booking a client there, but I would also be upfront about the current financial situation,” says Mielke. “I would also make sure the client is booked under a flexible rate or has a good travel insurance policy to fall back on. Being in South Florida, flights are easy to come by, so I would try to hold off purchasing those since the change fees can be rather pricey.”

Camille Sperrazza, owner of The World Awaits Travel in Brooklyn, says she won’t sell a hotel unless she see it first, but will warn clients if they still want to go through with the booking.

“I think it is imperative that agents travel and experience what their clients will experience,” she says. “Then they can book with confidence. That said, people do like to book new resorts. I did book clients at the Riu Palace in Costa Rica before it opened, but I had already visited the Riu Guanacaste next door and spoke with the manager of the property. I also feel comfortable booking that chain. Clients have to realize they are taking a chance when they book something that isn't built yet. Purchasing insurance is a must.”

Social Buzz

News that Baha Mar filed for Chapter 11 on Monday drew more than 27,000 views on Travel Agent’s Facebook page. Reactions varied, but many agents were not surprised while others were just generally saddened by the news because of how much this project means for the people of The Bahamas. Some of the best responses from readers included “I saw this coming,” “They should have hired the local Bahamians to do the work instead of outsourcing it,” “Wow! Are they even open yet? It was too much I guess” and a simple, “Awwww.”

Visit www.bmpathforward.com and keep visiting www.travelagentcentral.com for more updates on this story. Be sure to follow Travel Agent’s Joe Pike on Twitter @TravelPike.