Yacht Haven Grande executives came before the Economic Development Commission Tuesday, pleading their case for EDC benefits in one of the last stops of their long journey toward building the new St. Thomas hotel.
“All the help we’re seeking, if we didn’t need it, we wouldn’t ask for it,” said Tom Mukamal, chief executive officer of Island Global Yachting, which owns Yacht Haven USVI and YHG Hotel.
If granted EDC benefits, YHG Hotel, LLC would enjoy corporate and income tax cuts – as much as 90 percent – and a full exemption on gross receipts, business property and excise taxes. In return, the company must comply with specific requirements, from maintaining a certain number of employees and making charitable cash and in-kind contributions to the community.
In its application for EDC benefits, YHG specified a minimum capital investment of $30 million. It also committed to employing at least 30 full-time employees within one year of EDC certifications, and 20 to 50 part-time and seasonal workers. Employees will receive health insurance, with YHG paying 60 percent of their premiums, and $30,000 in life insurance. Full-time employees would also have the option of a 401K, with the company offering up to three percent of the employee’s salary in contributions.
YHG committed to $30,000 a year in charitable contributions: $15,000 in cash contributions and $15,000 in-kind. YHG executives promised to work closely with the EDC’s compliance compliance division to properly document the cost of in-kind contributions. In addition, YHG would also contribute $3,000 annually to the Territorial Scholarship Fund.
“We started in earnest a couple of years ago. This has been very difficult to get to this point. I cannot stress that enough,” said Mukamal.
If all goes well, the six-story Yacht Haven Grande hotel would be the first new major hotel construction in the territory in 38 years, but the path to the finish has been strewn with financial hurdles. The project began before the 2017 hurricanes, and even then, a third-party firm projected only seven percent in earnings for the hotel, way below the usual 20 percent mark that developers are comfortable with, according to Mukamal.
After the hurricanes, Mukamal said Yacht Haven’s insurance premiums also skyrocketed. After his insurers told him YHG could expect no more than a 20 percent increase in premium, he later received news that the increase would be 250 percent.
“It costs almost $2 million a year to keep windstorm insurance at YHG,” said Mukamal, adding that after the hurricanes, “half of the market evaporated and the market that remained is licking their chops because now they’re gonna make some money.”
Mukamal also stressed that while developers usually put up some 35 percent of the costs, YHG Hotel and its partner, Poland-based manufacturing company Polcom, are putting up 75 percent of the total costs.
As part of the ArcLight /Limetree Bay legislation submitted by Gov. Kenneth Mapp to the Senate in June, some $10 million from the proceeds out of the Limetree Bay agreement would go toward the hotel’s construction as an equity investment. Lawmakers, not comfortable with the $10 million hotel loan attached to the Limetree bill, took out that portion and created a separate bill to be reviewed by appropriate senate committees.
Lawmakers have expressed doubts about the $10 million loan. According to Mukamal, Senate President Myron Jackson informed him that the Senate would convene in session on Dec. 21, but could not guarantee that YHG Hotel would be on the agenda.
According to Mukamal, the hotel project could not move forward without both the $10 million loan from the Virgin Islands government and benefits from the EDC.
“It’s too much risk to put on us to say you guys just pay for the whole thing,” said Mukamal. “Not with a third-party study that says you’re not going to make more than 7 percent of your money.”
YHG Hotel is working with Polcom, which specializes in building modular units, manufacturing entire rooms and shipping them to the territory. Assuming the Senate approves the $10 million loan at the end of December, Mukamal said construction of the modular units can begin in three weeks. Of the planned 125 rooms, 110 would be completed by the end of January and the final 15 by the end of March. In-ground work at the site is projected to start in late spring or early summer of next year.
The modular units built off-site would be shipped to the territory during or toward the end of the 2019 hurricane season, then get stacked around November. The six-story hotel would sit across Fresh Bistro, on the front end of the adjacent green space. While the process could take several months, according to Mukamal, work on one wing of the hotel can begin, and once completed, work on another wing can commence.
At least 50 percent of the project’s total cost would be spent locally, according to Mukamal. The modulars, which are expected to be completed within four weeks of the start of manufacturing, would account for 30 percent of the costs. Because Polcom cannot bring in its own foreign workers, Virgin Islanders would perform the onsite assembly work with the help of Polcom supervisors.
Because of its modular nature, the hotel will be built three times faster than if it were constructed traditionally. Instead of the usual three years, the YHG hotel can be built within 12 months, he said, resulting in 24 more months of hotel occupancy taxes for the territory, along with ancillary benefits that come with a hotel situated in the middle of a retail and entertainment zone.
Polcom’s continued involvement in the face of a drawn-out local government process is not guaranteed, according to Mukamal, saying the company, which is listed as a developer, has already identified other potential sites.
“I don’t see that coalition outlasting this legislative session,” said Mukamal, adding that he himself testified in front of the Senate multiple times since July. “That kind of energy has a lot of value and it goes away after a while. People get tired.”
With YHG Hotel now a separate entity for EDC purposes, Yacht Haven USVI, LLC then asked for modifications of its EDC requirements. After clearing some $94,000 in charitable contribution shortfall, Yacht Haven USVI officials asked that the Economic Development Authority recognize the excess contributions the company made and apply the excess amounts to the hotel construction period. According to Yacht Haven representatives, the company paid some $12,300 in excess contributions in 2015, and $3,520 in 2016.
Yacht Haven USVI also requested the following modifications to its EDC requirements:
– Add 10 years to its term of benefits for a total of 20 years, with the additional 10 years commencing on the expiration of initial certificate.
– Add an additional five-year benefit period with 100 percent of benefits.
– Reduce the employment requirements to 30 full-time employees since the YHG Hotel will no longer be included in Yacht Haven USVI’s EDC certificate.
– Modify its charitable contribution requirements to a flat rate of $100,000 a year in cash and in-kind contributions, and include contributions to the Territorial Scholarship Fund and the Department of Labor. The company’s current charitable contribution requirement specifies $75,000 a year with an annual five percent increase.
Economic Development commissioners present in the EDA’s St. Thomas Conference Room were Chairman Jose Penn, Vice Chairman Philip Payne, Secretary Haldane Davies and members Eugene Farrell and Juan Figueroa Sr.