So as you all know, we’ve been chatting quite a bit about Caneel Bay over the past year. The fact that it remains shuttered with zero work happening is a tad frustrating to say the least. We’ve been doing a lot of fact finding lately – putting on our “real news” reporter hat for a bit – and we realized that there is a key piece that we haven’t elaborated on enough. Caneel can, in fact, open relatively quickly. And here’s how…
First, let’s play catch up for our new readers. Caneel Bay is managed by a company called CBI Acquisition LLC. CBI is a private equity firm located in Connecticut, the home state of yours truly. Its parent company back in 2004, Equis Financial Group, stated it had “business operations in real estate and financial planning,” according to a 2004 press release about the acquisition. It also boasted about having “acquired, participated in, arranged and advised on transactions in excess of US $2.5 billion.” Caneel was one of those transactions.
CBI acquired Caneel Bay in 2004. At the time, Equis Financial Group stated in a release that they looked forward “to preserving the history of Caneel Bay, while investing in the resort’s future.”
When CBI acquired Caneel in 2004, its principles knew that the current RUE (retained use estate) it was operating under was set to expire in 2023. The best way to describe the RUE, in this instance, is that it was a gift of property that came with a strict set of parameters for a certain time period.
When Rock Resorts initially gifted the Caneel property to the National Park Service under the RUE, it never had any intention of having it continue as a RUE agreement past 2023, according to Joe Kessler, president of Friends of the Virgin Islands National Park. He stated that when the RUE ended in 2023, Rock Resort’s intention, at the time, was return the land to the Park. The Park could then decide the best use for the property. For example, it could convert it into staff housing, return it to natural parkland, or continue operating it as a hotel. (Pretty much everyone is in agreement that Caneel should continue to be run as a hotel. That is not the issue here.)
Knowing that the RUE was set to expire in 2023, then Congresswoman Donna M. Christensen introduced a bill in January 2009 asking Congress to allow the Secretary of the Interior to negotiate a non-competitive lease with CBI.
(The Park has three options when operating a hotel in NPS property. It can enter into a concession agreement, a lease or a RUE. NPS has a lot of involvement in the management and oversight of a concession agreement – they set rates, etc., so that isn’t the most attractive agreement for them. A lease has much less involvement from NPS, and is just like a lease you would have when renting a house. You are given a set of rules you must follow. And the RUE is what we mentioned earlier – a temporary gift that comes with a set of parameters.)
At the time, all involved, including CBI, agreed that a lease agreement was the best way to go. And in 2010, the Bill passed and was signed into law. Public Law 111–261 states the following:
- The lease cannot exceed 40 years.
- CBI cannot sell the lease without permission from the Secretary of the Interior.
- CBI cannot increase the overall size of the resort.
- CBI cannot increase the number of guest rooms.
- CBI cannot convert any part of the resort into timeshares.
- The lease states CBI must “ensure the protection of the natural, cultural, and historic features of the resort and associated property, consistent with the laws and policies applicable to property managed by the National Park Service.”
- The lease may not be extended or renewed.
- CBI will pay fair market value rent. (Currently CBI pays no property tax because it is an EDC. It also pays no rent to the Park because it is an in-holding.)
At the time, this was considered a sweetheart deal as it was a non-competitive, 40-year lease. A 40-year lease was almost unheard of for hotels operating within the National Park.
CBI and the National Park Service worked to negotiate the terms of the lease for several years, and have yet to come to an agreement. According to Joe Kessler, those negotiations ended before hurricanes Irma and Maria.
From what we hear, the major sticking points were the amount of involvement the National Park had in CBI’s operations, as well as an issue regarding hazardous waste on the property. Apparently there is an area that contains old batteries, used oil, etc. CBI, again from what we hear, does not think it should be responsible for the cleanup. But it’s sort of like when you adopt a dog. If the dog has fleas, it’s your responsibility to treat them. The same can be said for property. If you assume ownership of a property and it has hazardous waste on it, it should be your responsibility to remove it.
(CBI does not respond to our requests for comment.)
So now enter hurricanes Irma and Maria. Caneel suffered extreme damage as we all know. Rather than resume the lease negations, CBI somehow got Congresswoman Stacey Plaskett to sponsor a new Bill that would extend the RUE.
But why extend the RUE when there is already a lease in place? That is the million dollar question folks.
Plaskett’s Bill, as we previously reported, passed the House Natural Resources Subcommittee on Federal Lands earlier this year. It still needs to pass the House and the Senate AND be signed off on by President Trump before becoming law. Oh and this all needs to be completed before mid-December when the current Congressional Session ends.
The chance of this happening is a mere three percent, according to Skopos Labs, a predictive technology company. In addition, the Bill does not have any cosponsors which further limits its ability to pass.
So then what happens? Well we can wait for the Bill to be reintroduced during the next Congressional Session. That may or may not happen. Or CBI can actually follow the current law and resume lease negotiations. That, my friends, would be the fastest way for Caneel to reopen. That would be the fastest way to get many of your favorite faces back to work at Caneel. That would be the fastest way for many of you to return to your favorite resort. That would be the fastest way to give our economy a nice boost. That, my friends, would be the logical thing to do.
CBI said in a written statement to the Virgin Islands Daily News that it does have the ability to reopen the resort sooner than later even if the Bill fails. They are simply choosing not to.
CBI wrote to the Daily News: “For its part, if CBIA does not get the extension of the RUE, it still has the ability to consider reopening a scaled down hotel operation for the remaining term of the RUE. It could use some of the insurance proceeds to remove debris, clean up the beaches, restore the remaining habitable 32 rooms (or slightly more) and profitably operate a small, mid-priced ($200 to $400 per night) hotel for the 5 years remaining on the RUE.”
Again, CBI is choosing not to.
So, say that CBI does that but then chooses to walk in when the RUE expires in 2023, maybe we could get a company that actually cares about St. John, its people and the National Park to run the resort. Just a thought…
And if you recall, CBI announced earlier this year how they were renting rooms to vacationers at the near-destroyed resort. They’ve since stopped doing that. But that proves they have the ability to reopen if they wanted to. Again, CBI is choosing not to.
Now lastly, let’s talk insurance. We all know CBI had insurance. It has stated publicly that Caneel suffered $100 million in damages. How much insurance did CBI actually have? Despite many requests by a variety of media outlets to disclose that, CBI has refused. So let’s say they only had $60 million in insurance, and that’s a conservative estimate, they would have to recoup $40 million. They’re saying they need to 60-year RUE extension to do so. But don’t you think they would have the ability to recoup that loss with the 40-year lease which was already enacted in Congress? I’m clearly not a financial advisor, but even I can see that something is very wrong if a resort like Caneel doesn’t have the ability to do that.
Something’s fishy here folks.
The fact of the matter is that CBI is purposefully delaying the reopening of Caneel. And in doing so, CBI is purposefully hurting our economy. And that, my friends, is not ok in my book.