# [2011] Atlantis gets new owner



## Debbie118 (Nov 30, 2011)

Kerzner International announced yesterday that the company has transferred ownership of Atlantis and the One&Only Ocean Club to Brookfield Asset Management. I just read this in The Nassau Guardian.


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## JeffW (Nov 30, 2011)

http://www.thenassauguardian.com/index.php?option=com_content&view=article&id=17854&Itemid=27

- ownership change looks to be in exchange for relieving $175M od debt
- Kerzner still has management contracts for 4 years at Atlantis, 15 years at One&Only.

Big question (not addressed) for Starwood owners is, how if any does this affect Harborside Phase III plans?

Jeff


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## komosatp (Nov 30, 2011)

JeffW said:


> Big question (not addressed) for Starwood owners is, how if any does this affect Harborside Phase III plans?



I think it pushes it out at least two years.

From the Wall Street Journal article:


> Brookfield will inherit more than $2 billion of Kerzner debt that has been past due since September and must be refinanced.
> 
> Brookfield intends to seek a two-year extension of the debt's due date from its fellow lenders to allow it time to refinance the debt, according to Brookfield executives.


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## clsmit (Nov 30, 2011)

Brookfield is a large Canadian holding company that owns a ton of real estate assets, including the US mall company General Growth Properties. Taking over Atlantis will be a new venture for them.


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## yumdrey (Nov 30, 2011)

clsmit said:


> Brookfield is a large Canadian holding company that owns a ton of real estate assets, including the US mall company General Growth Properties. Taking over Atlantis will be a new venture for them.



General Growth Properties filed bankruptcy 2-3 years ago.
Hope Brookfield has strong financial base and this (transfer ownership) doesn't affect Harborside owners.


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## jarta (Nov 30, 2011)

Essentially, Kerzner gave Brookfield a deed in lieu of foreclosure, told Brookfield to work out the details with the other lenders and walked away from Atlantis.

The question is not how this affects Phase III at Harborside.  The question is how this will affect Phases I and II.   ...   eom


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## mariawolf (Nov 30, 2011)

Any tuggers going to be there for the annual meeting?? Here is article:
http://www.thenational.ae/business/travel-tourism/kerzner-sells-flagship-atlantis-in-bahamas


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## tomandrobin (Dec 1, 2011)

Great....something else to worry about! 

Can't wait to see the minutes and discussion from the owners meeting.


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## komosatp (Dec 1, 2011)

jarta said:


> Essentially, Kerzner gave Brookfield a deed in lieu of foreclosure, told Brookfield to work out the details with the other lenders and walked away from Atlantis.


Kerzner _is_ going to manage it for at least two years so it's not quite walking away from the property.  This is very common the hotel industry: a real estate company owns the building and a hotel company does all the management.

The deal is probably only for 4 years to give Brookfield more flexibility in finding new owners or financing.  Kerzner could be there for many more years, but it's better to have the property less encumbered by long term contracts.


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## jarta (Dec 1, 2011)

komosatp,   ...   "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."

Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside.  I do not.

The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.  Harborside is so tied to Atlantis.  Harborside needs a strong, healthy Atlantis to thrive.   ...   eom


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## GregT (Dec 1, 2011)

jarta said:


> komosatp,   ...   "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."
> 
> Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside.  I do not.
> 
> The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.  Harborside is so tied to Atlantis.  Harborside needs a strong, healthy Atlantis to thrive.   ...   eom



Jarta,

I agree -- nothing good from this uncertainty.  However, managing Harborside (and its rights to Atlantis) may be profitable at some reasonable level, however Kerzner may have overpaid (?) for those rights?  Perhaps Kerzner has a debt load (unrelated to the management of Atlantis?) that was not serviceable leading to the change?

I'm not close to the situation, so not sure if there is a different relationship, but thinking it may not be so bad?

Best,

Greg


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## komosatp (Dec 2, 2011)

jarta said:


> Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside.  I do not.


We don't know if it will be good or bad yet.  We could end up with a better property owner or manager at the end of this all.  Yes, change can be scary, but sometimes you come out better after change.

I don't really see this changing Atlantis very much in the short-term.  The same people will be managing the place with the same financial pressure they had last week.  Or maybe even slightly less pressure because the debt things is closer to resolved. 


jarta said:


> The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.





GregT said:


> Perhaps Kerzner has a debt load (unrelated to the management of Atlantis?) that was not serviceable leading to the change?


Bingo Greg!!!!!  

This sale/debt load was not related to "_The inability of the revenue at Atlantis to cover the mortgage and expenses_"....it is related to Kerzner's leveraged buy-out several years ago.

Sol bought the company back at the height of the market...with borrowed money.  He paid inflated prices for the present value of all future profits at Atlantis to get the company's stock back from the public.  Now those future profits will likely be much smaller since we've entered an age of less-conspicuous consumption.  And Sol also missed out on years of big expected profits because of the prolonged length of the Great Recession.  

The bottom line is that Atlantis might make a nice operating profit (it did while it was an un-leveraged public company)...including being able to service debt related to further developing the resort.  But being able to service a debt load that is tied to the golden-age of super-occupancy and high nightly hotel-room prices never ending is not in the cards.  The world changed.  Sol made a big bet and he sevened-out.  He lost control of Atlantis in the process.


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## JeffW (Dec 2, 2011)

Semi-related: any change in ownership or management of Atlantis Dubai?

Jeff


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## komosatp (Dec 2, 2011)

JeffW said:


> Semi-related: any change in ownership or management of Atlantis Dubai?
> 
> Jeff


In August, Kerzner put a 50% stake of it up for sale.  Haven't seen any updates since then.  I expect a similar resolution, as Sol said in his statement that he is changing Kerzner's strategy to be one of a management company.


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## ocdb8r (Dec 2, 2011)

jarta said:


> komosatp,   ...   "Kerzner is going to manage it for at least two years so it's not quite walking away from the property."
> 
> Perhaps you feel Kerzner giving title to Atlantis to Brookfield (the main lender) because Kerzner was in default on the Atlantis mortgages with Kerzner getting a management contract is good news for Harborside.  I do not.
> 
> The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.  Harborside is so tied to Atlantis.  Harborside needs a strong, healthy Atlantis to thrive.   ...   eom



Jarta, totally agree with your sentiments.  It's never a good sign when an asset can't seem to service its debt.  

However, I'm hopeful some of the problem is as a result of over-aggressive financing at a time when the economy was going gangbusters.  I don't know the facts, but I think Atlantis is still turning over substantial revenue.  Hopefully a bit of a reorganization of debt along with some uptick in the economy can save it.  While Harborside is certainly at risk, it also reaped the benefits of the enormous investments made into Atlantis.  To me, the resort has always been a sort of "live and die by the sword" location as without Atlantis, it really isn't much.


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## komosatp (Dec 2, 2011)

Just did a little Googleing.

Sol and company bought Atlantis for $3.2 BN in 2006 in the LBO.  There were competing offers and Sol's group had to increase their initial offer from $76 to $81 a share.

At the time of the LBO in 2006, Atlantis had $599 million in debt.  Brookfield assumed $2 BN in debt in this deed-in-lieu transaction.  The difference between those two number is almost entirely due to borrowing money for the LBO, not putting money into development.


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## clsmit (Dec 3, 2011)

Brookfield is a well-managed real estate company. One knowledgeable person I know noted they are the "Warren Buffet" of real estate. While I personally would not go that far, I am comfortable they knew what they were getting into when they offerred the debt so they know what they have now. 

When they bought their share of General Growth (GGP) they also knew what they were doing. GGP has a ton of great malls that Brookfield now owns a portion of. Based on that experience I expect them to ensure that Atlantis is run well so they can recoup their investment.


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## HenryT (Dec 5, 2011)

clsmit said:


> Brookfield is a well-managed real estate company. One knowledgeable person I know noted they are the "Warren Buffet" of real estate. While I personally would not go that far, I am comfortable they knew what they were getting into when they offerred the debt so they know what they have now.
> 
> When they bought their share of General Growth (GGP) they also knew what they were doing. GGP has a ton of great malls that Brookfield now owns a portion of. Based on that experience I expect them to ensure that Atlantis is run well so they can recoup their investment.



I guess my question is will this aquisition result in even higher maintenance fees at Harborside so Brookfield can recoup their investment sooner vs later.


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## komosatp (Dec 5, 2011)

HenryT said:


> I guess my question is will this aquisition result in even higher maintenance fees at Harborside so Brookfield can recoup their investment sooner vs later.


The Atlantis access fee is based on the Bahamian CPI....Kerzner/Starwood/Brookfield can't adjust it to suit their needs.


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## PamMo (Dec 5, 2011)

We'll have to wait to see what our 2012 MF bills are.


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## Dave H (Dec 5, 2011)

if you look at last year Phase 1 had the huge increase and Phase 2  did a minor increase, this year, Phase 2 played catch up and Phase 1 had a minor increase....


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## komosatp (Dec 6, 2011)

PamMo said:


> Something is odd. Per csudell's post in the MF thread, here are the Atlantis access fees over the last few years for a 1BR Phase II unit:
> 
> _Historic Atlantis Facilities Fee Assessment
> --------------------------------------------------------------------------------
> ...



The Atlantis access fee for 2011 (for a standard 1 BR in Phase II) was $198.96. 

The 'Total Fee' from the 2006 amended access deed was $175...see below.
Not sure where those other numbers came from.  Maybe the Phase I access deed has a different fee structure?

In any case, the access fee for HRA Phase II is pretty unequivocal.  Go to your ownership documents, find _Exhibit B.3 to the Harborside Resort Condominium II Public Offer Statement_ and the _FIRST AMENDMENT TO USE AND ACCESS DEED_, section 4.1.  These exhibits start around page 202 in my version of the documents.


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## PamMo (Dec 6, 2011)

Thank you, komosatp. I deleted my reference to csudell's post, thinking it best to have a long-time owner sort and verify the numbers for us. Csudell's history of access fees is very different from what you just posted.

I am a new owner at Harborside, and in looking at last year's MF's for a Phase I 2BR-LO, I see "other" charges listed.  Is "Other" the Atlantis access fee?


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## komosatp (Dec 6, 2011)

PamMo said:


> Thank you, komosatp. I deleted my reference to csudell's post, thinking it best to have a long-time owner sort and verify the numbers for us. Csudell's history of access fees is very different from what you just posted.
> 
> I am a new owner at Harborside, and in looking at last year's MF's for a Phase I 2BR-LO, I see "other" charges listed.  Is "Other" the Atlantis access fee?


I'm in Phase II.  Its the very last line above the total on my statements/notice.  It's listed as "Atlantis Facilities Assessment".


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## mariawolf (Dec 7, 2011)

Article in WAll Street Journal today:
http://online.wsj.com/article/SB10001424052970204083204577082722801194202.html


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## bizaro86 (Dec 7, 2011)

yumdrey said:


> General Growth Properties filed bankruptcy 2-3 years ago.
> Hope Brookfield has strong financial base and this (transfer ownership) doesn't affect Harborside owners.



Brookfield's stake in General Growth Properties came after the GGP bankruptcy. Brookfield and it's principals have made similar purchases of distressed real estate assets many times (Canary Wharf in London and the World Financial Centre in NYC come to mind). They're highly skilled real estate/hard asset people. They're involvement is probably a good sign.

They certainly have the financial base that owning a resort (even one w/ 2 billion in debt) isn't a big deal. They have lots of money and the credibility to get more if they need it.


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## maph (Jan 18, 2012)

*Atlantis deal falls through*

Looks like Brookfield's takeover of Atlantis has fallen through.

http://www.bloomberg.com/news/2012-01-17/brookfield-cancels-agreement-for-kerzner-s-atlantis-resort-in-the-bahamas.html


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## bizaro86 (Jan 19, 2012)

maph said:


> Looks like Brookfield's takeover of Atlantis has fallen through.
> 
> http://www.bloomberg.com/news/2012-01-17/brookfield-cancels-agreement-for-kerzner-s-atlantis-resort-in-the-bahamas.html



Interesting. We'll see who ends up with it now, as it's unlikely the current owners will be able to refinance. My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing.


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## komosatp (Jan 19, 2012)

bizaro86 said:


> My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing.


I agree.

The Nassau Guardian has a few interesting stories about this matter.  It's being used as a political football by some opposition leaders.

Another interesting thing I found in Google-ing after I read this was that Kerzner was offered $3.4 Billion in 2010 for Atlantis and rejected that offer.  Doing the back of the envelope math, if Brookfield was getting Atlantis for $175 million plus taking on $2.5 billion in debt (or so), the certainly were getting a sweetheart deal....and the other creditors had good reason to stop the deal...half a billion or so reasons.  I'm sure I'm missing a few pieces here (this would be pretty brazen if Brookfield was getting a $3.4 billion asset for $2.7 billion), but It wouldn't surprise me if Sol agreed to a low purchase price beacuse he was getting a lucrative management contract...and getting out from under some personal promises he made on this debt.


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## komosatp (Jan 19, 2012)

jarta said:


> The inability of the revenue at Atlantis to cover the mortgage and expenses is not good news for Harborside, IMO.


Doing a little more research, I found objective confirmation that this is is not the right way to characterize the current problem.

Atlantis was able to cover its expenses and make the mortgage payments through the term of the loan (5 years).  Putting it in simple terms, the 'balloon payment' on these loans came due in September, and Kerzner was unable to refinance.  This is not that unusual in today's commercial real estate market.  Loans that were underwritten in 2006 are not under-writable in today's environment. New money has to come in or the lender has to decide to grant new loan terms....or foreclose.

Here's some specifics about what has happened at Atlantis in the five years:





> Revenue per available room (RevPAR), calculated by multiplying the average daily rate by the occupancy rate, for the trailing 12-month period ending December 2010 was $195 at the Atlantis and $719 at the One & Only Ocean Club. *Although combined RevPAR for the two hotels increased 5% from the trailing 12-month period ending in December 2009, it remains 18% less than at securitization*. Casino revenue, which represents 17% of total revenue, *decreased 8% from 2009 and approximately 25% from securitization*.


 Note that even with these decreased revenue levels, Atlantis was still making its payments.

I wish things were better, but the bottom line is that Atlantis can operate healthily/profitably even with the overall economy in the state it's been for the past five years.  But the whole place is worth a lot less than it was in 2006.


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## jarta (Jan 19, 2012)

"My gut feel is it'll be a consortium of debtholders swapping for equity, and Brookfield will let some of the other junior lenders in on the deal, and they'll refinance the whole thing."

Exactly.  All that will happen is that the debtholders left out of the deal by Brookfield and Kerzner will now have to be let in.   ...   eom


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## bizaro86 (Jan 19, 2012)

komosatp said:


> Doing the back of the envelope math, if Brookfield was getting Atlantis for $175 million plus taking on $2.5 billion in debt (or so), the certainly were getting a sweetheart deal....*and the other creditors had good reason to stop the deal*...half a billion or so reasons.  I'm sure I'm missing a few pieces here (this would be pretty brazen if Brookfield was getting a $3.4 billion asset for $2.7 billion), but It wouldn't surprise me if Sol agreed to a low purchase price beacuse he was getting a lucrative management contract...and getting out from under some personal promises he made on this debt.



If the other creditors were going to get paid back, I'm not sure what they have to complain about. On the other hand, the fact that Brookfield is the buyer makes it a near certainty in my mind that it's a sweetheart deal. They wouldn't buy something like this under any other circumstances. So the other creditors probably just want a piece of the action, which they'll get.


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## komosatp (May 7, 2012)

The Brookfield deal is back on.

Here's the WSJ's story:


> _* Updated April 27, 2012, 5:45 p.m. ET_
> *Creditors Take Control of Atlantis Resort *
> Resort operator Kerzner International Holdings Ltd. completed a long-awaited restructuring on Friday that transferred its massive Atlantis resort in the Bahamas to its creditors and sold its half interest in the Atlantis in Dubai to partner Istithmar World PJSC.
> 
> ...


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## komosatp (Dec 6, 2013)

No real news here, but looks like there will be some movement in 2014....from today's Commercial Mortgage Alert:





> *Brookfield Asset Management* will select a lender for its massive Atlantis Resort in the Bahamas sometime in the first quarter. The firm began shopping the $1.9 billion fixed-rate assignment this summer via *Eastdil Secured* and took bids in September. In the meantime, a handful of hotel-loan securitizations were well-received by bond buyers, which bodes well for a CMBS execution on Atlantis. Brookfield plans to use the proceeds to help retire $2.2 billion of debt. That obligation doesn’t mature until September, giving Brookfield plenty of time.


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## komosatp (Feb 21, 2014)

Another 'no real news here' from today's Commercial Mortgage Alert:





> *Brookfield Cuts Atlantis Loan Request*
> Brookfield Asset Management has lowered the amount of debt it’s seeking on the massive Atlantis Resort in the Bahamas.
> 
> The Toronto investment manager, which originally sought $1.9 billion, has asked securitization lenders to re-submit bids, this time for a $1.65 billion debt package. Brookfield will make up the difference with equity, according to people familiar with the matter.
> ...


As to why they have to cut the amount they were asking for?  Could be some combination of a) they didn't like the interest rates offered for the amount they were originally requesting or b) they believe the value of Atlantis is higher than 'the market' perceives it to be, so they had to bring the loan amount down in order to get financing.


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## komosatp (Mar 14, 2014)

And yet another 'no news' from CMA.  A few interesting tidbits about Atlantis' operation, which I've highlighted.



> *Deutsche in Line to Lead Huge Atlantis Loan*
> 
> Deutsche Bank appears to have the inside track to lead a $1.65 billion debt package for Brookfield Asset Management on the Atlantis Resort on Paradise Island in the Bahamas.
> 
> ...


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