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HomeNewsArchivesCRUISE LINES' CROWN BAY DEAL A LEVERAGED BUY-IN?

CRUISE LINES' CROWN BAY DEAL A LEVERAGED BUY-IN?

Editor's note: This article focuses on the views of the St. Thomas-St. John Chamber of Commerce regarding a agreement between the Port Authority and two cruise lines on expanding the Crown Bay dock and developing an adjacent shopping complex. An earlier article, "Cruise lines: Crown Bay must expand, or else", presented the cruise lines' perspective. A subsequent article will address the views of business owners, The West Indian Co. and other stakeholders in the community.
Nov. 22, 2001 – Executives of two major cruise lines say their plan to expand the Crown Bay dock and develop an adjacent shopping complex will be good for tourism on St. Thomas, but the St. Thomas-St. John Chamber of Commerce says it could turn the island, touristically speaking, into a company town.
The agreement entered into by the Port Authority and Royal Caribbean and Carnival cruise lines flies in the face of more than two years of effort by private and public interests to turn the Sub Base landfill into a viable entity for local businesses and a lucrative tax source for the government, an eight-page position paper issued by the chamber states.
According to the position paper, the agreement "appears to have been negotiated in a vacuum with no analysis of the financial impact on the St. Thomas economy, V.I. government tax revenues, existing retail and real estate industry and other major pending capital projects."
The two cruise lines — which together account for more than 80 percent of all ship passenger traffic into the territory — have entered into a unique agreement with the Port Authority which, to critics' way of thinking, potentially gives them control over the St. Thomas harbor and of the land-based movements of their passengers.
"Oh, yes, it's unique," chamber president John de Jongh Jr. said vehemently of the agreement. "No other port would allow it."
Complicating the picture was the announcement in London on Tuesday that P&O Princess Cruises will merge with Royal Caribbean, its U.S. rival, to create the largest luxury cruise firm in the world. Princess Cruises also has ships calling regularly at St. Thomas, so the 80 percent dominance of the market by the companies that will develop Crown Bay is about to become even higher.
The chamber has expressed concern that the planned development will:
– Take cruise ships away from the West Indian Co. dock and thus their passengers away from the Havensight Mall shopping area.
The agreement gives the cruise lines "a powerful incentive to dock as many ships as possible at Crown Bay in order to meet debt service obligations and generate profit because the fees are abated," the position paper states. The government will be providing incentives for the cruise lines "to move ships from a facility that generates tax revenue to a facility that minimizes tax revenue."
– Dissuade passengers from going into downtown Charlotte Amalie to shop and direct consumers to cruise-line-connected operations at the expense of local businesses.
With "ship-board encouragement and hard-sell promotion of tours and shopping at the self-contained shopping center," the paper states, passengers will have little incentive to go elsewhere while in port. The two cruise lines' "vertical integration that would be achieved … by controlling the land-based retail operations is consistent with their corporate strategy to maximize non-cruise revenues," it adds
Agreements that seem to conflict
Last July 18, the Port Authority board approved the agreement with Royal Caribbean and Carnival for expansion of the dock and development of the Crown Bay Cruise Center retail complex. The cruise lines pledged to invest $31 million — half on the dock expansion and half on the shopping development — with the Port Authority to own and operate the dock and to lease the land for the shopping center to the newly formed Crown Bay Development Co. for 30 years. The company is to pay VIPA "ground rent" of $25,000 a year, with consumer price index adjustments, once retail operations begin.
For their part, the cruise lines are to "retain" — that is, be exempt from paying — 75 percent of the Port Authority's wharfage and passenger fees, currently totaling $7.50 per passenger, for the first 20 years of the agreement, and 25 percent for the 10 years after that. And the two lines would have priority berthing at the Crown Bay dock.
Last Aug. 1, the Turnbull administration announced that the Port Authority, The West Indian Co., and the Tourism Department had executed a long-term operating agreement with the Florida-Caribbean Cruise Association and its member lines, including Royal Caribbean and Carnival. The agreement was the result of nearly three years of work by a task force of public- and private-sector members. De Jongh was the business-sector co-chair of the task force.
The long-term operating agreement essentially is a tradeoff in which the Port Authority agreed not to increase port taxes in return for the 13 R-CCA member cruise lines committing to increase passenger traffic to St. Thomas in the summer and to St. Croix overall. One of the 13 points of agreement was that the cruise line or lines selected by the Port Authority "to undertake seaside and land-based projects would commit to the incremental passenger flow" to enable VIPA to finance the Crown Bay project.
The Chamber of Commerce position paper noted that in recent years, the chamber "has been very involved in a number of project/program proposals related to the long-term economic development of the U.S. Virgin Islands." It cited the Five-Year Operating and Strategic Financial Plan prepared by the Economic Recovery Task Force, which de Jongh chaired; a comprehensive economic development strategic plan; the drafting of legislation to provide tax relief within the tourism sector; and especially the long-term operating agreement with the cruise industry.
When the Cruise Ship Task Force endorsed the Crown Bay project, it was with the understanding that the Crown Bay shopping experience should not be "duplicative of the Havensight Mall, but rather an opportunity for small businesses to sell local products, arts and crafts to cruise passengers and others," de Jongh said. And, he said, "The intent was always that VIPA would develop and control it."
Under the agreement with Carnival and Royal Caribbean, VIPA will not have any input into the retail mix and/or profile of prospective tenants, except for 5,000 square feet of space reserved for small local businesses, particularly local arts and crafts shops.
Berthing impacts on buying
The agreement "doesn't look at the larger issues– what is the financial impact on the community?" de Jongh said. "It affects everybody, not just the downtown merchants and landlords." It gives the cruise lines a powerful incentive to dock as many ships as possible at Crown Bay, he said, and "This incentive to drive cruise traffic to Crown Bay will have disastrous consequences for Havensight Mall, which is owned by the Government Employees Retirement System, and on WICO. Because it doesn't look at the larger issues, it could be very risky for GERS." It also could impact Carifest, the Caribbean theme park being developed adjacent to the WICO dock, he said.
The agreement envisions the first ship calls at the expanded Crown Bay dock a year from now, with retail operations starting in the first quarter of 2003.
The business community, WICO and the government all support expanding dock facilities at Crown Bay and having locally owned, culturally oriented shops there. But "the proposed development will weaken the retail and real estate industry on the island," de Jongh said. "There are serious concerns on the financial terms, the retail component subsidized by the gove
rnment tax revenue, and the broadening control" of the cruise lines.
A key focus of the long-term agreement with the cruise lines is to strengthen the slow summer season. But, the chamber paper says, the Crown Bay development will reduce the flow of traffic, squeeze profits and reduce employment and revenue-generating opportunities.
Although it might seem that construction of a shopping center one-third the size of downtown would generate employment there equal to what is lost on Main Street, it won't, the paper says. About 1,500 retail employees in Havensight and downtown now support a total of about 6,000 people, and related businesses support about 2,000 more. "These 8,000 Virgin Islanders could be negatively impacted by a loss of traffic" diverted to Crown Bay, the paper states. And, it says, the development will contribute to the decline of the historic district of Charlotte Amalie, the island's most important cultural destination, and will undermine heritage tourism.
According to the chamber paper, downtown Charlotte Amalie has lost more than 15 high-end retail establishments in the last decade, among them Java Wraps, Louis Vuitton, Sparky's, Bolero Liquors, The Leather Shop, Liz Claiborne and Gucci. It cites "vacant space in the core downtown shopping area currently in the neighborhood of 20 percent." And it says average cruise passenger spending on St. Thomas has dropped from a high of $243 to $173 today.
John Tercek, Royal Caribbean vice president for new business development, has said the 30,000 out of 95,000 square feet that he proposes to develop into retail space will not affect the downtown shopping area. Actually, the area comprises 173,400 square feet, of which 95,400 is set aside for retail.
Control of movement is control of money
The influence of on-board sales pitches to cruise passengers has been well documented. Through on-board lectures and "recommended shopping" maps for passengers, the impression is conveyed that other stores are "not recommended."
The chamber paper gives the following scenario: One vendor with an on-board presence could be given a shopping center master lease, thereby channeling the customer flow between controlled entities. The customers would take a Carnival/Royal Caribbean-sponsored island tour and then shop at Crown Bay as they return to the ship, leaving Main Street and Havensight high and dry.
The chamber paper says the Crown Bay project could derail plans to redevelop the Rothschild Francis "Market" Square area and undermine the Savan community's planned resurgence of economic activity. It makes no sense, the paper states, to use government tax revenues to subsidize a retail project that will result in a loss of tax revenues.
Tercek and his Carnival counterpart, Giora Israel, say the Port Authority has no choice but to develop Crown Bay if it wants to keep cruise ships — particularly the larger vessels now being built — coming to St. Thomas. On Wednesday, the V.I. Daily News carried an article quoting Tercek as saying continual growth in cruise visitors has been "the luck and fortune of St. Thomas. But we have no agreement or commitment of any type to bring people to St. Thomas."
That prompted the chamber to issue a release in which de Jongh termed Tercek's comment "extremely irresponsible." He said a report commissioned by the F-CCA and released in July "indicates the appeal of our market to the cruise passenger." Further, he said, "the statement that there is no agreement or commitment to bring people to St. Thomas … tells me that they have no intention of honoring the long-term operating agreement…"
De Jongh said Royal Caribbean and Carnival "are not making an equity investment; they are leveraging passenger fees that would otherwise have been paid to the Virgin Islands Port Authority and The West Indian Co. by using those funds for this investment."
The chamber recommends that the V.I. government proceed with the Crown Bay dock improvements but leave the passenger flow to Havensight mall in the off season and keep berthing control in the hands of the government. Partnering of WICO, VIPA and the government "could lead to a development plan that can be financed either through commercial bank participations or in the capital markets on a tax-exempt basis," the paper says.
Crown Bay development should be limited in scope with covenants restricting usage to that which is complementary with existing economic activity, and not destructive to the financial health of the community, the chamber paper said.
One item not mentioned in the agreement between VIPA and Carnival/Royal Caribbean or in the position paper is infrastructure. At the August VIPA board meeting, Wayne Callwood, Public Works commissioner, said PWD didn't have the funds to provide street lighting, sidewalks, road widening or anything else the project might require.
De Jongh said on Wednesday that "the approach should be for all parties to come together and address the concerns in a joint meeting and to arrive at a solution that can be accommodating." He added, "this back and forth in a vacuum serves no purpose."

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Editor's note: This article focuses on the views of the St. Thomas-St. John Chamber of Commerce regarding a agreement between the Port Authority and two cruise lines on expanding the Crown Bay dock and developing an adjacent shopping complex. An earlier article, "Cruise lines: Crown Bay must expand, or else", presented the cruise lines' perspective. A subsequent article will address the views of business owners, The West Indian Co. and other stakeholders in the community.
Nov. 22, 2001 - Executives of two major cruise lines say their plan to expand the Crown Bay dock and develop an adjacent shopping complex will be good for tourism on St. Thomas, but the St. Thomas-St. John Chamber of Commerce says it could turn the island, touristically speaking, into a company town.
The agreement entered into by the Port Authority and Royal Caribbean and Carnival cruise lines flies in the face of more than two years of effort by private and public interests to turn the Sub Base landfill into a viable entity for local businesses and a lucrative tax source for the government, an eight-page position paper issued by the chamber states.
According to the position paper, the agreement "appears to have been negotiated in a vacuum with no analysis of the financial impact on the St. Thomas economy, V.I. government tax revenues, existing retail and real estate industry and other major pending capital projects."
The two cruise lines -- which together account for more than 80 percent of all ship passenger traffic into the territory -- have entered into a unique agreement with the Port Authority which, to critics' way of thinking, potentially gives them control over the St. Thomas harbor and of the land-based movements of their passengers.
"Oh, yes, it's unique," chamber president John de Jongh Jr. said vehemently of the agreement. "No other port would allow it."
Complicating the picture was the announcement in London on Tuesday that P&O Princess Cruises will merge with Royal Caribbean, its U.S. rival, to create the largest luxury cruise firm in the world. Princess Cruises also has ships calling regularly at St. Thomas, so the 80 percent dominance of the market by the companies that will develop Crown Bay is about to become even higher.
The chamber has expressed concern that the planned development will:
- Take cruise ships away from the West Indian Co. dock and thus their passengers away from the Havensight Mall shopping area.
The agreement gives the cruise lines "a powerful incentive to dock as many ships as possible at Crown Bay in order to meet debt service obligations and generate profit because the fees are abated," the position paper states. The government will be providing incentives for the cruise lines "to move ships from a facility that generates tax revenue to a facility that minimizes tax revenue."
- Dissuade passengers from going into downtown Charlotte Amalie to shop and direct consumers to cruise-line-connected operations at the expense of local businesses.
With "ship-board encouragement and hard-sell promotion of tours and shopping at the self-contained shopping center," the paper states, passengers will have little incentive to go elsewhere while in port. The two cruise lines' "vertical integration that would be achieved ... by controlling the land-based retail operations is consistent with their corporate strategy to maximize non-cruise revenues," it adds
Agreements that seem to conflict
Last July 18, the Port Authority board approved the agreement with Royal Caribbean and Carnival for expansion of the dock and development of the Crown Bay Cruise Center retail complex. The cruise lines pledged to invest $31 million -- half on the dock expansion and half on the shopping development -- with the Port Authority to own and operate the dock and to lease the land for the shopping center to the newly formed Crown Bay Development Co. for 30 years. The company is to pay VIPA "ground rent" of $25,000 a year, with consumer price index adjustments, once retail operations begin.
For their part, the cruise lines are to "retain" -- that is, be exempt from paying -- 75 percent of the Port Authority's wharfage and passenger fees, currently totaling $7.50 per passenger, for the first 20 years of the agreement, and 25 percent for the 10 years after that. And the two lines would have priority berthing at the Crown Bay dock.
Last Aug. 1, the Turnbull administration announced that the Port Authority, The West Indian Co., and the Tourism Department had executed a long-term operating agreement with the Florida-Caribbean Cruise Association and its member lines, including Royal Caribbean and Carnival. The agreement was the result of nearly three years of work by a task force of public- and private-sector members. De Jongh was the business-sector co-chair of the task force.
The long-term operating agreement essentially is a tradeoff in which the Port Authority agreed not to increase port taxes in return for the 13 R-CCA member cruise lines committing to increase passenger traffic to St. Thomas in the summer and to St. Croix overall. One of the 13 points of agreement was that the cruise line or lines selected by the Port Authority "to undertake seaside and land-based projects would commit to the incremental passenger flow" to enable VIPA to finance the Crown Bay project.
The Chamber of Commerce position paper noted that in recent years, the chamber "has been very involved in a number of project/program proposals related to the long-term economic development of the U.S. Virgin Islands." It cited the Five-Year Operating and Strategic Financial Plan prepared by the Economic Recovery Task Force, which de Jongh chaired; a comprehensive economic development strategic plan; the drafting of legislation to provide tax relief within the tourism sector; and especially the long-term operating agreement with the cruise industry.
When the Cruise Ship Task Force endorsed the Crown Bay project, it was with the understanding that the Crown Bay shopping experience should not be "duplicative of the Havensight Mall, but rather an opportunity for small businesses to sell local products, arts and crafts to cruise passengers and others," de Jongh said. And, he said, "The intent was always that VIPA would develop and control it."
Under the agreement with Carnival and Royal Caribbean, VIPA will not have any input into the retail mix and/or profile of prospective tenants, except for 5,000 square feet of space reserved for small local businesses, particularly local arts and crafts shops.
Berthing impacts on buying
The agreement "doesn't look at the larger issues-- what is the financial impact on the community?" de Jongh said. "It affects everybody, not just the downtown merchants and landlords." It gives the cruise lines a powerful incentive to dock as many ships as possible at Crown Bay, he said, and "This incentive to drive cruise traffic to Crown Bay will have disastrous consequences for Havensight Mall, which is owned by the Government Employees Retirement System, and on WICO. Because it doesn't look at the larger issues, it could be very risky for GERS." It also could impact Carifest, the Caribbean theme park being developed adjacent to the WICO dock, he said.
The agreement envisions the first ship calls at the expanded Crown Bay dock a year from now, with retail operations starting in the first quarter of 2003.
The business community, WICO and the government all support expanding dock facilities at Crown Bay and having locally owned, culturally oriented shops there. But "the proposed development will weaken the retail and real estate industry on the island," de Jongh said. "There are serious concerns on the financial terms, the retail component subsidized by the gove rnment tax revenue, and the broadening control" of the cruise lines.
A key focus of the long-term agreement with the cruise lines is to strengthen the slow summer season. But, the chamber paper says, the Crown Bay development will reduce the flow of traffic, squeeze profits and reduce employment and revenue-generating opportunities.
Although it might seem that construction of a shopping center one-third the size of downtown would generate employment there equal to what is lost on Main Street, it won't, the paper says. About 1,500 retail employees in Havensight and downtown now support a total of about 6,000 people, and related businesses support about 2,000 more. "These 8,000 Virgin Islanders could be negatively impacted by a loss of traffic" diverted to Crown Bay, the paper states. And, it says, the development will contribute to the decline of the historic district of Charlotte Amalie, the island's most important cultural destination, and will undermine heritage tourism.
According to the chamber paper, downtown Charlotte Amalie has lost more than 15 high-end retail establishments in the last decade, among them Java Wraps, Louis Vuitton, Sparky's, Bolero Liquors, The Leather Shop, Liz Claiborne and Gucci. It cites "vacant space in the core downtown shopping area currently in the neighborhood of 20 percent." And it says average cruise passenger spending on St. Thomas has dropped from a high of $243 to $173 today.
John Tercek, Royal Caribbean vice president for new business development, has said the 30,000 out of 95,000 square feet that he proposes to develop into retail space will not affect the downtown shopping area. Actually, the area comprises 173,400 square feet, of which 95,400 is set aside for retail.
Control of movement is control of money
The influence of on-board sales pitches to cruise passengers has been well documented. Through on-board lectures and "recommended shopping" maps for passengers, the impression is conveyed that other stores are "not recommended."
The chamber paper gives the following scenario: One vendor with an on-board presence could be given a shopping center master lease, thereby channeling the customer flow between controlled entities. The customers would take a Carnival/Royal Caribbean-sponsored island tour and then shop at Crown Bay as they return to the ship, leaving Main Street and Havensight high and dry.
The chamber paper says the Crown Bay project could derail plans to redevelop the Rothschild Francis "Market" Square area and undermine the Savan community's planned resurgence of economic activity. It makes no sense, the paper states, to use government tax revenues to subsidize a retail project that will result in a loss of tax revenues.
Tercek and his Carnival counterpart, Giora Israel, say the Port Authority has no choice but to develop Crown Bay if it wants to keep cruise ships -- particularly the larger vessels now being built -- coming to St. Thomas. On Wednesday, the V.I. Daily News carried an article quoting Tercek as saying continual growth in cruise visitors has been "the luck and fortune of St. Thomas. But we have no agreement or commitment of any type to bring people to St. Thomas."
That prompted the chamber to issue a release in which de Jongh termed Tercek's comment "extremely irresponsible." He said a report commissioned by the F-CCA and released in July "indicates the appeal of our market to the cruise passenger." Further, he said, "the statement that there is no agreement or commitment to bring people to St. Thomas ... tells me that they have no intention of honoring the long-term operating agreement..."
De Jongh said Royal Caribbean and Carnival "are not making an equity investment; they are leveraging passenger fees that would otherwise have been paid to the Virgin Islands Port Authority and The West Indian Co. by using those funds for this investment."
The chamber recommends that the V.I. government proceed with the Crown Bay dock improvements but leave the passenger flow to Havensight mall in the off season and keep berthing control in the hands of the government. Partnering of WICO, VIPA and the government "could lead to a development plan that can be financed either through commercial bank participations or in the capital markets on a tax-exempt basis," the paper says.
Crown Bay development should be limited in scope with covenants restricting usage to that which is complementary with existing economic activity, and not destructive to the financial health of the community, the chamber paper said.
One item not mentioned in the agreement between VIPA and Carnival/Royal Caribbean or in the position paper is infrastructure. At the August VIPA board meeting, Wayne Callwood, Public Works commissioner, said PWD didn't have the funds to provide street lighting, sidewalks, road widening or anything else the project might require.
De Jongh said on Wednesday that "the approach should be for all parties to come together and address the concerns in a joint meeting and to arrive at a solution that can be accommodating." He added, "this back and forth in a vacuum serves no purpose."