That Sandals Whitehouse Deal

” A case of clever misdirection”

There has been much furore over the GOJ decision to sell the Sandals Whitehouse property, located in St Elizabeth to the Gordon “Butch ” Stewart led Sandals group.

Most persons are of the opinion that the deal is a sordid and corrupt one and therefore should not proceed any further.Mr. Golding however, believes that this deal is in the best interest of the country at this point in time and will result in no further losses for the tax payers of this country.

With both the public and the GOJ seeing things so differently, what really should happen as it relates to the sale?

My personal view is that I see nothing wrong with the proposed sale itself and really believe Jamaicans are looking in the wrong direction. I call the entire affair one of misdirection, which I will explain further. Before I do so however I would like to speak about  two concepts. The two concepts are value and price.

Value is what (as in this case) the true worth of the asset, however than is arrived at eg. Net Present Value (NPV) Or future value (FV) based on earning power , brand recognition etc.

Price on the other hand is what the market is willing to pay for the asset, i.e. how the market prices the asset.

The two in most cases are not the same as investors will at times pay more than an asset is worth today, as they believe the true worth can be realizes in the future.

On the other hand, you figure you have made a bargain deal if you can buy the asset for less than its worth. You are however only able to truly say you have made a deal, if there is sufficient evidence which suggest that the true value will be actually realized sometime in the future. If that is not the case, no matter how low the PRICE is, it’s not worth the purchase.

I will nor delve too much into the financial stuff, but I am truly convinced that as far as this deal is concerned most commentators and the public at large are mixing up value and price. Now the government of the day spent US$120M to build this property  five years ago, and now it is being sold   for US$40M!

A valuation were done and  ( lets assume for the minute that it was  accurate ) the property was said to value (or worth) US$40M.At first glance one can say, well the asset has lost US $80M of value in just 5 years, which would be a straight mathematical calculation and from a math’s perspective they would be correct.

I on the other hand beg to differ and will look at this from a totally different angle.The property did not lose US$80 in just five years, what appears to have occurred is that US$120M which was said to have been spent to build the property never went into the property at all,  or  it was used in such a way that it DID NOT add any value to the property.

The mistake commentators are making is believing that the (Price) or Cost to build the property of US$120M actually meant that the asset (property) was actually worth US$120M, how wrong could they have been.

My question therefore is, and the question that Jamaicans should be asking is where did this US$80m go? What non-value added items make up this amount and was the rest of the money simply stolen.

Asset prices like property including building located in Jamaica NEVER goes down despite the fact that on the books we have depreciation and we are in a recession.

With that being a true statement, then it stands to reason therefore that the true value that went into the hotel may have been around US$30m. At a value today of US$40m it means the property would have appreciated by US$10 over 5 years or US $2m per annum. Put another way, it gained 30% over the five years or 6% per annum which is not spectacular in the Jamaica market.

What that said, can anyone explain how did we manage to waste US$90m on the Sandals property.

That in my mind is the scandal !!!

If I were “Butch” I would balk at the sale price and try to get it below its intrinsic value of US$40 to provide a measure of safety for his investment, as at US$40M he is paying for the full value.


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