Gov’t inks $819kcontract with G-UnitBy NGOVOU GYANGngyang@bvibeacon.com

In 14 days, work is set to beginon the Pleasant Valley Bridge inPalestina, which was severelydamaged during the passage ofTropical Storm Otto in 2010.

On Tuesday, governmentinked an $819,848.58 contractwith G-Unit Construction forthe bridge repairs and drainagerehabilitation in the area.

The work is the first majorproject funded by theCaribbean Development Bankloan of $15.6 million approvedby the United Kingdom in2012, said Dr. Drexel Glasgow,government’s chief of infra-structure planning, research anddevelopment.

VI construction industryemerging from recessionBy JASON SMITHjsmith@bvibeacon.com

Building activity tends to stallduring a recession. Funding

dries up, investors get nervous,and contrac-tors idle theirtools. Since2008, that wascertainly thecase across theCar ibbean,i n c l u d i n gmuch of theVirgin Is-

lands. But don’t tell that toJames Hunt.

“I’ve been here four years andI’ve been incredibly busy,” said Mr.Hunt, who manages constructionprojects for the VI office of thefirm BCQS. “All my work is overin the North Sound area.”

Some of the millions of dollarsworth of construction that has

taken place on the northern tip ofVirgin Gorda recently can be at-tributed to one-off events, Mr.Hunt admits. For example, Sir

Richard Branson was forced to re-build his “great house” on NeckerIsland after it was destroyed by alightning strike in 2011.

“But it hasn’t just been that.We’ve had Mosquito Island; we’ve

Thursday, February 27, 2014 | The light that comes from wisdom never goes out.

INSIDEBeacon Business..........................8

Vol. 29 No. 33 • 2 sections, 56 pages

Road Town, Tortola,

British Virgin Islands

© 2014, The BVI BEACON

| bvibeacon.com | 50 cents

CDB see page 18

Photo: TODD VANSICKLE

Construction continues on Mosquito Island earlier this month.

Oversupply and uncertainty, but also optimismSPECIAL REPORT: 2014 DEVELOPMENT OUTLOOK

Construction see page 24

INSIDE:BALLOONING COSTSConstruction costs in theVirgin Islands are amongthe highest in the region.See graphic on page24-25 to find out why.

INSIDE:In their Words

Island Weekend & Culture— page 5

INSIDE:From the SchoolsIsland Weekend & Culture— page 7

CDB loanto fundPalestinaroadwork

College establishesendowment fundBy CHRYSTALL KANYUCKckanyuck@bvibeacon.com

Government’s debt to the H.Lavity Stoutt Community Col-lege for the tuition assistance pro-gramme has grown since last year,college President Dr. Karl Daw-son said this week.

During last year’s StandingFinance Committee deliberations,then-bursar Ursula Moore toldlegislators that the college was

owed about $4.2 million for theBVI Student Tuition AssistanceProgramme for the period be-tween 2009 and 2012.

Under the programme, VirginIslands nationals — about 80 per-cent of the student body — re-ceive free tuition at the college.

Asked this week about the cur-rent arrears for the programme, Dr.Dawson said he didn’t have theexact figure, but the amount hasincreased in the past year.

These arrears come on top ofarrears from the college’s annual

But ‘one or two’ expected soonBy CHRYSTALL KANYUCKckanyuck@bvibeacon.com

Government had hoped to progresswith the Paraquita Bay greenhouseswith the help of qualified expertslast year, but after the public tendernotice was released in Novemberno firms submitted any proposals to

operate the facilities, according tothe Ministry of Natural Resourcesand Labour’s recent presentation tothe Standing Finance Committee.

Speaking to the committeeduring its deliberations earlier thisyear, Permanent Secretary RonaldSmith-Berkeley said that threepotential bidders had picked upthe tender documents from theMinistry of Finance, according to

Gov’t’s HLSCC arrears growing

Arrears see page 19

Ministry still waiting ongreenhouse proposals

Greenhouses see page 19

had Oil Nut Bay,” Mr. Hunt said,referring to large villa develop-ments in the area aimed at thesuper-wealthy. “And I really seethat area for the next five, six, sevenyears as having the potential forconstruction to maintain at ahealthy level.”

North Sound may be a rarebright spot, but generally it hasbeen a rough few years for the VIconstruction industry. In its majorsubsectors — villa/resort, local res-idential, commercial and infra-structure — activity slowed and insome cases stalled completely dur-ing the recession. Major challengesremain, but most of the industryobservers interviewed for this arti-cle said they are finally seeinghopeful signs that a recovery inconstruction activity may gathersteam in 2014.

Real estate marketFirst, though, obstacles will

have to be overcome. Due to pre-vious expansion, the real estatemarket is now burdened with ex-cess inventory that dampens en-thusiasm for new builds.

Currently, there are about 200villas priced above $500,000 forsale in the territory, and there’s aglut of more than 90,000 squarefeet of vacant commercial spaceavailable, much of it in RoadTown, according to EdwardChilds, a director at real estate bro-ker Smiths Gore.

Government spending, tradi-tionally a big driver of construc-tion, has markedly slowed amidausterity policies. And while Na-tional Democratic Party leadershave long been touting theplanned expansion of the TerranceB. Lettsome International Airportand the extension of Road Har-bour’s cruise ship pier as havingtremendous potential to stimulategrowth, it remains uncertain whenwork on either project will start.

Nevertheless, optimism aboutthe world economy’s prospects isincreasing, and this confidencemay eventually benefit VI builders,developers and others who dependon the sector to make a living, Mr.Childs said.

During recent winters, itseemed that recovery was immi-nent because central banks inEurope and the United States

pumped money into theireconomies to get consumersspending again, he said. How-ever, when the stimulus effortsstopped, so did buying and in-vestment activity.

“I always said that the one yearthat I see good sentiments left over

from the previous high season andnot flattening out in the summerseason, I’ll finally believe that weare getting through the worst. Andthat, I believe, has happened,” Mr.Childs said.

Dion Stoutt, the managing di-rector of ADC Construction and

president of the Contractors Asso-ciation of the VI, holds a similarview about the potential for thesector’s recovery in 2014.

“There are a lot of things thatare on the table, around the cor-ner, but we’re still not fully there,”he said.

Development applications re-ceived by the VI Planning Authorityback up that view, according toVIPA Chairman Louis Potter. Theauthority usually receives about 300applications annually, and actualconstruction occurs each year onabout 200 of those projects, Mr. Pot-

ter said. Though home-building andcommercial applications have been“relatively slow” in coming in, headded, his conversations with devel-opers lead him to believe there maysoon be a “surge” in activity, espe-cially if government infrastructureprojects get going.

“At this stage there needs to bethat second burst of energy,” he said.

Recession’s effectsIf the pace of activity picks up,

it will be welcome news for con-tractors, many of whom have hadto cut into their profits to keep

their firms afloat.“To me, ultimately what’s hap-

pened is you’ve got less work andthe same number of contractors, soyou’ve got more competition in themarket now,” said Ben Butler, a di-rector with BCQS.

His colleague, Mr. Hunt, said that

the bids developers are receiving thesedays reflect that perspective.

“Historically, overhead was 13,14, 15 percent. We’re now gettingpercentages a lot lower than thaton some projects,” he said. “I thinkthat’s a reflection that people wantto win the work.”

Steve Fox, an architect with theVI office of OBM International,has seen a similar trend as archi-tecture firms across the region cutrates to win work.

“It’s hard to pull yourself out ofthat once you’re in it,” he said.“People have been expecting feesto be reduced.”

Firms took hits and stayed inbusiness, but the trend is not sus-tainable, said Mr. Stoutt, the Con-tractors Association president.

“When you start doing that, itcan spell trouble for any industry,”he said. “You weren’t able to growyour business, and I don’t thinkanybody is in business just to standput, barely pay your bills. You al-ways want to make your businessbigger and better.”

Changing designIn addition to lower bids, some

clients have changed their buildingdesigns, eschewing solar panelsand other environmentally sustain-able features that carry a higherupfront cost, according to Mr. Fox.

“People’s focus on those issuesjust went off the map altogether,”the architect said. “It wasn’t a con-sideration. It was just a survival sit-uation where people just wanted tobuild whatever they could possiblymanage to build.”

Those who could still affordto build also became more risk-averse, paying closer attention toreducing their liability and re-viewing the risk that contractorswould go bankrupt, according toMr. Hunt.

“There’s lower margins, morepressure on the contractor. He’s gotto watch his cash flow; he’s got tomaintain his position all the waythrough. That puts the client in acertain amount of risk,” he said.“How do you respond to that? Youspeak to your lawyer.”

Delayed effectsThe recession affected different

parts of the sector at different times.Erick Oeseburg, the owner of Pool-works BVI, said demand for thehigh-end “vanishing-edge” pools hiscompany designs and installs didn’twane until 2011 because the moneyto pay his company had previouslybeen allocated.

“2009 was our best year ever:That’s because of the nature ofprojects here,” he said. “Peoplehave to plan years ahead. The

Some see need for

affordable housing

programmesBy JASON SMITHjsmith@bvibeacon.com

That the Virgin Islands is a particularly

costly place to live won’t come as a sur-

prise to anyone who has ever tried to build

a house here.

Merciless topography, scarcity of avail-

able parcels, and demand from wealthy

villa-building foreigners keep property

costs perpetually high. And that’s just for

the land.

With import duties, pricey shipping, a

limited labour pool, and other logistical

headaches inherent in building on a small

island, it’s no wonder VI construction costs

are among the highest in the region.

“For a three-bedroom home, you’re al-

most looking at a minimum outlay of at

least $500,000 just for the construction,”

said Sjoerd Koster, the head of banking

services at VP Bank.

Regional costsA comparison of regional building

costs is striking. In 2012, for example, the

cost to erect a warehouse in Trinidad and

Tobago ranged from $50 to $80 per square

foot on average, according to the project

management firm BCQS. In the VI, the

same structure costs an average of $80 to

$130 per square foot.

On a per-square-foot basis, a more

complicated building, such as a “medium

quality” house or apartment complex,

starts at $110 in Jamaica and $140 in St.

Maarten. Prices start at $200 in the VI, ac-

cording to the BCQS study.

Out of the 10 countries surveyed, the

study found that the VI has the highest av-

erage building costs in most categories and

the smallest population. Labour is the

biggest cost driver, according to Ben Butler,

director of BCQS’ VI office.

“It’s reflected across the board in the

cost of living in the BVI,” he said. “It’s not

that construction workers are getting paid

more than they should do; it’s basically the

cost of living which sets it.”

Job estimatingDion Stoutt, the managing director

of ADC Construction and president of the

Contractors’ Association of the VI, agrees

that labour is a big factor in driving up

cost, but mainly because it is often used

inefficiently, he said. That’s often a result

of management not paying ample atten-

tion to how workers are used, according

to Mr. Stoutt.

“In the States people can bid a

house using man hours,” he said. “They

know it takes a man two hours to do a

task. You really can’t do the same calcu-

lation down here because the structure

is not there in terms of the ability to

control the labour on site.”

He added that some contractors

aren’t familiar with the details of what

they should charge for materials or how

to properly price a job estimate.

“They have nothing in place to go back

and say: ‘Well, I charge $10 to lift a brick; it

costs me $2, so I can reduce my margins to

$5 and I’m still making money,’” he said.

“Or, ‘I charge $10 to lift a brick; it costs me

$15 and I’m losing money.’ But they keep

using that same rate all the time and

they’re either up or down.”

The Caribbean Development Bank sees

that as a problem facing contractors across the

region. That’s why last July the CDB partnered

with H. Lavity Stoutt Community College to

teach contractors and artisans in the use of a

specialised spreadsheet the bank developed

to simplify project bidding.

“The course allows guys to become

more efficient in job estimates and be

less dependent on quantity surveying,”

said Dr. Derry Hodge, HLSCC’s dean of

workforce training, referring to cost esti-

mation specialists.

The five-day workshop, he added, at-

tracted more than 30 attendees and was so

popular that HLSCC plans to offer it again

this year. Better estimating should allow

contractors to be more competitive and

issue fewer change orders, Dr. Hodge said.

TechnologyThe type of building technology

employed also contributes to costs, ac-

cording to Mr. Stoutt, of the Contrac-

tors’ Association.

“In many cases we’re still building like

the ’60s: putting up plywood, pouring con-

crete,” he said. “It’s not the most efficient

way to build, especially in these modern

times with modern materials.”

For example, using steel-frame pre-

manufactured buildings could bring down

the costs of homebuilding. Mr. Butler, the

BCQS director, said that in other countries,

governments operate “affordable housing”

programmes to bring down costs for low-

and middle-income buyers.

“I think the cost of labour and the costs

of materials, that’s kind of a fixed cost,” he

said. “To me, you can’t really subsidise that,

but you certainly can with land costs. And

also if you do these on a volume basis, use

the same design and you just do a rollout. It

has to be economies of scale.”

Affordable housingIn recent years, government has un-

veiled or pledged to develop three initia-

tives that aim to make home ownership

more affordable. In September 2011 the VI

Party-led government amended the Cus-

toms Management and Duties Act to ex-

empt first-time homebuyers and certain

types of investors from import duties on

building materials.

More than $110,000 in exemptions

was handed out under the programme

during the first nine and a half months of

2013, Customs Commissioner Wade Smith

told legislators during this year’s Standing

Finance Committee deliberations.

The National Democratic Party-led

government has made similar efforts to-

wards improving housing affordability.

A “land bank” to offer buyers sub-

sidised land costs is in the works but hasn’t

yet been formed due to a lack of funds,

Deputy Premier Dr. Kedrick Pickering said

in an October interview. However, a Virgin

Gorda Lands Committee to distribute

Crown lands near North Sound recently has

started meeting and should make initial

distribution recommendations by March,

Dr. Pickering said in December.

Additionally, Premier Dr. Orlando

Smith said in January that the 2014

budget would include a $300,000 alloca-

tion to the Ministry of Health and Social

Development to start an “embryonic” so-

cial housing programme.

Page 24 | Thursday, February 27, 2014 | The BVI Beacon The BVI Beacon | Thursday, February 27, 2014 | Page 25Special Report Special Report

Construction: VI developers, lenders optimistic that industry is emerging from recessionContinued from page 1

VIRGIN ISLANDS BUILDING COSTS AMONG REGION’S HIGHEST

Construction see page 26

The cost to build most types of structures in the Virgin Islands routinely tops costs across the Caribbean, accord-

ing to the BCQS Market Trend Report 2012. VI construction industry observers attribute this to a small labour

pool, a high cost of living, import duties, and shipping costs for building materials, among other factors.

Graphic: TODD VANSICKLE

homeowners finally got done andsaid, ‘We bought a piece of land inthe BVI, and finally after 11 yearswe have a complete functioninghouse.’”

Mr. Stoutt’s contracting firm,by contrast, felt the effects almostimmediately after the 2008 col-lapse of the US investment bankLehman Brothers, which, in turn,had a chilling effect on financingcommercial buildings.

“A lot of things were on thetable,” he said. “You were biddinga lot of projects, but when they gotthe prices it disappeared.”

Mr. Fox said OBMI didn’tbegin to seriously feel the effectsof the recession until 2010. Thefirm saw a “mini-rebound” in2011 driven mainly by clients whowere wealthy enough to withstandthe recession’s effects, but theamount of work later dipped, onlyto rebound again in 2013.

“At the moment, and it’s beenlike this for years now, it’s been hardto predict into the future for morethan four months,” Mr. Fox said.

North SoundThe future of development in

North Sound is a lot easier to pre-dict. This year the pace continuesto be frenzied, with work contin-uing at Oil Nut Bay and Mos-quito Island.

At ONB, eight of the planned88 villas have been completed, andconstruction on seven others willprogress this year, according toEmily Oakes, the development’sdirector of marketing. About half ofthe development’s total lots havebeen marketed for sale, she added:Of those, 23 have been sold.

Other main components ofONB’s infrastructure — includinga nature centre, children’s club,two tennis courts and two cisternsdesigned to hold 360,000 gallonsof water — will be complete byMarch 15, Ms. Oakes said. Workon ONB’s “marina village” andmarina is scheduled follow.

At Mosquito Island, which SirRichard purchased in 2007 for $20million with plans to build a $75million “eco-resort,” work on theproject’s core infrastructure is pro-gressing. This year, the island’s firstvilla, which will be owned by SirRichard, will be completed, accord-ing to Charlotte Tidball, a spokes-woman for the development. It willbe followed by ten other privately

Special Report

Construction from page 25

Construction see page 27

Timely and relevant statistics about the state of the Virgin Islands’ construction

industry are hard to come by. Despite a National Democratic Party campaign

pledge to provide better data about the number of new housing starts in the

territory, statistics available from the Town and Country Planning Department

are vague and current only to 2012. Totals of planning applications — there

were 511 filed in 2009 and only 434 in 2012— are broken down into sub-

categories, such as residential, resort, commercial or government. How-

ever, some statistics gathered from a variety of sources paint a picture of

a construction industry that has stagnated up to 2012 and is yet to return

to rapid growth.

$3m(2)

$1m(15)

26 homes sold

$2-3m(9)

2007

2008

2009

2010

2011

2012

29 homes sold

15 homes sold

20 homes sold

15 homes sold

9 homes sold

$3m(3)

$1m(15)

$2-3m(11)

$1m(11)

$2-3m(4)

$1m(16)

$2-3m(4)

$1m(11)

$2-3m(4)

$3m(2)

$1m(5)

$2-3m(2)

Page 26 | Thursday, February 27, 2014 | The BVI Beacon

Graphic: TODD VANSICKLE

The BVI Beacon | Thursday, February 27, 2014 | Page 27Special Report

owned villas, to be finished by 2020,Ms. Tidball added.

Additionally, roads are beingcut and infrastructure prepared atnearby Blunder Bay, a 10-villacommunity that will be accessibleonly by boat. The project is “fullyfunded” and is receiving a lot of in-terest in part because of its locationon scarce waterfront land in thearea, according to Ashburn Harri-gan, one of the property’s develop-ers. He added that he expects thearea’s popularity to grow.

“I know what the NorthSound is, what it is capable of, andwhat it can become,” Mr. Harri-gan said.

All of the activity in the areaand the lack of work elsewherehas led Tortola-based contractorsto become willing to make thecommute to North Sound, ac-cording to Mr. Hunt, the BCQSproject manager.

“We’ve now got Tortola con-tractors bidding on the majorityof the projects we do on VirginGorda,” he said. “That’s just a signof the times. People are willing tofollow the work.”

‘Exclusive’ neighbourhoodProperty values on villa plots in

the “exclusive” North Sound neigh-bourhood have held up in part be-cause most of the other good landhas been taken, according to ChrisSmith, a broker with ColdwellBanker.

“If you look at Virgin Gorda,for example, the prime stuff is OilNut Bay and now Blunder Bay,where you’re talking about a cou-ple of million bucks an acre min-imum,” he said. “After that youhave Nail Bay on Virgin Gorda,and that’s about it. You have noth-ing else for an expat buyer: very,very little.”

Mr. Childs, of Smiths Gore,said that he expects the unsoldvilla inventory to hamper demandfor new builds across the VI forsome time, even when taking intoaccount that 50 to 100 owners ofthe 200 listed properties aren’t ina particular rush to sell. He addedthat in 2008 — a year that re-flected contracts signed at theheight of the market in 2007 —29 villas were sold for more than$500,000. By 2012 that numberhad fallen to nine villas sold.

“Even if 20 get sold eachyear, that’s still 10 years’ inven-tory,” he said, adding, “It ’s still

way more supply than demand,and that’s the situation. But Ithink what we’ll see is the well-located, good house that is cor-rectly priced will sell.”

Villas on the lower end of theprice spectrum are now seeinginquiries, he said, and buyersseeking villas that cost $3 millionor more are usually wealthyenough to have comfortablyweathered the recession. But it’sthe middle market that “virtuallydisappeared” during the reces-sion, he explained.

As Americans see the values oftheir primary homes increase andfeel better about their economicprospects, interest in buying secondhomes in the VI could increase, ac-cording to Sjoerd Koster, head ofbanking for the VI branch of VPBank. Given the long lead time toselect a property and obtain an alienlandholder’s licence, however, im-

proved consumer sentiment todaycould take two or three years to bereflected in improved building sta-tistics, he added.

“It doesn’t immediately meanyou’ll have people building orbuying here,” Mr. Koster said.

But Mr. Smith added that thesize of the villa inventory isn’t theonly consideration. Successful for-eign couples in their 40s or 50s, heexplained, have been the VI’s typ-ical villa-buying clientele: Theyoften bought land to buy theirdream villa, which they kept forseveral decades.

“Meanwhile, the house is 30years old; it needs renovatingcompletely. That’s our inventory,”he said.

Apart from villas, he added,the outlook for developing large-scale hotels and resorts is unclear.

“I haven’t particularly seen it.The experience of Scrub, I think,

will have made people nervous,” hesaid, referring to Scrub Island Re-sort’s recent bankruptcy filing. “Ithink a lot depends on the airport.”

Foreign vacationers aside, full-time residents’ demand for housesand affordable apartments re-mains strong even though supplyis limited.

“On the existing availablehome, I don’t think there has ei-ther been a tremendous price dropor an increase in offer,” said Mr.Koster, the banker.

Mr. Butler, the BCQS director,added that he believes a combina-tion of two factors — banks beingmore “bullish” on lending andgovernment initiatives to improveaffordability (See sidebar on page24) — will also help to spurhomebuilding.

Commercial spaceMr. Butler said the demand

for new office and commercialspace is much more limited.Banks are now asking developersto have at least 70 percent of theirbuildings leased before grantingfinancing to build, he said. With90,000 square feet of vacant spaceavailable, that’s a hard sell.

“As a tenant, I’m not going tosign up to a developer based on aplan,” he said. “You’re going tolook at what’s already constructed.So to me the commercial real es-tate market is — well, lookaround: There isn’t really anythinggoing on.”

Complicating matters is theuncertain outlook for the financialservices industry, he added.

“If you’re sat there now as alaw firm, a trust company, you’reprobably going to sit there in yourexisting premises and make dountil you have a better idea ofwhat’s going to happen,” he said.

Mr. Childs said that he’s seentwo trends among companies seek-ing office space. First, they’re look-ing for smaller space, he said,adding that a company that previ-ously sought 5,000 square feet maynow be happy to make do with aslittle as 1,500 square feet.

Additionally, companies thatpreviously preferred to lease “shellfinish” spaces and finish the inte-riors of the offices themselves arenow asking developers to providecompleted spaces.

Mr. Koster added that unlessthere’s a wave of new companiesseeking to relocate to the VI, heexpects that few new office build-ings will be constructed any timesoon. Bankers are willing to fundprojects, he said, but only if they

make financial sense.“There are of course reasons, but

it has to be a good reason,” he said.

Government projectsMany construction industry

stakeholders say the biggest level ofuncertainty involves government-funded infrastructure projects. Sincethe 2011 election, Virgin IslandsParty legislators have openly criticisedPremier Dr. Orlando Smith’s han-dling of the economy, particularly hisinsistence that government should re-duce its spending on petty contractsnow in order to finance major worksin the medium and long term.

In his recent budget address,Dr. Smith pledged that govern-ment would make substantialprogress on its project list this year.The list — 15 projects, includingthe airport expansion, seweragemodernisation, and dock improve-ments — is an ambitious one, call-ing for more than $63.75 million tobe spent in 2014.

But nearly two months intothe new year, the bulk of thosefunds has yet to mobilise. How-ever, the list doesn’t include twolong-awaited infrastructure ini-tiatives: road repairs funded bythe $15.67 million 2012 loanfrom the Caribbean Develop-ment Bank and more than $19million in works to finish prepa-rations on the Biwater project,which is designed to improve theterritory’s water production andwastewater treatment systems.Both of those initiatives areslated to advance this year aswell, officials have said.

For Mr. Stoutt, of the Contrac-tors Association, getting infrastruc-ture projects moving is a must ifofficials want to grow the economy.

“It’s similar to what the USdid when they were in their reces-sion: They went out and builtroads and bridges and all that kindof stuff,” he said.

He added that decades of rapiddevelopment have left the VI gov-ernment with a considerable to-dolist of expensive projects.

“They’ll be over $10, $15, prob-ably over $50 million — all of them,”he said. “And the reason for that isbasically we have to rebuild ourwhole infrastructure as a country.”

Mr. Childs said that such im-provements serve as a signal toboth foreign and domestic in-vestors that the VI is good placeto put their money.

“It’s important,” he said. “Ifyou don’t get the infrastructureright, a lot of the growth from theprivate sector can’t happen.”

Construction from page 26

Photo: TODD VANSICKLE

A worker makes repairs to The BVI Beacon’s office in Road Town.