Published: PERE Magazine, June 2015
Dart Realty has found success – and a long-term investment model – with a massive master-planned development in the Cayman Islands.
In the 1980s, Ken Dart – then president of Dart Container, the Mason, Michigan-based manufacturer of insulated foam cups and single-service food and beverage containers founded by his father – traveled with his family to Grand Cayman for vacation. The family fell in love with the beauty and culture of the island, returning regularly and ultimately purchasing a residence.
While many people would stop there, Dart took his love for the Cayman Islands a couple of steps further. Realizing the advantages of operating on the island, he relocated the family investment group, Dart Management, there in 1993. In addition to the beneficial business policies of the Caymans, he wanted the island to be the center of his global operations because it serves as a leading financial center and offers political and investment stability.
Around the same time as the relocation, Dart and his brother Robert were criticized for renouncing their US citizenship. Many saw this as an attempt by the billionaire brothers – Dart is estimated to have a net worth of $6.6 billion, according to 2013 data from global wealth tracker Wealth-X – to avoid US taxes. The move drew the ire of the Clinton Administration and led to the Reed Amendment of 1996, a tightening of US tax laws for expatriates.
In the meantime, Dart began building a number of businesses in the Cayman Islands. His investment companies manage a large and diverse portfolio of assets, and a few of these investments have become quite high profile, including investments in the distressed sovereign debt of Brazil in 1994, Argentina in 2001 and, more recently, Greece. However, the enterprise that is most likely to offer him a lasting legacy is Dart Realty, his real estate investment arm in the Caymans.
Man with a Plan
Dart Realty grew from the 1995 purchase of the former West Indian Club on Grand Cayman and 238 acres of adjacent land stretching from Seven Mile Beach to the North Sound. That property forms the core of Camana Bay, a massive master-planned development that has become Dart Realty’s signature investment.
The idea for Camana Bay came from a number of areas, including the Dart family’s decision that Grand Cayman was going to be both their home as well as the global headquarters of their operations. “One of the keys to the success of that business is the ability to attract and retain top talent, so Ken wanted to create a sense of community, which is why the project was branded as the Town of Camana Bay as opposed to just the residential or office district in Cayman,” says Jackie Doak, chief operating officer of Dart Realty.
The bigger vision behind the Camana Bay project is to ensure the Cayman Islands’ position as the continued financial center and destination of choice. To do so required the creation of a community that offered a certain quality of life – safety, education and entertainment – that other destinations in the Caribbean could not match.
That is where the theme of new urbanism, or the ‘walkable’ city, came into play. New urbanism, a planning model made famous by developments like Seaside and Celebration in Florida and heralded by sustainability advocates, focuses communities around a lively town center with a mix of commercial, residential, retail and public spaces. New urbanism communities are designed to encourage walking and bicycling instead of driving and foster a sense of community.
“A lot of thought went into comfort, particularly for a destination that is consistently in the 80s in terms of temperature,” says Doak. “As a result, the planning involved incorporating perforations into the buildings to let the breeze through, various water features to cool areas down and tree-lined streets. This was done so people would want to walk around the town rather than go from one air-conditioned spot to another by car.”
New urbanism is new to the Caribbean, and Camana Bay is the first project in the region to employ the concept. “In terms of quality of life, you have large international firms with several hundred employees on Grand Cayman and, at Camana Bay, they can work then go downstairs for lunch, go shopping or meet up with the family,” says Doak. “This type of amenity-rich, mixed-use community is novel in the Caribbean, where business parks and residential clusters typically are separate.”
Cayman’s New Hub
Planning for Camana Bay began in 1996, and Dart Realty invested 10 years in thoughtful design, master planning and obtaining permits in order to be in a position to finally break ground on the project in May 2005. Along the way, the project grew in scope as the firm acquired more adjoining land, including 226 acres to the south of the Camana Bay site and land immediately to the north, bringing the development’s total area to more than 600 acres.
Development of Camana Bay started with the Cayman International School, which was a very small existing school that has since grown to 550 students. As a small island with a small school system, there is a trend in Cayman to send children off to boarding school in the UK or Canada when they 12 or 13, particularly among the expatriate community that works in the local financial services industry.
“When the Camana Bay school was developed to offer nursery school through 12th grade, it was an amazing option to those in the expatriate community because it allowed families to stay together on the island while their children receive a great education,” Doak says. “Having the infrastructure in place to continually reside there with your family further develops the island, not to mention Camana Bay itself, as a destination of choice.”
The school, which is based on the US system and offers the International Baccalaureate diploma, served to anchor the new town and later ushered in a host of quality facilities, including a soccer pitch, basketball and tennis courts and another 25 meter pool. All are accessible by the larger community, helping to establish Camana Bay as a central hub.
Camana Bay also had a huge initial surge of commercial leasing requests, which prompted Dart Realty to go beyond development of the four main blocks of the proposed town center and commit to a dedicated commercial building as well. Responding to market demand, the firm built its first dedicated office space at 62 Forum Lane on behalf of pioneer tenants EY and Cayman National Bank, both of which signed up during the planning phase.
In total, the town center has about 600,000 square feet of built space, which includes 340,000 square feet of commercial office space, 63 residential apartments and about 180,000 square feet of retail space. The new office going up at 18 Forum Lane – Camana Bay’s fourth such project – is an 85,000-square-foot building scheduled to open this summer, with PwC as the anchor tenant.
Interestingly, when vacancy on office space gets down to a certain level, Dart Realty will kick off a new development without an anchor. “That is where we are now with 18 Forum Lane being pre-leased, as we need at least 18 months to plan and build another property,” says Doak. “We really want to be able to respond to demand, with 20,000 to 30,000 square feet of available space at any point in time.
All funding for Dart Realty comes from the Dart family. Island-wide, the firm has invested about $1 billion in land acquisition and development over the past decade, with Camana Bay currently representing about $700 million of that total.
In addition, Dart Realty currently is building a 266-room hotel, which includes 36 investment units and 62 residential condominiums, on Seven Mile Beach to the north of Camana Bay. Some $98 million of the $309 million project already has been invested, and nine levels of the hotel structure are complete. That property, which will carry the Kimpton flag, is scheduled to open in late 2016.
Meanwhile, Dart Realty is entering into a new agreement with the Cayman government to invest another $400 million over the next five-plus years. The new investment will fund the next phase of the Camana Bay project, which envisions connecting the existing town center to Seven Mile Beach, where another hotel is planned. That entails building an elevated platform to cross over two major roads and all required infrastructure work. As for the hotel, Dart Realty envisions a five-star branded hotel with condominiums for sale, and it currently is in the final stages of selecting the brand.
After that, Dart Realty will look to build on the connecting platform, which Doak envisions as similar to the High Line in New York. Those projects will be comparable in composition to the existing town center, with retail, restaurants and other amenities on the ground floor and residential or office space on the second floor. Parking for the expanded section, as well as the new hotel project, will be located beneath the platform.
Dart Realty also will be building 101 additional condominiums, representing its first for-sale development, to be located between the school and the existing town center. That project, which initially calls for one-, two and three-bedroom units spread across five buildings, still is in the planning stages, although an application has been submitted to the Central Planning Authority.
“It is atypical to start with the core versus establishing the residential first then bringing in the commercial and amenities,” says Doak. “Because Cayman is such a small island with a strong global financial services industry, there already was a well-established residential product. As a result, we were able to build a world-class town center first and then attract residents who want to be part of the live-work-play atmosphere.”
Beyond that, Dart Realty likely will continue to build out the residential portion of the project, which includes plans for single-family homes and a marina village on the shores of the North Sound. All told, its outlook for the next 10 to 15 years is $1.3 billion in additional investment, depending upon demand. All of this currently is envisioned as pure equity investment, although leverage is always an option.
Looking Beyond the Cayman Islands
The Dart family has a diverse portfolio of investments through its family office, which invests in everything but real estate. On the real estate side, outside of Camana Bay, the family continues to look at investments strategically, both in the Cayman Islands and on other islands in the Caribbean. For example, Dart Realty bought two mixed-use commercial buildings totaling 13,000 square feet on Bay Street in the Bahamas in 2010, renovating them and leasing them out.
In targeting opportunities outside the Cayman Islands, Dart Realty would look at a number of factors, including population, desirability, air transportation, safety, stability of government and the business climate, according to Doak. However, the biggest thing it looks at is the type of investment and the potential return on that investment, she adds.
Return expectations vary by investment, but Dart Realty generally is aiming for an unleveraged internal rate of return of 10 percent or better. “Camana Bay aside, we continually analyze our investments in terms whether to hold or dispose of them based on return and how each fits into the overall portfolio,” Doak says.
For example, Regatta Office Park – Dart Realty’s first acquisition other than the lands it acquired from the Dart family – was purchased in 2003 and has provided the firm with a good return for more than 10 years. However, the submarket where the 150,000-square-foot property is located is becoming more competitive because the Cayman government built a new office to house many of its agencies, thereby creating a large availability of Class B+ office space. In addition, Regatta is competing with the allure of Camana Bay.
Based on what has been publicized, it would seem that the Dart family’s investments in real estate are limited to the Cayman Islands and a couple of neighboring islands, but that is not the case. “The Dart family has a global view and long-term perspective on their investments and look for attractive real estate opportunities,” Doak says.
Real estate investments outside the Cayman Islands are made through various other entities of the Dart Group and typically consist of direct investments in new developments or acquisitions of existing properties. Although it hasn’t done so to date, the group also has the option to invest through commingled funds and continues to evaluate opportunities through such vehicles as they arise, Doak says. The overall group, however, does not disclose its total investment in real estate.
While the Dart family has been quiet about its real estate investments elsewhere, it did draw attention for a few large land deals it struck in Florida in recent years. In September 2011, it paid $15 million for 5,600 acres of grazing land and orange groves near Arcadia and, around the same time, it paid $20 million for 2,480 acres that the City of Sarasota had been using to dispose of reclaimed water. The following April, it paid $37 million to acquire the Grand Cypress Orlando golf resort and 1,200 acres of nearby land. Plans for these large tracts of land currently are unclear.
Still, the Dart family’s investments in the Cayman Islands represent the heart and soul of its real estate portfolio, particularly its investment in Camana Bay. In terms of replicating such a project elsewhere, Dart Realty did evaluate another opportunity on a smaller scale in the Bahamas roughly 20 years ago, but it decided not to proceed for various reasons.
“There are a lot of factors that go into creating a town versus an investment in a single property, such as replicating a team on that island,” Doak says. “It is not out of the question, but we have not found the right opportunity so far and therefore are focusing our resources on Camana Bay.”