ISLAND RESOURCES FOUNDATION 
~JATER ISLAND 
CASE HISTORY IN VIRGIN ISLAND DEVELOPMENT 
Excerpted From: 
STUDY OF WATER ISLAND 
ECONOMIC DEVELOPMENT OPTIONS 
Prepared By 
Island Resources Foundation 
For 
Virgin Islands Department of Commerce 
March 1980 
Occasional Paper #39 
RED HOOK CENTER BOX 33. ST. THOMAS, U.S. VIRGIN ISLANDS 00802 • (809) 775-3225 
-1-
DEVELOPMENTAL HISTORY 
THE SETTING 
Water Island, situated just 
off the south coast and with-
in the greater harbor area 
of St. Thomas, is the fourth 
largest of the u.S. Virgin Islands, with a 
total of 491.5 square acres. 
Volcanic in ori-
gin, it has shallow soils of the Cramer grav-
elly clay loam variety, a dense, semi-arid 
vegetation and a rather steeply sloping ter-
rain. 
A primary ridge line 200 to 290 feet 
above sea level runs down the center of the 
Island in a north-south direction. 
Among the Island's outstanding natural fea-
tures are rugged, steep cliffs along the south-
ern and southeastern shorelines, some 10 sand 
or sand and gravel beaches, a number of small 
bays and peninsulas and four salt ponds with 
associated mangrove systems. 
There is limit-
ed variety of wildlife: 
a colony of Bahama 
Pin-Tail ducks inhabits the Limestone Bay 
Salt Pond; there are 20 to 30 Red Bi~l Tropic 
Bird nests on the south shore cliffs; import-
ed Bob-White quail roam the island, and large 
green iguana can be found in abundance. 
Be-
cause of the absence of the mongoose, it is 
possible that many species rendered extinct 
by that predator on the other main islands 
may survive on Water Island. 
Water Island allegedly received its name from 
the fresh water once found in association with 
its several salt ponds. 
A 1719 map by the 
Dutchman Gerald van Keulen shows a "fresh 
water. pond" at -a location just north of Car-
oline Point. 
It is likely that the existence 
of this pond drew the first European settlers 
to Water Island, for the same map depicts the 
house of one Albert de Ruyter in close prox-
imity to it. 
Today that pond is dry, and a 
stone wall at its edge has been filled up with 
debris. 
There is a possibility that this fresh 
water source, and any others like it through-
out the island, might once again be tapped. 
-2 -
The potential of the island's ground water 
resources has never been explored. 
PRE-HISTORIC 
PERIOD 
Based on the limited evidence 
available, human occupancy of 
Water Island seems to have 
begun around the time of Christ. 
To date, archaeologists have found five Indian 
sites, all of which are located at sheltered 
bays along the western coastline (see Map No. 
1 below). 
Pot shards, stone tools and other 
evidence recovered from very cursory surveys 
and excavations at these sites indicate small 
scale, casual occupation by itinerant fisher-
folk and shell gatherers, rather than exten-
sive i permanent settlement by agricultural-
ists. 
Negroid skeletons have been found at 
two of these sites 2 , but there is debate over 
whether they were intrusive or not. 
None of the five archaeological sites have 
been nominated to the National Register of 
Historic Places. 
However, the acting terri-
torial archaeologist points out that three 
sites have not yet been systematically ex-
vacated, and that the Elephant Bay site may 
be of considerable importance because of the 
early Saladoid pottery found there during a 
recent exploratory dig. 3 
HISTORICAL 
PERIOD TO 19S0 
Information respecting 
human occupation and use 
of Water Island during the 
colonial period ~s diffi-
cult to come by. 
A num-
ber of legends and tales have grown up around 
Water Island, as with many other offshore is-
lands and cays. 
There are stories of pirates 
and buried treasure; accounts of grand man-
sions, luxuriant cane fields and ownership by 
a 
Hohenzollern prince. 
None of these, how-
ever, could be substantiated from the records 
on hand, and most appear to be more fiction 
than fact. S 
The availability of easily accessible fresh 
water in sheltered bays may have attracted 
£/.-ve. 
.{.ncUan 
.cae}:, 
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ijiC\'i!l~ 
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( 
1-
. :";0 
- ':Ii -
* 
* 
<0 
MAP NO, 1 
AL SITE 
ARCHAEOLOGIC 
. 
L -:'SITE 
HISTORICA. 
SALT POND 
66 
-4-
seafarers to the island well in advance of 
the actual settlement of St. Thomas, but no 
evidence is available to support this conjec-
ture. 
The Island was, however, used by early 
settlers as a source of food. 
One of the 
first undertakings of the Danish colonizers 
who arrived on St. Thomas in 1672 was to stock 
Water Island with cattle and goats in order 
to insure themselves of an accessible supply 
of meat. 
This stock belonged to the Danish 
West India Company, which not only used it to 
feed its St. Thomas colonists, but also, in 
the early settlement years, marketed it to 
ships and neighboring colonies in exchange 
for eXEortable commodities like sugar and to-
bacco. 
By 1680 Water Island was reported to be well pop-
ulated with livestock, and, in consequence, 
much frequented by ships and foraging exped-
itions from the nascent settlement at nearby 
Charlotte Amalie. 
Colonists also fished in 
the salt ponds, drugging the fish with a mix-
ture of bark from the local stinkwood tree (Piscid-
ia carthagenensis Jacq.) and lime mortar.7 
The more well-to-do made outings to Water Is-
land for both practical and recreational pur-
poses. 
In 1686, for example, Vice-Governor 
Christopher Heins led a group of men and wo-
men on a hunting and fishing party to the is-
land. 
Using a seine, they caught plenty of 
fish, but brought back little game, even though 
in the words of one participant, there were 
"many wild bucks and goats as well as some 
wild cows, bulls and calves, land7 in the bays 
there are manv pelicans, flamIngoes, ducks and 
other birds. ,,"'8 
Although the Danish West India Company must 
have stationed some men on Water Island to 
prevent poaching, the earliest record of hu-
man habitation that could be found was the 
van Keulen 1719 map of St. Thomas Harbor, 
which depicts the house of Albert de Ruyter 
on a small hill overlooking Ruyter's Bay. 
By 
1730, according to a map of that date, de 
Ruyter was operating a plantation at the north-
ern part of the island. 
tiveo:toc.R. 
Atbe.Jd 
de. Ruy:te.JL 
--5-
By the end of the eighteenth century there 
were two plantations on Water Island: 
Car-
olina~ Lyst, comprising the northern portion 
and Providence, comprising the southern part. 
According to title records found at the St. 
Thomas Recorder of Deeds Office, the two plan-
tations were under separate ownership for the 
first sixty years or so of the nineteenth cen-
tury.+ In the 1860's, they were consolidated 
under the single ownership of Joseph Daniel*, 
a wealthy local merchant. 
Water Island re-
mained in the possession of the Daniel family 
until 1905, when they sold it to agents of the 
East Asiatic Company. 
The records are silent about what crops, if 
any, were cultivated on the two plantations. 
Nor are there any population statisti~s. 
There 
is evidence that Peter Tamaryn**, a free negro 
* Title records clearly refute the legend that Daniel 
received Water Island from the British because of his 
services to them during their occupation on St. Thom-
as beuveen 1807 and 1815. 
Daniel purchased Providence 
estate in 1850 and during the 1860' s bought 
up par-
cels of Carolina's Lyst from members of the Woods 
family. 
** Peter Tamaryn is perhaps the most intriguing of all 
the owners of Water Island. 
He was the son of ~~ngo 
Tamaryn, the free negro commander of the Free Negro 
Corps formed by the Danes in 1721 to help them police 
against slave unrest. Mingo and his Corps helped 
quell the St. John slave rebellion of 1733-34, and 
in later years were employed to track down and sub-
due bands of runaway and rebel slaves. Peter took 
command of the Corps when his father died in 1765. 
See Kay Larsen, Dansk Vestindinien 1666-1917 
(Copenhagen, 1927) p. 87. It is not known how 
Peter acquired title to his estate. 
Conceivably 
he or his father came in to ownership by virtue of 
their loyal service to the Danish Crown. 
+ See Table 1. 
TAaLE I! 
WATER ISLAND OWNERSHIP HISTORY 
TO 1944 
DATE 
PROVIDENCE ESTATE 
CAROLINA'S LYST ESTATE 
1803 Peter Tamaryn Owner? 
Feb. 
1807 
Alexander Kerr? 
Auctioned to Archibald Kerr after death 
of Peter Tamaryn 
March 
1819 
? 
A. Kerr deeds to Baron Lucas de Bretton 
April 
1828 
? 
Auctioned to Christian D. Eckhardt after 
death of Lucas de Bretton 
Nov. 
1828 
M.E. Duranto deeds to Miss 
Elizabeth Brathwaite 
Jan. 
1829 
-
C.D. Eckhardt deeds to A. Helm & Owen Bro wn 
March 
1829 
-
A. Helm deeds his share to Owen Brown 
May 
1831 
E. Brathwaite deeds to Joseph 
-
Couperism 
June 
1831 
-
o. Brown deeds to Cosmo Frankcovich 
August 
1838 J. Couperism deeds to Jean 
-
L. Garcia 
Sept. 
1839 
-
Auctioned to James Hazzel, Jr. after 
death of C. Frankcovich 
Dec. 
1841 
-
J. Hazzel, Jr. deeds to Benjamin Borton 
July 
1843 
-
1/2 auctioned to John Quirk after death 0 f 
B. Borton. 
1/2 auctioned to John William 
Woods, Susan Woods, Elizabeth Jane Woods, 
Isabella Woods 
June 
1850 
J.L. Garcia deeds to Joseph 
-
Daniel 
May 
1851 
-
J. Quirk deeds 1/2 to Raimond Certain 
october 1859 
-
E.J. (Woods) Lagois deeds her share 
to Joseph Danie 1 
Dec. 
1859 
-
Susan (Woods) Sawyer deeds her share 
to Joseph Daniel 
March 
1860 
-
R. certain deeds 1/2 to Eugene Pannet 
-6-
- 7-
TABLE I. (CONT.) 
DATE 
PROVI DENCE ESTATE 
CAROLINA'S LYST ESTATE 
April 
1860 
-
widow of John W. Woods deeds her share 
to Joseph Daniel 
July 
1865 
-
Widow of E. Pannet deeds 1/2 to A. Roste 
Nov. 
1865 
-
T. Abbott (husband of Isabella Woods?) 
deeds his share to Joseph Daniel 
March 
1866 
-
A. Rostend deeds 1/2 to Joseph Daniel 
Oct. 
1899 
Joseph Daniels deeds to his heirs: 
S. (Daniel) Huntington, Christopher Daniel, 
Joseph Daniel, Charles Daniel, F. (Daniel) 
Stiven 
Jan. 
1905 
Daniel heirs deed to J.P. Thorsen 
Feb. 
1905 
J.P. Thorsen deeds to N.C.E. Hansen 
May 
1905 
N.C.E. Hansen deeds to Capt. H.N. Andersen 
March 
1911 
Capt. H.N. Andersen deeds to East Asiatic Co., Ltd. 
June 1944 
U.S. Government (Dept. of Defense) acquires 
from East Asiatic Co. through condemnation 
SOURCE: 
st. Thomas Matriculs (tax lists) 1787-1900; "Water Island" file 
Recorder of Deeds Office, St. Thomas. 
nd 
- 8-
who owned Carolina's Lyst~ had, at the time of 
his death in 1806, twenty-nine slaves and an 
undisclosed number of cattle on that estate. 
The Daniels are alsb reported to have raised 
goats and cattle, although they are said to 
have valued the island more as a summer re-
treat and hunting preserve than as an econom-
ic investment. 9 
Little physical evidence of the plantation per-
iod has survived. 
Ruins of the Providence es-
tate buildings, probably constructed by the 
Daniel family, can be found at Providence Point. 
Except for an old cistern, which is still in-
tact, they have been incorporated into a pri-
vate residence. 
Ruins associated with the de 
Ruyter/Carolina Lyst estate on the northern end 
of the island have been found by an Island Re-
sources Foundation survey team. 
These latter 
ruins are of historical significance because 
of their association with the Tamaryns, one of 
oldest and most prominent free black families 
in the Virgin Islands. 
The East Asiatic Company, a Danish joint-stock 
company which purchased Water Island through 
its agents in 1905 and in its own name in 1911, 
planned to spend large sums to develop it into 
a major coaling and bunkering facility. 
Behind 
this ambitious development program lay two mo-
tives: 
1) to capitalize on the anticipated in-
crease in St. Thomas commerce in consequence of 
the opening of the Panama Canal; 2) to capital-
ize on a practice, originated under the Daniel's, 
whereby the Russian, French and German Navies 
leased the island as a base of operations for 
winter maneuvers and gunnery practice. 10 
Al-
though in 1905 the Company sent out a team of 
engineers to design extensive new facilities, 
for reasons that are unc1ear 11 nothing came 
of the scheme. 
World War I and the subsequent sale of the Dan-
ish West Indies to the United States in 1917 
put to rest the Company's plans for Water Is-
land, although it did retain ownership until 
1944, when the U.S. Government acquired it for 
$10,000.00 through condemnation proceedings.12 
* Title records in the St. Thomas Recorder of Deeds office 
show that in 1806 Peter Tamaryn owned Carolina's Lyst; how-
ever, tax records in the Danish arChives indicate that he 
owned Providence. 
It is possible that he may have owned 
both estates, and, thus, 
the whole of Water Island. 
According to the Danish matricu1s, Tamaryn had 15 acres 
;n l'YrrnT;c:;nnc: l1nr1pr (,,111t-i,,~t-ion ::Jt- t-he t.ime of his death. 
-9-
The U.S. Government seized Water Island for the 
explicit purpose of establishing a coastal de-
fence installation there. 
Title was vested 
with the Department of Defense, which immediat-
ely set to work constructing a large army base 
on the southern part of the island known as 
Fort Segarra. 
Some fifty-three structures, in-
cluding barracks, gun emplacements, watch towers, 
underground bunkers and other military facilities 
soon appeared, as did an infrastructure of docks, 
roads, water, sewage and power systems.* 
The 
total cost of this massive development effort 
was offically put at $1,583,000.00,13 although 
local gossip placed it closer to $3,000,000.00+ 4 
Buildings and infrastructure facilities con-
structed by the Army still standing by 1953 
are shown in Map No.2. 
When World War II ended, construction was abrupt-
ly halted and the defensive garrison was replac-
ed by a unit of the Army!s Chemical Warfare 
Division, which used the island to conduct se-
cret experiments with poison gasses for several 
years. 
After the Chemical Warfare Divison abandoned 
the Island in 1950, the Army turned it over to 
the Department of the Interior by revocable per-
mi t for five years. 
In December 1951 the term 
of the permit was made indefinite, but it re-
mained subject to revocation by the Army at any 
time. 
The Department of the Interior, in its turn, as-
signed the permit to the St. Thomas Development 
Authority, an instrumentality of the territor-
ial government, in the hopes that that body 
could negotiate a long-term lease with a pros-
pective developer. 
It was at this point, in 
1951, that Walter and Floride Phillips, a New 
York couple looking for a retirement hom~ appear-
ed upon the scene. 
WATER ISLAND, INC. 
1951-1965 
The Phillipses had 
heard about the avail-
ability of Water Island 
through Isidor Paiewonski, 
a St. Thomas businessman. 
After making an on-
site inspection in March 1951, they joined forces 
*For a detailed description of improvements made by the 
Anny, see page 15 below. 
FofLt SegaJULa. 
WaLteA and 
Flo~de Phi££ip~ 
-4 ~-
S AIRPOFiT 
} 
r:> 
/ 
/ , 
PROVIDENCE 
ZI, 
FLAMINGO 
POINT 
MAP NO.2. 
ARMY FACILITIES IN 1952 
// 
// 
/ 
// 
47, 
///// 
// 
/" 
// 
DOCKS 
/// 
// SANDY 
// 
/ 
// 
RUYTER 
// 
BAY 
--
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E AMALI~J~i",~ 
uU' C H A R L~}!.V'':iL;~OCOOO~ 
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--------
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~ 
~ 
BANANA POINT 
HARBOR 
~ 
\-. 
~ 
POI NT 
Buildin" 
Numh~r 
1\. 
29 
DEseRl PTlON 
Loc:.-tr-d on Rainbow Point: 
M:tin Building or "Club BuildiT}.&· 
;~, ti' ;62, 33. } Buildings which Can be converlt·d 
• 
I 
Into rooms 
30 
Emplo)'e("~ Quarters and \Vodcshr<r 
27 
28 
37. 38 
B 
41. 42. 
43, 46 
39 
'0 
45 
47 
C 
2. 3, '. 8. 9. 10, ( 
11. 13, 15. 22 ) 
14 
51, 52 
53 
16 
17 
21 
2~ 
24 
25 
48. 49 
Chlorinator 
Outdoor Movie Theatre Booths 
Gun Emplacements 
Loca.ted on Providence Point: 
Buildinf:5 which Can 'be convcrtec 
into rooms 
Salt \Vater Cistern 
Salt \Vater Pump House 
Gun Emplacement 
Dock 
Located on Fbmingo Point: 
Buildings which can b~ con'VC'rtrd 
into rooms 
Subleased for residential purpostt: 
Unc!erground Concrete Fort 
Steel Observation 'Tower 
Locatec! In other areas: 
Buildings whir:h can be con·· .. ~rtt~ 
into rooms 
Base end station \.ele,·ated~ 
Electric PC_~I'" Pl.::nl 
Sa!t \V.;'lt~r ?uMP Hou!;c 
Main Dock 
\Vater Ccnch,.....,cnf 
Concret~ F'!s~r"\'oir 
Salt \V1.ler Cickrn 
Undergroufld CO;lcret"e IgJoos 
Due to Jack of spac~. {hE numbers of indtr;du:i 
buildings intended to be converted into r(tor.a ~~~ 
Ilot shown on rhe map but the groups ~rC' ;ndic~r~' 
by A. Band C. 
MAP 
0 F 'w ATE R I S LAN 0 
AND ST. T H 'J;vi ASH ARB 0 R 
~ 
SCALE or 1ot1(.(9 
t:::=:E~~F=' :-::::","':"";'::--l====l 
o 
\ 
MACA~A!A r\l,M'3 
=======., GRAVEL 
ROADS 
\1/8 T r:;' R 
T ~ I 8 N n T N r. . nj;:j;:j;:RTt\Ir:: rTRrlllllR (1953,)p.8. 
, 
f-1 
<:) 
-11-
with two brothers from New York - Raymond and 
Edward Bill* 
-
to form a local corporation 
called Water Island, Inc., which signed a lease 
with the St. Thomas Development Authority on 
August 1, 1951. 
Copies of the first lease are not locally avail-
able, and therefore have not bee~ examined. 
The Department of Interior has stated: 15 
This lease was for an initial term of 
35 years, with an option for the lessee 
to have an additional 25 years for a 
total of 60 years. 
The lease was draft-
ed to accommodate the Water Island, Inc. 
development plan for the Island. 
This 
plan had two phases - short term and 
long term. 
The short term phase con-
templated the expenditure of $200,000 
to rehabilitate and convert existing 
dilapidated Army barracks into a resort 
hotel with not less than 50 rooms and 
related facilities. 
It was anticipat-
ed that title to or full control over 
Water Island would eventually be ac-
quired by the Development Authority and 
that, thereafter, the occupancy by 
lessee would be firm and no longer be 
subject to revocation by the Army. 
When 
that event occurred the lessee could 
then be expected to launch into its 
long range plan involving substantially 
increased investment 
for further hotel 
and residential development and con-
struction. 
The initial $200,000 was 
considered to be high risk capital be-
cause of the right of revocation by the 
Army. 
After that right was extinguish-
ed, it was felt that the term of the 
lease would be readily mortgagable to 
provide the money for the long range 
plan. 
* There were three other corporate officers: 
Dr. Roy 
A. Anduze and }flY. and :Mrs. Harry Loucks, al1 residents 
of St. Thomas. 
-12-
According to an account given b16h'alter Phillips 
in 1956, the terms of the lease 
were that the Army should retain own-
ership and give the developer a forty 
year (sic?) lease at a rental of 
$3,000.00 a year. 
In return, the lease-
holder had to agree to spend $200,000 
on improvements to the island and, with-
in five years, provide fifty rooms of 
hotel space - the general idea being 
that such a development would contri-
bute to the Virgin Islands tourist trade 
and provide employment for local labor. 
Although less than pleased with the terms of the 
lease, the Phillipses signed it "just to get 
things going". 
Once it had been signed, they 
iw~ediately turned their attention not only to 
having it changed, but to having the island 
transferred from the jurisdiction of the Army 
to the Department of Interior. 17 
The Phillipses had two main probl'ems wi th their 
lease. 
In the first place they recognized that 
the Army's right of revocation would hamper even 
their short-term plans. 
Secondly, they feared 
that eventual transfer of the Island to the 
Virgin Islands Government might also be detri-
mental to their development scheme. 
As Walter 
Phillips explained to the Department of Inter-
ior in 1972: 18 
It was felt that a lease from the 
federal government would be stronger 
and result in greater development of 
Water Island .... We believed people 
would be more inclined to invest in 
subleases and develop the Island if 
the deal was from the U.S. govern-
ment. 
We wanted to get Water Island 
removed from the vagaries and change-
ability of local politics. 
The Phillipses, assisted by Governor Morris de 
Castro and members of the St. Thomas Develop-
ment Authority, spent the better part of the 
next twelve months lobbying to have the Army 
transfer Water Island to the Department of 
-13-
Interior. 
On July 11, 1952 President Truman 
signed Public Law 511 (82nd. Congress) author-
izing the transfer. 
On November 3, 1952 the 
General Services Administration delegated to 
Interior the authority to lease the property. 
On December 10, 1952 Interior executed a new 
lease with Water Island, Inc. 
The provisions of the 1952' lrease 
need not con-
cern us here. 
The developmental framework which 
the lease mandates is, however, relevant, for 
it has largely determined the developmental 
process on Water Island during the past three 
decades. 
Like its predecessor, the 1952 lease was ex-
plicitly intended to promote the Virgin Islands' 
economy. 
After affirming that the Island had 
been transferred from the Army to the Interior 
Department "so that it might be developed in 
such a manner as to contribute effectively to 
the economy of the Virgin Islands", the lease 
goes on to specify that "development of the 
area as a tourist resort appears to be the most 
effective use to l",hich it may be put". 
Section 1 is even more explicit on the nature 
of the preferred development. 
"The leased pro-
pe rty and improvements, It its ta tes, "shall be 
developed into a resort area." 
Yet, al though 
the lease seemingly restricts development to 
the tourist sector, it offers an extremely 
broad definition of what constitutes a "resort 
area", to wi t: 
Comprising dwelling and recreational 
facilities and ancillary service fac-
ilities and parts thereof may be de-
voted to residences, whether private 
or cooperative or otherwise, agricul-
ture, horticulture, the breeding and 
raising of livestock and poultry and 
other purposes. 
Moreover, Section 7 allo'ws sub-lessees to en-
gage in unspecified "commercial, revenue-pro-
ducing purposes" providing the approval of the 
f1.e1l old 
de.ve1.opme.n.t 
-14-
Secretary of Interior is first obtained. 
The latitude thus allowed is so great that Mr. 
J. Robert "Bud" Bishop, the current leasehold-
er, has stated that he believes he could estab-
lish light industries, such as watch manufac-
turing, so long as the tourists had access to 
the facility. 
Despite the stated objective of creating a tour-
ist resort complex on Water Island, the only 
tourist facility actually required by the lease 
was a fifty room hotel, which Water Island, Inc. 
agreed to have operational "through conversion 
of presently existing buildings or otherwise" 
by January 1, 1958. 
No investment or capital 
improvement level was established, although 
Section 4 obligated Water Island, Inc. to have 
a minimum paid in capital of $200,000.00 with-
in ninety days from January 1, 1953. 
Once the matter of the lease had been resolved 
to its satisfaction, Water Island, Inc. turned 
its attention to Phase I of its development 
strategy -
the establishment of a 50 room hotel 
resort. 
At this point a major difference of 
opinion arose between the Phillipses and their 
partners, the Bills, over the most appropriate 
development strategy. 
The Bills wanted to raise 
a large amount of investment capital in order 
to build an elaborate resort complex; whereas 
the Phillipses preferred a 
low-ke~ informal and 
simple operation, with a view to improving the 
existing facilities "on a sort of pay-as-you-
go basis".19 
The disagreement was resolved 
when the Phillipses bought out the Bills for 
$25,000.00. 
They then launched a public stock 
issue to raise $269,000.00 needed to complete 
Phase I of their development program. 
Water Island, Inc.'s hotel development program 
was based on converting the facilities left be-
hind by the Army into a medium-size hotel oper-
ation that would accommodate one hundred guests. 
The 1953 stock offer described these facilities 
as follows: 20 
There are extensive improvements on 
Water Island which were built by the 
-15-
United States Army during World War 
II . 
There are 33 single s tori ed 
buildings with concrete foundations, 
concrete floors and concrete block 
Halls, most of which are 22'8" in 
width and of varying lengths ranging 
up to 16 8 ' 8" . 
Th ere is a w ate r s up -
ply system, consisting of a water 
catchment area of 90,000 square feet 
of concrete and transite, with a cov-
ered concrete reservoir of 250,000 
gallon capacity and water distribu-
tion mains; a power plant with three 
diesel-operated generators with total 
capacity of 45,000 Hatts and electri-
cal distribution lines; a sewer system; 
a salt water system for flushing toi-
lets. 
There are about 7 1/2 miles of 
roads, partly macadam and the remain-
der gravel. 
There are two docks and 
a telephone cable to the mainland of 
St. Thomas. 
Reputedly, the estimated market value of the en-
tire installation was only $60,000.00 1n 1952. 21 
The Phillipses arrived in September 1953 to over-
see the work of remodelling. 
After reactivating 
the Army's water, sewer and electric systems, 
they concentrated on converting a cluster of 
buildings on the Rainbow Point promontory into 
hotel rooms, restaurant, bar, kitchen and other 
facilities. 
The development program effected consisted of 
converting the largest building (168'8" x 22'8
11
) 
into a "Club House" containing a ki tchen, din-
bui1..cUVl.9 C.OVl.VUJ.J"cOVl. 
ing room, lounge, lobby, bar, office and ter-
races for outdoor dining and dancing. 
Several 
nearby barracks buildings, measuring 96'8" x 
22 1 8" were remodelled, so that each contained 
eight hotel rooms. 
Several other smaller struc-
tures in the vicinity were converted into staff 
quarters, workrooms, storehouses and a laundry. 
The Water Island Hotel officially opened for 
business on January 1, 1954. 
By that time thirty 
hotel rooms and two guest cottages, capable of 
hoteX 
accommodating fifty to sixty guests were avail-
able for use. 
However, whereas significant 
-16 -
progress had been m~de during 1953 
with respect to hotel development, little was 
accomplished in the years that followed. 
In 
1958, when the lease required that the fifty 
hotel rooms had to be completed, Water Island 
Hotel only had 31 rooms and 2 guest cottages, 
according to the TRAVEL AGENTS HANDBOOK issued 
by the Virgin Islands Department of Tourism and 
Trade for that year. 
In 1959, twelve newly con-
verted efficiency apartment~ under separate 
ownership,* were added to the hotel's operation, 
but these were the only new additions made to 
the hotel between 1954 and 1965. 22** 
By 1954 then, hotel development by Water Island 
had virtually come to a halt, a fact underscored 
by figures which show that between 1956 and 1965 
only about $4,000 was spent on building rem~~­
eling, compared to $121,035 in prior years. 
* The Dvel ve efficiency apartments added in 1959 actually 
belonged to the Flamingo Bay Corporation, established 
by George and Richard Freeman. 
(George Freeman was a 
Director of Water ISland, Inc. fTOm 1958 through 1974.) 
In 1957 the Freeman's acquired a sub-lease for four 
acres containing four unimproved buildings for $21,475 
($20,600 as full paYlTIent for possessory interest and 
$875 as rent from 1957 to 1992). 
They Ivere authoriz-
ed. by their sub-lease with Water Island, Inc. to oper-
ate their own hotel, bar and restaurant. The Free-
man's invested about $125,000 to convert DvO of 
their four barracks into efficiency apartments, and 
they signed a management contract with Water Island, 
Inc. whereby the latter agreed to manage the apart-
ments and provide services in exchange for 40 percent 
of the profit. 
xx During 1965 1Vater ISland, Inc. spent $178,779 on marina 
development in Flamingo Bay. 
A channel was opened up 
betlveen Flamingo Bay and the Lagoon. 
The Bay and the 
Lagoon were dredged and two buildings were constructed, 
one as a dining room, bar, kitchen and the other as a 
maintenance shop for cars and boats. 
F WrM.l1go Bay 
-17-
One major reason that the hotel failed to expand 
after 1953 was the Phillipses' dedication to mov-
ing ahead with Phase II of their development 
scheme - residential development and construc-
tion. 
They viewed the attraction of permanent 
settlers to their island home as far more "chal-
lenging" and desirable than the operation of a 
hotel. 
Certainly by 1956 they saw long-term residents 
as their primary objective. 
"We needed the hotel," 
explained Mrs. Phillips in 1956, "so that the pro-
spective settlers could have someplace to stay 
while they picked out their site and built their 
home." 
And Walter Phillips explained at the same 
time that with respect to the hotel their ultim-
ate goal was to have facilities for no more than 
one hundred guests. 24 
According to the Comptroller's 1972 Audit Report, 
between 1952 and 1966 Water Island, Inc. sold 121 
sub-leases, comprising 298.02 acres for a total 
financial consideration of $403,835 and total an-
nual rent of $3,075. 
The history of these sub-
leases is documented in Tablerr below. 
The acre-
age involved ranged from 165 to .50 acres, al-
though the vast majority (101) were about one 
acre plots. 
The bulk of the sub-leases were 
executed between 1956 and 1961 when 246.25 acres 
were sold to seventy persons. 
The sub-lessees 
or "cottagers" acquired their lots 
for an "initial payment", which ranged from be-
tween $2,500. to $3,000. per unimproved acre in 
the 1950' s to about $3,500. in the 1960' s. 
They 
also paid a nominal annual rent, usually about 
$25.00, for the duration of their lease. 
Lots 
with old Army buildings on them went for an 
"initial payment" of about $5,000. per acre. 
It is not clear exactly what the "initial pay-
ments" were made for. 
Article 2 of the sub-
leases states that these monies constitute full 
payment "for the possessory interest of the cot-
tager". 
However, with respect to local tax sub-
sidies, Walter Phillips has also taken the posi-
tion that initial payments were not for a real 
estate transaction, but were prepayments of the 
cost of furnishing hotel services, were therefore 
lLebide.~ 
de.ve1..opme.Vl;t 
i~a.1. 
payme.ntI.:, 
-18 -
TABLE II' 
\"IATER I SLAND SUB-LEASES 1954-1966 
, . 
NO. OF 
SUB-
YEAR 
LEASES 
1954 
1955 
1956 
1957 
1958 
1959 
1960 
1961 
1962 
1963 
1964 
1965 
1966 
3 
8 
10 
15 
9 
12 
12 
12 
6 
10 
9 
10 
4 
NO. OF 
TOTAL 
AVER. COST 
ACRES 
JI.MOUNT 
PER ACRE 
LEASED 
RECEIVED 
OF LAND 
4 
18,5001 
10.45 
35,6001 
175.51 
53,500 
18 
61,9001 
8.5 
22,335 
17.5 
44,8001 
13 
40,500 
12.75 
37,500 
6 
9 
17,5001 
31,5001 
31,900 
2,628 
3,4462 
3,115 
2,941 
3,5002 
3,378 
9 
30,5001 
. 3,5002 
3.5 
12,0001 
3,429 
NOTES 
1. For two acres of land, each with 
one remodeled building. 
The 
other two acres were sold in con-
sideration for architectural 
services. 
1. Includes sale of 3.7 acres with 3 
buildings, 2 remodeled for $16,000 
2. Calculated on sale of 6.75 unimoro 
ed acres for $19,600. 
1. Includes one sale for 165 acres. 
2. Calculated on sale of 10.5 acres 
for $25,900. 
1. Includes sale of 4 acres ~ith 4 
unimrroved buildin~s for $20,000. 
2. Calculated on sale of 14 ncreS 
for $41,900. 
1. Excludes undisclosed sum received 
for 4.5 acres. 
2. Calculated on 13 acres for 544,800 
1. Includes sale of one acre for 
special considerations. 
2. Calculated on 5 acres for $17,500. 
1. Excludes one sale for 1600 sq. ft. 
1. Includes sale of 2 acres for 
special consideration. 
2. Calcualted on 7 acres for $28,000. 
1. Includes $5,150 paid to W.I. 
Hotel and Beach Club, Inc. 
SouJl.c.e.: 
U.S. ComplJwlie.Jt o~ the. VilLgiH 1-6,/!.anclo, Aud-i;:t Re.pold 
No. 356-72-99 (7972), Exiubd B. 
-19-
part of the hotel operation and consequently 
were eligible for local tax subsidies.* 
The sub-leases were sold to individuals, almost 
all of whom intended them for residential use. 
Four of the sub-leases had buildings on them 
that had been remodeled by Water Island, Inc. 
Five others contained unimproved buildings. 
The vast majority of the lots were vacant, and 
many were left undeveloped by the sub-lessees. 
In 1972 (when the first figures became avail-
able) 62 of 121 sub-leased parcels were still 
vacant. 
Others were improved into residences 
or apartment units. 
In 1972 there were 58 homes, 
4 apartment buildings (with a total of 32 rooms) 
and 1 duplex. 
In 1972 only 25 of the sub-lessees 
were permanent residents. 
The largest sub-lease, comprising about 156.5 
acres (as surveyed by the Department of the 
Interior in March 1978) in the northeastern 
part of the island, was executed with Clarence 
Doh~ny on July 1, 1956. 
Two years later this 
sub-lease was assigned to Warren H. Corning, 
who in turn assigned it to the Sprat Bay Club, 
Inc. on May 2, 1960. 
Sprat Bay Club, Inc. was 
formed as an exclusive residential housing pro-
ject which sold sub-leases as shares to its mem-
bers. 
By 1972 thirty-five families owned shares 
approximating 80 acres. 
The remaining 80 acres 
of land had been set aside as open space, a 
natural area (40 acres around Sprat Point) roads, 
beaches and other common use facilities. 
In 
1972 only four owners had built residenc~s, the 
remainder were undeveloped and vacant. 
* TI1e U.S. Comptroller's office has taken exception to 
the fact that V. I. tax subsidies have been allowed for 
the "initial payments" on the grounds that these cannot 
be construed as part of the hotel operation. Walter 
Phillips has contested that opinion and has refused to 
repay the subsidies. 
As of 1980, the issue remains un-
resolved, and is currently before the courts. 
SpJta:t Bay 
-20-
Phillips justified his preference for permanent 
settlers on the following grounds: 25 
It was felt that persons living here 
the year round or for extended stays 
would provide a much more stable and 
dependable type of business than tran-
sient tourists, who would be here for 
only a few days. 
This type of custom-
er would tap an entirely different 
market than the transient hotel guest. 
Furthermore, since they would give a 
substantial investment, their interest 
would tend to be permanent. 
Thus, if 
the sublessees paid for the construc-
tion of the houses, this would permii. 
a much greater development than would 
be possible from the sources of the 
Hotel alone. 
The construction of these 
houses provided employment to large 
numbers of workers and considerable 
business to suppliers of materials. 
The persons occupying them year round 
or for varying periods not only pro-
vided business for the Hotel but gave 
employment to various types of workers, 
and business to local merchants supply-
ing food, supplies, furniture, taxi-
cabs and services. 
But one of the great 
advantages so far as the local economy 
is concerned, is that they pay their 
income taxes here, which stay in the 
Treasury of the Virgin Islands. 
Considerable controversy has arisen over whether 
the residential development program initiated by 
Water Island, Inc. after 1954 was in conformance 
with the development objectives of the lease. 
In 1972 the U.S. Comptroller ajgued that Water 
Island was being developed principally as a res-
idential area and not as a tourist resort, as 
required, and therefore questioned whether the 
lease had been complied with and whether such 
develonment was in the best interests of the 
Virgin· ISlands. 26 
Walter Phillips defended his emphasis on resi-
den tia 1 deve lopmen t by poin tir.f, out tha this 
original scheme, accepted by Governor Morris 
-21-
de Castro, the St. Thomas Development Authority 
and subsequently the Department of the Interior, 
explicitly called for the establishment of a 
"cottage" type resort which would involve hotel 
rooms, as well as privately owned apartments 
and residential units. 
This type of develop-
ment was allowed and explicitly protected by 
the 1952 lease. 
The sub-leases, he claimed, 
provided for the structures built on them to be 
part of the resort operation and the sub-leases 
were entitled to hotel services. 27 
It is beyond the scope of this report to enter 
into the legal arguments surrounding this mat-
ter. 
It is clear, however, that in terms of 
development Water Island, Inc. de-emphasized 
hotel operations in the strict sense and,focus-
ed on the expansion of residential units through-
out the island. 
Whether these residential units 
were actually part of the hotel operation is 
open to question. 
Certainly the fragmentary 
evidence available suggests that relatively few 
of the sub-lessees actually made their private 
residences available to hotel guests. 
On December 3, 1965 Water Island, Inc., with the 
approval of the Department of Interior,' sold its 
Master Lease with all its assets, rights and 
obligations to the Water Isle Hotel and Beach 
Club, Inc. 
The sale price was $645,160, accord-
ing to Water Inc.'s Annual Report for 1965. 
During the fifteen years it held the lease, Water 
Island, Inc. had made a substantial contribution 
to the development of Water Island. 
Between 
1952 and 1965 it had spent a total of $465,064 
on improvements, most of which went to remodel-
ing the old army buildings as part of the hotel. 
Employment opportunities for thirty-five to sixty-
five persons had been created. 28 
A base of 
services, including water, sewers, electricity, 
telephone, garbage disposal, mail distribution, 
roads and ferry transportation, had been esta-
blished. 
While overall profits were not as sub-
stantial as either the developer or Interior 
may have wished, they were nonetheless suffi-
cient to keep the Corporation in business. 
The 
net worth of the Corporation itself grew from 
$106,990 in 1952 to $700,646 in 1965. 
Table III 
-22-
summarizes salient financial information for 
Water Island, Inc. between 1956-1965. 
The in-
creased corporate assets for these years were 
due to equipment and furnishing acquisitions, 
rather than capital construction which had bas-
ically been completed by 1955. 
TABLE III: 
SELECTED FINANCIAL DATA, WATER ISLAND, INC. 
1956-65. 
GROSS 
INCOME-
HOTEL 
YEAR 
ROOMS 
1956 
42,805 
1957 
54,280 
1958 
55,775 
1959 
70,347 
1960 
67,684 
1961 
102,643 
1962 
113,201 
1963 
80,705 
1964 
83,574 
1965 
93,086 
GROSS 
INCOME-
SUB 
LEASES 
N/A 
65,095 
31,535 
51,809 
47,425 
35,376 
17,451 
44,075 
24,578 
37,408 
GROSS 
INCOME-
APTS. 
-0-
-0-
-0-
10,701 
10,503 
15,065 
9,712 
10,082 
21,377 
19,464 
TOTAL 
GROSS 
RECEIPTS 
71 ,962 
122,643 
104,104 
138,396 
145,078 
160,842 
105,170 
135,029, 
120,113 
160,318 
NET ANNUAL 
PROFIT 
BEFORE 
NET 
Tft,XES 
ASSETS 
7 ,072 
288 , 740 
44,717 
290,742 
17,151 
251,938 
37,102 
364,147 
31,198 
400,092 
71 ,665 
498,436 
830 
483,223 
26,426 
511,224 
11,628 
527,482 
53,622 
729,032 
Source: Water Island, Inc. Annual Reports. 
Annual 
Reports for the years 1952-1954 could not 
be 1 oca ted. 
The most obvious developmental legacy under 
Water Island, Inc. was the spread of private 
residences and the settlement of some twenty 
families throughout the island. 
Residential 
expansion was heaviest along the ridgeline be-
tween the underground fort and catchment hill, 
-23-
where there was already a high concentration of 
old Army buildings. 
But, by the 1960's the res-
idential units also began to spread northward 
along the central ridgeline. 
Several roads were 
opened up to the northern end of the island, but 
only four houses had been built in that sector. 
WATER ISLE HOTEL & 
BEACH CLUB, INC. 
1966-1980 
Water Island under 
The advent of Water Isle 
Hotel and Beach Club 
(hereafter WIHBC) marked 
a radical denarture from 
the development philo-
sophy and pattern of 
Walter and Floride Phillips. 
The Phillipses had come to Water Island seek-
ing a retirement home, not an investment. 
In 
order to obtain a favorable lease to their own 
island in the sun they had to obligate them-
selves to develop it as a tourist resort. Once 
they had gotten a medium sized hotel operation-
al - the minimal development required by their 
lease - they concentrated on establishing a 
residential community, a goal more in keeping 
with their personal interest in Water Island. 
Under the Phillipses, development, whether ho-
tel or residential, proceeded at a casual, care-
fully modula ted pace. 
I1After all,11 Wal ter 
Phillips once observed, I1the ori&"inal idea be-
hind this was to take it easy."Z::! 
Edward J. McCardle, President and guiding spir-
it of WIHBC, was another kettle of fish alto-
gether. 
A high-powered, well-capitalized, 
stateside businessman and developer, owner of 
the highly successful Pheasant Run Lodge in 
Illinois, he viewed Water Island as a prime in-
vestment opportunity by which he could capital-
ize on the 1960's tourist boom in the Virgin 
Islands. 
Ends dictate means. 
Whereas the Phillipses em-
phasized residential development as the basis 
of a cohesive, relaxed community life style, 
McCardle stressed the hotel and expanded fac-
ilities for transient tourists as the engine 
of his profits. 
McCardle's concept of a re-
sort complex, which harkened back to that of 
the Bills, contrasted sharply with that of the 
n.ew 
pWQ,6ophy 
E. ]. Mc.Ccuul1e. 
-24-
Phillipses. 
l11Ve are planning a riviera on the 
Caribbean," he informed one Illinois newspaper. 
"When our construction is complete," he contin-
ued, "we will have the largest, most luxurious 
resort in the islands." 
McCardle's overall develoument plan called for 
an investment of $2,000,000 to create three 
multi-storied hotels capable of housing 800 
guests, restaurants, 300 Mediterranean style 
villas, a shopping center, private yacht and 
tennis clubs, a boat harbor and marina. 30 
McCardle initially focussed on expanding the 
existing hotel, which was renamed the Water 
Island Colony Club. 
Between 1966 and 1968 
WIHBC spent about $2,000,000 on construction 
of four large hotel buildings (three of which 
were three stories high), all of which were 
clustered around the old hotel complex on Rain-
bow Point. 
The Flamingo Bay marina was com-
pleted and a deep water dock erected in the Bay 
just below the Hotel. 
A number of private vil-
las were also constructed in ·the vicinity of 
the hotel overlooking the lagoon behind Flam-
ingo Bay. 
Water Island Colony Club officially opened for 
business in 1967 with sixty-three rooms in op-
eration and more under construction. 
By 1970, 
one further building had been added and the 
Hotel offered 110 rooms, three cottages (with 
a total of eight bedrooms) and 22 villas (38 
bedrooms), making it one of the largest hotels 
in the Virgin Islands at that time. 
But as with so many other developers in the 
1960's, McCardle's reach had exceeded his grasp. 
Whereas, he had projected a total investment 
of $2,000,000 for his entire project, the first 
phase alone had cost approximately $2,600,000 
by 1970. 
Thereafter, investments fell off 
markedly and no new facilities were added. 
Moreover, hotel business did not live up to ex-
pectations. 
Gross receipts soared to $1,313,190 
in 1968, but the amount steadily declined in 
subsequent years, sinking to a low of $170,721 
in 1977. 
Between 1966 and 1978 the resort 
hotel. e.xpalt6..lo 11 
£aJtg e. no tel. 
e.c.ol1oni-c. ptwb£e.m6 
-25-
operation only made a net profit in three 
years (1969-1971), 
Corporate assets, which 
stood at $2,694,091 in 1971, plunged to 
$1,884,560 in 1976. 
Financial data for WIHBC 
between 1965 and 1978 is summarized in Table 
IV. 
Reviewer ratings of the Hotel were not favor-
able. 
For example, the 1969-70 version of 
FIELDINGS GUIDE TO THE CARIBBEAN, praised the 
new ambiance, but its reviewer concluded: 
"Good potential; hasn't quite jelled yet." 
The 1973-74 FIELDINGS found the hotel lacking 
in nearly every respect: the grounds were dirty, 
the staff surly, service poor and the entire 
package grossly overpriced. 
"Something must 
be done," stated the reviewer, "to correct the 
massive operational shambles that plague the 
facility." 
Meanwhile, McCardle was doing little to pro-
mote further residential development on Water 
Island. 
Between 1965 and 1978 only three new 
sub-leases, totaling 2.25 acres were sold, for 
total initial payments of $48,000, plus total 
annual rent of $300. 
In the same period, while 
24 new villas had been constructed, just 10 
were sold to private individuals, only one of 
whom was a permanent resident. 
It should be 
noted, however, that since 1972 the number of 
homes has grown from 58 to 73, and the number 
of permanent year round resident cottagers from 
about 50 to 100. 
The overall resident popul-
ation has increased steadily as well, to an 
estimated annual average of 170 to 250 persons, 
depending on the season. 
McCardle's economic problems were compounded 
by social and political troubles. 
Exclusiv-
ist and discriminatory attitudes, policies 
and actions by WIHBC from 1965 onward enraged 
many Virgin ISlanders, who began to question 
a federal lease which reserved a substantial 
land mass for the exclusive benefit of a white 
enclave community. 
In 1972 a citizens commit-
tee wrote to President Nixon urging that Water 
Island be turned over to the Virgin Islands 
Government for living and recreational space. 
These sentiments were echoed in a letter from 
po 0 JL f1.£Lti n.g.6 
-26-
TABLE IV: 
SELECTED FINANCIAL DATA - WATER ISLE HOTEL AND BEACH CLUB, INC. 
1966-1978 
TOTAL 
TOTAL 
REPAIRS 
PROPERTY 
GROSS 
TOTAL 
AND 
NET 
AND EQUIP. 
TOTAL 
YEAR 
RECEI PTS 
INCOME 
PAYROLL 
MAItHEN. 
PROFIT 
VALUE 
ASSETS 
1966 
125,323 
140,247 
49,611 
9,259 
-35,031 
N/A 
1,208,297 
1967 
237,314 
-77,357 
67,194 
47,411 
-123,777 
N/A 
1,786,461 
1968 
1,313,190 
477 , 639 
255,353 
128,550 
-53,000 
1,878,283 
2,066,261 
1969 
1,244,467 
510 ,928 
215,724 
66,911 
+ 698 
2,233,084 
2,444,342 
1970 
1,076,944 
433,104 
174,723 
54,497 
+30,897 
1,930,353 
2,614,855 
1971 
1,138,860 
569,375 
191,320 
75,199 
+83,166 
1,930,353 
2,694,091 
1972 
not avail. 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
1973 
1,028,262 
321,286 
277 ,983 
137,988 
-51,923 
1,749,809 
2,512,675 
1974 
289,775 
118,969 
69,784 
50,762 
-47,573 
1,633,944 
2,228,170 
1975 
245,458 
97,219 
61,357 
71,632 
-37,273 2,513,036 
2,021,567 
1976 
314,905 
109,411 
76,545 
50,461 
-16,509 
2,522,516 
1,884,560 
1977 
170,721 
-243,830 
N/A 
42,408 
-148,436 2,286,384 
2,189,617 
1978 
183,593 
-3,779 
N/A 
N/A 
-3,779 
N/A 
N/A 
Source: 
Water Isle Hotel and Beach Club, Inc. Annual Reports 
- 27-
Senator Percival H. Reese to Secretary Rogers 
C. Morton, and a Bill was introduced in the 
V.I. Legislature petitioning the federal gov-
ernment to transfer Water Island to the Vir-
gin Island Government at the expiration of 
the twenty-year lease in December 1972. 
In 1972, the V.I. Senate established a Water 
Island Commission to investigate all aspects 
of the Water Island lease "so that the people 
of the Virgin Islands, through duly elected 
representatives, may have available factual 
information for the formulation of policy and 
an official position with regard to the renew-
al of the Water Island lease and other matters 
pertaining to the future use and development 
of Water Island." 
After examining the evidence and conducting 
public hearings the Commission concluded that 
the lease appeared to be valid and had been 
complied with by the two holders of the Master 
Lease. 
However, it lamented the highly favor-
able terms of the lease, and questioned wheth-
er by granting exclusive and poorly defined 
developmental rights to a solitary developer, 
the federal government had acted in the best 
interests of the people of the Virgin Islands. 3l 
Despite public outcry in the Virgin Islands 
and a 1972 Audit Report by the U.S. Comptrol-
ler questioning whether heavy emphasis on res-
idential development was in accordance with 
the intention of the lease and in the best in-
terest of both the territorial and federal 
governments, the Department of the Interior 
renewed the Master Lease without any changes, 
for a period of twenty years, starting January 
1, 1973. 
Resolution of the lease question did nothing 
to improve the hotel's financial picture, which 
went from bad to worse. 
National recession 
and local socio-racial unrest which helped 
to slow down the Virgin Islands tourism econ-
omy in the mid-19 70' s, combined 1vi th mismanage-
ment, and poor marketing to accelerate the ho-
tel's decline. 
Starting in 1974, the hotel 
operated on an irregular basis, and a number 
ho;teJ.. 
-6hu;tdowYl. 
-28-
of employees were dropped from the payroll, 
which fell from $277,983 in 1973 to a mere 
$69,784 the following year. 
By 1977 problems 
had intensified to such an extent that the 
hotel actually shut down operations, and suf-
fered a net operating loss of $148,436. 
The hotel reopened in December 1977 with a new 
name -
Sugar Bird and under the new management 
of Be ach Management Corporation, a De law are 
group headed by J. Robert "Bud" Bishop, which 
had acquired a fifty percent interest in WIHBC 
on a management basis. 
In December 1978 Water Island Hotel and Beach 
Club, Inc. was liquidated into its parent or-
ganization, Water Island Hotel and Beach Club, 
Ltd. 
On August 2, 1979 the Department of the 
Interior approved the assignment of the Master 
Lease from Water Island Hotel and Beach Club, 
Inc. to Water Island Hotel and Beach Club, Ltd. 
Meanwhile, on August 4, 1978 Water Island Hotel 
and Beach Club, Inc. had sold its interest in 
the Master Lease to Beach Management Corpora-
tion, subject to approval by the Department of 
Interior. 
The sale price was $2,183,000 -
a 
figure which has since risen to $2,883,000 
because of complications in closing the tran-
saction. 
Beach Management Corporation asked Interior not 
only to approve the assignment of the Lease, 
but to renew it for twenty years (later chang-
ed to forty years to facilitate financing), 
plus implement over $600,000 in improvements. Gov-
ernor Juan Luis wrote to Interior's Office of 
the Te'rri tOTies on June 16, 1978, in support of 
a twenty year extension.' 
On February 15, 1979 Interior approved the 
assignment of the lease to Beach Management 
Corporation. 
Accordingly, a proposed lease was 
worked out along lines suggested by Beach Man-
agement Corporation. 
It provided for a higher 
Vl.W 
maYl.age.me.nt 
'-29-
mInImum rent, guarantees that the hotel would 
be open year arou~d and would be kept in good 
repair, construction of new sewer lines and a 
sewage treatment plant, compliance with the 
local free beach law, and releasing the feder-
al government from any obligation to purchase 
hotel improvements at the termination of the 
Ie as e. 
Interior forwarded the proposed lease to the 
General Services Administration, which de-
clined to approve it on the grounds that a high-
er level of rent was called for and that the 
question of compensation for the possessory In-
terests should, first be resolved. 
While Interior and the GSA exchanged correspon-
dence, memorandums and legal opinions on the 
matter, the Virgin Islands Government wrote to 
Interior that it wanted to be party to the re-
negotiation process, and, through the concern 
of Rep. Phillip Burton, the U.S. Congress also 
became involved. 
In consequence of widening 
interest in the future of Water Island the fed-
eral government 
asked the Government of the 
Virgin Islands to carry out an extensive study 
of the legal and economic issues involved in 
transferring ownership to the Virgin Islands 
Government. 
Further federal action would be 
deferred until the results of the study are 
known. 
Most of the discussion surrounding Water Island 
during the past decade has concentrated on le- . 
gal (lease) or political (status) issues. 
In 
the last two years attention has centered al-
most exclusively on the legal obligations of 
the federal government under Section 10 of the 
Lease and how these might be renegotiated. 
Little serious consideration has thus far been 
devoted to how Water Island can best be dev~l­
oped in the socio-economic interests of the 
Virgin Islands, which, after all, was the ra-
tionale of tne original lease. 
Nothing in the public discussion has encourag-
ed Virgin Islanders to view Water Island as a 
baslc development resource. 
During the 1972 
lease renewal controversy there was a spontan-
eous expression of local concern for the future 
of Water Island. 
An ad hoc Citizens Committee 
pJLOpO!.;, e.d 
.te.a.oe. c.hange..o 
wide.nzng 
inte.JLe..ot 
- 30-
proposed that the island be used to expand 
ttliving and recreational space tt for Virgin Is-
landers. 
Others suggested locating low income 
housing projects there. 32 
The only develop-
ment recommendation made by the Water Island 
Commission was that the Virgin Islands Govern-
ment should designate any Sprat Bay Club, Inc. 
property it might acquire tlperpetually as open 
space (greenbelts 4 outdoor recreation, wildlife 
preserves, etcJt3~ All of these development 
alternatives were predicated on the assumption 
that title would pass from the federal to the 
territorial government. 
When that transfer 
did not occur and when Interior renewed the 
lease for an additional twenty years, local 
public opinio~ fell silent. 
For its part Interior has never deviated from 
the developmental strategy it prescribed in the 
1952 lease (itself a compromise with the Phil-
lipses). 
In 1972 Interior renewed the lease 
without any alterations despite the fact that 
many Virgin Islanders openly doubted whether 
the hotel/residential pattern squared with lo-
cal socio-economic interests, despite the con-
clusion of the Water Island Commission tlthcit 
the impact which the Department of the Inter-
ior expected would be made on the economy of 
the Virgin Islands has not in fact been realiz-
ed~34 and despite the U.S. Comptroller's Report 
questioning the economic desirability .of future. 
residential development. 
Nor does it appear 
that the alternative development options sug-
gested by Virgin Islanders at the time were 
given serious consideration. 
This predilection toward the status quo has 
conditioned Interior's position with respect 
to the lease renewal requested in 1978 by Beach 
Management Corporation. 
Interior's position 
vis a vis future development was summed up by 
~Brewster Chapman, Jr., former Assistant Sol-
icitor for Territorial Affairs, who wrote to 
Ruth van Cleve on July 5, 1978: 35 
It seems, ln realistically analyzing 
the problems created by Section 10 of 
the lease, that the current uses, im-
provements and operations on Water 
loc.al. 
dc.veiopme.ltt 
-<-de.CLO 
- 31-
Island will always be substantially 
as they are today. 
Consequently, in its negotiations with Beach 
Management Corporation, Interior did nothing 
to modify the vague, "tourist resort" develop-
ment program outlined in the original 1952 
lease, and required only that the hotel be 
open year round and properly maintained. 
In-
asmuch as Beach Management Corporation appar-
ently submitted no proposed long-term develop-
ment plan as part of its request for an exten-
sion, and is currently taking the position that 
it cannot formulate such a plan until the issue 
of the lease is resolved and short-term financ-
ing obtained, Interior's precipita"tB support for 
the proposed new lease can hardly be consider-
ed a commitment to insuring that future devel-
opment will promote the socio-economic well-
being of the Virgin Islands. 
Meanwhile, development of any sort on Water Is-
land has come to a virtual standstill. 
Within 
the last decade not one new residential lot 
has been sold. 
Given the uncertain status of 
the lease prospective homeowners hesitate to 
build and find it impossible to obtain mort-
gages at any terms. 
The hotel continues to 
operate at a net loss (in 1979 it has an over-
all occupancy rate of 46 percent), and its plans 
to upgrade existing faciltiies are stymied by 
the lengthy lease renegotiation process. 
March 1980 
-32-
FOOTNOTES 
1. 
Bullen, Ripley P. tlCeramic Periods of St. Thomas 
and St. John Islands, Virgin Islands," The William 
L. Bryant Foundation American Studies, Report No. 
4 (1962), pp. 34-35. 
2. 
Buxton, L.H.D., J.C. Trevor and Alvarez H. Julien, 
tlSkeletal Remains from the Virgin Islands;" MAN, 
Vol. XXXVIII, No. 47, pp. 47-51; Hatt, Gudmund, 
"On Pottery from the Virgin Islands," Ibid, pp. 52-
53; Ste"hlard, T.D., "Negro Skeletal Remains from 
Indian Sites in the West Indies," MAN, Vo1. XXXIX, 
No .. 52, pp. 48- 53. 
-
3. 
Personal communication from Emily Lundberg, Office 
of Archaeological Services~ V.I. Department of Con-
servation and Cultural Affairs. 
The five archaeolo-
gical sites, all of which are located along the 
western shoreline, 
are potential obstacles to fu-
ture development, since they are subject to federal 
laws governing cultural resources on federal propert-
ies, including: 
Antiquities Act of 1906 (P.L. 59-209; 
34 Stat. 225; 16 U.S.C. 431-433); the National Histor-
ic Preservation Act of 1966 (P.L. 89-665); 80 Stat. 
915; 16 U.S.C. 470); the National Environmental Pol-
icy Act of 1969 (P.L. 91-190); Stat. 852; 42 U.S.C. 
4321-4327); Executive Order 11593 of May 13, 1971 
(36 FR 8921, 16 U.S.C. 470) and the Archaeological 
and Historic Preservation Act of 1974 (P.L. 93-291; 
88 Stat. 174; 16 U.S.C. 469). 
It should be pointed 
out that to date none of these laws have ever been 
enforced on Water Island. 
4. 
The only historical account of Water Island is Phillips, 
Walter H. "History of Water Island," 
The Daily Ne"hls 
(St. Thomas), August 1, 1965, p. 67-68, which is gener-
ally informative and reliable. 
5. 
Most of the legends are pandered in Cochran, Ha~ilton, 
These Are The Virgin Islands (1937), p. 5, 44-49; see 
also Phillips, ibid. and J.C. Work, A Short History of 
the Virgin Isla~(N.D.), p. 29. 
6. 
Westergaard, Waldemar, The Danish West Indies under 
Company Rule (1671-1754) (1917), p. 43. 
7. 
Br~nsted, Johannes, (ed.), Vore Gamle Tropekolonier, 
vo1. I (1966), p. 134. 
= 33-
8. 
Ibjd. 
9. 
Ibjd.; Richard Thruelsen, "An Island of Their Own," 
~Saturday Evening Post, December 1, 1956. 
10. Ibid.; U.S. Consular Despatches, St. Thomas, Payne 
toP i e r c e, 4 Feb. 1 9 0 4; 5 June 19 0 5; Th e Bull e t in 
(St. Thomas) 11 Feb., 14 Feb., 7 March, 29 May 1905. 
The American consular representative in St. Thomas 
shared a prevailing opinion that the East Asiatic 
Company (reportedly controlled by Germany's Hamburg-
American Steamship Line) was actually fronting for 
the German Government, which was surreptitiously 
endeavoring to establish a German commercial and 
naval base in St. Thomas. 
If this assumption was 
correct, the Company may have acquired Water Island 
in order to.guarantee its long-term availability for 
the exclusive use of the German Navy. 
11. It is likely that the scheme was given up because the 
East Asiatic Company acquired the West India Company 
Ltd. around the same time, and decided to concentrate 
on expanding and upgrading the docking and coaling 
facilities at Long Bay. 
12. Although the East Asiatic Company, through its agent 
the West India Company, signed a stipulation that 
the condemnation was a "fri endly taking" and waving 
all rights of appeal, it may well be that the Com-
pany still has a claim to Water Island on the grounds 
that the waiver was signed under duress and that own-
ership was protected by Treaty rights. 
Mr. Klav 
Thomsen, current Director of the West Indian Company, 
has suggested an interest in investigating this matter. 
13. U.S. Comptroller of the Virgin Islands, Audit Report 
No. 356-72-99 "Report of Lessees' Compliance with 
the Pro vis ion s 
0 f Lea s e for Vi' ate r I sIan d", (19 7 2 ) 
p. 8. 
It is not clear where the Comptroller obtained 
this figure, or whether it relfects both material and 
labor costs. 
14. Thruelsen, op. cit. 
15. U.S. Department of Interior Files (hereafter DOIF), 
C. Brewster Chapman, Jr., to Herman Marcuse, Depart-
ment of Justice, May 29, 1979. 
16. Thruelsen, op. cit. 
-34-
17. Ibid. 
18. DOIF, Walter Phillips to Thomas F. Dunn, 15 August 
1972. 
19. Thruelsen, op. cit. 
20. Offering Circular, New Issue, of Water Island, Inc. 
January 13, 1953, p. 4. 
21. U.S. Comptroller of the Virgin Islands, op. cit., 
p. 8. 
22. The 1963 Fodor's GUIDE TO THE CARIBBEAN stated that 
Water Island Hotel offered 31 hotel rooms, 12 ef-
ficiencies and 2 cottages. 
23. Information taken from the Annual Reports of Water 
I s land, Inc. 
24. Thrue1sen, op. cit. 
25. DOIF, Walter Phillips to Thomas F. Dunn, 15 August, 
1972. 
26. U.S. Comptroller of the Virgin Islands, op. cit. 
21. nOIF, Walter Phillips to Thomas F. Dunn, 15 August, 
1972. 
28. Water Island file, Industrial Incentive Division, 
V.I. Department of Commerce. 
29. Thruelsen, op. cit. 
30. Item in the Helen Auble Collection, Island Resources 
Founda tion, Inc. 
31. Report of the Water Island Commission, September 
22, 1972. 
32. Information from the records of the Water Island 
Commission in possession of Mr. Alton Adams, Jr., 
Chairman of the Commission. 
33. Report of the Water Island Commission, September 
22, 1972, p. 12. 
34. Ibid, p. 7. 
35. DOIF, Memorandum from C. Brewster Chapman, Jr. to 
Director, Office of Territorial Affairs, July 5, 1978. 
-35-
W.I. CHRONOLOGY 1944 TO PRESENT 
June 19, 1944 
U.S. Department of Defense acquires 
Water Island from the East Asiatic 
Company/West Indian Company for 
$10,000 through condemnation. 
1945-1950 
Army constructs major military base 
on Water Island. 
1950 
Army vacates Water Island and turns 
it over to the Department of the In-
terior by revocable permit. 
Depart-
ment of Interior assigns permit to 
St. Thomas Development Authority. 
August 1, 1951 
St. Thomas Development Authority 
leases Water Island for thirty-five 
years to Water Island, Inc., for de-
velopment of a tourist resort. 
July 11, 1952 
President Truman signed Public Law 
511 (82nd. Cong.) authorizing trans-
fer of Water Island from the Depart-
ment of Defense to the Department of 
the Interior. 
November 3, 1952 
General Services Administration dele-
gates authority to the Department of 
Interior to lease Water Island. 
December 10, 1952 Water Island, Inc. signs new twenty 
year lease (with 20 year renewal op-
tion) with the Department of the In-
terior. 
January 1, 1954 
Water Island Hotel officially opens 
for bus ines s . 
January 26, 1954 
First major sub-lease executed by 
Water Island Inc. 
July 1, 1956 
Largest single sub-lease executed by 
Clarence Doheny for 156.5 acres in 
the northern part of the island. 
1957 
Flamingo Bay Corporation established 
to operate twelve efficiency apart-
ments as part of the hotel. 
-36-
October 10, 1958 
Clarence Doheny assigns his sub-lease 
to Warren H. Corning. 
May 2, 1960 
Warren H. Corning sells his sub-lease 
to the Sprat Bay Club, Inc. for devel-
opment as a residential housing com-
munity. 
1962 
Water Island Civic Association estab-
lished to represent the interests of 
residential property owners. 
1965 
Water Island, Inc. opens up a channel 
between Flamingo Bay and the Lagoon, 
and starts development of a marina complex. 
December 3, 1965 
Water Island, Inc. sells the Master 
Lease to the Water Island Hotel and 
Beach Club, Inc. headed by Edward J. 
McCardle. 
1966 
Ambitious new hotel expansion program 
initiated by Water Island Hotel and 
Beach Club, Inc. 
1967 
Water Island Colony Club hotel officially 
opened for business with sixty-three 
rooms and more under construction. 
March 21, 1972 
Bill No. 5382 introduced in the V.I. 
Senate by Alexander Moorhead, Jr. call-
ing for a Legislative petition to the 
Secretary of Interior requesting the 
transfer of Water Island to the Virgin 
Islands Government. 
April 1972 
Comptroller of the Virgin Islands is-
sues Audit Report questioning whether 
Water Island was being developed in the 
best interests of the federal and ter-
ritorial governments. 
June 10, 1972 
Citizen's Committee in St. Thomas pet-
itions President Nixon to turn over 
Water Island to t~e Virgin Islands 
Government for use as recreational 
and living space. 
-37-
1972 
V.I. Legislature establishes a Water 
Island Commission to study the lease 
and other matters relating to the de-
velopment of Water Island. 
January 1, 1973 
Department of Interior renews Master 
Lease with Water Island Hotel and 
Beach Club, Inc. until December 1992. 
March 12, 1973 
V.I. Delegate Ron DeLugo introduces 
Bill H.R. 5461 in the u.s. Congress 
authorizing the Department of the 
Interior to acquire some of the out-
standing leasehold interests in Water 
Island and transfer the island to the 
Virgin Islands Government. 
1977 
Water Island Colony Club shuts down 
operation. 
Reopens in December as 
the Sugar Bird Hotel under the manage-
ment of Beach Management Corporation 
headed by J. Robert Bishop. 
May 10, 1978 
Beach Managem~nt Corporation requests 
the Department of the Interior to ex-
tend the Master Lease for twenty years 
to facilitate its development plans. 
August 4, 1978 
Water Island Hotel and Beach Club, Inc. 
assigns the Master Lease to Beach Man-
agement Corporation under a contract-
purchase agreement. 
February 15, 1979 Department of the Interior approves as-
signment 
of the Master Lease from 
Water Island Hotel and Beach Club, Inc. 
to Beach Management Corporation.