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DB paying €15 million cash, but property buyers will front €23.4 million for ground rents

A €60 million price tag for the land occupied by the outgoing Institute for Tourism Studies is split between a €15 million premium payable over seven years and €23.4 million in redeemed leases which will be paid by individual owners of the residential units and not directly by DB Group

james
James Debono
8 February 2017, 9:32am
The valuation means the land for the new hotel is valued at 4% the value of the land earmarked for real estate
The valuation means the land for the new hotel is valued at 4% the value of the land earmarked for real estate
A €60 million price tag for the land occupied by the outgoing Institute for Tourism Studies, now to be leased by the DB Group for 99 years, is split between a €15 million premium payable over seven years, and also €23.4 million for the redemption of ground rent on individual residences included in the project. A further €11 million included in the €60 million price tag will not be actually paid, but represents the present-day capitalised value of ground rents that will be paid over the next 99 years.

This breakdown was confirmed by Deloitte's Financial Advisory leader Raphael Aloisio, when contacted by MaltaToday.

The DB San Gorg Property company, which is owned by hotelier Silvio Debono, will pay a €5 million premium and €10 million in seven annual instalments.

Set over a footprint of 35,000 square metres - although built-up area will be smaller - the DB San Gorg Property's residential portion within its Hard Rock Hotel will include some 200 properties. The company cannot redeem the ground rent on these properties until they are sold to a third party, which effectively means that buyers will be paying the redemption payable to the government to render the properties freehold.

Apart from the €15 million, the rest of the money represents ground rents for the 99-year lease on three specific parcels of land each with different values, which are not redeemable except for the residential portion. Only the real estate portion can be converted into perpetual emphyteusis.

The contract also stipulates that if the Planning Authority approves more floorspace than foreseen in the contract the premium would increase according to a formula which values hotel development at €50, the commercial area at €325 per square metre and €1,250 per square metre rate for the real estate component of the project. But if the Planning Authority approves less development than that foreseen in the contract the sum would be deducted from the premium.

At the ground rent payable on property, at the very least a 150 square metre apartment would have a land value of €187,500 alone without it being built.

A commercial area within the hotel area has also been valued at €50 per square metre. But the total area of commercial space valued at €50 per square metre cannot exceed a floor space of 9,500 square metres.

This will include hops shops inside the hotel and others in the “immediate and adjacent grounds” of the hotel. 

A Hard Rock casino will also be constructed over a total of 2,085 sqm on three floors, with 25 table games, 375 slot machines and a poker room.

The hotel area will include “lido and water sport facilities”, also valued at €50 per square metre. The land transferred to the company includes 237 square metres of public land on the coastline. 

DB Group CEO Arthur Gauci has claimed that the €50 rate means that the group will be “paying more than what was paid for other hotels, including those in the vicinity and for other property developments in general.”

The rest of the commercial area, at €325 per square metre for a 24,000 square metre shopping mall, is being valued at 26% of the value of the land earmarked for real estate.

Government statement on payments

The government on Wednesday said it would collect “every single cent of the €60 million”. 

It said the price tag includes €4 million in taxes, while the rest comprises: a €15 million premium, €6 million for the conversion from temporary to perpetual emphyteusis, €500,000 for the car park conversion, €23.3 million in property redemptions, €2.5 in hospitality ground rent, and €8.7 million in retail ground rent.

The government said the €15 million only includes the development premium, which is apart from the ground rent for hospitality and leisure facilities as well as ground rent for residential properties or redemption premiums if such residential properties are redeemed.

“Taking into account inflation, if the ground rent is not redeemed, the investor will pay circa €250 million over the lifetime of the lease of land,” the government said.

“In a lease, one is expected to pay the premium and the rent as per the structure explained above, which was effectively set up by the international audit firm Deloitte. Through this, the government will get the total of €60 million. This method will be used as a benchmark for future similar deals. This confirms a level playing field to all investors wanting to lease government land for investment purposes in the future.”

The government has insisted that, taking into consideration the €60 million, the value of the investment by the DB Group is at €300 million.

Casino concession

A new casino, if DB are granted that concession and Malta’s “largest shopping mall” are among the proposals listed by the DB Group in documents presented to the government in January. 

The shopping mall will cover almost 24,000 square metres on three levels and will be “solely dedicated to the most luxurious designer brands, in line with the recurrent upmarket theme of the project”. The Big Bon Group, owned by Bernard and Mario Gauci, will be the lead operator for the mall, to attract brands which are currently not present in Malta.

Project set to be approved by August

A time-frame for the project found among the documents submitted to parliament, indicates that the Planning Authority will approve the project by 3 August, 2017 and that the developers will take possession of the site by November this year. 

This indicates that environmental impact studies will be completed in six months. If approved the project will be completed by July 2023.

In May a spokesperson for the Ministry for Tourism told MaltaToday that the ITS will only move out from its present premises at St George’s Bay once work on a campus and a hotel at SmartCity is completed. The ITS project in SmartCity, which includes a 12 storey hotel and which is set to cost €74 million, has yet to be approved by the Planning Authority.

james
James Debono is MaltaToday's chief reporter on environment, planning and land use issues, ...
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