Corinthia project will replace hotels with 12 tower blocks

Corinthia can transfer lease to third parties and will be allowed to renegotiate its €52 million land deal in case of ‘economic hardship’

A draft masterplan seen by MaltaToday includes a total of twelve blocks ranging from eight to 21 floors
A draft masterplan seen by MaltaToday includes a total of twelve blocks ranging from eight to 21 floors

A prospective deal to give International Hotel Investments (IHI) a renewed 99-year lease on land at St George’s Bay for a six-star hotel project, will allow the company to transfer the deed to any another company.

Malta’s parliament has to vote on whether a lease to IHI, owner of the Corinthia hotel chain and also the Radisson hotel, which allowed it to develop two hotels on St George’s Bay can now be changed so that it can develop residential and office buildings on the coastline.

The €121 million valuation on the land has also been dramatically discounted to €52 million because IHI purchased the neighbouring Radisson Hotel, which it will demolish, as well as for the demolition of the Corinthia Marina Hotel.

But the proposed deed will allow IHI to transfer all rights and obligations “in whole and in part” to any other company in which IHI is not a sole shareholder, even though IHI will remain responsible for the supervision and management of the project until 85% of the buildings and infrastructure related to the project are completed.

And additionally, the agreement will allow IHI to renegotiate the deal when exceptional “economic and social” circumstances not foreseen at the time the deed is signed, could result in “disproportionate hardships” for the company to honour the timeline to complete the project.

This effectively means that at an economic downturn, IHI can enter into so called “good faith discussions” within a matter of 10 days to start negotiations.

The Maltese hotel group, which started off in the 1960s with its landmark Balzan hotel, was granted a deed on the St George’s Bay land in the 1990s with a strict condition that only touristic development takes place. It built two hotels, the Corinthia San Gorg and the Marina, of which the former will be retained in the €400 million project it wants to develop.

12 medium and high-rise blocks

Although the deed does not refer to the need to formulate a masterplan for the whole project, such a document will be required in the initial zoning application.

A draft masterplan seen by MaltaToday includes a total of twelve blocks ranging from eight to 21 floors. These include four high-rise blocks ranging from eight to 13 floors instead of the Marina hotel in front of the approved DB tower. The highest building (21 floors) is proposed in an area west of the Radisson hotel presently occupied by car parks. This will be accompanied by a nine-floor block. The area presently occupied by the Radisson Hotel will include three high-rise blocks with heights ranging from 10 to 16 floors. Three other blocks with heights ranging between eight and 14 floors are being proposed east of the Corinthia San Gorg.

Agreement foresees land reclamation

The agreement states clearly that the government will not object to any land reclamation adjacent to the site as long as planning permits are issued by the Planning Authority, which will have the final say on such matters.

Any land reclaimed from the sea adjacent to the development site shall be considered to form part of the development site and shall be subject to the provisions of the deed.

The reclaimed land will also incur ground rent, as well as an increased ground rent that is applicable to the land used for residential and office development.

IHI will also be granted permission to operate a beach concession on the coastline surrounding the hotel, and granted exclusive “power and authority” to allow third parties to use the site. It will be obliged to provide facilities and services expected in a “similar beaches in a luxury destination”, and keep the beach in a good state of repair.

IHI will also have “full sub soil usage rights” from sea level to existing road level, which raises the prospect of underground development. This comes with an obligation to repair any damages to overlying roads.

15-year timeframe for project

Since the local plan does not permit residential development in the site of the project, the company will have to submit an application to rezone the site within a year since the deed is approved in parliament. This will be done through a planning control application.

The deed commits the government to “use its good offices and reasonable endeavours” to ensure that the expeditious processing of this application “with a view of seeing through the development project as contemplated in the deed”.

The company is under no obligation in terms of the deed to carry out the project in one single phase but it has to present a planning application for the first phase of project within a year after amendments to zoning regulations.

The first phase has to include the development of a luxury hotel on the site of Corinthia San Gorg and 15% of the permitted volumes foreseen in the deed. IHI will have to apply for the other phases of the project within 10 years of the PA “re-zoning” the area from its current designation as one reserved for tourism.

The developers are obliged to complete the project within five years of the last permit issued by the PA. This indicates that the project will have to be completed in some 15 years. But the agreement still leaves room for “any future adverse change in economic context” which could see a revision of these timeframes.

€17 million premium

IHI is only paying €1 million as an up-front premium upon the execution of the deed. Another €3 million will be paid within three years from the date of deed and a remaining €13 million will be paid upon the issue of planning payments. While the €4 million paid in the first three years have to be paid regardless of development permits issued, the remaining €13 million are conditional on the permits being issued. If the PA approves less development than foreseen in the agreement, deductions will be made on a pro-rata basis.

IHI will pay a total of €52 million, including the €17 million premium, that is made up of emphyteutical conversions and redemptions of ground leases payable to the State.

However the leaseholder cannot convert the grant of temporary emphyteusis in to a perpetual one. It is third parties buying office or residential space which can at their discretion convert the temporary lease into a perpetual one, but within two years from the deed of transfer. Upon converting the lease they will have to pay €250 per square metre to the government; and where third parties do not opt to convert the lease, it will be IHI – or specifically its subsidiary Five Star Hotels Limited – that will have to do this in its own name within two years

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