The Malta Independent on Sunday
Konrad Mizzi insists Corinthia Group not getting a discount on St George’s Bay land
● First phase of Corinthia development includes two residential blocks, with max height of 15 floors
Rachel Attard and Kevin Schembri Orland Tourism Minister Konrad Mizzi insists that the Corinthia Group is not getting a discount on land in St George’s Bay, and says that the hotel group will end up paying government “in excess of 30 per cent on what had been agreed in 2015,” in response to questions sent by The Malta Independent on Sunday.
The full masterplan of the Corinthia development in St George’s Bay is not yet known. However, the first phase of the development would, if approved, would include not only the redevelopment of the Corinthia St George’s Bay hotel, but also two ‘luxury serviced residential blocks, the highest proposed to be 15 floors on land located between the current Corinthia and the Radisson Hotel” a spokesperson for the group told The Malta Independent on Sunday.
The Corinthia chain, which is owned by International Hotel Investments (IHI), will be given similar concessions on the price of land in St George’s Bay as those given to the DB Group for the development of the City Centre project in St George’s
Bay, Konrad Mizzi said. Maltese MPs will be asked to waive the condition that any development on the site takes place solely for ‘touristic’ purposes, in order to develop a luxury hotel and mixed-use project.
On the basis of Deloitte’s calculations, Corinthia will pay a compensation of €51.4 million for the waiver of the restriction on mixed-used development, and a €17 million one-time premium.
The draft agreement – seen by this newspaper – stipulates that this premium will be paid in instalments. “(a) The first of such instalments in the amount of €4,000,000 is payable as to €1,000,000 upon execution of the deed and a further €3,000,000 within three years from the date of this deed; (b)and the balance in the sum of €13,000,000 shall, subject to any reductions in accordance with the provisions – of another clause – be payable on a pro rata basis with respect to each portion of net internal saleable area designated for Office and/or Residential use on the Effective Date”. This amounts to the €17 million premium payment.
This whole scenario occurred just before the Christmas period.
Konrad Mizzi’s replies
This newsroom sent questions to the Tourism Ministry, highlighting the fact that Deloitte valued the land for the Corinthia development at €121.7 million, and was asked, given that they will be paying €51.4 million as per the contract, why and how they were given such a €70 million discount.
Mizzi holds that the government has been in discussions with International Hotel Investments (IHI) plc since 2015 with a view to regenerating the area currently occupied by the Corinthia and Marina Hotels at St. George’s Bay as well as the area occupied by the Radisson Blu Hotel. He said that the discussions led to the government entering into an agreement in principle with Corinthia to realise the intended project and the ensuing changes to the relevant contracts.
“Notwithstanding this, further to the ITS site developments and in order to ensure a level of consistency and fair value, the Government re-approached Corinthia and agreed to revise the valuation upwards. To this effect, both parties agreed in 2017 that the Government would engage Deloitte to arrive at a fair valuation of the land in question using international valuation principles.”
While insisting that there was no discount, Mizzi said that in order to arrive at a fair value to be paid by IHI plc in consideration for the requested terms for the proposed project, the residential and office development areas were valued at a rate of €1,250 per net internal square metre (as used for the neighbouring former ITS site development). “This resulted in a total gross value of €121.7m that represents the value of the development proposal concerning residential and office space, before taking into consideration IHI’s existing assets and rights over the development site as per the current deeds.” To begin with, the Deloitte valuation formula has already been brought into question in the past during the highly controversial db Group’s ITS saga, and had caused uproar and arguments that the valuation was too low.
“In arriving at the net compensation adjustment required, the following items were deducted from the total gross value: €16.1m for infrastructure costs to be borne by IHI concerning public areas; €9m as compensation for forgone assets and rights concerning the existing Marina Hotel building, which will be demolished as part of the project. This value represents €45k per existing hotel room; the acquisition cost of the Radisson Blue Resort of €33.4m, which was acquired by IHI plc in order to fulfil the conditions laid out in the 2015 MOU with Government; €12.9m for the potential additional tourist-related development that may be undertaken on the site in question. The volume of underdeveloped area was quantified by an architect having reference to building densities allowed in the area and was valued at a rate of €50 per gross square metre as used for the neighbouring ITS project.”
Mizzi holds that these negotiations brought “considerable improvements on agreed conditions of 2015 MOU, namely a revised valuation upwards, the aligned terms of concessions in line with recent concessions, a reduced ceiling on development of residential and commercial facilities to 100,000 sq. m., an increased compensation for the waiver of restrictive conditions and an increase in terms from €38.7 million to €51.4 million, an increased premium from €12 million to €17 million and an increased title conversion payments from €175 per sq. m. Per annum to €250 per sq m. per annum in respect of residential/office space and from €26.25 to €37.50 in respect of external areas.”
He also said that Corinthia had to agree to pay €1 million to Pembroke and St Julian’s Local Councils in respect of Corporate Social Responsibility.
With regard to the €17 million premium payment, the minister was asked about these payments as per the contract, and whether €13 million of this could, as per the contract, be paid up to a decade-and-a-half after the contract is signed.
“The €13 million to which you refer will be paid pari passu with the development over circa a decade from the re-zoning, and dependent on permitting,” Mizzi said.
The project tallies with the Government’s vision of achieving a quantum leap in the tourism sector in terms of prod- uct and experience, complemented with much improved infrastructure and world class, all-year-round events, including family entertainment,” Mizzi holds. “It is with this view in mind that the Government had continued to proceed with discussions with Corinthia in order to lay the proper foundations for this ambitious project, estimated in value in excess of €600 million.
“The project will bring about significant direct and indirect income to the Government, which would otherwise remain locked at current levels as per current title deeds. Needless to say, there will be multiple tangible benefits to Malta as a direct result of this development that it will have far-reaching positive benefits to the island in general. The project will also help attract a new level of visitor to Malta in which clients traditionally demand a high level of quality,” Mizzi said.
Corinthia’s replies
This newsroom had originally contacted Corinthia for details about the project, and asked a number of questions. While some were answered others, particularly those related to the land payments, were not and this newsroom was told to contact the Tourism Ministry for such explanations.
The project will be divided into a number of phases. “Subject to Parliamentary approval, and signature of our revised title deeds, and subject to planning approvals, we will proceed to our first phase of the project.
This phase envisages the redevelopment of the luxury Corinthia Hotel and its extensive landscaped gardens and amenities, as well as the development of two luxury serviced residential blocks, the highest proposed to be 15 floors on land located between the current Corinthia and the Radisson Hotel. The serviced residential development will enjoy the same level of amenities and service as the new Corinthia Hotel,” a spokesperson for the Corinthia Group said.
The spokesperson said that the Marina and Radisson Hotels will remain in operation “until such time that more definitive plans are made in years ahead, always within the limits being placed upon us by the government in our revised Deed, and always subject to planning rules and economic viability.”
This newsroom asked how many floors the tallest building in the whole project would have. However, this question does not seem to have been answered, as Corinthia only referred to the first phase of the project.
A number of questions were also asked about the land valuation, including why such a low price is being paid, even though the property will be on the waterfront with unobstructed sea views, and why Deloitte valued the land they will be getting at €121.7 million, while the contract says that they will be paying only €51.4 million. These questions, however, were also not answered.
The Corinthia representative said: “Please note that the Deloitte valuation was commissioned by the Government. Ultimately, therefore, we would respectfully suggest that any queries on that valuation are made to the Government. On our side, our position on valuation is one grounded in a starting point where the company already enjoys long-term exclusive rights to the land, and any further payments to be made should be relative solely to the removal of restrictive conditions that currently focus the use of the land for tourism related developments.”
“Our over-riding plan is to deliver a luxury holistic environment for our new Corinthia hotel, matching our brand’s standards worldwide. This is a risk which we are prepared to take based on our strong confidence in the future of Malta, and the potential of our tourism product to attract higher-spending visitors. Real estate development will be complementary and supportive of that main focus, including the overall landscaped setting of the development.”
The representative also said that “the commitment by IHI is to focus the project around the creation of two new hotels having not less than 375 bedrooms. These will include a 6-star flagship hotel on the site of the current Corinthia Hotel, albeit with an additional two floors and a 5star hotel targeted at business travellers.”
Discussing the Corinthia St George hotel site, and the lower number of rooms predicted, the representative said: “It is important to note that, in the case of the Corinthia San George, the number of room keys will reduce despite the addition of two floors. This is due to the fact that bigger rooms are needed in order to achieve the six-star standard for which the company is aiming.”
The representative also said that the plans will feature “a high degree of external, landscaped areas, covering more than half the site.” They said that they plan to develop up to 30 per cent of the total footprint.
Asked about the 100,000 sq.m of floor area for residential and commercial use, and to break this up into the aforementioned categories, the representative said that the group intends to divide this amount to 70 per cent residential and 30 per cent commercial.
This newsroom also asked what kind of infrastructural changes would be needed to make the project viable, and whether a masterplan had been drawn up for the whole site.
“Detailed planning on all infrastructural requirements for the development will commence as and when our revised title to the land is in place and we are therefore able to base such plans on actual possibilities and parameters as permitted by the land title.”
No answer was given as to whether a masterplan for the site had been drawn up, however details of the first phase of the project were provided.
Asked about the land reclamation clause in their contract, the group said: “We understand that the proposed clause on land reclamation is similar to other agreements across Malta. However, you may wish to note that we do not intend to pursue any land reclamation as part of our project.”
A number of NGOs and local councils have already expressed their reservations about this project.