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Tourism project ‘not viable’ at commercial rates for land

The Seabank Group is planning what it says is one of the “largest single private investments” – expected to total about €300 million – on land now occupied by the Institute of Tourism Studies overlooking St George’s Bay (long building to the left). The development would consist of a high-end Hard Rock hotel, shopping mall and high-rise residences. Photo: Mark Zammit Cordina

The Seabank Group is planning what it says is one of the “largest single private investments” – expected to total about €300 million – on land now occupied by the Institute of Tourism Studies overlooking St George’s Bay (long building to the left). The development would consist of a high-end Hard Rock hotel, shopping mall and high-rise residences. Photo: Mark Zammit Cordina

Seabank Group CEO Arthur Gauci defends the sale of residential towers on public land in St George’s Bay. He tells Caroline Muscat the project was conceived years ago.

When did you start selling apartments on the site currently occupied by the Institute of Tourism Studies?

We didn’t sell any properties. What we did was enter into a ‘registration of interest’ with those interested and it was done after we signed the Memorandum of Understanding (MoU) with the government.

You’re taking deposits for apartments to be reserved…

Yes.

So this means you’re selling apartments. When was the MoU signed?

In February (the request for proposals closed in January). I repeat we didn’t sell. We have a very loose private agreement, which isn’t something we invented – it’s used abroad, as well as for other developments here.

The agreement specifically says it’s not a sale.

You’re referring to the agreement you’re signing with customers…

Yes. There’s a specific clause stating if both parties don’t come to an agreement, it falls through.

But you’re taking money from potential customers, aren’t you?

We’re taking a €50,000 deposit. At any point, each one can call us up and they’re refunded. It’s not a promise-of-sale agreement where you’re bound by certain conditions.

How many apartments do you have for sale?

We haven’t actually sold apartments. We’re [registering] interest per floor, not per apartment. We did this for a number of different reasons: we wanted to test the market. We had another particular niche in mind we also wanted to test. We had an overwhelming response.

What percentage of these floors have you sold?

Our proposal for one of the towers has practically been taken up.

So one of the towers has been ‘reserved’. What kind of revenue are we talking about in terms of the deposits you’ve taken so far?

We’re taking €50,000 per floor. The first tower has 29 floors.

One of the towers has practically been taken up. We’re taking €50,000 per floor

You’re aware the Planning Authority is conducting a review of planning laws in the area. These plans haven’t yet been finalised or been subjected to public consultation. How can you be sure what you’re offering is actually going to be permitted?

We can’t be sure until the local plan is approved. I agree. However, the tender made it clear that residential apartments can be incorporated in our proposal. The tender states “the site may also include a number of residential units”.

The tender then goes on to state how the property can then be transferred to become freehold – not by us but by whoever is buying the property.

When we were preparing our bid, we had to refer to the policy guidelines issued in 2014 which specifically regulate high rise buildings... the St Julian’s area is included as an area where such buildings are allowed.

We had to benchmark our proposal against existing regulations at the time of our submission, which was last January.

The existing car park, included in the site for this project, is not part of the ITS site. It’s in Pembroke, not St Julian’s, and therefore not part of the areas designated for high-rise buildings. The car park is in fact designated as a public car park. This has already been funded from investors in the area in what is known as planning gain from their developments. The PA should build a public car park there from that money. How do you explain your project plans in view of this, since you said you followed existing planning guidelines?

I repeat, we had to stick to the plans issued in the tender which clearly show three parcels of land (shows plans)…

I understand. Does this (the car park) allow high-rise buildings?

The brief [for the project] was clear we could include residential. Ultimately we have to comply with whatever the PA will approve. At this stage, whatever we’re submitting is not cast in stone. Once we sign [the agreement] with the government, if we do sign because we’re still going through an evaluation process, then we have to submit full plans to the PA and then it’s up to them to guide us.

Understood, but you’re not answering my question. Are high-rise buildings on the car park site permitted at the moment?

That’s for the Planning Authority to decide, not me.

But planning laws are there for everybody. You answered a Request for Proposals. Anybody else interested in submitting a project for the area would think twice before proposing a residential tower on the car park area because according to existing planning laws the probability is that it won’t be accepted. If you’re selling residential units in a tower where it’s not currently permissible, it’s obviously a disadvantage to anybody else who wanted to potentially invest in this area…

The tender was very clear. Come up with proposals within specified objectives. That’s what we did. Everything we’re doing will still be subject to PA scrutiny…if a tower can’t be built there, then it won’t be built.

And those who gave you money will be refunded?

Yes.

You do understand all this was quite misleading to potential investors who’ve said that if they knew they could build a tower on the car park area they would have submitted a bid. Your reaction?

Reacting after the closure of the bid is very unfair on us. It was a public tender. Everybody could have picked it [up]. It cost €10,000 – same as the White Rocks tender.

The tender was clear. Although predominantly asking for a tourism-related development it also allowed residential development…

Seabank Group CEO Arthur Gauci: “Ultimately, you have to understand that we’re taking a risk on something which the government wants to develop.” Photo: Darrin Zammit LupiSeabank Group CEO Arthur Gauci: “Ultimately, you have to understand that we’re taking a risk on something which the government wants to develop.” Photo: Darrin Zammit Lupi

There was a discrepancy between the advert and the details in the tender document. Residential development wasn’t in the specified objectives of the project. The factoring in of residential units in a project advertised as “design, build and operate tourism and leisure activities” is probably what is feeding criticism that this was all misleading. Your reaction?

It’s not my competence to answer how a tender was presented or advertised. That’s the government’s job. There are two clauses in the tender document that clearly refer to residences – there’s a whole quarter page referring to transferability of concession.

You had a competition among architects for the design of the project. Correct?

Correct.

When was it held?

Initially we went to the market to see ideas. Then, when the tender was issued we found things we weren’t anticipating. We went back to the architects and asked for a redesign to comply with requirements issued last November.

But when did you create the competition for the project site?

We started working on the idea years ago…

More specifically?

At least six to seven years ago. The previous administration had made it very clear it wanted to move the ITS. The intention was to develop the site into a hotel or some kind of tourism-related project. The idea didn’t crop up because we thought about it… We followed the government trend at the time. Around 2009-2010, I had met [former prime minister] Lawrence Gonzi to introduce him to Hard Rock [brand of hotels]…

In our line of business, we think of projects all the time. Some of them never see the light of day; some are considered. So when the government at the time thought of moving ITS we started considering whether that site interested us. There was the White Rocks tender, for example, but we didn’t bid because it didn’t fit our goals from a strategic business perspective…

All that is our risk… building these plans. That’s where we’re spending and investing money because at the end of the day the tender may or may not be issued...

In September 2014, I had asked both you and the government whether there was any interest in the ITS site. Both denied there was anything in the pipeline. Now you’re saying you’ve been working on this project for years…

We’re not here to enter into political controversy…

I’m not talking about political controversy.

Yes, but we had our views on why certain questions were being asked so we decided it wasn’t in our interest to enter into the merits of whether the project would be done. So we decided not to enter into a ‘yes’ or ‘no’ answer about our intentions… You can’t just ask these questions in isolation. You had to understand what was happening at the time…

Your answer wasn’t a ‘no comment’. Both you and the government gave me the same denial. So what you’re saying is despite that denial discussions were ongoing.

I never said discussions were ongoing. What we were doing was looking at the site, determining from public statements what the government was pitching…

Yes but you clearly had an active interest in the project.

Of course... [but] we didn’t want to raise false alarms that we were doing something behind someone’s back…

We’re in negotiations with the government so I’m not in a position to tell you our offer

The Request for Proposals was issued in November with a deadline for January. The call was specific, for example referring to a “branded hotel”. Investors say a few weeks over Christmas isn’t enough time to negotiate and conclude a deal with a branded hotel. Now, you’ve just said you were even talking to the previous administration about a Hard Rock hotel. Again, it feeds speculation this was a tender designed for Seabank.

Where there’s a will, there’s a way. We had another project in 2006 where things changed and we had to find a partner [for a bid] in the last two weeks. We managed to find this partner and finished the tender in one week.

With Hard Rock, it’s true that we have the franchise so it wasn’t so difficult to have them as a partner. But don’t make insinuations this was done for us. If you don’t have proof, don’t say these things.

This is an interview and I’m asking you questions. Please answer. Did you have an advantage? Yes or no?

Absolutely not.

When we first revealed information about this project we reported that Seabank’s offer for this public land was €6.5 million, based on information from a number of sources. You’ve denied this. So what’s your offer?

We’re in negotiations with the government so I’m not in a position to tell you our offer. I can’t dish out information because I could prejudice our position. And we’re bound by a confidentiality agreement with the government. What I can say is that our offer is much, much higher than €6.5 million. The government was after a package and that’s what we proposed.

Independent assessments we have commissioned have set the value of the land as, at least, €80 to €100 million. Is your offer anywhere close to this?

I won’t answer. But I want to clarify one thing. The brief is clear that residential is only part of the development. In terms of built-up area, only 20 per cent of the development is residential.

What’s your estimated revenue from the residential units if your project goes ahead?

This is a commercial deal and I don’t think I should be discussing this in public.

This project is on public land. One of the main controversies surrounding this project is the value of the land, which still belongs to the public and on which you’re selling residential units. I’m asking about revenue from residential units to understand whether what you’re offering for the land was fair.

Projects are complex. It doesn’t mean that because the towers generate revenue, then the rest will do the same. You need to look at the entire project.

I’m stressing the residential aspect because the idea behind the project is that public land is transferred to benefit the economy. Hotels and commercial establishments give something back to the economy. Residences are sold once, and that money goes to the investor minimising the risk of an investment.

OK. I can give you some high level numbers. Our investment is around €216 million. On top of that, we estimate there will be another €100 million by other parties coming into the project – the shopping mall, the residences, etc. In total, it’s around €300 million.

The risk is huge. There should be mitigating factors. This is one of the largest single private investments.

If we were to pay commercial rates for the land, a hotel on its own would never be viable. The numbers just don’t add up.

On the land valuation, we worked out our submission to government – the package – based on contracts available. That was one of the benchmarks we used. Having said that, the government has the right – as it is doing – to do its own internal valuations. As far as we know they’ve engaged an audit firm, and I believe there are also some architects involved, to come up with this number. Whether we go ahead with what the government is suggesting will boil down to negotiations. If the numbers don’t add up, then we’ll do our homework again. If it can be done, we’ll proceed.

Was there a minimum value in the tender?

No.

So the valuations are being done after, rather than before, the call?

I don’t know what the government did.

Moving to other aspects of the project. The hotel: how many beds?

The concept is a five-star plus-branded type of hotel. Hard Rock hotels are quite an innovative type… In Malta we have some good five-star hotels, but…they’re more or less of the same breed. Hard Rock brings with it the same level of five-star but appeals to a wider generation.

We want to go for the up-market five-star type of guests with a difference. I think there is a void within our tourism package that has to be filled with new ideas.

How many beds?

Our proposal is to go for a 450-suite hotel, with rooms varying from 40 square metres going up to 220. In Malta there are no real top-notch suites that cater for the very exclusive clients.

Do we have this kind of demand?

I believe there’s the demand. It’s not evident because these people don’t come unless you provide the infrastructure and facilities.

What are the other aspects of the project?

In the hotel we plan to have amenities. Although these may be found in other hotels, we plan to have them a notch or two above the rest… We’re planning a large shopping mall, mostly located under the hotel building, trying to attract big brands not found in Malta… We’ll have around 2,400 car spaces. We’ll have a number of top-end restaurants, possibly Michelin star, too.

Probably, the car park spaces will be for residents and people visiting the site so they are not replacing the public car park.

If there’s an obligation that we must provide a number of free parking spaces, then we’ll have to oblige. No two ways about it.

Have you signed any agreements with third parties for the commercial outlets, shopping mall and so on?

What I can say is that we’ll bring in a local partner in the shopping mall.

Have you identified the partner?

Yes.

Have you signed an agreement?

We’ve identified the partner.

You said you had thought of this project under the previous administration. Two prominent PN MPs are closely linked to the company. Then this administration seems to have concluded where the others left off. It seems Seabank has a close relationship with both political parties.

No… We hold meetings on a variety of issues. One can’t expect to do business and not talk to stakeholders. Isn’t the government a stakeholder? Doesn’t the government represent the nation? Of course we have to talk to the government. We talk to the Opposition as well. We explain our ideas. It doesn’t mean we always agree.

I don’t mean just the two main political parties. We also talk to MP Marlene Farrugia. We want to understand what people are saying.

Ultimately, you have to understand that we’re taking a risk on something which the government wants to develop. We came up with this idea. It doesn’t mean it is the best one. There’s a whole process that we have to go through and things may change…

Thankfully our country is going through a positive trajectory in economic terms. We have to be wise as a nation, which is made up of investors as well, to ride the wave and identify when to move ahead on certain projects. Otherwise we’ll enter into a recession.

Was the land related to this project promised to you by the Labour Party before the election?

Absolutely not.

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