Shoreline pays €32 million premium for 99-year lease

The dream to create a futuristic ‘internet city’ that would deliver over 5,000 jobs was dead soon after the financial crisis of 2009.

Over 10 years later, Smart City Malta – a real estate deal inked in 2007 with Dubai telecoms giant Tecom – is reaping its benefits, minus the jobs target.

The company, now owned by Smart City Dubai, is cashing in on a €32 million premium after sub-leasing a portion of the land it was granted by the Nationalist administration at dirty cheap rates (less than €5 per square metre), for real estate development.

The developers are Shoreline Holdings, that will build a 372-luxury apartment complex after being transferred 55,000sq.m. in gross floor area from other parts of the Smart City development.

The company will enjoy the use of the land for 99 years, starting retroactively from 2007, at an annual ground rent of €12,222 – or €3,543 over and above the €8,678 that Smart City should be paying the government. The ground rent will be revised every five years by 5%.

Additionally, the €32 million premium will be staggered over the next six years. Shoreline will have the option of making accelerated payments by paying Smart City 30% of the sale price on each apartment.

Shoreline will be prohibited from transferring the title of the land without written consent from Smart City.

But of note in the contract is the following text, which states that Smart City will not withhold consent for the transfer of the title to “an international investor of integrity and good repute or a consortium of investors… the majority partner of which is an international investor of integrity and good repute.”

The company is already in the majority owned by South African businessman Ryan Otto, whose shareholding recently climbed to over 68%.

Shoreline will, however, be entitled to freely transfer its sub-lease of the complex as developed, without Smart City’s consent.

On the cusp of success: DF Advocates’ Jean Carl Farrugia (left) and Kevin Deguara, with Shoreline chairperson Ben Muscat

As laid out in the original Smart City deal, Shoreline will be able to convert the title of the temporary emphyteusis to a perpetual one, by paying a premium of as little as €4.07 per square metre of land – once the complex is fully completed.

Shoreline Holdings is owned by South African businessman Ryan Otto, through Jade Property Investments (68.1%); Middletown Investments (28.7%) – jointly owned by lawyers Kevin Deguara and Jean Carl Farrugia – and 3.2% by Ramm Assets, of Roderick Psaila.

Kevin Deguara had previously made a public appearance on behalf of Sadeen, the Jordanian company running the American University of Malta in Bormla.

The Maltese government holds a 20% stake in SmartCity Malta, represented by the Prime Minister’s chief-of-staff Keith Schembri on the board of directors.

The company had already started selling apartments on plan, with prices ranging from €225,000 for a 74sq.m studio apartment (€3,000 per sq.m) to €750,000, for a 199sq.m duplex apartment (€3,768 per sq.m).

Redolent of the warnings by then Labour leader Alfred Sant, Smart City was destined to become a real estate project when the project started stalling.

What made Smart City different to other projects, where public land was sold at a pittance to make way for speculation, is that the agreement signed between Tecom and the government set a €920,000 fine for each year in which the developers fail to create the promised jobs. After abandoning a similar venture in India during the 2009 financial crisis, Tecom reiterated its commitment to invest €208 million in the Malta project, but problems plagued the stalled project and the 5,600-job promise never materialised.

The land at Smart City, originally the Ricasoli industrial estate that was a vast industrial wasteland the size of 40 football grounds, was offered to Tecom Investments for a ground rent of Lm65,000 (€150,000) a year, increasing by 5% every five years.

In 2012, a Labour delegation met Tecom executives in Dubai, during which then Smart City CEO Fareed Abdulraham told Joseph Muscat that the Nationalist government had leveraged the promise of Smart City to their electoral advantage in 2008, and that the promise of over 5,000 jobs would only happen over the course of some 12 years.

The island is still waiting.