Sweden —
Titania, via subsidiaries, has sold the company's property at 3605 Noranda lane, Malibu, 90265 CA in the USA for USD 14.1 million (equivalent to roughly SEK 143 million with an average exchange rate of SEK 10.16 per USD as of July 25, 2022). The property covers 20,315 square meters of land and is furnished with a single-family house of 501 square meters. The house is not completely finished, but the buyer takes over the property with the building in the existing stage of completion and pays the remaining costs for completion himself. The buyer is a private person. Access took place on July 25, 2022 (US time, Pacific Standard Time) and the purchase price has been paid in full.
The property has been sold from the Titania Group's American subsidiary Titania Scandinavian Property Development in Malibu Inc. The Titania Group has to date invested a total of approximately SEK 80 million in the company and the project. Costs for brokerage fees and taxes after the sale are not included. The property is unsecured. The property is valued in the balance sheet at acquisition cost.
Titania purchased the land for the project in 2017 and pursued a two-year construction permit process that included local planning permission from the City of Malibu and a special permit for construction within the California coastline issued by the California Coastal Commission, a central state agency. The construction has been going on for three years and, in addition to the house construction, has included, among other things, the construction of the access road, VA facility and structural reinforcement as the land is on a mountain slope.
- The background to the project is that I bought a nearby house privately in 2016 and became interested in Titania taking on the challenge of developing something while I was still there. To me, Malibu is an interesting case study for anyone involved in real estate development because it is one of the most extreme examples of how the purchasing power and inherent attractiveness of a location on the one hand, and regulations for, and difficulties with, construction on the other can drive up prices to very high levels and create business opportunities for professional developers who are willing to take the risk, says Titania's CEO Einar Janson and continues:
- The NIMBY factor (Not In My BackYard - i.e. opposition from the local population to new housing) is to blame for the lack of buildable land in Stockholm, but in Malibu it is at an even more extreme level in that its entire existence as its own city depends on the. Malibu incorporated as its own city in 1991 following the initiative of local residents in response to Los Angeles County (of which Malibu was a part prior to 1991) wanting to draw in public sewers that would allow for the development of apartment homes for 400,000 residents. As a city of its own, Malibu gained a greater degree of self-determination, halting plans for public sewers and imposing strict regulations against all new construction. Today, approximately 13,000 inhabitants live almost exclusively in single-family houses on Malibu's total area of just over 50 square kilometers and 34 kilometers long coastline, and this right next to one of the world's largest urban regions with a very large housing shortage and very high purchasing power.
- Actually, what we did in Malibu is not that different from what we do in the Stockholm area. For decades, both Malibu and the Stockholm area have been characterized by an ever-increasing deficit of housing relative to demand, and no economic downturns or credit regulations have been able to change that trend in the long run. In Malibu as in Stockholm, it's about us creating profits by using our expertise to get over the thresholds and obstacles, mostly regulatory but also as I said the NIMBY factor, which has created the supply deficit as efficiently as possible. Obtaining building permits that allow good end products in such locations is more complicated and requires more experience, time and resources, but with a large upside and security in the asset's value once you have gone through the process. If you also have the know-how to carry out production cost-effectively, you can be quite sure that the conditions for selling or renting with good profitability when it is finished will be relatively stable regardless of the economy.
- It has been incredibly fun and educational to do the project, but it is not something we will do again. The project was started when we were a privately owned company with only three shareholders, but now that we are a listed company, the project has generally been seen as too risky and odd by the capital market in Sweden and it has been difficult to show the value of the asset, which has meant that it has been seen as a burden. If you are familiar with the market in Southern California and the Los Angeles area specifically, a building right in Malibu is among the safest you can have. For Swedish conditions, comparable to a building right for homes at Östermalmstorg or beach plot on Djursholm, but in Sweden it is probably easily confused with a holiday home in any other warm place with the risks associated with such projects.
- Selling the project in this state of completion enables the buyer to, according to his own liking and taste, tailor finishes and make other personal choices in the execution. The possibility of making your own choices is an important factor in the premium market. In terms of condition and construction, all difficult steps have already been completed, which is highly valued by buyers, says Einar Janson.
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