The Eye of the Fish

Maximus
April 23, 2014

Clarification on waterfront leases

Councilor Andy Foster writes to the Fish, with some clarification over costs and leases on the waterfront. Published here in the full, with the aim of correcting misinformation, by the Eye of the Fish:

“I wanted to address the apparently emerging urban myth that Council and the Waterfront Company give away land – apparently to line the pockets of private developers. Some people event think the Council pays for these buildings ! Not a chance ! We go to the market looking for the best possible proposals in terms of dollar return and urban design outcomes. Sometimes we won’t go for top dollar if there is a combination of other outcomes that is considered in the best interests of the city and worth sacrificing some dollar revenue for. I would hope most people would see it as entirely appropriate for a Council to be interested in money and also in urban amenity, public access, heritage retention, relationship to surrounding public space etc.

An example was with Chews Lane, where Council had over time assembled a collection of somewhat rundown buildings on both sides of Chews Lane. We went to the market, received a range of proposals and went with a proposal which was somewhat, but not much below the highest priced one. Council received many millions of dollars for the site, but also the upgraded access through Chews Lane, retention of several heritage buildings, and a mixed use development including office, residential, retail and café activities. I think most people would consider this development adds immensely to this important part of the city. Some people have clearly misunderstood the type of commercial transaction. Council could have taken money over a period of time, but instead has taken what is effectively the equivalent market value for a sale – up front, and then a nominal $1 a year thereafter for the term of the lease. In the case of Chews Lane this is 250 years. 

In respect of the OPT the same competitive process applied. Again the Waterfront Company received a significant multi-million dollar sum up front, as well as avoiding the multi-million dollar cost of wharf strengthening. Wharf strengthening would have been required regardless of having a structure on top or not – and though the cost of strengthening would have been lower without any structure on top, it would still have cost many millions. The lease in this case is 125 years for a $1 a year. Wellington Scoop reported in May 2012 that :

“Willis Bond & Co would pay for a 125-year lease on the wharf and terminal building. Under the company’s proposal the building would accommodate apartments on the upper levels and a range of other uses at wharf-level ….
Willis Bond & Co would spend some $16 million on repiling and strengthening the 101-year-old wharf on which the OPT sits.
Wellington Waterfront Ltd would receive $16 million in cash and development benefits and improvements.”

Site 10 is the same. Another competitive process, negotiations, and a multi-million figure payment up front.

So in summary payments tend to be up front and for a long term lease, so anything thereafter for the life of the lease will be nominal. However the value of the up-front payment will be almost identical to the value of a sale because of the effect of discounting over a long period of time.

If you want to get a feel for the scale of the amounts received on an ongoing basis, I won’t put out any number that is not already in the public realm for reasons of commercial confidentiality. What you could do is look at the various Statements of Intent and Waterfront Business Plans over recent years. For example the 2012/15 Development Plan included “Proceeds from Operating receipts & Commercial developments 2013/14  $9,000,000   2014/15  $15,075,000” 

There are obviously ongoing operational costs for managing the waterfront, not least being wharf piling. However without these proceeds the Waterfront development most notably the public space we all enjoy so much, would have cost us ratepayers tens of millions more. I hope that this will address the myth that Council and/or the Waterfront Company give away land. As I said – no chance.”

Regards
Cr Andy Foster
Chair – Transport and Urban Development
Wellington City Council

davidp
23 - 04 - 14

Thanks Andy. That all makes sense, and is pretty much the position we found ourselves in last week after plenty of discussion.

If it isn’t commercially sensitive, can you say who is responsible for future re-piling at sites like OPT. The leaseholder?

Peter
24 - 04 - 14

Councillor Foster’s explanations only get to the same place as the ‘ofishianados’, albeit with a few diversions, a dose of patronising oversimplifications and few hard facts. So, no ‘clarification on waterfront leases’ here.

The take on Chew’s Lane, while not being relevant to the waterfront situation, fails to explain when and why the Council had set about accumulating property in Chews Lane in the first place or what the original intentions were. It has not been explained why the Council effectively sold it for an upfront price that won’t stand the 250 year test of a marginally decent investment despite the dubious contentions around “discounting over a long period of time.” What would a conventional commercial lease deal have returned over 250 years? No doubt gazillions more than the cash-up-and-run deal that the Council did. What did the general public get out of it? A tarted up thoroughfare to replace an existing thoroughfare and a bit of chump change. The real winners were??

Now, back to the waterfront. “Some people even think the Council pays for these buildings!” – sounds like an urban myth of the WWL/WCC’s making which is not yet in general circulation. A bit like WWL saying they needed millions to replace rotted piles which had already been replaced decades earlier. However, is it correct that Centreport owns half of the commercial buildings on its land and makes a very healthy return from doing so? Also, isn’t it the case that the ratepayers would realise a greater long term return from site 10 if it remained a parking lot rather than privatised? That should not be taken as the commenter favouring a carpark on the site!

Now about, “Proceeds from Operating receipts & Commercial developments 2013/14 $9,000,000 2014/15 $15,075,000”. It seems these are fanciful projected returns which roughly equate to the level of loans provided for WWL from rates income. Clearly, there is some problem with the ‘sell it to save it’ model. If the privatisation of public waterfront assets is such a good deal, when is the loan gong to be repaid?

Critiquing all of the Councillor’s article would be too tedious so as a final observation, Cr. Foster has the distinction of not only being the seller-in-chief of public open space land on the waterfront but is also one of the gang of six who wanted to be able to sell off chunks of the Town Belt.

Maximus
24 - 04 - 14

Some interesting, meaty questions there for Councilor Foster, and hopefully he will be able to come back and answer them.

I’m wondering, if he indeed does come back with some replies, whether he would also be able to answer some questions on what is happening with the NZTA proposal for Takapu Valley? I know that over at Scoop, there have been many questions asked on this very touchy subject, and feelings are evidently running high. There appears to be a view that WCC are hiding something, ie hiding a plan / agreement for NZTA plan for putting Option D link road up the Takapu Valley – which back in February, Councilor Foster was interviewed on National Radio Nz and firmly reputed. It does seem that NZTA are running rampant over people’s opinions at present, and unless you are Patricia Grace, you stand no chance of winning against NZTA. Whether that merely reflects the power of Stephen Joyce behind the throne, or the force of the transport lobby in funding the National Party’s re-election bid, is uncertain, but it is clear that NZTA are increasing, rather than decreasing their reading plans. Just a couple of days ago, transport blog revealed that NZTA have plans to “improve” SH1 between Hamilton and Auckland, mainly by bypassing all the existing towns on the route, and in effect creating an almost new SH1, leaving the old route through Putaruru etc as a pleasant route for cycling instead. Cars and trucks, despite the inevitable coming decline, are evidently seen as the only route forward for the next 50 years, with no thought of strengthening alternative means of transport such as the Hamilton-Auckland rail route.

Anyway, Andy, Takapu Valley – care to comment?

Maximus
24 - 04 - 14

Here’s the link to Scoop discussion on Takapu Valley: http://wellington.scoop.co.nz/?p=66447

Maximus
24 - 04 - 14

And here is the Transportblog article (rather long) which includes discussion on the “Waikato Expressway” which is evidently ongoing – I haven’t driven up there for years – and is bypassing (not Putaruru, sorry, I got that wrong) Huntly etc. Transport blog is a tour de force in NZ blogging terms – they had 107 comments for this article, which is 3 times more than we’ve ever had for any article – so I take my hat off to them (metaphorically, as I don’t wear a hat – fish rarely do wear hats). But check out the NZTA maps in the middle of the article. Massive, massive amount of money being spent on roads.

http://transportblog.co.nz/2014/04/19/mighty-river-rail-a-fresh-future/

andy foster
24 - 04 - 14

Peter – I thought the info I gave was really clear, but to cover off the issues you ask about.
1 – Council goes to the market, tests the market price, gets the best deal it can in $ and other outcomes terms. That is no different from you or I selling a property. Over the life of the property or in this case the lease of course you would expect it to return more than the sale price, but equally obviously a dollar earned in say 100 years time is not going to be worth remotely as much as a dollar earned now. YOu also have to factor in carrying costs, the cost to ratepayers of debt servicing (ie not paying down debt) and of course there will be increase in property value. As I said the return Council receives up front is effectively a sale value at today’s market price – I really don’t know how to make that any clearer. The logic implicit in your post is that nobody should ever sell any property because of forgone future rental.
2 – Urban myths – I am pleased you don’t subscribe to the mistaken view that Council pays for buildings on the waterfront. However I can assure you that I have heard too many people front at Council committees and tell us that is the case. Of course it isn’t.
3 – Replacement of rotting piles has nothing to do with the rest of the conversation – other than that they are very expensive, and yes I can assure you that they aren’t being done for fun. Go under the wharfs (kayaking is good) and you will see piles that are largely eaten away, and piles that are either recently replaced or refurbished with what looks like some kind of fibreglass.
4 – Seller in chief ? Pleease ! The Town Belt issue again is poorly understood – in simple terms where we KNOW land is going to be taken by the Crown under the Public Works Act, or in fact even once the land has already been TAKEN, some of us considered the best approach would be to try to negotiate the best possible outcome and we’d even specified that we wanted LAND to be ADDED to the Town Belt. The refusal to negotiate makes it both difficult and unlikely that we would get land as compensation – and you bet I want to get back former Town Belt Land – who do you think led the charge to recover the former Telecom land on Te Ahumairangi Hill? I suggest you have a look at the PWA – though it isn’t one of the easiest pieces of legislation to understand.
5 – On that note also who do you think was the consistent leader in the biggest land ACQUISITION programme in Council’s history – that has turned the Outer Green Belt from a concept with a few hills owned by Council to a continuous Green Belt from the South Coast to Johnsonville as well as several additions north of Johnsonville. I will at some stage write a very long article with chapter and verse about in excess of 30 acquisitions where I had a or the lead role. Some of those took many years to achieve. Who has recommended repeatedly that Council again provide funding to complete the task particularly in the areas identified in Our Capital Spaces Policy ?

Regards

Andy

andy foster
24 - 04 - 14

Hi Maximum – thought my reply to Peter was too long to bury any response to you question about Takapu Valley at the bottom of it.

Very simply Council has not done any deal with NZTA on this.
We have said that the road we contemplated and have shown on our structure plans for the Lincolnshire Farm area goes from Petone to Grenada. It does not go north of that. We said that the concept of adding further capacity to the north was a surprise to us, that we would need to be convinced, and that we would like to understand the traffic projections and the assumptions behind them that give rise to NZTA’s thought that additional capacity might be desirable. When we have that information, and have tested it, we will be in a better position to respond to that surprise. I have said to NZTA that we need to do that sooner rather than later, because it is not fair on the potentially affected communities to have any kind of threat hanging over them.

One of the great ironies in the concerns of both GWRC and Peter Dunne on this, given both have strongly supported Transmission Gully and the Kapiti Expressway, which have also dislocated large numbers of people and will go through a rural valley and indeed two regional parks in the case of TGM. It is the additional traffic expected to be generated by those roads that NZTA appear to be anticipating will put pressure on SH1 between the southern terminus of TGM and the northern end of P2G. We know that even NZTA’s projections are that 25% of current train patrons from up the coast will get into their cars with TGM built.

The big concern for Wellington City is that shown in the Opus / Arup report to Greater Wellington, that shows very little future congestion on the Kapiti Coast, but dramatically worse congestion in Wellington City as a result of those vehicles entering the city. That’s a whole conversation in itself and the answers lie in good urban form (have a look at 2013 census data for mode share in Wellington vs the rest of the region vs the rest of the country !), improved passenger transport (I think GW’s Regional PT Plan is really well thought out and should lift PT patronage significantly if delivered well), walkability and cyclability, and use of economic instruments to encourage people who don’t have to travel at peak times – one person per car – to consider an alternative.

Back again to Petone to Grenada. While Council has not had a formal discussion about it yet, I would personally hope and expect that the Council will want ideally to avoid, and where unavoidable, minimise the impacts on landscape and on the potentially affected communities of Horokiwi, Grenada, Takapu and Tawa.

I hope that is clear.

Regards

Andy

Maximus
24 - 04 - 14

Thank you Councilor Foster, that certainly clarifies matters to me.

Peter
24 - 04 - 14

So – no answers from Cr. Foster regarding Chews Lane and why the council acquired CBD land then sold it – apart from a diversion that seems to run along the lines of a dollar today being worth nothing tomorrow and that the privatisation of a public asset is no different to the Councillor selling his own house, seemingly to pay for the groceries. No justification was provided for any waterfront sales being desirable to justify the Councillors subsequent discourse.

Urban myths are indicated by too many (how many? One two three or 100?) fronting at Committees. One could suggest that if there is a degree of misunderstanding, there is a sound explanation and it has nothing to do with ‘urban myth’. Actually, it is perhaps a pity the Council didn’t pay for the buildings – the immediate massive capital gains from selling apartments in Chews Land and the OPT would have served the ratepayers instead of Willis Bond ACC et al very well. By the way, is it also an urban myth that Centreport is far more astute with its property deals than WCC/WWL?

The reference to rotting piles refers to publicity that may have escaped the Councillor’s notice. It was in reference to an occasion when WWL were less than up-front about pile replacement cost information.

Changing legislation to allow some of the Town Belt to be sold, even under the PWA, has to be regarded with the utmost trepidation because of the precedent it sets. Fortunately a majority of Councillors exercised pragmatism rather than trying to play smart legal games that were bound to come unstuck. Given where Cr Foster’s rant led, one would have thought he considered bargaining chips would be preferable to trying to game the Government.

It is encouraging to know that Councillor Foster has achieved so much in terms of acquiring Outer Town Belt land. Yes – this is the sort of thing that ratepayers expect of their elected representatives.

andy foster
25 - 04 - 14

Peter – this conversation is getting frustratingly repetitive so let’s leave it with this:
Chews lane – several titles, some probably historical accident, some housed various Council services in pretty average facilities. Overall aim once amalgamating a number of sites was to achieve exactly what has been achieved, ie a high quality, comprehensive mixed use development – to describe it as a ‘bit of a tarted up thoroughfare and a bit of chump change’ as you have is frankly completely ridiculous.

Yes Council could do the developments itself and could make more money – or could get it all horribly wrong and lose an absolute fortune. There have been a lot of examples of that in both public and of course private sector – and many people would suggest that Councils should be really cautious with getting into the development game. I think there is a place for working with the private sector to facilitate development – essentially exactly what has happened on the Waterfront and at Chews Lane, but Councils should be really cautious and stick to their knitting.
You might want to reflect on the fact that AMP Office Trust lost something reported as between $15 and $27 million on Chews Lane having obviously paid to much for it – got their timing wrong as we moved into the GEC.

I can’t recall how many people have said Council pays for the buildings (to be owned by the private sector)but it is certainly a theme repeated by quite a few. Recall where this whole conversation started was that many people do not get, or do not want to get, that these developments financially benefit the ratepayer – not the reverse. It really should be pretty simple and pretty obvious.

Town Belt – thank you for your comment on the Outer Green Belt and land acquisition. You are however quite wrong about ‘changing legislation to allow some of the Town Belt to be sold even under the PWA.’ Again there are many posts on other sites where people think the TB legislation will safeguard the TB against land being taken by Government under the PWA. It simply will not do that. The PWA overrides the proposed Bill. So here simply is how it works:
Minister of Lands says on behalf of a Government agency that they want to take area of land X, usually likely after a consent or designation has been obtained. The Council can refuse to negotiate (where the majority of councillors ended up voting) and the Minister then takes the land and then asks about compensation. Council again refuses to negotiate, and the compensation is then set under the PWA by a judge and two valuers. Council can object to the level of compensation (bit hard given it wouldn’t have negotiated) and could object to the Environment Court (the Patricia Grace situation) that the land wasn’t necessary for the public work in question. I’d expect that would be done during the consent process. So end result is the land is TAKEN, and compensation is set according to a formula. Given the TB is zoned Open Space the value will not be great. The alternative approach we suggested was that one the land IS going to be taken, or possibly even after it already HAS been TAKEN, that we try to negotiate the best possible deal and we specified it had to be return of land. I am picking you will see exactly this scenario playing out probably in 2016.

Time I think now to move on.

Maximus
25 - 04 - 14

Peter – you evidently seem to have some strong feelings about Clr Foster’s performance, and as it is interesting to watch, I’m not going to try and stop you or get in your way – but I would say one thing: I’m very glad to see that Council has not tried to play the developer, and build / develop / sell apartments. No good would come of that. Councils are, to me, there to look after roads, fresh water, sewerage etc, as well as provide amenities like libraries and art galleries etc, but they are not there to build apartments or to run shops. Let’s face it, on most occasions when councils try to do things like that, they tend to end up as a total mess. I don’t know what it is – too many cooks, too many committees, not enough good clear ideas to start with – for whatever reason, in general the market does what it does, and the council does what it does, and never the two shall meet.

I’m sure that as soon as I say this, someone else is going to come along and refute that, and point out some blindingly obvious wonderful thing that Council has done, and of course there are mad, bad, dangerous things that the private sector has done, but I stand by my argument.

In the mean time, have an enjoyable ANZAC day tomorrow.

JC
25 - 04 - 14

Game, set, match Andy.

Peter
25 - 04 - 14

Maximus – in summary, pretty ambivalent about Cr. Foster’s performance apart from his views being an indicator of what value Councillors may place on publicly owned waterfront land. Financially, Site 10 is possibly worth $5m to $6m (a generous assumption based on the current Meridian Building LV of $3.2m), with an annual rates return of possibly $600,000. It is understood the current income from the site exceeds potential rates returns, so a holding position would only equate to the cost of interest on the sale price and would then leave the land available for more imaginative public use options in the future. On the other hand, a lease/sale deal may clear a third or at best, a half of the non-interest bearing ratepayers loan to WWL. This may or may not be considered of significant public value depending on one’s perceptions of public/private good. Since Zealandia is also in debt to the ratepayers, how much of that would be considered worth selling to clear debt and to pay for further development. Then, for the sake of consistency, should we also expect parts of other amenities such as Wilton-Otari, Botanic Gardens, playing fields and ASB Sports Centre to be effectively privatised to save them too? Initially seems bizarre but precedents lead to strange outcomes.

Pauline
26 - 04 - 14

Reluctant to get into this debate but for those interested refer them to the Council Controlled Organisation Performance sub committee meeting Wednesday 5 June 2013 Report 2 Page 18 (g, Page 26 5.7 Wellington Waterfront Ltd. Report 3 – page 41-42……Even without an accountant’s brain the various financial figures are interesting and not just for WWLtd but all the other CCO”s.