MARTIN LEE is a commercial adviser in the energy sector and a Fremantle ratepayer who’s been critical of the council’s financial nous since he started poking into its Kings Square deal. In this week’s THINKING ALLOWED he says the recent private sale of the Collie Street car park throws further doubt on whether Freo ratepayers are getting the best deal from the square redevelopment.
THEY always say that the easiest way to make a “small fortune” is to start with a big one.
Last week it was reported that the 450-bay Collie Street car park sold for $38 million. Fremantle mayor Brad Pettitt insists that the sale of the council’s Queensgate car park, as part of the Kings Square project, was at a fair market price. How do these transactions compare?
In 2009 the City of Fremantle owned $59 million worth of investment properties, all generating income to supplement our rates, and built up over generations of hard work by previous councils. By the time the Kings Square development is completed, council will have dwindled this to close to $15 million, and that assumes the project comes in on a $45 million budget.
So how has our council performed in managing the sale and reinvestment of these assets? Did they sell at a good price, and did they reinvest these funds wisely? Council’s own investment policy, SG14, requires that the asset base is preserved, and that any funds from property divestments must be reinvested in assets that provide commercial rates of return.
In 2013, our Council agreed to sell the 843-bay Queensgate car park to Sirona for $16 million. This equates to $84,000 per car bay for Collie street and just $19,000 per bay for Queensgate. The Collie St car park may have a few more retail shops, but this cannot possibly get anywhere near closing this valuation gap.
Meanwhile our council proposes to build a new 400-bay car park near the Stan Reilly site in the next few years for $15 million. Sirona deserves an A+, while our Council gets the dunce hat.
Council has also agreed to sell the Queensgate Centre to Sirona for $6.35 million, but Sirona requires the Council to provide the building vacant of tenants. The loss of tenants has resulted in a loss of income to council of close to $2.5 million since the start of 2013, which also resulted in an associated drop in its property valuation. Figures recently obtained by the Fremantle Residents and Ratepayers Association indicate that in 2009 this building was on the council’s books at $16 million, reducing to $12.5 million in 2012 and is currently carried at $10 million.
Council will net less than $4 million on the sale of this property, which it carried on its books at $16 million when Dr Pettitt became mayor.
Our council stands by its independent valuer’s report relating to Kings Square project divestments, but oddly it won’t make the report public on grounds of confidentiality. What does it really say? When you have the facts above, who needs it? It is easy to understand why a prominent local developer has questioned why Freo council is selling $50 million of ratepayers’ properties for just $29 million.
The next part of the puzzle relates to how wisely our council is reinvesting these funds. Has it complied with Investment Policy SG14 guidelines, or has it squandered the proceeds? What do Fremantle ratepayers have to show for this use of these funds during Dr Pettitt’s reign? I will start by pointing out that the investment committee that is required to implement policy SG14 has not bothered to meet since April 2008.
The council’s $45 million investment to rebuild the city’s civic buildings in Kings Square will result in a loss to ratepayers of close to A$30 million. Independent valuers engaged by the Fremantle Society described the councils assumptions in its business plan as “absurd”. Former mayor Peter Tagliaferri described the project as “a disaster waiting to happen”. WA premier Colin Barnett uttered the “WA Inc” phrase. The business case does not past the “laugh test” – it simply lacks credibility.
Sirona even gets to clip a risk-free management fee for managing the build of the new council facilities. It’s little wonder that Sirona likes doing business with Freo council so much.
Meanwhile our councillors [Cr Jeff MacDonald excepted] insist that the project is financially robust, despite none of them having any financial qualifications, or even bothering to seek any independent advice. They state that the project is fully funded, yet the design is neither finalised nor fully costed, and even the business plan identifies a $7 million funding shortfall.
Ratespayers can point to new baby change facilities in Kings Square, a solar-powered parklet on Wray Avenue, some new bike lanes, Josh Byrne’s house’s sustainability makeover, and a new skate park at the Esplanade Park. Perhaps we are entitled to expect more to show for such a major splurge of our hard earned cash?
Mr Tagliaferri bailed out a previous council’s failed attempts at property development by selling off investment properties to clear the millions of dollars of debt associated with building the Queensgate Centre in the 1980s. Yet here we are repeating the same mistakes of the past.
Freo council will sell much of its remaining property investment portfolio to fund this Kings Square project, yet if there is a budget over-run this time there is next to nothing left in the investment portfolio to bail them out.
I guess it is all about perspective. Where can I buy Sirona shares?