A dollar a year – Willis Bond’s deals with the council

Wellington.Scoop
A dollar a year to lease prime land owned by the Wellington City Council – that’s the deal that’s been given to the company which is building 75 luxury apartments on the site of the the Overseas Passenger Terminal. And it’s not the first time that the city has done such a deal with this company.

In this morning’s DomPost, Peter Love of the Port Nicholson Block Settlement Trust said the dollar-a-year OPT deal with Willis Bond (for 125 years) was a joke. He questioned whether it could give the best financial return for ratepayers.

Ratepayers may have had similar concerns last November, when a similar deal between the city and Willis Bond was revealed. It came to light when property buyers were offered the chance to buy two of the Victoria Street buildings that had been restored as part of Willis Bond’s Chews Lane redevelopment. In this case, the dollar-a-year lease for prime city-owned land was for 250 years – twice as long as for the Overseas Passenger Terminal.

Real estate agent Paul Hastings told the DomPost the concession had been needed to make the Chews Lane development viable for Willis Bond. But the council’s generosity turned out to be not only of benefit to the developer. It was also great for the new owners, who acquired a net income of more than $900,000 a year. They could have used their petty cash to pay the council’s share of $250.

Still, 250 years isn’t as long a time frame as the lease which the city council gave in the 1990s to the developers who built the Queens Wharf Retail Centre (the huge waterfront building where no one wanted to go shopping and which was converted into private offices.) The council signed a lease of 999 years for this public land. There was an outcry when the deal was discovered. There doesn’t seem to have been a similar response to the news of the dollar-a-year lease for the Chews Lane land. Perhaps the discovery of a similar deal for the same developer at the Overseas Passenger Terminal will attract more attention?

The city council was less than frank when it summarised its Overseas Passenger Terminal agreement in 2009. It referred to a “$32 million deal” without mentioning the peppercorn lease. Its announcement implied that the city would be receiving lots of revenue:

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.

How much of this is cash? Reports indicate that no money has been received so far, though the old terminal has been demolished and work is starting on building the luxury apartments.

Willis Bond has also been the council’s preferred developer for three other waterfront projects – the Odlins Building (now the NZX Centre), the Free Ambulance Building and Shed 22. These deals have been hidden behind the excuse of “commercial confidentiality.”

It seems, however, that the council doesn’t always agree to peppercorn rentals. Two years ago, the New Zealand Portrait Gallery was negotiating its lease of the century-old Shed 11 on the waterfront. The longest lease it could get was 25 years. And a peppercorn rental? Well, no. It had to pay a one-off sum of $1.45 million. Obviously the council believes that cultural organisations have deeper pockets than property developers.

 

34 comments:

  1. peter brooks, 9. May 2012, 11:04

    The Civic Trust recently asked Ian Pike, the CEO of Wellington Waterfront Ltd, why proceeds from the OPT site lease appeared not to have appeared in the company’s quarterly financial reports to the council. Partly as a consequence the council’s loan to the company was still growing. The response was that this was covered by standard confidentiality clauses, but that commercial proceeds were not expected to all be received at the front end of the project. If Peter Love has his facts right, the company is of course correct. The council would not get all the $125 up front, but at a one dollar a year rate. However, I suspect that the the Trust was expecting a rather higher rate for the privatisation of that prime piece of public land.
    It seems that the council’s definition of social housing now includes multi-million dollar apartments with fine harbour views.

     
  2. Michael Gibson, 9. May 2012, 11:46

    It seems quite extraordinary that Wellington Waterfront chief executive Ian Pike says in the DomPost that “property development is a risky business for a local authority,” then washes his hands of this by entering into a behind-closed-doors deal and selling ratepayers’ property at such a pittance.
    The “risky business” is constantly allowing this sort of thing to happen, then the Council escaping its responsibility.
    A company which is fully owned by ratepayers should be required to put such deals before all elected members for their approval.
    Why are Councillors not making this a basic requirement?

     
  3. Jamie, 9. May 2012, 12:53

    This $1 a year lease, and the other unbelievable gifts referred to above, offered by OUR WCC to business interests, are beyond my comprehension. I am on National Super but I still have to find $600 for rates for just one instalment.

    With the WCC producing all sorts of reasons why our rates have to keep increasing way beyond the CPI and any (if any) income increases, I would have assumed they would want businesses to make at least a similar, or larger, proportional contribution towards running our city than do pensioners like myself and others. Apparently not! I am disgusted that yet again the council are working against us and enhancing the profits of their apparent business ‘mates’.

     
  4. Trish, 9. May 2012, 13:32

    I don’t know why Peter Love thinks that the Treaty settlement trust should have had a chance to lease the OPT wharf development site. The whole country seemed to be up in arms at the possibility of Maori getting ownership of any part of the seabed. After the National government inserted a clause in the Foreshore & Seabed Bill to protect the freehold title held by the Wellington City Council, it would have been unthinkable for the council to on-lease it to the Tangata Whenua.

     
  5. CC, 9. May 2012, 13:47

    The word on the street is asking: how does one company get so many ‘favours’ from the Council?

     
  6. andy foster, 9. May 2012, 14:51

    This project has been well covered over the years. It’s been through a competitive tender process ($$ and design both important). Wgtn Waterfront Ltd’s (WWL) 2006 website entry on the subject said:

    “A Design Brief was presented to and approved by the City Council’s Waterfront Development Sub-committee in May 2004 and WWL was given the go-ahead to seek development proposals. A great deal of interest in the development opportunity was shown from developers and investors within New Zealand and overseas. Following a rigorous evaluation process, involving WWL and the Council’s Technical Advisory Group, the Willis Bond proposal designed by Athfield Architects Ltd was selected. It was considered to have best met the Design Brief and also offered a return that WWL could reinvest in waterfront public space.”

    It means WWL don’t have to ask Council for millions of $$ to replace corroding wharf piles. It delivers a high quality development design while maintaining public access around the wharf, and developing the adjacent public space to make it more attractive for us all to use. Without a development like this, we’d have had to close the wharf off to public access within a few years because of the state of the piles.

    The $1 per year is a red herring. The value of the site is essentially paid for up front – it’s roughly the equivalent of receiving $2 million a year for that whole 125 years. That’s money the ratepayer saves through a deal like this.

    And yes Councillors were fully briefed on all the proposals, and we’ve had the item on the agenda on at least a couple of occasions. The process was competitive, and both design and price were in the mix. Willis Bond are a very credible Wellington based development company (and not all developers have a good track record by any stretch) who’ve done Shed 22, Odlins, and Chews Lane among others, and are now doing Market Lane (the old Rialto building on Cable St)

    So no corruption, no favouritism, etc. I hope that helps set minds at rest. Happy to try to clarify any other reasonable questions.

    Regards
    Andy Foster
    Councillor

     
  7. Jack Ruben, 9. May 2012, 15:08

    Congratulations for drawing public attention to the OPT/WWL/Willis Bond deals, sanctioned ultimately by Ian Pike and the WWL Board, Garry Poole, the Mayor and all councillors. If any of the above have any concerns about the deals, let them say so publicly.
    There was much unease at the time about the Chews Lane development. The public require reassuring that the ratepayers have obtained the best deals possible, a viewpoint given further urgency following the remarks of Peter Love of The Port Nicholson Port Settlement Trust about the OPT deal being “a joke” – Willis Bond must be laughing.
    “In politics, perception is truth”. Here we have one of the most highly paid Council CEOs remaining silent on the actions of Wellington Waterfront Ltd, so obviously he approves. The mayor and councillors obviously approved these actions also. The time has come for an urgent public enquiry into the Chews Lane, OPT and Variation 11 decisions.

     
  8. traveller, 9. May 2012, 16:01

    Andy:
    tell us how the council is receiving the equivalent of $2m a year for 125 years from the OPT development.
    Also: what is the actual cash return, and will it really be invested in waterfront public space, or used to repay some of the council’s lending to WWL?

     
  9. Clive Lewis, 9. May 2012, 16:27

    Ratepayers need to know that there is a carpark for 80 cars being built under the OPT wharf. These carparks belong to the developer and will be sold to the new apartment owners. If the carpark is part of the wharf strenthening then it may be included in the $16 million for strengthening the wharf. This would be a great deal for the developer. If the carparks were rented at $90.00 per week then the value for 80 carparks per year would be $374,400 per annum. Pretty good return for $1.00 a year lease.

     
  10. Pauline Swann, 9. May 2012, 16:44

    In the Draft Annual Plan, “Draft 3 Year Waterfront Development Plan” states on Page 337 that work on the Overseas Passenger Terminal for 2014/15 includes $2.5 million of new work on wharf and seawall upgrades. Does that mean over the next 125 years Wellington ratepayers will be funding all maintenance costs for the underground car park etc?

     
  11. Trish, 9. May 2012, 19:49

    If the OPT needed expensive maintenance, the council had the option of demolishing it and returning the harbour space to the public. If that seems a radical suggestion, how come the idea of building new wharf structures for million dollar apartments is so unthinkable. Why do so many waterfront defenders want no new buildings but insist on the retention of all the existing ones?

    And another question: as the city’s boundary is the high water mark, are these apartments going to be paying rates to the city council, or only to the regional council that controls the harbour area?

     
  12. Peter Brooks, 9. May 2012, 21:26

    I doubt if there is a scandal here – it is just the way that WWL and the council go about the waterfront development that makes it seem so. They are willing enough to talk about design issues, but when it comes to finance they all put up the ‘commercially confidential’ sign and refuse to tell us how much we got for selling rights to occupy the city’s property.

    We know that repiling was to be a cost to be borne by the developer – why not, they will be his buildings’ foundations. But what is the nature of these other costs to be borne by Willis Bond? Will the developer be paying for developing the public open space in the vicinity? Surely the revenue from such a site would fund more than that?

    Some of us have defended the council’s programme for new buildings on the basis that the company must have funds for developing public open space and the only way is either to ask the ratepayer or sell off leases. Despite the fact that the OPT site has been alienated, we appear so far to have nothing to show for it. The council’s loan to the company grows not shrinks. If the council stopped hiding behind the cloak of commercial sensitivity and told us exactly how much we were getting for the site, what form it would take and when it would be paid it might put an end to any thoughts of corruption and favouritism. So Andy my reasonable question to you is: why does not the council share with us the information which makes it feel very comfortable about the OPT deal? And perhaps next time these things are discussed in your committee let the public stay and learn a little about the financing of this supposedly transparent project. Then maybe we will all feel more comfortable and less inclined to fear the worst.

     
  13. andy foster, 9. May 2012, 23:12

    Traveller – how is it equivalent of $2 million a year? Win Lotto and invest $32 million at 6% a year (that’s Council’s average borrowing rate) = $1.92 million a year. Put the other way round – borrow say $300,000 for your mortgage over 30 years at say 6%, and you’ll pay $645,000 – that’s the effect of interest (and why living off the credit card is expensive!)

    Clive – don’t know the details but $374,000 a year on your carparks needs to be put in the context of the $1.92 million above, and probably more appropriately into the context of the $100-150 million the developer is investing in the project.

    Pauline – don’t know – will find out

    Trish – fair question about why the status quo has such a head start in waterfront debates. A key issue here, other than that the OPT is an important part of the harbourscape, is that it is also the anchor for Chaffers marina, and Council has as I understand it a legal obligation to provide that. Will confirm the rates but expect that they will pay rates like any other property – to both WCC and GWRC.

    Peter – good questions as always. Yes the wharf is the developer’s foundations. It’s also the foundation for public space (continued ability to walk round the OPT/fish etc) and the attachment for the Chaffers Marina which Council has an obligation to provide, so there’s a public benefit there in keeping the wharf. I’d also suggest that they’d be expensive foundations compared to most and a key issue here is that Council (you and I) don’t have to stump for that cost.

    Yes there is an upgrade of public space component.

    Also yes the money does go to reducing WWL’s debt to Council (ie reduces ratepayer borrowing). Essentially debt is reduced by building developments and increased by public space development and wharf maintenance. The income and expenditure components of WWLs budget are set out in its draft Statement of Intent – last discussed at the Council Controlled Organisation Performance Subcommittee (CCOPS) on 23 March. SOIs will eventually come to Strategy and Policy Committee in June and then referred to Council. At SPC last week councillors including myself wanted several CCOs to come in and talk to us about their proposed SOIs, including the Waterfront company.

    Again I hope that helps
    Warmest regards
    Andy

     
  14. Jack Ruben, 10. May 2012, 8:30

    Andy, as the only councillor willing to tackle public unease on the waterfront. Thank you!
    Why is WWLtd not immediately closed down and thousands saved? Let’s have the updated figures.
    What is the total cost to the ratepayers, including legal fees, officers’ time etc, of the recent unsuccessful Environment Court case?
    On what basis did the Board and Management of WWL decide on this obviously flawed action?
    You are aware of ongoing public unease over the Chews Lane/ Victoria Street development, and the fact that the Council Property Committee that negotiated this deal was dissolved immediately afterwards. Now we have the same public unease with the OPT, and the same players. Would you support an enquiry into the financial consequences to the ratepayers of both these schemes?

     
  15. Lindsay, 10. May 2012, 10:13

    Andy: I know that in 2009 the council said the OPT agreement was a $32m deal, but the same statement also says the council will receive only $16m – and not all of this is cash, because an unspecified amount will be “benefits and improvements.” So the Lotto comparison doesnt seem to work for me …

     
  16. Peter Brooks, 10. May 2012, 11:34

    It would help my understanding of this complicated public development project if I knew precisely how much Willis Bond was paying, for what and when we would get it. Andy it seems is precluded from telling us that. A large component, maybe $16m, is wharf repiling and I agree with Andy that there is a legitimate public good component in that. In addition there is a similar sum which is less well defined. The implication is that some of it will be used to improve the public space around the OPT. It would be in the developer’s interest for as much of that sum to be used for that purpose, because it would improve the presentation and value of his property. But the public interest is broader than that. The OPT site is one of the most valuable sites on the waterfront and one would hope that its development could help fund public space development elsewhere on the waterfront (or pay off commitments already made). Could we not be told please if our interests are being protected in that respect and if so in what way and with what likely outcome?

     
  17. traveller, 10. May 2012, 11:57

    On the WCC website from 2007, Ian Pike said:
    “The Willis Bond proposal accepts full responsibility for the necessary repair of the wharf and in so doing relieves Council of the cost.”
    So why does the council’s draft plan include $2.5m for OPT wharf repairs?

     
  18. Geoffrey Robert Burns, 10. May 2012, 17:05

    If this monstrosity gets built and fat cats live there, I’ll be looking forward to a big earthquake and tsunami.

     
  19. Chris Horne, 10. May 2012, 20:36

    The proposal for a flock of flash flats on the former OPT wharf, with parking for 80 cars underneath it, close to storm-surge level, and below tsunami level, is reminiscent of the pre-1987 Stock Market Crash flurry of gargantuan and ill-considered projects. Remember the outlandish proposal by Chase Corporation for its “Wakefield Centre”, planned to occupy the entire Tory St / Courtenay Place / Taranaki St / Wakefield St block? All that was ever built was a parking building in Tory St. Remember the proposal for a monster tower block, faced with Brazilian marble, on the east side of lower Willis St? Remember the proposal for an absolutely, positively ghastly “Lambton Tower” for Queens Wharf?

    It appears that, as the world’s financial markets become increasingly jittery, some developers and their clients have forgotten the lessons learned from the 1987 Stock Market Crash. They are spending as fast as they can, without a thought for the adverse impacts on our city and our harbour. The 1987-era appears set to be repeated, with many fingers getting badly burned.

     
  20. Jamie, 11. May 2012, 0:24

    Andy: in response to many of us expressing concerns about the insulting annual $1 lease that is the subject for our current criticism, concerns and questions, you galivant off on to talking about “competitive tender processes”, “design briefs”, “development proposals”, “developing public space”, “rigorous evaluation process”, etc. This has nothing to do with the concerns we were raising. Different issues altogether. Andy, you are trying to ‘sidetrack’ us.

    Now re your maths, you have claimed that the benefit to ratepayers is $250,000,000 over 125 years at $2,000,000 per year. How come? Please explain accurately. As you have claimed that “the value of the site is essentially paid for up front”, this can be the time that you advise us what was paid by Willis Bond for this site, such money going towards reducing our already far-too-high rates.
    Frankly, after spending 30 years in the Secondary School mathematics classroom, I find the examples amongst the comments of other writers, far more easy to follow than your own. [Abridged].

     
  21. Jack Ruben, 11. May 2012, 9:42

    Andy,
    Why have you gone silent after your previous comments? Are you unwilling to address the direct questions? You have so far dealt only with generalities, more or less – but answers to the important questions are required. [Abridged]

     
  22. Lindsay, 11. May 2012, 10:13

    Andy deserves credit for being willing to respond and for participating in this discussion with so much information. Any criticism should be aimed at everyone else at the council. Andy’s fellow councillors have so far chosen to stay silent. But silence is not what we should be expecting from our elected representatives.

     
  23. andy foster, 11. May 2012, 15:47

    Jack – Why silent ? Simple answer yesterday was meetings from 9.15 am till 9.00 pm, today just got back from meetings, and obviously there are emails and some reading to catch up on too. I’d love 36 hours in a day !

    Jamie – I will cover those issues later. There are a number of questions that various people have asked that I will have to get some detailed information to respond to. If I can’t get it this afternoon then hopefully Monday. Just to say on one question that the maths is very simple. If you borrow $32 million for a year at 6% the interest cost will be $1.92 million. As you put it, if you borrowed that same sum for 125 years it would be $1.92m x 125 = $240 million. However as we all understand a dollar in 125 years is going to be worth some tiny fraction of what a dollar is worth now. For example if you used a discount rate of 6% then that $32 million today would be worth the same as $57 million in 10 years time.

    Lindsay – thank you.

    Warmest regards

    Andy

     
  24. Jack Ruben, 11. May 2012, 16:23

    Thank you for this response Andy. Hopefully you will have time to address some of the outstanding questions. This issue has wide public interest. [Abridged].

     
  25. Peter, 11. May 2012, 19:00

    Andy, the discussion should be around a figure of $16 000 000 as the other half is a gift to the developer to upgrade the piles so they can support a structure of far greater mass than was there. It will also be interesting to hear where the $16 000 000 ‘contribution’ will go since there are rumours that a big chunk is to enhance the Clyde Quay wharf area, a further benefit to the developer. So, the start point of the ‘spin’ calculation falls over at the first hurdle. The picture could be a bit rosier though – retry the calculation using compound interest. Pity we won’t be around in 125 years time. The voodoo economics to justify the privatisation of a public asset (the OPT) will provide a veritable windfall for the ratepayers. Yeah Right – in WWL’s dream world.

     
  26. andy foster, 14. May 2012, 15:03

    Hi all – reply as promised today !

    I think the key issue is the $32 million.
    Half ($16 million) is the cost of wharf strengthening paid by the developer.
    The other half is cash and a small amount (stress small) for public space in the building itself.
    The wharf strengthening/repiling is $18 million so that’s Pauline’s $2 million in the Waterfront Development Plan (16+2), with the other $500,000 for the seawall between the OPT and Te Papa (ie not part of the OPT but I understand Willis Bond are contributing as well).

    Peter is right that the wharf strengthening would be less ($10-12 million) if there were no weight (building) on top of it. However the only reason to do that would be if the only outcome you wanted was an anchor for the Chaffers Marina, and I still really doubt that a $10-12 million investment on a new wharf for that purpose would have got a lot of public support from Wellington ratepayers. That is I think you would always strengthen to allow for a building.

    Key thing to finish with is what the deal delivers:
    - Avoids the cost of wharf strengthening falling on ratepayers
    - Gives (in my view) a good urban design outcome and more activity in the area
    - Retains public access to the wharf and to a small part of the new building, as well as restoring retail activity related to the harbour.
    - Provides almost $16 million in cash to WWL/WCC (ratepayers)

    I hope that answers the questions. Some people may not agree with the outcome, which is a different matter ! The question for people in that situation is obviously ‘what would you have wanted ?’

    Regards

    Andy Foster
    Councillor

     
  27. Peter, 14. May 2012, 18:02

    Cr Foster concludes: “The question for people in that situation is obviously ‘what would you have wanted ?’”

    How about a standard renewable commercial lease deal? That way, future generations of Wellington ratepayers would receive some benefit from the privatisation of a city asset.

     
  28. Helene Ritchie, 15. May 2012, 9:02

    Councillor Foster voted for this deal according to the public record of Council of 27 June 2007.

    I voted against it.

    The ratepayers were and will be for 125 years, ripped off very significantly by this decision of Council, and not only in this lease arrangement.

    I voted against the deal and went further and appealed (at personal risk of costs being awarded against me) in a thirty plus page submission to the Environment Court as well.

    If time permits I will elaborate on the issues, one of which appears to be still outstanding. Of course it is outrageous and a scandal. but it is past.

    Kind regards
    Helene Ritchie
    Wellington City Councillor

     
  29. Pauline Swann, 15. May 2012, 16:51

    Thank you Andy. Have now made my own search through documents relating to the costs of strengthening and repairing the existing OPT wharf. These figures are quoted from an email sent to you on 17th June 2008.

    Seismic Upgrade and repairs to concrete wharf $4m – $6m
    Seismic Upgrade and repairs to timber wharf $1.5m – $2.5m
    Maintenance to Terminal building $0.4m

    Seismic Upgrade to Terminal Building $0.3m

    These figures were also quoted in the June 2009 Decision in the Environment Court (page 7) where it is stated that the developer would be responsible for the repair and strengthening work required to restore the wharf structure to a usable state in the medium term. The costs were as above estimated to be in the range of $6.8m to $9.8m. This paragraph concludes “If the wharf and the OPT are not regarded as a sufficiently valuable public resource to justify the cost of routine maintenance, then the benefit of getting the work done for nothing must be questionable.”

    One has to question the $16m now quoted. But of course 70 plus apartments (with incredible plumbing demands), 80 underground car parks, not to mention allocated parking space on the ground floor will put more demand on the foundations.

    Re alternatives: prior to the court case, there was much input with suggestions and a home for the School of Music was one; the need for improvements to the convention/conference space was high on the list. What an irony now with the loss of the Town Hall next year (for earthquake strengthening) and Positively Wellington Venues wanting $4m for “temporary” improvements to Shed 6 and the Event Centre. The OPT would have been a great venue with incredible views for visitors and close to a number of hotels and Te Papa. Instead this prime Waterfront spot is to be home to an elite few at a “peppercorn rental.”

     
  30. The City is Ours, 15. May 2012, 23:29

    Wellington City Council giving away local assets since…..

     
  31. James Shaw, 22. May 2012, 21:01

    Why shouldn’t they get it for $1/ year? They are fronting the bill to do a lot of work to keep the wharf in place AND the money to do the development itself.

    Most of the comments here just sound like greed to me. “They’re making money out of it, we want a slice of it”. Well sorry but you didn’t take any of the risk so why should you get anything. And don’t say ratepayers would have paid to maintain the piles, because history tells us they didn’t. If the developer wants to take the risk and develop it well good on them.

    Other developments from Willis Bond are fantastic. Look at the transformation of Chews Lane and the Odlins Building from derelict, unused space to what they are now. Good on them and the likes of Athfield Architects for having some vision and business sense. And they are still around after many developers went under because they provide a quality result. Surely it’s no surprise then that the council keep coming back to them? It’s not undercover deals or cloak and daggers, it’s just sensible.

    Let’s get over this misconception that public space can “just be” without development. You need development to provide usable space for the public, especially in such a hostile environment as Wellington’s waterfront.

     
  32. Peter, 23. May 2012, 8:20

    Sorry James but re-stating patently dishonest spin, the use of snide comments and the promulgation of specious arguments do not cut the mustard as justification for the alienation of public assets for private gain. The logical extension of your ‘betterment’ case is for the Council to sign up dollar leases to turn the few inner-city park spaces into high rise buildings, the alienation of the town belt for top end apartments and the covering of the south coast with wind turbines. If Athfield Architects had a hand in the planning and the Guinness family secured the contracts, do you suggest these projects would make good sense as well?

     
  33. The City is Ours, 23. May 2012, 16:05

    The OPT is a case where the developer is privatizing a public space/asset which is being rebuilt as a privately owned Apartment Block. Thereafter “the public” has no access. What some perceive as the transformation of our City with a quality result is seen by others as the sterilization of our identity and loss of heritage.

     
  34. James Shaw, 4. June 2012, 20:35

    @ Peter. Wind turbines on the south coast, what a great idea!!

     

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