An amazing opportunity exists for a developer bang in the centre of the Coffs Harbour Central Business District. Coffs Harbour City Council’s (CHCC) largesse with ratepayer’s money and assets, will see properties sold to help ‘revitalise’ the struggling precinct.
By Rob Steuermann
Two ‘highly sought after’ lots with an unverified valuation of $20 million will be subject to a ‘fire sale’.
The reason for this urgency has not been adequately explained but to ensure a quick sale the CHCC passed a motion on 11 July to discount the price by up to 10%.
There seems to be some confusion surrounding this decision. We have been told that properties of this calibre will attract the interest of many and are going to be snapped up given the prominent location. But to help matters along apparently a discount is needed!
So, a potential developer can acquire
- The Rigby House property 27-29 Duke St (lot 2 Sec DP 777398) or
- The Administration Building, 2 Castle St (lot 1 Sec DP 566885, Lot 2 Sec DP 566885, Lot 8 Sec DP 758258) or
- Buy both properties.
For the sake of convenience the proposed sale is examined here in totality – one buyer of both properties. Figures are indicative given the lack of detail available to residents but separate sales will not change the position in any significant way.
The net result so far has assets valued at $20M potentially sold for $18M. The developer/purchasor benefits by $2M.
As if this is not enough incentive a long term tenant will be thrown in for a minimum period of three years.
This tenant will be the CHCC, as representative of the Art Gallery, the Library and the Administration.
The lease arrangement provides for a possible further three year extension. Under normal conditions an owner seeks to recover 10% per annum on their investment and there is no reason to think otherwise in this scenario.
So if the buyer is to tie up their property for a six year period their return will be $10.8M (6 x $1.8M). A prudent investor is also likely to insert some type clause for an additional payment should the lease back not go the full six year term.
But, given the apparent urgency for funds to be available, and other actions current in the Chamber, a three year period seems unlikely. Residents should expect there will be the usual delays in a project of this magnitude.
In short the developer spends $18M.
They get back rents (6 years) $10.8M
It leaves them out of pocket by $7.2M.
This is a very reasonable return on investment and it ignores any capital gain arising on the improving valuation of the lot.
The published accounts for 2017-2018 year show the cultural services division ran at a loss of $2.4M and in the previous year it was $2.5M. With a potential 6 year lease residents will support this function to the tune of $14.4M (6 x $2.4M).
So the net result for residents is a potential cost of $27.2M (10.8 + 2 + 14.4).
This figure also does not include any commission the selling agent might claim. This could sting residents by a further $1m plus should current real estate practices be followed. But could the Council intend to go ahead with the sale without a real estate agent acting for them?
But rest assured the rates are not going to go up as we have the Mayor’s word on this.
Will the broader community suffer when funds are redirected away from roads, footpaths etc.? As the new Council Administration building rises, will crowds flock to the rejuvenated CBD, and will there be countless new jobs created as has been claimed?
What a prospect! What a sale. All of this is for the benefit of the residents. Potentially it will cost the residents $27.2M and this does not include the cost of the building.
From the community’s perspective it is very hard to see how the ratepayer wins out of all this. In fact ratepayers seem to be subsidising the developer/purchaser.
Roll up roll up – the magic of the CHCC is on display. Stand in awe and admire this innovative approach then wonder if your money is being spent wisely.
Sale of the Century? Or is there another way to do this?
Rob Steuermann is a retired forensic auditor for the Federal and State Governments. He has published previously on Outlook, see; https://coffscoastoutlook.com.au/coastal-works-returns-not-enough-to-cover-gms-office/
A previous story here at Outlook on this can be found here; https://coffscoastoutlook.com.au/chcc-puts-four-properties-linked-to-gordon-street-up-for-sale-tender/