There is now the opportunity to sign the petition on-line to demand better care for the Royal George Hotel in East Fremantle, so please do sign it and put pressure on State Government and the National Trust to stop the neglect of the building:
Interesting to see the mainstream media have finally given attention to the Fremantle Kings Square project community concerns with an article in the West Australian today about the extensive media release by CEO Graeme McKenzie. Here a quote from it:
In an unusual move, Fremantle chief executive Graeme Mackenzie yesterday released a statement on the integrity of the Kings Square business plan, including the valuations of city-owned assets.
He also expressed frustration at the Government’s failure to commit to the Housing Department’s move and revealed the council was planning for “alternative structures” in case it did not happen.
“Sirona Capital has to date invested significant time and energy working through Government processes to obtain that commitment to this project,” Mr Mackenzie said.
“If that . . . (or a viable alternative anchor tenant) can’t be obtained in the next 12 months, this project in its current structure will fall over.
“This is clearly understood by the city and we will be planning for alternative structures during this time to ensure we’re prepared should such a scenario eventuate.”
I want to make it clear that no one I know wants the Kings Square project to fail and not go ahead, so it is time for the Fremantle community to start putting public pressure on the Barnett government and tell them to support the City of Fremantle’s revitalisation efforts. It is not acceptable that the State Government is Perth and country centric but does very little for the state’s second city. Tiny country towns get more attention from the Liberal/National government than the major port city and that is not on!
We are not asking for much, just that a major State Government department will be moved to Fremantle as part of the decentralisation moves and the creation of satellite cities around Perth. Fremantle should be a priority for that, not a second thought!
One also needs to question Sirona Capital though who have been trumpeting that they had other options and were not dependent on the Department of Housing moving into the former Myer building for the development at Kings Square to go ahead. That is clearly not true and it now looks as if the whole development might have to change drastically-and maybe have a residential component?-to make it viable. This would possibly mean more delay as new planning approval would have to be thought if the buildings would change from commercial/retail to commercial/residential/retail.
Twelve months is not a long time and the Fremantle want to see progress and activation at Kings Square.
If you haven’t read the previous posts I published today on the Fremantle Kings Square sage, this one will make little sense, so please scroll down as it will all become clear.
I received the comment below from the City of Fremantle in response to calling them silly buggers and questioning why they had given the response on Kings Square by CEO Graeme Mckenzie exclusively to the Fremantle Gazette, so here is what the COF media officer send me. I think it is fair not to hide it as a comment but to give it the same prominence as my articles.
As I mentioned to you all media outlets received both the CEO statement and the Minister’s response at the same time today when they were published on our website. You’ll note the date of the Minister’s response is actually today (5 May). The Gazette were given an embargoed copy of the CEO’s response late Friday afternoon because they needed to go to print for today’s edition (Tuesday) and had shown interest in pursuing the story. This is common practice and there’s nothing ‘astounding’ about it.
Tony Simpson, Minister for Local Government, has answered questions about the Kings Square development put to him by Peter Tinley MLA, and as expected the Minister has decided to wash his hands off it all and not investigate anything as the local government act was followed, according to him.
The City of Fremantle media officer advised me the reason media outlets and bloggers did not receive the official response from CEO Graeme McKenzie was that they received a request from the Fremantle Gazette to put an embargo on it and the City was happy to give the never controversial or critical newspaper the exclusive. I find that astounding.
Here it is Minister Tony Simpson written reply to Peter Tinley’s questions:
(1) Is the Minister aware of community concerns over how the City of Fremantle has represented the financial implications of their $45 million investment of ratepayer funds in its Kings Square Business Plan, and if so, what action has the Minister taken to address these concerns?
(2) Has the Minister directed the City of Fremantle to answer legitimate ratepayer questions concerning the Kings Square Business Plan, and if not, why not?
(3) Has the Minister conducted a full and proper investigation into the questions raised with regard to the Kings Square Business Plan:
(a) if so, what were the findings; and
(b) if not, why not?
(4) Is the Minister satisfied that the Kings Square Business Plan:
(a) accurately represents the financial implications that the $45 million project will have on the City of Fremantle’s asset base; and
(b) correctly represents the rate of return and net present value derived from this investment of ratepayer funds?
(5) Is the Minister satisfied that the Kings Square Business Plan contains sufficient detail for ratepayers and Councillors to properly understand whether this project increases or decreases the asset base of the City of Fremantle, and if so, for what reason?
Answered on 5 May 2015
(1) Yes, I have received correspondence from the Fremantle Residents and Ratepayers Association on this matter.
(2) No, theLocal Government Act 1995confers limited powers and authority for me to intervene or direct a local government in the performance of functions it is legally entitled and empowered to undertake.
(a) Not applicable
(b) See answer to question 2 above
(4)(a)-(b) My Department of Local Government and Communities has not undertaken any analysis of the financial assumptions in the plan.
(5) The principal consideration for me, as Minister for Local Government, is whether the City has acted contrary to the Local Government Act 1995in its handling of the matter. The materials that have been forwarded to me do not demonstrate that the City has acted unlawfully or in a manner that is contrary to the Act.
The Minister for Lands Terry Redman MLA has approved the use of historic Fremantle Arthur Head A Class reserve at J Shed on Bathers Beach to be used for the proposed Sunset Events tavern and live music venue.
In a letter in reply to concerns raised by the Fremantle Society the Minister wrote that the land can be used for recreational enjoyment and entertainment to the public and that a Vesting Order requires the City of Fremantle to use all income derived from the management and leasing of the reserve to be solely used for the maintenance and development of the reserve.
The minister also writes that he is satisfied with the restrictions put on by the City of Fremantle in regard to the number of patrons and sale of alcoholic beverages.
Last week the media officer of the City of Fremantle berated me for having criticised the response in the Fremantle Gazette by CEO Graeme McKenzie on the Kings Square financial concerns raised by Freo residents and asked why I had not waited for the full response. It is with great surprise and dismay then that today I have to find out in the Fremantle Gazette that the CEO has put a very lengthy justification for the project on the City’s website. The CoF is always keen to email me info I can promote on my blog, so why not also send me the full response of the CEO to the questions raised? Someone is playing silly buggers at the City, but one can never attack me for not trying to be balanced and fair on this blog, so here is the CEO’s full response that I had to lift off the COF website:
Kings Square Business Plan – response to community concerns Background/context
There has recently been some public debate questioning the integrity of the City of Fremantle’s Business Plan for the Kings Square Project. The business plan was released for public consultation in 2012 and signed off by the council in February 2013. In an attempt to answer the questions raised it is necessary to understand the project.
Issue 1 – the approach The Kings Square project involves the redevelopment of Queensgate Centre and Car Park, Spicer site, and Council administration centre facilities, including the public realm around the Square. Including the Myer building, this project has an estimated value of $220 million. It will provide approximately 12,000 square metres of retail space and 30,000 square metres of commercial office space. To put that into context, the current City administration and library is about 5,000 square metres.
There were a number of factors that contributed to this project being established: • The general decline in office and retail space in Fremantle • The Myer building had recently been purchased by Sirona Capital and Myer had indicated its intention to leave Fremantle (which it ultimately did) • Hoyts had advised the City that it would not renew its lease at Queensgate because of significant financial losses from this operation (it too has vacated) • No other cinema chain was prepared to take on the Queensgate cinemas because of the cost of refurbishment and adaptation to operate digitally • The council had a position of replacing its facilities (adopted in 2004) • The state government announcement that the Department of Housing would be relocated to Fremantle • The threat of local government amalgamations that could potentially have seen Fremantle merged with Melville and the administrative offices for the new entity to be located outside of the Fremantle CBD (further weakening the economy of Fremantle) After considering other options to guarantee a good development outcome to address these issues, the City determined that the best outcome could be achieved through a fully integrated development, rather than separate the development into segments. We were very aware of the risk that an open market sale of City property may not lead to a redevelopment of some or all properties. The City was seeking an agreement that could guarantee that the total development would occur before it relinquished complete control of its property. In order to achieve that outcome the project needed to be a fully integrated development. Making each component interdependent was agreed as the best way to achieve the integrated development outcome.
The project ideas were then progressed through an MOU with Sirona, to allow exploration of how a fully integrated development could occur. Having reached some level of agreement of principles the City then commenced more detailed planning through the business plan process. There has been a suggestion that the City should have completed separate business plans for each property disposal and the redevelopment of the City’s facilities.
The above explains the City’s approach and the reasons for one business plan. Local Governments are required to prepare business plans when undertaking certain activities, a project of this size that involves the disposal of land being one of those activities.
The City’s Business Plan released for public comment in November 2012, explicitly states in the very beginning of the document at item 1.1: “The project vision is to instigate a generational re-investment of the City’s community, civic and administrative facilities and underpin economic development and the urban environment. Fundamentally this involves: a.
The City’s proactive role as a major anchor and catalyst through the staged re-investment of its library, civic, tourism and administration facilities (on its Kings Square land holding) b. Funded via the sale of strategic (non-core) sites to a third party commercial partner with the capability and experience to deliver mutually beneficial and complementary economic development anchors in a timely manner c. Reposition the Kings Square precinct as an iconic public realm centrepiece of the Fremantle CBD.” The business plan was very clear about what was being proposed.
Issue 2 – release of the business case for scrutiny In preparing the business plan for public release, the City engaged independent consultants, Leedwell Strategic, who had undertaken similar work in South Australia for both state and local governments. A business case was prepared for the City to assist in the preparation of the business plan. The business plan is what is required to be released for public comment, not the working papers which are essentially what the business case is. The business plan that was released was a comprehensive 56 page document containing much more information for public scrutiny than required by the Local Government Act for a local government business plan. The business case is not available for release to the public as it contains (still) commercially sensitive detailed information and although the content is the property of the City of Fremantle, the construction of that business case has intellectual property value for the consultant who prepared it for the City.
Issue 3 – Investment reserve funds There has been some speculation that the City is in breach of the Trustees Act by utilising investment reserve funds for this project. Firstly, the Trustees Act does not apply to local government public projects. Secondly, the City’s Investment Reserve Fund Policy is a policy created by council. It has no higher statutory authority than a guidance document created by council for council.
Issue 4 – Net Present Value (NPV) assessment and business plan assumptions The biggest area of debate relates to the City’s NPV analysis. The NPV is a resultant calculation after a number of inputs and is designed to test the value of money in a long-term transaction. The confusion about the Kings Square Project NPV is based on some assertions that: a. the discount rate is not justified b. council facilities values should not be included c. the valuation of the Queensgate building is incorrect. An NPV analysis is subject to the input assumptions – if the assumptions change the NPV changes. The following provides the assumptions used by the City in calculating the NPV. Issue 4a – Discount rate A discount rate is the rate used to discount future cash flows to the present value – and is a key variable in an NPV assessment. The rate used by the City in the business plan was 5.5%, arrived at by applying 4% (being the long term borrowing rate for local governments) PLUS a 1.5% risk margin. The discount rate aims to fundamentally reflect two variables namely: a. the risk of the timing of cash flows b. the risk in the quantum of cash flows. The consultant (Leedwell Strategic) that prepared the business case advises – “In other projects we have undertaken for state and local governments the discount rate adopted is generally in the range of 1%-1.5% margin over opportunity cost of funds (long term)”. The City elected to adopt the high end of this risk range, reflecting the conservative nature of the assessment. The local government long term borrowing rates have decreased since this business plan was prepared. Assuming all other inputs are equal, an NPV assessment done using today’s inputs would actually be more positive than it was at the time it was undertaken in 2012. Issue 4b – Inclusion of council asset values This issue has the greatest impact on the NPV calculation. The debate centres on whether the City’s buildings should be included in the NPV assessment since they are non-commercial. The reason the City’s facilities should be included is because they are on freehold land and the building has both a real and accounting value. The land value has not been included in any NPV assessment so there is no growth factor applied to the land value, however the buildings have: a real value – because the City could sell this asset (albeit highly unlikely) and decide instead to lease property for its administration, library etc. (It would then be faced with commercial leasing costs). The City’s facilities will also have retail and commercial spaces for lease, providing the City with a revenue stream through rent. an accounting value – because the value of this asset MUST be included in the City’s balance sheet. To not do so would be in breach of Australian accounting standards.
There is also some recent public debate that the value assigned to the City’s buildings on the 20 year horizon was inflated. The value of the City buildings at completion (without land value) was estimated at $44.75m. The value in 20 years was assessed at $97.23m, calculated by applying a 3.5% price indexation rate each year. The City believes this figure is conservative given that historically property prices increase at better than CPI. The business plan includes an appropriate annual maintenance charge for the facilities to ensure they are kept in good condition and therefore retain their value. Just think about your own house – it has probably increased in value by something closer to 7% per annum (cumulative) over the past 20 years, so again a 3.5% growth in value is very much at the conservative end of the estimates. Issue 4c – Queensgate building valuation There is an understandable argument that selling the Queensgate building for the valuation price of $6.35m is undervaluing this asset. If this asset was a fully functioning and performing asset I would absolutely agree. In fact it took elected members and staff a long time to come to terms with this valuation. It is true that the City could have put the building on the market in an “as is” state and possibly got a better value, however it would have been highly unlikely it would have been redeveloped, undermining our whole vision for an integrated redevelopment of the area. And whilst the rental returns at the time suggested the property value was much higher, Hoyts who had the lease for the Queensgate Cinemas were seeking to relinquish their lease. That lease provided a very significant part of the revenues for this building and the loss of that lessee significantly impacted on the rental returns, which in turn decreases the value of the property. The City had discussions with three other major cinema chains to determine whether it could attract another cinema tenant in the existing space. Unfortunately none showed any interest at all in the current space, given its age and structure, and lack of adaptability for digital projection.
The City then spent a lot of time exploring a refurbishment of the existing building to open up the opportunity for a wider range of tenants, including office tenants. However, since nearly 60% of the floor plate of this building is the cinema space – and that space does not have a flat floor (it has an angled concrete floor) any refurbishment would require demolition of a substantial part of the building. That scenario was tested rigorously by the City, but the valuation under that scenario was assessed at $6.4 million by professional valuers (CBRE). That is only $50,000 more than a total demolition valuation which the City assessed ultimately as the better option.
Issue 5 – Tier assumptions Although not specifically raised as an issue, it is important to reiterate to the community that the City’s business plan was prepared on a conservative basis with a very low risk appetite. The City is well aware that it is investing hard earned ratepayer funds into a revitalisation project and council needed to be assured that this project was a project that would not have a detrimental effect on future generations of ratepayers. In undertaking the NPV assessment, the City included all tier 1 (direct) costs and revenues associated with this project. It also included tier 2 costs and revenues (indirect but clearly identifiable, such as future rate revenues from redeveloped properties). What is not included are any tier 3 revenues resulting from a general uplift in the economy from this project. Successfully implemented, this project will deliver a significant uplift in the local economy which means additional new businesses open, values generally go up and the City rate base is significantly improved as a result. What we know from the Myer departure is that the retail sector in Fremantle has suffered a downturn in business that is averaging around 15%. This project aims to reverse and improve that situation.
Issue 6 – Timing delays This is an area that is frustrating for all of us. That frustration emanates from a lack of state government commitment to its announcement in 2011 that the Department of Housing would be relocated to Fremantle, occupying around 20,000 square metres of office space and bringing over 1,000 workers. Sirona Capital has to date invested significant time and energy working through government processes to obtain that commitment to this project. If that (or a viable alternative anchor) can’t be obtained in the next 12 months, this project in its current structure will “fall over”. This is clearly understood by the City and we will be planning for alternative structures during this time to ensure we’re prepared should such a scenario eventuate. In the meantime the delays, whilst frustrating, do not mean the business plan has unravelled. The business plan has risk and escalation (CPI) factored into the plan and as noted above, the fact that the borrowing rate has decreased since the plan was prepared actually supports an improved financial outcome. It is true that the City has lost some lease revenue from the vacated tenancies in Queensgate as a result of the delays, but this has been in a large part offset by non-refundable deposits from Sirona totalling $400,000.
Issue 7 – Debt funding There has been some speculation about how the City will fund its portion of the development and what the implications of this will be on ratepayers. The business plan indicates the City will need to borrow about $15 million to fund its portion of the completed project. It is anticipated that the revenues from the project (eg retail and surplus office space income) will service a significant part of this debt. Although the 10 year financial plan, which takes into account the Kings Square Project’s financial implications, doesn’t show any above average increase in rates over the cycle, future councils may decide to increase rates by a small amount to accelerate repayment or it could apply funds from the sale of other assets to reduce or retire the debt. As has already been mentioned there will also be an organic uplift in rates that will occur as properties in Fremantle (including those as part of the Kings Square Project) are developed and improved in the Fremantle CBD which will help to further reduce this gap. As the business plan notes, the impact on the City’s overall financial position is relatively minor. Summary The City approached the business plan with the utmost conservatism, but never shied away from the fact that it was disposing of three properties and using the proceeds to redevelop its own facilities. This is to be a catalytic project that will provide Fremantle with a much needed economic boost through increased retail and commercial activity. Most importantly, it is an integrated project, deliberately structured this way to guarantee all properties are developed as envisaged for the maximum benefit of the community. It would be a very poor outcome to separate these disposals on purely commercial grounds, accept the price from the highest bidder, and not see any development. This project is not unlike the City’s Point Street project that will see the Hilton Hotel chain on the former City site in Adelaide Street with other retail and residential uses. That project has taken eight years to get to its current stage of development. We are keen to get this one going much quicker because Fremantle really can’t afford to stagnate any longer.
Graeme Mackenzie Chief Executive Officer City of Fremantle
The ALDI mega market development proposal for Hilton is very disappointing, but because it will most likely be approved by the State’s Development Assessment Panel(DAP) the City of Fremantle can do little about it but stating they don’t approve of it.
The location is the shopping centre at South Street opposite IGA where there is a newsagent/postoffice, butcher, fresh market, etc. ALDI proposes to make it into a giant supermarket at ground level only that turns its back to South Street and will create a large blank wall along the busy street, while the area along South Street is earmarked by Fremantle council for residential development and higher density, so the development should have a 3-4 storey residential development on top.
Mayor Brad Pettitt rightly argues that there also could be a wrap around of small retailers to make the street level appearance more attractive, especially along South Street. A newsagent with postoffice, hairdresser, a deli, etc. would do well in that location I believe.
ALDI will no doubt mean huge competition for the very popular IGA at Paget Street and smaller retailers in the vicinity, but that is hard to stop. What should be stopped though is an inappropriate and ugly street level only development that is not going to enhance the amenity of place in Hilton at all. The proposal is old-fashioned and unimaginative and a giant like ALDI can do and can afford to do better.
It is very disappointing that the W.A. State Government has yet again let down the Fremantle community, with the Department of Sport and Recreation not supporting the grant application that would have seen a new club house built at Parry Street for the Fremantle Workers, Tennis and Bowling clubs. The proposal also included an essential car park on the site to cater for users of the tennis and bowling facilities, club bar and restaurant, and that would also have catered for visitors to the Basilica, Clancy’s, Christian Brothers School, St Patrick’s Community group, etc.
The idea was that the COF would invest $ 1.3 million, the three clubs a similar amount, and that the State would cover the other $ 1.3 needed to make the development viable.
The proposal is now some $ 1.3 million short and it has to be seen if the City of Fremantle believes that income from the proposed carpark would be able to cover the shortfall.
It looks like State Government spent most of the available grant money on country sporting clubs but did not see the benefit a clubhouse sharing of the three Freo clubs would bring.
The Fremantle ROAD2RAIL forum attracted a large number of people and the City’s meeting room was overflowing with standing room only for those who came in late.
Senator Scott Ludlum, opposition transport spokesman Ken Travers, Lynn MacLaren MP, and Member for Fremantle Simone McGurk were present as were Councillors Rachel Pemberton, Andrew Sullivan and Jon Strachan.
It appears to me that it basically comes down to how one stops madness, as the combined forces of the Federal and State Liberal governments do not want to invest in rail but instead want to build a truck toll road to get goods to Fremantle Port. What the proponents don’t want to talk about is that a bottleneck would be created at North Fremantle that would greatly affect local residents there and all who use Tydeman Road and Stirling Highway, Queen Victoria and Beach streets in that area.
Rail appears to be the better solution, but those who propose that also say port capacity will be reached in the late 2020s, so one has to wonder if any of those billion dollars worth of investment proposals make sense for what would only be a short-term solution.
Serious increase of container transport by rail can only happen if double stacking can be implemented but the present old line through Fremanle’s west end can’t support that and neither can the old rickety rail bridge. And the Public Transport Authority does not like to mix passenger and commercial train traffic on the same line.
The toll road and huge six metre-high noise walls would split communities, and history in other cities and states and countries show that adding new roads does not stop traffic congestion.
A second overflow container port near Kwinana has been talked about and planned but I hear there are concerns that Cockburn Sound is not deep enough for large vessels and would require constant and very expensive dredging.
The forum called for grassroots action with strong local governments support, but I think the only hope to stop the Roe 8 extension toll road is that the WA State Government won’t have the money for it, so maybe praying that the iron ore price will stay down might be the best call of action. Time will tell.