Perspective Page, The Press. 12 August 2008
Chrissie Williams is a Christchurch 2021 City Councillor. This is a personal view and does not represent the views of the City Council.
Another hasty City Council decision – worth $16.9 million
When making a business investment the investor has to weigh up the risks and benefits. It is my view that the City Council underestimated the risks and exaggerated the benefits in their recent decision to purchase land from developer Dave Henderson. The decision was made behind closed doors, within a short timeframe. Such haste does not allow for well-informed and transparent decision making. I opposed the land purchase.
Businesses frequently make multi-million decisions. They estimate their expected rate of return, and they weigh up the risk of the venture. Some businesses are cautious in the risk they take, and stay away from high-risk investments; others are more risk tolerant accepting greater investment risk, with the potential for greater returns.
When a Council considers an investment – or on fact any deal – their threshold for risk must be higher than for a business, as they are spending ratepayers’ money. The Local Government Act requires the Council to consult with the community when making significant decisions. Legal advice advised Council that this $16.9 million deal was not significant so no consultation was needed – we needed further advice on this. The purchase of these properties was not signalled in the current Long Term Council Community Plan, meaning there was no community mandate for this transaction. There was also no mechanism to compare this spending with many others opportunities – such as other land purchases, infrastructure investment or social programmes – that will be coming forward to the 2009 LTCCP.
The Urban Development Strategy anticipated setting up a city revitalisation agency, which Garry Moore is contracted explore. The agency’s role would be to assemble key redevelopment sites and to tender land for specific redevelopment proposals. Unfortunately it has not been debated by the community whether the Council itself should take on the agency role without adequate controls and governance mechanisms in place.
The Council has been here before but hasn’t learnt – having purchased the former Turners and Growers site, the Council on-sold it, but has now found the promised urban winery development has stalled. The current market conditions have acted against that proposal and put it at risk.
Under different circumstances the Council purchasing property in the central city to land bank it does have some merit. A significant driver for this land banking proposal was to give the Council control over the future development of the sites, to ensure high quality developments with mixed use – combining retail, office and residential spaces.
Some of the sites purchased have contiguous titles suitable for amalgamation to enable comprehensive developments. This was certainly emphasised by those arguing for the purchase. As was the inclusion of ‘intellectual property’ in the deal for each site – that is the plans, ideas and in some cases consents for integrated site development.
We were told there is a threat of ‘big box’ development for Sydenham Square. But we were given no details of who is waiting in the wings to purchase and develop this site, and why they would be considering a big box development in such a depressed market.
The irony is that our own City Plan is deficient in controlling such big box developments, although there may be some remedy if proposed urban design guidelines for B2 zones are accepted.
The timing of these purchases is in the context of a falling property market. The commercial property market in New Zealand has seen a significant slow-down, with the credit crunch and reduced access to funding as principal causes. With the failure of a number of finance companies, and tightening credit conditions from the banks, funds for property development are hard to get. Developers are reporting that they cannot get previously achieved levels of presales and they are defaulting on debt servicing commitments, with price collapse now occurring.
The properties are being bought by Council at current market valuations. The deals have been negotiated under urgency. The Council could have waited and let the markets decide the fate of the properties. By waiting a lower price could have been negotiated when market prices fell, or negotiated with the receivers if Henderson’s companies fail. The Council would then have been in a much stronger negotiating position.
The four sites are owned by a collection of companies, with complex interrelationships between them. Henderson as a director of most of the companies is the connecting factor. His tenuous financial position creates uncertainty about the future status of the purchase agreements. The Council decision made on 25 July was timed before the High Court consideration of the liquidation application of Five Mile Holdings set down for 29 July, since adjourned to 18 August.
To me purchasing property to rescue a developer is a dangerous precedent. Extraordinarily the deal includes a development agreement with Henderson’s new company SOL Development Corporation Ltd, giving him the right of first refusal if he wants to restart his development of the sites.
Maybe I will be proved wrong and the Council will be able to on-sell the properties recouping all their investment and costs, and in the process ensure some high quality mixed used developments go ahead. But I believe it is more likely the Council will need to hold the land for a number of years until the property market rebounds, or sell the properties at a loss. These options are unlikely to give Council control on the type of development undertaken by the purchaser. Time will tell the outcome.
It is important to me that the Council remembers it is the custodian of ratepayers’ funds and that risky entrepreneurial ventures must have significant community benefits that greatly outweigh the risks, and are made with a citizen mandate.