Inquiry into aspects of Auckland Council's Westgate/Massey North town centre project
Part 4: Decision to buy Westgate Street
Part 2: Background to commercial arrangements with the New Zealand Retail Property Group
Part 3: Agreements between Waitakere City Council and the New Zealand Retail Property Group
Part 5: Infrastructure funding and works development
Part 6: Relocating overhead power lines
Part 7: Arrangement about development contributions (October 2010)
Part 8: What Auckland Council did after 1 November 2010
Part 9: Aspects of Auckland Council's governance of the Massey North development
Part 4: Decision to buy Westgate Street Inquiry into aspects of Auckland Council's Westgate/Massey North town centre project. https://oag.govt.nz/2017/massey-north/part4.htm https://oag.govt.nz/@@site-logo/logo.png
Inquiry into aspects of Auckland Council's Westgate/Massey North town centre project.
In this Part, we describe an agreement under which Waitakere City Council bought the street running through the middle of the existing Westgate Shopping Centre (Westgate Street) from NZRPG.
We describe:
the background to the purchase;
how the Council considered Westgate Street to be a strategic asset;
the arrangements for the Council to recover the costs of the purchase;
the effect of buying the street on the broader asset purchase; and
the Council's overall assessment.
In April 2009, NZRPG approached the Council with a proposal for the Council to buy one part of the roading network from NZRPG before concluding the broader buying of assets under the Infrastructure Funding Agreement.
The street concerned – formerly known as Westgate Street – is a street within the existing Westgate retail centre and was owned by one of the companies within NZRPG. It was part of the roading network for Plan Change 15 and the Council was considering whether to acquire it, but it was not part of the package of assets NZRPG had offered the Council in November 2008.
Figure 3 shows the Massey North town centre roading network. Westgate Street is marked.
The Council was told NZRPG wanted to sell Westgate Street before the sale of other parts of the roading network because it needed funds to buy out the investor who wanted to divest its interests in NZRPG.
In considering whether to accept NZRPG's offer to sell Westgate Street, the Council considered three main issues:
whether Westgate Street was a "strategic asset" that the Council should own;
whether the Council should buy it without having a clear understanding of the extent to which it could recover its costs; and
the extent to which buying Westgate Street might limit the Council's options to buy other strategic assets within Plan Change 15.
Massey North town centre roading network
Was Westgate Street considered a strategic asset?
The Council concluded Westgate Street was a strategic asset for several reasons.
In the Plan Change 15 Urban Concept Plan, the existing Westgate retail centre and the new town centre were intended to form a single place. Therefore, the Council considered the link between the existing shopping centre and the new town centre to be important.
Although Westgate Street already existed as a private asset, its significance and function would change significantly. Once the new town centre was completed, Westgate Street would be the major traffic link and bus route for residents in the south to the heart of the centre. It would also form part of the major north/south link for traffic through the centre of the development.
It was of strategic value for the Council to own the entire route through the heart of the town centre and employment centre because the Council could then more effectively influence the nature, timing, and quality of development in the heart of the centre during the ensuing decades.
Westgate Street is shown in the Urban Concept Plan as part of the wider road network for the town. At the time of purchase, it was a minor street within the existing Westgate shopping centre. However, once the road network for the new town centre was built, it was likely to become much more significant. The plan was for Westgate Street to be joined to the existing road network to the south and the new town centre road network to the north. Once this work was completed, Westgate Street would form part of the main road running south to north through the town centre and would be important not only for private vehicles, especially those travelling from the southern suburbs, but also for the public transport network that was an important part of the Council's overall plan for the town.
Waitakere City Council also saw advantages in owning Westgate Street, along with the rest of the town centre road network, because it would better enable the Council to secure its vision for the town centre, as contemplated by the Urban Concept Plan – in particular, for public access and urban design features.
Purchasing Westgate Street would, in the Council's view, prevent the existing Westgate Centre being developed in the future into mall-style shopping, which was something the Council was anxious to avoid.
The roading network for Plan Change 15 had always shown Westgate Street as part of that network. Therefore, buying it simply gave legal effect to that pattern.
The Council considered other factors that supported buying the street.
Purchasing Westgate Street before the wider asset purchase would show commitment to NZRPG at a critical time in the development process. The economy was in recession, and NZRPG need to secure commitments from its funders to construct the first stage of the town centre. If the Council were to buy Westgate Street, it would reassure NZRPG's investors that the Council was committed to the project.
Purchasing the street also meant that NZRPG would be able to meet its commitments to existing investors in Westgate and pay them out. There would then, it was thought, be an indirect benefit to the Council because it would be dealing with fewer interests in all of NZRPG's land within the Plan Change 15 area. Common shareholding would mean simpler dealings.
If the Council bought Westgate Street, it would be able to impose certain controls that had been introduced under the District Plan about the way in which buildings on main streets front the street and provide a safe and attractive aspect to the street.
According to a Council valuation, the value of the street (as at 22 December 2008) was $5.13 million. This valuation excluded improvements (that is, carriageway, lights, footpaths, and drainage). NZRPG estimated the value of improvements to be $1.757 million. The Council valued them at $1.053 million, based on their current condition.
Council officers had made a preliminary inspection. They considered that it was likely that the street would need investment in five years at a cost of about $1.7 million. Some of the retaining walls might need strengthening, along with the street, to allow for an expected increase in traffic.
A downside of buying Westgate Street was that Council officers had not finalised the extent of cost recovery likely to be achieved. The preliminary conclusion was that, based on a purchase price of $7 million, the Council would be able to recover $2.8 million from development contributions for any loan it required for capital costs. The remaining $4.2 million would need to come from the Council.
Effect on broader asset purchase
There was also a potential effect on the broader asset purchase. If the Council bought Westgate Street, there would be less money available to spend on other road assets in the new town centre.
Officials calculated that buying all of the road land, land for non-road assets (such as the town square land), and Westgate Street would put the Council $1.8 million above the allocated $29 million. On the other hand, buying only the road land needed for core roads, land for non-road assets, and Westgate Street equated to $24.89 million. This would mean that the Council would still be within the allocated $29 million.
What price was paid?
The price the Council paid for Westgate Street was $6 million plus GST.
This price was based in part on a valuation from an independent registered valuer engaged by the Council. The purpose of the valuation was to establish what would be appropriate for the Council to pay for the street if it decided to buy it. We note that the Council was carrying out extensive valuations of land in the Plan Change 15 area at the time as a basis for potential acquisition of land under the Public Works Act 1981, from NZRPG and from other landowners in the area.
The estimated area of the street, according to the valuation, was 8556m2 (subject to survey). It is described in the valuation as "the principal thoroughfare through the Westgate shopping centre linking Hobsonville Road (now referred to as State Highway 16 and Fred Taylor Drive) and Westgate Drive".
The valuer explained that the valuation of the street vested in two parts:
the underlying value of the land (as undeveloped); and
the value of the existing site developments, including civil works and streetscape.
Underlying value
In terms of underlying value, the valuer explained that the land was of a shape and nature for which there was no general demand or market. By implication, it would be difficult to establish a "market value" for it.
He said that, in cases such as this, a typical approach to valuing land was to value it on a "before and after" basis – that is, to determine whether there was any gain or loss in value when the land was sold/bought. He concluded that there was no difference between the street's value as a private street and its value if it became a public street. Therefore, the value of the land was "directly relative to the value of the land within the centre".
The valuation needed to take account of:
the zoning of the land as "community environment";
the surrounding built form of the centre; and
the status of the centre as one of regional significance within Waitakere City.
The valuer pointed out that there was little meaningful sales evidence for this type of property within the Western Districts or throughout the wider Auckland regions. However, based on the sales information available to him and the factors outlined above, he concluded that the value of Westgate Street was $600 plus GST for each square metre.
Value of site developments
As well as the underlying valuation, the valuer said it was necessary to take account of any "site developments". For the street, he described the site developments as "all civil works and streetscape" and said that these were best represented in depreciated replacement cost. He recommended that the Council ask NZRPG to make the depreciated replacement cost available so that the Council could have an appropriate expert review it.
Overall valuation
The valuer's overall assessment was that, based on the area of 8556m2, valued at $600 for each square metre, the value of the street was $5,133,600 plus the value of street improvements.
The Council's valuation
The Council later valued the improvements at $1,053,000. Therefore, the overall value of the street, based on advice from the independent valuer and the Council's internal valuation of the street improvements, was $6,186,600 plus GST.
The Council's overall assessment
In essence, the Council considered that the question of whether it should buy Westgate Street at that point or wait until it had clarified whether it could recover costs was one of risk – both strategic and financial.
There was risk to the entire project if the Council did not provide funding to NZRPG by buying Westgate Street and if it did not demonstrate commitment to the project. On the other hand, if the Council could not recover its costs, the risk was $7 million, or $385,000 each year in additional rates.
On balance, officials recommended that the Council buy Westgate Street before any broader asset purchase because:
money was available in that financial year;
the effect on rates was minor;
the risk of delaying the town centre project was significant in terms of jobs and the effect on confidence to invest in the wider corridor; and
the Council could still buy the other main assets it was seeking and keep within the allocated $29 million.
The Council authorised the Chief Executive to negotiate and conclude an agreement under the Public Works Act 1981 to buy Westgate Street on the following conditions:
The price would not exceed $7 million plus GST.
The new urban design requirement agreed under the District Plan changes would apply to the full length of the new road from Hobsonville Road (now referred to as State Highway 16 and Fred Taylor Drive) to Westgate Drive.
No further private roads would be constructed to intersect with the new road without the Council's approval.
NZRPG would commit to sell a library site to the Council in the new development area of Plan Change 15.
The Agreement for Sale and Purchase was entered into in May 2009. The Council paid $6 million plus GST for the street. The Agreement for Sale and Purchase also included the following provisions:
NZRPG agreed to certain easements for Westgate Street.
The parties agreed certain compromises to the design of the main street of the town centre.
NZRPG agreed that the Council could acquire its preferred site for the library under the Infrastructure Funding Agreement.
The parties agreed that the bus interchange would be centrally located, on the road shown as Cross Street, west of the town square.
NZRPG agreed to manage the development of its land in a manner that ensured that the Council would receive the full benefit of the agreements the parties had reached on urban design issues.
Buying Westgate Street was treated as an early acquisition of assets and roads by the Council. Therefore, the payment was in effect the first portion of the $29 million allocated by the Council to buy land and other assets from NZRPG.