Analysis. A prime community land sale risks being a $40 million council loss.
- by Peter Newport :
- Aug 19,2021
If you don’t yet know what Lakeview is, it is time to pay attention.
Lakeview is a very valuable piece of land above Queenstown, 10 hectares, that was recently valued by Colliers for QLDC (that's us - the ratepayers - the owners) at $42 million. QLDC demolished the campground buildings and cabins at Lakeview to make way for a flash new project that a consortium of developers lead by an Australian firm (Ninety Four Feet Ltd of Melbourne) say will be worth, to them, $2 billion.
In reality, this should be one of the most valuable pieces of land in New Zealand.
But instead of selling the land for $42 million, less around $2 million of costs to make the land ready for development, QLDC councillors authorised CEO Mike Theelen do a deal with the developers. Crux understands that Theelen had received over $400,000 of advice from consultants CBRE on a deal structure – but we don’t yet know if he followed their advice or not, or even what the advice was.
In any case, the deal he eventually did involved allowing the developers to pay $75 million for the land over 20 years with the council agreeing to an extensive programme of works that was originally budgeted at around $19 million. However, those infrastructure works have now ballooned to an eye watering $55 million – leaving just $27 million “profit” over 20 years. To be clear, $27 million is QLDC’s own estimate of “profit” that Crux cannot validate due to a lack of information provided by QLDC so far.
The QLDC position is that the $55 million of work will also benefit areas adjacent to Lakeview and be of value to the wider community.
However, ask any accountant about the cost of capital and you’ll eventually discover that $27 million being paid over 20 years with no interest or adjustment for inflation can actually equal a big zero. The reason for that in basic terms is that the $27 million paid over time is worth less than money paid today. “Money in the future” also has to be discounted for risk and what’s known as opportunity cost. On top of all that is simple inflation – the Reserve Bank of New Zealand’s online calculator (linked to housing) shows that $27 million today would have been worth only $5.7 million 20 years ago.
So let’s just say that the deal done on Lakeview has made no money at all (also allowing for legal costs, consultants etc.) – zero – as of today and the $55 million cost of infrastructure may well increase even more.
Again – if Theelen had sold the land for $42 million he could have made a genuine $40 million present day profit for the ratepayer. But he didn’t do that and currently all that QLDC will tell us is that he did the deal so “that the council could have more control.”
Mayor Jim Boult has said that “the council did not enter into the Lakeview deal solely to maximise financial return – but to achieve the desired development objectives and mitigate risk to the ratepayers.”
Boult is referring to earlier "development objectives" that Lakeview would involve things like affordable worker accommodation and other community assets. These have since been eroded to produce something that looks more like an Alpine Britomart for the mega rich. The Queenstown Lakes Community Housing Trust will benefit from the deal though by getting some land - so that's good news.
It should be noted that Mayor Boult has declared a Lakeview conflict of interest in that he is on the advisory Board of Downer NZ Ltd, one of the main contractors carrying out the $55 million of infrastructure work.
Having set the scene, you can imagine the reaction of councillors when the developers, Ninety Four Feet Ltd, suddenly told QLDC that they wanted to double the height of the Lakeview buildings to around 50 metres or 12 – 14 floors. Keep in mind that the Development Agreement had already been signed and council’s rationale for the 20 year deal was “to keep control” and that this premium location right above Queenstown Bay is of great environmental sensitivity. Nothing in the Queenstown CBD is even half the height of these new proposed high rises.
Long story short, Crux understands that councillors and QLDC senior staff, including Mike Theelen, agreed in a private workshop meeting to the height increase on the understanding that resource consent for Lakeview would be publicly notified.
We only know this thanks to Councillor Niki Gladding who risked another Code of Conduct disciplinary process in sharing the information with Crux (the first was over leaking information that suggested QAC was considering wide body jet traffic for Wanaka airport – now academic given QLDC’s High Court loss and the setting aside of the council’s airport lease as unlawful.)
But then the developers subsequently applied to Environment Minister David Parker for a post Covid fast track consent process that would mean avoiding public notification.
Crux asked QLDC a number of questions off the back of Gladding’s disclosure. Here’s their full response that took 7 days and four missed deadlines to obtain.
(Crux.) Did councillors and QLDC managers agree that in return for the height increase that the Lakeview project should be publicly notified?
(QLDC). “No such agreement was made however communications to Ninety Four Feet following Councillor considerations of the development masterplan reiterated the Council preference that the process be a publicly notified one in accordance with the requirements of the RMA. This is a view that Council maintains and continues to advocate for with Ninety Four Feet and via the COVID-19 Fast Track consent process.”
This statement from QLDC suggests the position apparently reached in a private council “workshop” meeting (no records are kept – no minutes taken) was a “preference” rather than a requirement
QLDC is refusing to release Lakeview communications with the Minister and the Minister’s office has not responded to Crux questions on the subject.
Here’s the full extent of QLDC’s answers to our recent questions:
(Crux) Why did it take 7 days to answer our single question regarding the developers height increase being linked to publicly notified consent? Did QLDC have to take legal advice? What was the process that required 7 days? Why were multiple earlier promised delivery times for this information broken by QLDC?
(QLDC) No legal advice was taken. Earlier delivery times were estimates based on our best understanding at the time.
(Crux) Can we see the letter sent to 94 Feet giving them the agreement terms for Masterplan #2 - increased height etc?
(QLDC) Information disclosed by the developer to Council under the development agreement is commercially sensitive and confidential, as are Council’s documents referencing such information. Council has a contractual obligation to respect this confidentiality.
(Crux) Has QLDC had any subsequent contact with the Minister or Ministry for the Environment re: fast track consent for Lakeview?
(QLDC) QLDC has communicated with the Ministry under the provisions of the COVID-19 Recovery (Fast Track Consenting) Act 2020. As such the timing and extent of disclosure of this information is a matter for the Minister.
Crux understands that more than one member of the community is gearing up to fund a fully-fledged legal attack on the QLDC’s handling of Lakeview. There are questions now being raised as to whether the $75 million deal complied with the consultation requirements contained in the Local Government Act.
But before anyone gets too excited at the prospect of a Wanaka style High Court victory (which could cost the ratepayer in excess of $15 million due to the airport lease having to be unwound and repaid – plus legal costs to date) consider this:
If it is found that QLDC’s $75 million deal on the sale of Lakeview land was not compliant with the requirements of the Local Government Act (and we are not claiming that to be the case) and if the developers did agree to a publicly notified consent, would the developers then sue QLDC on the basis that they were entitled to believe that QLDC was able to enter into the purchase in the first place – and publicly notified consent was only ever a council “preference”.
Given that QLDC claims there was no agreement re: publicly notified consent it begs the question – “What did council get in return for the Lakeview building height being doubled?”
What is clear is that the community needs to know more – and fast. We need to know what we are dealing with. In fact the Auditor General may well take an interest in the situation just as they did recently when Tauranga City Council wasted $20 million on a property deal that went sour and was part of the reason for the Government sacking the council and putting in Commissioners.
Crux will now urgently be looking for answers and we’ll keep you fully updated on developments as we discover more.