A prominent Ballina Council watcher and former banker and financier has joined the attack on the council’s plan to demolish and rebuild the structurally sound Wigmore Arcade in River Street.
Vince Kelly has told Echonetdaily that Ballina Council is spending too much money on speculative developments and, as a consequence, is falling drastically behind in its infrastructure renewal programs.
He says that the plan demolish and rebuild the arcade with approximately the same lettable floor space, which he estimates would cost approximately $3 million, ‘is not commercially viable and the council should not be wasting ratepayers’ money on it’.
Mr Kelly calculates that to receive a commercial return on its investment it would need to charge $520 per square metre (psm), which would represent a rent rise of $145 psm, a massive 39 per cent price hike.
‘Tenants in the CBD are looking for rental reductions, not increases,’ he said.
The arcade was valued for the council by Scott Fullarton Valuations in June last year. It is described by the valuer as in good condition and is valued at $6,050,000 based on net rents of $537,065 pa and a capitalisation rate of 8.75 per cent.
‘If it is in good condition why redevelop it at this stage?’ he asks.
Mr Kelly paints a picture in which Council’s arcade tenants could soon desert the building, which now has a question mark over its future, as all the existing leases of the arcade expire in December. And he suggests its replacement could well be an expensive white elephant.
‘Council is proposing to offer short-term tenancies (say month by month) to the existing tenants hoping that they will stay until Council is ready to commence the redevelopment. I question this strategy. I anticipate that the tenants will progressively vacate the Wigmore Arcade and seek alternative and cheaper rental premises. There are plenty around at present. I doubt whether they will be interested in taking up tenancies in the redeveloped arcade as the asking rents will probably be too high.’
As recently as 18 June, council’s Commercial Services Committee voted in a confidential session to endorse concept plans for the redevelopment and authorised the GM to negotiate terms for the extension of existing leases.
Echonetdaily understands councillors Jeff Johnson and Peter Moore were absent from the meeting, which otherwise voted unanimously to progress the project.
Last week, council advertised in the Australian Financial Review for expressions of interest for developers over the project, barely two months out from council elections.
What most bothers Mr Kelly is that he believes ‘the majority of Ballina councillors and management have lost sight of Council’s core functions… the provision and maintenance of community infrastructure and services’.
He highlights the Building and Infrastructure Renewal Ratio, which assesses the rate at which a council’s buildings and infrastructure are being renewed against the rate at which they are depreciating.
‘For NSW in 2009/10 the mean was 84.4 per cent, the high 563.74 per cent, the low 7.4 per cent and the median 80.5 per cent. In 2009/10 the ratio for Ballina Council was a very low 17.71 per cent and down from 56.19 per cent in 2008/9.’
Another disturbing statistic is the Community Service Expense Per Capita Ratio, which measures the amount spent on community services per head of population.
‘For NSW in 2009/10 the mean was $67, the high $1,584, the low $0 and the median $54. In 2009/10 the Ballina Council’s spend was $15.58 per capita, a reduction of 31 per cent on the 2008/9 spend. This places Ballina Council in the lowest 17 per cent of councils in the state with a spend of less than $20 per capita,’ he said.
He suggested a further indicator of Ballina Council’s ‘excessive investment in commercial property’ was Council’s Financial Asset Ratio.
‘The benchmark for a council is 2.5 per cent to five per cent of total assets. Based on Ballina Council’s 2010 financial statements 2.5 per cent of total assets is $20.6 million and five per cent is $41.3 million. Council’s actual financial assets were $58.7 million, which represents 7.11 per cent of total assets, a surplus of $17.4 million to $38.1 million.
‘These funds,’ he says bluntly, ‘would be more effectively employed in infrastructure funding’.
‘On the basis that the government matches the council on a dollar-for-dollar basis with grant funding this would represent a 100 per cent up-front return on capital to ratepayers. The council’s commercial investments cannot come close to matching this rate of return on capital.’