Vince Kelly, East Ballina
Ballina Shire Council is the owner of the Wigmore Arcade in the Ballina CBD. It comprises 22 specialty shops, which are leased to small-business operators.
The arcade was valued at $6 million (30 June 2011) on a capitalisation rate of 8.75 per cent and net annual rentals of $537,000. The average rent was $375 per square metre. The independent valuer described the property as in good condition with rentals representing market value. There is no need to redevelope the arcade.
In terms of accounting standards the Wigmore Arcade is included in Ballina Council’s audited financial statements as an investment property and its value capitalised into council’s reserves. The $6 million represents ratepayers’ funds.
Ballina Council now proposes to gut the arcade and rebuild it with a different floor plan but without increasing the net lettable area, which will remain around 1,400 square metres. A new allocation of ratepayers’ funds of at least $4 million to pay for these works will increase the investment property’s total capital allocation to approximately $10 million.
Net annual rents will need to grow by at least 50 per cent in order to support a market valuation of $10 million. But such increases are unlikely to be achieved because what the business operators want is rent reduction. Hence the market value of the redeveloped arcade will fall well short of the $10 million in ratepayers’ funds allocated to it. Consequently a capital loss in the order of millions of dollars will be sustained on this redevelopment.
A redevelopment of the Wigmore Arcade is not a financially viable project at this point. It would be irresponsible of Ballina Council to proceed with it. But this will not stop them. Council will claim ‘commercial and in confidence’ and finesse the deal moving it through confidential council meetings safely hidden from public scrutiny. The true story will not be revealed until the redevelopment is complete and the financial carnage is irreversible.
Instead of squandering ratepayers’ funds on the Wigmore Arcade redevelopment Ballina Council should be focusing on funding its massive community infrastructure backlog.