The Kings Square Contract Extension. A Response to the Questions Raised

I normally choose not to respond to the Fremantle Society’s recent tendency to launch unconstructive attacks rather than engage in a civil and constructive dialogue. But the latest email and ad in the Fremantle Herald promoting their public forum on the Kings Square project makes some serious and inaccurate accusations that do need to be corrected and responded to. This is especially, given Councillors and I could not be at their forum due to a Fremantle Council committee meeting at the same time last night.  I will restate some background on the Kings Square project before responding directly to the main issues raised by the Fremantle Society.

First some background:

What is the Kings Square Project? – it is an integrated development of the centre of Fremantle that aims to revitalise the tired civic precinct with the new library, tourist info centre and civic building as well as see the Sirona-owned former Myer building redeveloped for office along with new building on the Queensgate cinema site and Spicers site (see below for map). In doing so it also aims to attract a State Government department to the centre of Fremantle. The final stage in getting a Government Department to Fremantle was reached last week with a detailed proposal submitted to the Dept. of Finance. Pleasingly and after many delays we are told a decision on the final location for a new Government Department  in Fremantle will be made in the early part of the second half of this year. This will bring over two thousand new jobs to Fremantle.

kings sq 4

The Fremantle Society’s concerns

As you may have seen their recent ads, public forums, and emails the Fremantle Society are arguing against the Kings Square redevelopment. While some correspondence indicates that underlying this objection is an objection to higher (4-6 storey) buildings in the precinct, the explicitly stated reasons are an attack on the validity of the business plan and financial assumptions the City of Fremantle  has made in pulling the project together. So I will address these directly which focus on two main areas.

  1. Valuations

The first is on the valuations of Fremantle Council  properties. The Fremantle Society state that “Council is intending to sell approximately $50 million of property to Sirona for just $29 million”. To be frank I am not sure how they arrived at these numbers or whether they are backed up by a professional valuation. What I do know is the City of Fremantle has had independent valuations by  CBRE & M3 Property that have BOTH come back with similar sub-$30 million valuations on the City of Fremantle assets that are sold as part of the Kings Square project (Queensgate office and car park and Spicers site car park). Actually less than Sirona has agreed to pay us.

To clarify this difference we have asked the Fremantle Society for either the valuations or the name of the company that did their valuation at $50 million but this information has not been forthcoming so far. As I have said to them, the Fremantle Council bases its decisions on the advice of experts in this complex area and they will need to provide this information if their view is to be credible.

  1. Future value of City of Fremantle Civic Building

The second disagreement with the Fremantle Society in terms of the business plan is the future value of the City of Fremantle’s new civic building. Our business plan states (again on expert advice) that if built to a civic standard and properly maintained as per the business plan that it will on a “20 year future estimate  at $97.5 Million for buildings which cost $47.44 Million today”. The Fremantle Society believe it would instead decrease in value. While this increase in value may not hold true for a standard commercial building, it often does for a civic building designed to last far longer. This is especially the case for a civic building that is a winner of an international design competition and will set a new bar for sustainability in Fremantle. As an example of a civic building that has held its value, take the Fremantle Town Hall which cost around 19,000 pounds in 1886. The replacement cost estimate for this today would be many tens of millions of dollars I would assume. It has not depreciated to nothing as the Fremantle Society’s logic assumes but instead increased in value. Similarly the Fremantle Literary Institute (now Dome etc) built in 1899 by architects Wilkinson, Smith and Wilson after they won a design competition was built for a total cost of 1528 pounds. Obviously today it is also worth millions of dollars. The Fremantle Council in a similar manner is intending on building a building that will be the heritage of the future and designed to last the next 100 plus years.

Conclusion 

In conclusion, beyond these two issues there is a philosophical debate about use of council assets and development of the Square. The Fremantle Society are arguing the freehold asset the ratepayers own in the civic triangle should be turned into a park and that as a result we should not attract State Government departments to the centre of Fremantle. I do not agree with this as that really would be a lost opportunity for Fremantle that would be both a poor use of the ratepayers assets and would fail to bring much needed professional jobs to Fremantle, the first real jobs growth in almost three decades.

Instead I am strongly supportive of unparalleled economic benefits that flow from a $220 million investment by Sirona and the Fremantle Council in our City’s CBD. Investment that will mean over, 1,100 construction jobs, new revenue to the City, major public art installations, a new library and civic facilities, new exciting retailers coming to town, an estimated $100 million plus increase in retail spend from this project alone plus other industry benefits resulting in other retailers and businesses wanting to call Fremantle their home. Seen holistically, the business case for transforming Kings Square is compelling.

kings sq 3 kings sq 2 kings sq 1

About Mayor of Fremantle Brad Pettitt's blog
City of Fremantle Mayor

30 Responses to The Kings Square Contract Extension. A Response to the Questions Raised

  1. Lis Francis says:

    Dear Mayor Pettit! Whatever you think about the Fremantle Society – there are several questions that need to be answered. The main ones concerning me are (a) Why is this (especially the finances) all not ‘open and above board?’ – (b) Why is so much Community-owned real estate to be sold off at bargain-basement prices (never redeemable)? – (c) Why isn’t the proposed building to be built on the Myer/Cinema land, leaving a real city square? – and (d) Why is the proposed building such a brutish structure, not at all in keeping with the heritage nature of the other main structures adjacent? I’m flabbergasted!

    Thank you,

    • Lis
      ANswers to your questions are below:
      (a) Why is this (especially the finances) all not ‘open and above board?’ – it is and all available on the City of Fremantle website
      (b) Why is so much Community-owned real estate to be sold off at bargain-basement prices (never redeemable)? – It is not. It is being sold a FULL market value.
      (c) Why isn’t the proposed building to be built on the Myer/Cinema land, leaving a real city square? It is being built on this land to hold a State Government department in addition to the civic part on City of Fremantle freehold land
      – and (d) Why is the proposed building such a brutish structure, not at all in keeping with the heritage nature of the other main structures adjacent? I’m flabbergasted! Don’y be the civic design was the winner of an international architecture competition and I beleive will be a stunning addition to Fremantle and the heritage of the future

      regards, Brad

  2. Lionel says:

    It may be true that if a building is beautiful and strong enough to last 100 years that the replacement cost would be more than the build cost. It is fantasy to think any building (not land) will double its value in 20 years.

    Adding $50 million to the value of a building over such a short time frame is fanciful and I think this is why people have an issue with it.

    • Lionel
      This is the view of the independent experts who pulled the business plan together and not one the council made up. Of course they are future casting so the exact amount may vary in reality but the idea of civic buildings increasing is something with strong precedent.
      The City of Perth Council House was built in the 1960s for 1.5 million pound. By the 1980s would it have been worth 3 million and by the 2000s 6 million pound? Probably more than that in reality.
      cheers, Brad

      • Lionel says:

        1.5m pounds in 1960 is 42m dollars today. I suspect Council House could be built for less or similar today – certainly wouldn’t cost double.

      • Lionel
        I think you are way off the mark here. The replacement cost for the 10 storey City of Perth building would be well in excess of $50 million. To give you a point of comparison the recently completed City of Perth library – which is very small by comparison – cost $60 million.

        The clear historical evidence is that value of the City of Perth civic building has increased well in excess of its building value doubling every 20 years.

        This is all reinforcing that the numbers the experts put together for the Kings Sq business plan.

        cheers, Brad

      • Lionel says:

        Would you be able to provide the name of the person from CBRE or M3 who thinks the building will be worth $50m more in 20 years? I would be interested to know which licensed valuer has put their name to this. Is this valuation a publicly available document?

      • Lionel
        To the best of my knowledge these reports do not come with individuals names on them but the whole reputation of the company rests on the quality of the advice provided. The Fremantle Society in contrast refuse to even provide the name of the company.
        thanks, Brad

      • Lionel says:

        Perth Council house was built in 1962 for 1.5m pounds which is $42m today. It was refurbished in 1997 for $25m which is $40m today. LEDs were added in 2010 for $1m which is 1.1m today.

        That gives a total cost in today’s money of $83.1m. Even if the building today is worth $100m (which it most certainly isn’t) then its value has only increased marginally over 55 years. Its value certainly hasn’t doubled in 20 years like you think will happen. According to your logic the building should be worth about $480m!

      • Lionel
        You are confusing 2016 dollars with 1963 dollars (pounds). Our business plan does not do this.
        Brad

  3. kel says:

    Hi Brad,

    Would you please confirm the following points in relation to the agreement the City has with Sirona Capital on this joint project.

    If the Extension of Time is on the agenda for next wednesday and IS REFUSED by Council:

    1) Is it true that the City is locked into an agreement with Sirona Capital that states that the City must continue with the sale of Queensgate Centre,Queensgate Carpark and Spicer Site to them?

    2) Is it true that the City is locked into an agreement with Sirona Capital that states that if Sirona Capital does not have the finances to pay for our 3 Assets that the City will endeavour to help Sirona Capital financially to ensure the sale goes ahead?

    Lets assume it is refused for this exercise.

    Thank you
    Kel

  4. Michael says:

    Hang on a minute! I’m pretty sure that the current city admin & library building was claimed to be a game changing “civic building” when it was built 30 years ago, yet under the city’s own plan it is worthless and needs to be replaced! It actually has a NEGATIVE value as it will cost more to demolish… So apparently the city agrees with the Fremantle Society that buildings depreciate, whilst only the land values go up?

    • Michael
      Unfortunately our current city of Fremantle office building was not built to a high standard and has been added onto in a haphazard manner and as a result is not largely loved nor did it hold its value. But a civic building designed to last and that is a winner of an international design competition will retain its value. It is perhaps the Fremantle Literary Institute – our former library now Dome etc – that is a better comparison. It was built in 1899 after a design competition for a total cost of 1528 pounds. Obviously today it is worth millions of dollars. The Fremantle Council in a similar manner is intending on constructing a building that will be the heritage of the future and designed to last the next 100 plus years. This like the Fremantle Literary Institute will not lose its value.

      regards, Brad

  5. Jill Beaton says:

    Can’t wait to have new buildings in harmony with the wider Freo architecture. Particularly excited by the thought of so many jobs opening up in this city. Just what we need to revitalise this lovely old town. Let the building begin. Jill & Ric aldrovandi.

    Sent from my iPhone

    >

    • Jon says:

      Correct me if I’m wrong Mayor but the state government is not going to be hiring a thousand people in Fremantle, they are just transferring the majority from an existing location to a new location, correct?
      Any new jobs would have to come from new businesses this project is suppose to attract.
      These transferring position are still less than what Fremantle has lost over the past several years, so the city would not be back to par on jobs in town, from say a 2014, benchmark?

      • Jon
        These are not expected to be brand new employees. I would expect many hundred of jobs from the East Perth office to come into Freo plus some others from other departments around Perth. In addition some may come from consolidated offices around Freo as well. Will it cover the loss of 1900 hospital workers? No but it will a lot better than not getting any back that is for sure
        cheers, Brad

  6. Martin says:

    This article cannot go without comment.
    The concerns raised by the Fremantle Society (FS), FRRA and FICRA relate primarily to the $47 million CoF project to knock down and replace the Council chambers, office and library. What Sirona does with the Myer site is up to Sirona, and it can proceed whether the Council proceeds with its own $47 million development or not.
    The FS, FRRA and FICRA comments have no bearing on whether the Department of Housing comes to Fremantle or whether it is accommodated by a Sirona development. I have not heard these groups oppose Sirona or their efforts to bring such a major Department to Fremantle at any stage.
    MARTIN, IT DOES BECAUSE THE PLANS YOU AND THE FREMANTLE SOCIETY HAVE PUT FORWARD MAKE IT IMPOSSIBLE FOR THE DEPARTMENT OF HOUSING AND OTHER STATE GOVERNMENT DEPARTMENT TO COME TO KINGS SQUARE OR THE CENTRE OF FREMANTLE BECAUSE IT WOULD MEAN THERE IS NOT ENOUGH FLOOR SPACE TO GIVE THEM THE 20,000M2 OF A GRADE OFFICE SPACE THEY REQUIRE. IT WOULD ALSO UNDERMINE THE COMPETITIVE PROCESS GOVERNMENT ARE UNDERTAKING. IT WOULD BE HARD TO THINK OF A MORE SELF-ARMING MOVE FOR FREO THAN THE COUNCIL PULLING OUT OF THE PROCESS AT THIS VERY LATE STAGE.
    Could the Mayor explain why an almost identical picture to his own aerial photo was presented to the FS meeting on Wednesday, but it contained the CoF valuations for each of those sites. These valuations now are deleted in his own article. The CoF valuations for the Queensgate Centre, Queensgate Car Park and Spicer Site totalled $39 million, yet he now states that all CoF valuations are sub $30 million.
    The Mayor neglects to point out that the sub $30 million valuations consider the Queensgate “land only” value, rather than the true market value which is land plus building. This is clearly stated in the Business Plan, and the discount has been explained as something that needs to be done to encourage Sirona to redevelop the site. Their $30 million value jumps to $40 million with no effort at all.
    MARTIN, I EXPECT YOU ARE REFERRING TO AN OLD AND OUT OF DATE VALUATION FROMWHEN THE QUEENSGATE BUILDING WAS FULLY LET BY HOYTS. THE UNFORTUNATE REALITY IS THAT WE ARE ADVISED THAT THE CINEMA IS NO LONGER FIT FOR PURPOSE IN ITS CURRENT FORM AND FORMAT AND THIS DRAMATICALLY REDUCES THE QUEENSGATE BUILDING VALUE AS THE CINEMA COMPONENT TAKES UP AROUND 60% OF THE TOTAL FLOOR SPACE OF THE BUILDING. HENCE THE LAND AND LAND WITH CURRENT BUILDING VALUES ARE ACTUALLY VERY CLOSE TOGETHER.
    Valuing the Queensgate Centre building and land on a similar rental yield basis as the Queensgate Car Park and Spicer Site easily allows the total value to exceed $50 million. It is the CoF valuations that are under scrutiny here, not the FS statements.
    The Mayor expects the FS to release its advice, but it has not released its own valuations publically for scrutiny, and it still refuses to release the financial analysis it used to fabricate its positive NPV for this $47 million development.
    MARTIN, OUR INDEPENDENT VALUATIONS WERE BY CBRE & M3 PROPERTY AND THEY ARE HAPPY TO PUT THEIR NAME TO THESE. IN THE INTERESTS OF TRANSPARENCY CAN YOU TELL WHO DID YOUR VALUATIONS?
    The FS advice relates to the CoF assumption that the $47 million building (not building plus land) appreciates in value to $97.5 million in 20 years. The Mayor has already been told that the advice does not relate to the selling of $50 million of CoF property for just $29 million, so why does he continue to spin the FS advice as being otherwise?
    The FS advice from an independent licensed practising Property Valuer stated:
    “It is unbelievable to think that someone could or would state that a building (not building and land) would appreciate over a 20 year period.”
    “In a span of 20 years, buildings, despite the best care and maintenance, will not appreciate and in fact will depreciate over that period due to many factors being, but not limited to, obsolescence, fair wear and tear, inadequacy, lack of utility and impaired efficiency, exhaustion and changing building standards over the years.”
    “The residual valuation of the buildings in year 20 cannot be reasonable and is not a sound assumption for this Kings Square Project (KSP).”
    “The 20 year future estimate at $97.5 Million for buildings which cost $47.44 Million today is absurd.”
    Could the Mayor please explain his logic on “building appreciation” on a more relevant building than the Town Hall, such as the very one he is proposing to knock down and re-build. The Business Plan does not assume that the Council buildings being replaced have appreciated over their life. In fact these buildings are valued at zero in the CoF’s own analysis. They have been fully depreciated over their useful life.
    The Mayor’s logic is nonsense. His own reasoning is self-defeating, any only confirms how absurd it is!
    Land appreciates. Buildings depreciate. Ask the Tax Office or any Certified Practicing Accountant for their opinion if unsure.
    MARTIN, AS I HAVE SAID ABOVE AN INCREASE IN VALUE MAY NOT HOLD TRUE FOR A STANDARD OFFICE BUILDING BUT IT CLEARLY CAN DO FOR A CIVIC BUILDING DESIGNED TO LAST THIS IS ESPECIALLY THE CASE FOR A CIVIC BUILDING THAT IS A WINNER OF AN INTERNATIONAL DESIGN COMPETITION AND WILL SET A NEW BAR FOR SUSTAINABILITY IN FREMANTLE. (UNFORTUNATELY OUR CURRENT CITY OF FREMANTLE OFFICE BUILDING WAS NOT BUILT TO THIS STANDARD AND HAS BEEN ADDED ONTO IN AN HAPHAZARD MANNER AND AS A RESULT IS NOT LARGELY LOVED). I GAVE THE EXAMPLE OF THE FREMANTLE TOWN HALL WHICH COST AROUND 19,000 POUNDS IN 1886. BUT IT IS PERHAPS THE FREMANTLE LITERARY INSTITUTE – OUR FORMER LIBRARY NOW DOME ETC – THAT IS A BETTER COMPARISON. IT WAS BUILT IN 1899 AFTER A DESIGN COMPETITION FOR A TOTAL COST OF 1528 POUNDS. OBVIOUSLY TODAY IT IS WORTH MILLIONS OF DOLLARS. THE FREMANTLE COUNCIL IN A SIMILAR MANNER IS INTENDING ON BUILDING A BUILDING THAT WILL BE THE HERITAGE OF THE FUTURE AND DESIGNED TO LAST THE NEXT 100 PLUS YEARS.
    Without the ridiculous $97.5 million residual building value assumption, which is not discussed anywhere in the Business Plan, the value of the $47 million project collapses from positive $4 million NPV to negative $30 million.
    Add the discounted property sales and this project burns close to a $50 million hole in the City of Fremantle asset base, which has been built up slowly over many generations of hard work.
    If you think this is a great outcome for the City, then support it. If you think this a risk we cannot afford to take, then make a noise and oppose it! You decide.
    HERE IS A POINT WE AGREE ON. I ALSO THINK IT IS GREAT FOR PEOPLE TO LOOK CLOSELY AT THIS AND DECIDE. THEY SHOULD ALSO ASK IF THE FREMANTLE SOCIETY’S APPROACH OF BULLDOZING A FREEHOLD ASSET THE RATEPAYERS OWN IN THE CIVIC TRIANGLE SO IT CAN BE TURNED INTO A PARK IS A GOOD USE OF LAND WE OWN AND ZONED COMMERCIAL. IS IT WORTH DOING THIS AND AS A RESULT LOSING THE ONCE IN A GENERATION OPPORTUNITY TO HAVE STATE GOVERNMENT DEPARTMENTS IN THE CIVIC HEART OF FREMANTLE? I BELIEVE MOST WOULD SEE THIS AS A LOST OPPORTUNITY FOR FREMANTLE AS IT WOULD FAIL TO BRING MUCH NEEDED PROFESSIONAL JOBS TO FREMANTLE, THE FIRST REAL JOBS GROWTH IN ALMOST THREE DECADES.BUT HAPPY FOR EACH TO LOOK AT THE EVIDENCE AND DECIDE.

  7. Martin says:

    Brad,

    The valuation I am referring is the same vintage as the Business Plan, so your nonsense about it being out of date is either just more spin, or you really do struggle with simple logic. You made a decision to sell the Quueensgate Centre for $6.35 million with the full knowledge that it was at the time valued at $15.9 million.

    Your CEO has already explained to the public that the discounted price was thought to be necessary to facilitate Sirona knocking it down and rebuilding. It was stated that refurbishment was not acceptable, hence the discount.

    Sirona can do their development whether the Civic buildings get replaced or not. That is a fact!

    • Martin
      As I emailed you directly I had to unfortunately edit this response as it was potentially defamatory to the City of Freo staff who prepared the business plan.

      Another, disappointing aspect to this response is that it perhaps could have been avoided if you had taken up the offer made more than once in the last few years to sit down with myself or City of Fremantle officers to go through the business plan in detail with you. Some of the basic misunderstandings demonstrated in these questions could have been simply dealt with.

      You are incorrect around valuation of the Queensgate building. I am advised that a largely unlettable building with an out of date cinema taking over 60% of its floorplate is unfortunately cheaper to start again on that try and correct sloping cinema floors and the like. If you can provide a valuer today that will value you them at over $15 million I’d love to see it. CBRE and M3 Property do not agree with your assertion here and I will give this professional advice more credence unless you can provide evidence.

      Can Sirona do their development without our new civic building? We are contractually bound to do the civic precinct as well and that is part of our pitch to State Government that this would be a catalyst project for the centre of Fremantle. The need Queensagate also to accommodate the expected size of the government office

      regards, Brad

  8. Paul says:

    As a ratepayer I fully support the Fremantle Councils plan for Kings Square – the activation and jobs boost will be an enormous catalyst for fremantle.

    This is the same crew with Linley Luttton’s involvement who wanted to keep a dead peice of grass in place of the hugely successfull Elizabeth Quay – now they want to rip down all buildings in Kings Square and replace it wiith another useless peice of grass. They were discredited in Perth and so they should be in Fremantle.

  9. Martin says:

    Brad,

    Are you actually saying that the CoF is “contractually bound to do the civic precinct as well and that is part of the pitch to the State Government”? This would mean that the CoF has committed ratepayer funds to help one private developer (Sirona) win a contract with the State Government over another private developer (Silverleaf) – is this legal?

    Next month the CoF’s current contractual obligations with Sirona are supposed to end – are you now saying that this is in fact not the case?

    Regarding your heavy editing of my last comments:

    As the public, myself included, have no idea whatsoever who within the City of Fremantle prepared the Business Plan or the extent of their involvement, it is nonsensical to state that the statements are potentially defamatory to City of Freo staff, a fact you will be well aware of.

    There is no such thing as “potentially defamatory”. You either believe something is defamatory or you believe it is not. I have written to you separately to ask you to please explain which comments were defamatory, as your comments come as a surprise to me. I have simply called you out on many false statements that you have made, and supported this with the facts.

    I have seen another Councillor recently use the same threat of defamation against a ratepayer in order to silence him. The Councillor late retracted his version of events when he was called on to support his statements. Is this just a new Council tool?

    You have simply edited out all of the comments in which I have pointed out that your statements cannot be supported by the facts.

    If you have a real issue with the comments I have made, and can demonstrate why you think they may be defamatory under the Law, I will be happy to edit those comments. You deleted 80% of my comments, most of which has nothing to do with the Business Plan or its preparation, but with unsupportable statements you have made recently.

    Another word for this is censorship…

    • Martin
      Yes we are contractually bound. The fact you ask this question makes me wonder if you have actually read the business plan? It is to help Freo not one developer.

      I have only censored out you nasty comments about third parties. Lose to personal attacks and tick to the issues and the rules of engagement and you won’t get censored. Simple

      thanks, Brad

  10. Gareth hancox says:

    As a CBD resident, ratepayer and CBD business owner, I am looking forward to the development of the area and the introduction of many new jobs to the area for the project and for the future years when completed

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