In October 2019 Council staff signed a development agreement with Australian developer Ninety-Four Feet and Augusta Capital to develop the Lakeview site in the Queenstown Town Centre.

In signing the deal QLDC became a property developer and took on a level of financial risk that I am increasingly uncomfortable with – not least because we are on track to get up close and personal with our debt limits in a few years time. There is no room for budget blowouts or unnecessary expenditure – but Lakeview is already delivering.

The costs of holding up QLDC’s end of the deal – that is, getting Lots to title for sale – are increasing. The cost of asbestos removal has just increased by $6.3 million, and the budget for the infrastructure works has doubled from $19 million in the last Ten Year Plan (LTP) to $40 million in the draft LTP (that’s pre-procurement).

The value of the deal is now public knowledge – just $75 million to Council over (potentially) 20 years – and questions are now circulating about the development and the deal, including “Can we get out of it?”. 

Given we’re consulting on the Draft LTP and this project is consuming a large chunk of our discretionary spend over the first 3 years, I thought it was about time I shared a few concerns and provided some background and sources of information for those of you wanting to know a bit more.

THE DECISIONS

The Council has for a long time debated what to do with the Lakeview land.  A report to Council on 26 October 2019 (link below) helpfully sets out some of this background including the rezoning to ‘Queenstown Town Centre’ under PC50 in 2016 and the failure of the Conference Centre proposal to take flight.

On 17th August 2017, Mayor Boult’s new Council approved development objectives for the site including to:

a. [Note this one] “Maximise financial return in a manner that minimises risk to ratepayers“; and

b. “Establish a thriving residential focused, mixed use precinct, which is stitched into the Queenstown town centre context.”

Council also agreed: to engage with the market and select a development partner (or partners); to undertake consultation with the community on the nature of tenure for the commercial land; and directed officers to report back to the Council on transaction options for disposal of the land.  To be clear that was both ‘agreement to consult’, and ‘agreement to engage with the market on land disposal’, all at the one meeting.

Just two months later on 26 October 2017, Council approved the intention to enter into agreements with the private sector. Council also:

  1. Authorised the CE to negotiate and execute transaction agreements with development partner(s) (subject to the parameters) [without coming back to full council]; and
  2. Committed QLDC to delivering the required internal infrastructure, roads and public space to allow transfer of the Land (serviced lots) to developer partner(s).  N.B. There were no financial constraints attached to that commitment.

The Development Agreement (DA) was eventually signed 2 years later in October 2019. So the commercial deal was done during the term of the current Council, but staff were acting on a Decision of the previous Council made 2 years prior in October 2017.

Also in 2017, QLDC applied for resource consents for a subdivision to enable a reserve land exchange (to swap reserve for freehold) and a further subdivision application to create the 12 Lots.  The applications (RM170923 and RM170924) were received by the processing planner on 21 December 2017 and a Decision was first issued on 8 February 2018. It was then reissued on 20th Feb. Obviously, given that timeframe it was processed non-notified.

An application for the reserve swap followed in mid-2018. That process relied on consultation under the Reserves Act and a decision of the previous council – both dating back to 2015.  The details are in the Resource Consent documents on Council’s EDocs site (RM170923 and RM170924).

CONSULTATION:

The land to be sold included part of the Queenstown Holiday Park.  The October 2017 Decision authorised the CE to cancel part of CCR Limited’s lease and remove Designation 211- Recreation Reserve (Motor Park) from the District Plan as it related to the Block for sale.  

There was a 3-week informal consultation that ran from 18 August to 8th September 2017.  A special consultative process was not been deemed necessary because the land was not considered to be a strategic asset. 

“All Queenstown Campgrounds” are listed in the Schedule of Assets in our current Significance and Engagement Policy but QLDC, although it was planning to sell the land, didn’t own the land at that point (it was still reserve) and the (Motor Park) designation was removed before the land became freehold. Whether QLDC owned built assets on the land proposed to be sold is another matter. I don’t have the facts on that just yet.

The consultation document – the ‘Lakeview Tenure Engagement Document’ – was a 4-pager (including title page) describing two options for the future of the land – a prepaid long-term lease of over 100 years was discussed or sale as freehold.  Both options are effectively a sale.  There were no other options considered and this was noted by submitters. 

The 2018 Long Term Plan was a special consultative process and it certainly allocated budget for getting Lakeview Lots to title ($19 million) but that total budget was scattered across multiple funding tables, and I believe the first time Lakeview is mentioned in the text is on page 111 where it says, under the heading ‘Economic Development’:

“COMMERCIAL PROPERTY Development of the Lakeview site, as agreed in October 2017 by the Council. This will enable investment in Lakeview to implement one of the key initiatives identified as a means to address specific opportunities and challenges faced by the district. The development of the Lakeview land will unlock significant funds” [Note the last sentence].

After the recent High Court Decision on the Wanaka Airport Lease I do wonder whether we have met the requirements of the LGA in terms of consultation on this extremely valuable and strategic piece of land. 

THE DEVELOPMENT AGREEMENT AND THE COSTS

QLDC is not selling the whole 10.4ha Lakeview block.  The agreement is for a leasehold interest in 0.5487 hectares of land and a freehold interest in 2.5457 hectares.  Over 6ha of land will be held by the council in perpetuity.  However, most of that is land between the hill and the development and/or is land that will accommodate infrastructure to support the private development i.e.roading corridors, rock fall mitigation infrastructure, 3 waters infrastructure, and the central plaza.

The details of the development agreement are commercially sensitive but the basics are that QLDC must clear and subdivide the land, put in the infrastructure (roading, rockfall mitigation and 3 waters) and get 12 ‘super lots’ to title.  The consortium will pay $75 million for the 12 serviced lots, with the lot sales staged – potentially over 20 years.  

The 2018 LTP set aside around $19 million to develop the land and progress the deal; the draft LTP, currently being consulted on, has had to budget $40 million.  Costs beyond that figure include:

  1. Repayment of outstanding loans (cabin purchase of $4 million);
  2. Asbestos clearance (currently budgeted at over $8 million)
  3. Management overheads (resource consenting, market engagement) estimated at 1.4 million back in 2017 and likely to have increased;
  4. 5% of land value contribution to the Queenstown Lakes Community Housing Trust (QLCHT); and
  5. The costs of the construction of the new stormwater line from Thompson Street down Brunswick Street. 

It’s clear that the costs are mounting and could easily increase once we get further into the groundworks.  However, at this point QLDC has only cleared the old cabins, completed a reserve swap and a subdivision consent, and is in the process of clearing asbestos from the site – we’ve not yet broken ground on the on-site infrastructure works. So the big questions are what are our options at this point and what does the community want to do?

MY CURRENT CONCERNS:

  1. In terms of the bigger picture – I think the Council needs to stop delegating authority for the negotiation and sign off on leases, land sales and development agreements. On Lakeview…
  2. The costs are increasing and the ‘not at risk’ profit (from the $75 million) is shrinking fast;
  3. This project is consuming a large chunk of our discretionary capex spend in the first 3 years and that may get larger N.B. this is a commitment with potentially huge opportunity costs (because our draft capex budget takes us frighteningly close to our LGFA debt limit).
  4. QLDC has to fund all infrastructure for all the Lots ‘up front’ but may not get paid for the last lot until 20 years down the track. The future value of the price of the last lots will obviously be a lot less than current value. Meanwhile, we will pay the interest, the depreciation and the maintenance on the infrastructure works for Lots that haven’t been sold; and finally,
  5. Lakeview is prime real estate – there are no guarantees regarding affordability or occupancy and therefore no guarantees regarding benefits to the community.

Moving forward, I believe we have a responsibility to understand all options open to the Council at this point, and we should be requesting an objective assessment of the Lakeview project and development agreement – against the objectives agreed in August 2017, but also against current needs and against our financial reality. Now is the time to do good governance on Lakeview.

The 17 August 2017 and 26 October Council Reports can be accessed from this page: https://www.qldc.govt.nz/your-council/council-documents/agendas-minutes/full-council#2017

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