Murky accounting on Munro deal

By Shane Scanlan

The actual figures remain murky, but it appears the City of Melbourne’s 2014 investment in the “Munro site” adjacent to the Queen Victoria Market (QVM) has blown out spectacularly.

At face value, the council seems to have paid $60 million too much to achieve $70 million worth of community facilities at the site and partial freehold ownership.

The council told CBD News it was spending net $129.3 million for the facilities (which it values at $70 million) as well as retaining 33.25 per cent of the overall site and some new public connections with the CBD.

Gross figures remain unavailable, as do full details of its deal with joint venture partner PDG Corporation – although the council has revealed PDG is paying $26.7 million for “development rights”, a very modest sum in the circumstances.

The council bought the Munro site for $76 million (it says it has paid a further $10 million in “acquisition costs”) on the assumption that it could be sub-divided with a total of 1800 apartments on the land in multiple towers.

At the time of purchase, a 20-metre height limit applied but the council gambled and lost on former permissive planning minister Matthew Guy lifting this to 200 metres.

This didn’t happen because, weeks later, the coalition lost office and his successor Richard Wynne took a much tougher line.

The recently-approved planning permit for the site allows for just 410 apartments – of which 48 are deemed “affordable”.

The actual council losses would be known to only a select few (and probably not any councillors) and could be well north of $60 million.  For instance, on what basis does it value at $70 million its yet-to-be-defined community facilities.

In this newspaper in May, former City of Melbourne finance chair Stephen Mayne was talking about $30 million worth of community facilities.

Former councillor Mayne was there when the council thought it would make $56 million on the partial sale of the land for the apartment developments.

He wrote: “However, when buying Munro, the plan was to partially recoup the investment by quickly flicking part of the site to a high-rise developer. At the time, there was talk of three towers and 1800 apartments.”

“With a 20-metre height limit, council took a lot of risk on Munro … Eight months after the change of government, council remained optimistic as can be seen in its 10-year financial plan adopted as part of the 2015-16 budget. Page 38 assumes a cash receipt of $56 million to arrive in the 2016-17 financial year.”

“Alas, reality dawned on council over the next 12 months and, rather than receiving $56 million from the partial sale of Munro, after an exhaustive competitive tender process councillors voted to do a joint venture with developer PDG which would see a further $50 million council investment on Munro, potentially rising to $80 million if Dick Wynne didn’t sign off on a proposed 600-apartment, single residential tower.”

Whatever the council’s Munro site investment and/or losses, it is determined to isolate them from figuring in its overall QVM redevelopment estimate of $250 million. This is a mistake. Why not just calculate the lot?

It seems clear that this net $250 million figure was plucked out of the air early in the days when former lord mayor Robert Doyle was doing land swap deals with the former Napthine government.  But the council is sticking with the number and is only prepared to factor-in the still-to-be-revealed cost of providing 503 Munro-based car spaces in its QVM estimates.

At the same time, it flaunts the value of Munro in freeing up the current car park for a civic space – a central plank of its motivation for QVM redevelopment.  Can it have it both ways?

It will argue it has “invested” at Munro, while others will see the outcome of its dabbling in property speculation as a straight loss.

As reported elsewhere in this edition, the council is moving with indecent haste to evict children and their parents from its central city childcare facility in A’Beckett St, which originally wasn’t meant to close until the much larger Munro site alternative facility was open for business.

True to form, the officer report to its June 21 Future Melbourne Committee doesn’t actually mention the fact that the council intends to sell the property to off-set its losses on Munro and subsidise the cost of the QVM redevelopment to stay beneath its artificial cap of $250 million. Why the hurry to sell A’Beckett Street? Are the numbers that bad?

I daresay the council will be pleased to include this asset sale to support future reporting of its net $250 million market redevelopment estimate. The same will apply when it eventually sells the large surplus site on the southern boundary of the market, once it has fulfilled its contractual commitments to the state government by constructing the new Franklin St.

It will only presumably be after the sale of this site – which could raise upwards of $50 million – that council will be able to claim its “net investment” in QVM is below the arbitrary $250 million – provided you don’t include its overspending at Munro, of course.

Stephen Mayne is a journalist and former councillor, who chaired the City of Melbourne finance committee from 2012-16.