Queenstown Lakes District Council appointed a Melbourne/Auckland consortium as preferred bidder on Friday to develop the Lakeview site in Queenstown.
Lakeside, the former camping ground on Cemetery Rd, on the hillside above the town, is still used for motorhome parking. It covers a total 10.4 ha, of which 4.4ha is part of the council’s commercial portfolio and the balance taken up by reserves & roadway. The consortium proposes staging its development of 3ha over at least 10 years.
The consortium led by Melbourne developer 94 Feet Property Group Pty Ltd has Auckland-based investment company Augusta Capital Ltd & Britomart Hospitality Group Holdings Ltd as partners, with New Zealand urban designers, architects & constructors in its team.
Ninety-Four Feet’s first investment in New Zealand, announced last July, is a $250 million investment in the first New Zealand Hotel Indigo, a 41-storey, 225-room hotel at 51-53 Albert St & 23 luxury apartments above it, with consent to rise 131m. A heritage listed building will be restored & incorporated into the new hotel.
Augusta managing director Mark Francis said the NZX-listed funds management company would take a 25% stake in the consortium. As part of the terms of the consortium, Augusta will have the first option to acquire parts of the development which it intends to use to provide product to its soon-to-be-established residential & tourism funds.
Britomart Hospitality Group has over 20 hospitality businesses in Auckland, Wellington, Christchurch & Hamilton after developing the Britomart precinct in Auckland. Britomart will be responsible for curating & activating the retail spaces at Lakeview.
The other 2 candidates for the job when the council closed its expressions of interest process last September were:
- MGL, a consortium comprising alternative asset manager HRL Morrison & Co Ltd, family office investor Tailorspace Ltd, private wealth partnership LJ Partnership and construction company Southbase Construction Ltd, with Warren & Mahoney as urban designers & lead architects, and
- MRCB, a Malaysian urban property developer with a large portfolio of integrated mixed-use commercial, residential & transport-oriented projects, supported by Taylors Development Strategists (NZ) Ltd, subsidiary of a Melbourne company which established a presence in Christchurch 5 years ago.
Hot pools & hotel
Alongside the selected design, other elements of the Lakeview precinct will be delivered through other council development partnerships. These include a hot pools attraction delivered by Ngai Tahu Tourism Ltd and a new hotel developed by Well Smart Investment Holding (NZQN) Ltd. The council will retain part of the site in the short to medium term as tenant accommodation.
The Queenstown council’s chief executive, Mike Theelen, said: “The consortium’s design is one we believe everyone will find exciting and that aligns with our goal of a resilient local economy. It delivers a broad mix of residential options, responding to growth in the town, and inclusive of worker & co-located living. It meets the diverse needs of Queenstown’s community and brings to life council’s development objectives for this site, making this more than just a financial proposition.
“Alongside a range of commercial & community facilities, the consortium’s design integrates well with the landscape and existing town centre.
“Perhaps most importantly it is phased to deliver the high density residential product early in the programme, responding to the need for more affordable & innovative solutions to the town’s housing challenges. These considerations aligned with the outcomes the council is looking for and made them the strongest proposal.”
Augusta’s Mark Francis said: “Lakeview is a once-in-a-lifetime opportunity in Queenstown which we are excited to be a part of. This transaction continues our recent move into sourcing product through alternative avenues as investment grade properties become harder to acquire, providing a strong pipeline of stock for our planned tourism & residential funds.
“It also illustrates the dynamic manner in which we can use our balance sheet to secure such product. As a development partner though, we believe the investment stacks up on its own accord outside of the product that it will provide.
“The investment is consistent with our positive view of the Queenstown market following the recent acquisition of 17-19 Man St, Queenstown. A hotel development is planned for the property which will ultimately be acquired by the Augusta Tourism Fund when established later this year.”
The tenure debate
The council has outlined, on its website, historic development possibilities for the site that were passed up. The council has previously been in a position to sell the commercial land, but this was shelved due to the global financial crisis and risk that the landholding benefit would not be optimised. One part of the land was also the preferred location of a proposed convention centre. The success of a convention centre on the site was predicated on ensuring that funding of the project did not fall to ratepayers. The proposal has therefore been set to one side.
Current market conditions, combined with recently rezoning (plan change 50) the site, means that now is considered an optimal time to consider taking the commercial land to market and achieve best value for ratepayers.
In accordance with plan change 50, the commercial land may be developed as a range of small commercial, residential & visitor accommodation activities. The council proposes to retain community ownership of parks & reserves on the site including a proposed market square. Including roading corridors, this will amount to about 6ha of land held by the community in perpetuity.
The council considered 2 ownership & tenancy options – leasehold & freehold, and also outlined those.
The pre-paid challenge:
“In addition to potentially having an impact on the price the council will receive for the land, there could be other challenges associated with prepaid leasehold tenure.
“The terms of expiry of a prepaid lease can be negotiated, but commonly the lease expires and any improvements revert to the landowner. In theory this sounds attractive, but the legacy could carry a significant risk. As the expiry date approaches, owners are incentivised to underinvest in the improvements on the land.
“The second challenge is that the asset being run down is cheap, and therefore treated as second-rate housing. The community may find itself taking over ownership of largescale residential apartments that have been completely run down. It may also be faced with significant cost in terms of upgrade or removal. Removal could be potentially problematic faced with a large number of low-wage or fixed-income tenants and a social dilemma in terms of largescale displacement.
“In general, property advisors estimate underinvestment & deterioration of the area can generally commence some 30 or more years out from the expiry date. Lease conditions may be able to be invoked, but are generally considered unenforceable in these circumstances.
“With this context, the question then becomes one of legacy either way, and this needs to be well understood before heading down the prepaid lease route.”
The freehold counter:
“The counter argument is that freehold tenure is more likely to ensure that the value of the property is retained, if not increased, and therefore investment in the amenity of the property continues to be a desirable prospect. The private sector is most effective & efficient at doing this.
“The council would need to continue to invest in the amenity of the reserve & roading infrastructure on an ongoing basis, regardless of the tenure decision, but the freehold option does ensure that ongoing investment on the remaining property sits firmly with private parties.”
Attribution: Council release & website, 94 Feet, Augusta.