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Wellington Regional ratepayers on the hook for earthquake damage

This morning the Taxpayers’ Union went public (click here for the Dominion Post coverage) with concerns regarding the oversight of Wellington’s CentrePort by the majority shareholder, Greater Wellington Regional Council.

The Council owns 76.9% of CentrePort, which has invested heavily in the 'Harbour Quays' development – a series of office buildings adjacent to the Wellington train station.  

I am familiar with the developments, and the risks to ratepayers, as some years ago I acted for  group promoting Wellington’s liveable and compact central business district.  We submitted to the Council’s Long Term Plan and showed that the Council was not recovering a market return given the nature of the Port’s property development activities.

As an example we referred to the Majestic Centre to remind councillors how risky large scale office development is.  It was budgeted to cost $150 million. After the developers and the receivers finished it the total cost in 1991 was reportedly $205 million including funding costs.

It was sold to Kiwi Income Property Trust for only $48 million 3 years later.

The most recent annual report of Kiwi Income Property Trust Limited shows the current fair value of the Majestic Centre at $61.3 million, less than half the cost of development over 20 years ago. The same report also reports that $54 million is required to bring the building up to 70% of code.

In the most recent CentrePort Annual Report, the Chairman, Warren Larsen, says: 

"In 2014, the company will advance new plans for the popular Harbour Quays property precinct. These investments play a vital role in funding port growth plans.”

Mr Larsen goes on to say:

"Impact of recent events

On Thursday 20 June 2013, an intense cyclone brought strong winds and high waves to central New Zealand, causing damage to much of the region, including CentrePort. Wind gusts of up to 200km per hour were recorded.

Though outside the reporting period, it is important to note the 6.5 and 6.6 magnitude earthquakes that struck central New Zealand on 21 July and 16 August 2013, respectively.

Importantly, the port resumed operations immediately after the events, but the earthquakes caused damage to some CentrePort property, most notably the BNZ building which has been vacated for repairs to the interior of the building.

CentrePort is working with its engineers, insurers and affected parties to determine the exact cost of the repairs, which will flow through the business in the months and year ahead."

So, in January I asked the Council what the expected costs of the Earthquake were and whether impairment adjustments have been made to the value of CentrePort’s investment property portfolio.

Despite reports only in the last few weeks that some BNZ staff are still not able to work in the Harbour Quays building, Wellington Regional Council don’t know how much damage/cost resulted from the quakes.

The Council’s response to my information request is below.

Plenty of buildings were damaged by the Cook Strait quakes - why is it important in this case?

The key reason why ratepayers in Wellington should be concerned with CentrePort’s buildings, and the further development hinted at, is that unlike any other property investment company, Greater Wellington guarantee CentrePort’s debts.  That means, that unlike any other property developer, if things really do get nasty, Wellington ratepayers will be in the gun.

You’d think in these circumstances, Greater Wellington Regional Council would be keen to keep a close oversight of the Port and it’s property investments.

Apparently not…

Below is the Council’s response to our request for information.  Note that the Council only appears to be concerned with direct out of pocket costs (it words losses in terms of “the Council is paying NIL”).  As I experienced back in 2012, the Council does not appear to understand that losses and risks borne by CentrePort are tied to the Council thanks to the debt guarantee.

We think there are some key questions:

1. What was the extent of damage at the Port and it’s property development arm - “Harbour Quays”?
2. Who is bearing those costs?  The Port, the tenants such as BNZ or insurers?
3. Given the revaluation losses in the past, will CentrePort be forces to write-down (impair) the value of the Harbour Quay buildings as a result of the Cook Strait quakes?
4. Why doesn’t the Council have the information?  What oversight are they having of the Port?
5. Why does the debt guarantee exist in the first place? Why should Wellington ratepayers subsidise the Port to borrow cheaply to develop buildings that pull people out of Wellington’s CBD and onto Port land?
The Council’s response to our request for information is available below.

Greater Wellington Regional Council ltr received 10 Feb 2014 re Centre Port information request

Jordan Williams
Jordan Williams