New council looks at options for leasehold land in its care

WATERFRONT SPACE: West Quay in Ahuriri is expected to "continue to experience regeneration" according to a report prepared for the council. PHOTO / WARREN BUCKLAND

The new Napier City Council has only been in office a few days, but already faces a burning question that, in varying forms, has tested its predecessors for up to 140 years.

It's the future ownership of the council's commercial leasehold lands, its Investment Property Portfolio of 76 properties in the Onekawa and Pandora industrial precincts and the inner harbour end of Ahuriri. It is land that almost literally rose out of the water, mainly in reclamation begun in the 1870s by the long-gone Napier Harbour Board, or the "act of God" 1931 earthquake.

Under the arrangement, the council (lessor), in return for rent, leases property to a lessee, who has the right to use the land, including developing buildings.

The leases are perpetually renewable, with rent reviewed at intervals (most every 21 years), a practice often referred to as Glasgow Leases.

This land, some of which was transferred from the (Hawke's Bay) Harbour Board, which was legislated out of existence by local government re-organisation in 1989, represents about 17 per cent of all industrial land in Napier.

It is also less than a fifth of all leasehold land in Napier, with parts owned by the Hawke's Bay Regional Council (which inherited many harbour board functions and assets under the 1989 re-organisation), and by churches, lodges and trusts.

In the latest move, the outgoing council of retiring mayor Barbara Arnott released a Statement of Proposal and called for submissions in relation to its land. Submissions close next Friday, with just three delivered up to Thursday this week.

A date will be set for a hearing, hopefully next month, when submitters will be able to speak to their submissions, before a policy decision can be made by the new council, headed by new Mayor Bill Dalton, and comprising five new councillors. The council has a hearings committee, comprising re-elected councillors Tony Jeffery (chairman), Rob Lutter (deputy), Mark Herbert and new Deputy Mayor Faye White, but as it's a policy matter the hearings could be before the full council.

Current council policy is that it will not sell individual properties within the portfolio, preferring to retain them for the ongoing benefit of Napier.

According to a report prepared for the council, the properties were collectively valued at $31.3million plus GST at the end of June and generate about $1.5million for the council each year.

Income from properties transferred from the (Hawke's Bay) Harbour Board to the council in 1989 is used to fund the net cost of the inner harbour and maintenance and protection of foreshore reserves, which had been a function of the board, and income from other properties offsets rates. The annual revenue is equivalent to 4.6 per cent of general rates funding, from which those purposes would probably need to be financed if the portfolio did not exist.

With the development of apartments on some sites creating a residential aspect and some lessees calling for the right to freehold the land (ie. buy it).

A small proportion (endowment lands) cannot be sold. It's governed by acts of Parliament.

But the council is prepared to consider options for the portfolio, and the vexed question of sale or no sale, with implications such as whether it's the best thing to do, or simply transferring public wealth into private wealth.

Because of the length of tenure, the report to the council says, the cash return is typically relatively low, as a percentage of asset value, but when compared to the initial investment, returns start over time to "look very strong".

Thus, the council has put the properties in two categories - Class 1 being the endowment lands and those seen as having high strategic importance (waterfront development in terms of the city's interest being one factor), and Class 2 being those with less strategic importance.

In respect of West Quay, where the accommodation and hospitality trade has been born out of former wool stores and other port-related activity, the report says: "This area is expected to continue to experience regeneration and in the long term, given its waterfront proximity, future generations may place high value on council's continued ownership of this land."

The Napier council has prided itself on having among the lowest debt of the 67 territorial local authorities in New Zealand - about $2million at the time of the report, which says the council is "on track to extinguish external debt" by the end of the next financial year (2014-2015).

The council needs to ensure that if it were to sell some properties it obtained maximum value in the interests of the ratepayers, and that it could reinvest to generate satisfactory ongoing equivalent revenue for what the report says is relatively low risk and cost effective to manage.

The report has three options, including changing council investment policy to allow freeholding of all the properties.

The report says it's not a viable option for council's property portfolio policy in the short or long term. Retaining the current policy is seen as a viable option, which could, however, be unhelpful in terms of future options.

The council's preferred option is to allow freeholding of specified properties, but not the endowment lands, nor the strategically important.

Announcing the process last month, Mrs Arnott said: "Council is proposing that it will, at its discretion, be able to sell or purchase the lessees' interests in non-strategic land to facilitate economic growth in Napier.

"This could include redevelopment of an existing property in partnership with another party.

"The qualification on this proposed change is that proceeds from a sale of land are reinvested in alternate property," she said. "This ensures income streams for current and future generations."

She said the changes would enable the council to facilitate, if the chances arose, business growth and job opportunities.