Rumbles on the waterfront

The financial spinoff from the America's Cup may be as much as $1.3 billion, but RON TAYLOR finds that there could be losers too.

Breaking near even on the $70 million of Auckland public money sunk into the America's Cup may depend on a stroke of the Auckland City Council's town planning pen.

It has provisionally zoned about half of the racing syndicate and luxury yacht berth reclamation in the Viaduct Basin, created by America's Cup Village Ltd, as commercial. This substantially reduces its value on the open market.

As a result, coupled with the ripple-effect of the Asian contagion on international money markets, America's Cup Village Ltd, financed mainly by trust money from Infrastructure Auckland (formerly the Auckland Regional Services Trust), is staring at a possible loss of $16 million.

And while executives are reluctant to get embroiled in a public fight, there's a lot of muttering around the waterfront among developers about a Machiavellian city looking for a property windfall after the racing is over.

The critics see the city's play as a double whammy. It works like this.

When the regional trust (renamed Infrastructure Auckland this year) was set up, mainly with assets accrued by the defunct Auckland Harbour Board, legislation decreed that everything had to be handled in a commercial manner. The trust could not give anything away.

To fund the cup venue development - and nobody else volunteered, despite a potential spin-off of at least $1.3 billion for the country -- the trust required a special amendment to the Local Government Act.

In the process Auckland City lobbied Parliament and got a change to the effect that if the trust had to dispose of its cup assets after the event, it could give them away to a local authority.

Then last October the council revealed its designation for the Viaduct Basin Precinct in the proposed district plan. The southern and eastern part of the redevelopment, including that part known as the log farm, go mixed recreational entertainment and apartment use status.

But the northern seaward landfill and pile extension was lumped in with the existing western reclamation and listed as commercial, effectively down-grading the re-sale value.

While the council's jurisdiction covers only the solid landfill (that on piles is "coastal marine" and the Auckland Regional Council's responsibility under the Resource Management Act), the cynic's scenarios is that a point could be reached where Infrastructure Auckland would give the commercial area away rather than sustaining further costs and losses. The only logical beneficiary would be the Auckland City Council.

The official reason given for the commercial tag is proximity to the harzardous fuel storage depot, loosely called the tank farm, which has been an eyesore and potential disaster flashpoint on Auckland's foreshore for more than 50 years.

So where Team New Zealand and five other challenge syndicates are based, plus about half the berths for the super-yacht spectator fleet of mega-millionaires, is regarded as "a societal risk" area in the jargon of the city's planners.

There's a possibility of injury or death in the event of a fire or explosion at the tank farm. The chance of that is assessed at one in a million, but even so the risk designation precludes restaurants, bars, recreational use and apartments in the commercial area - which are exactly the uses required for Infrastructure Auckland to gain the best return on its investment.

The council's central area planning manager, Janine Bell, emphasises that the designation is provisional and says the new city council will hear objections next year. Its decision may also go to Planning Tribunal appeal.

"There is always improvement going on in that [tank farm-western reclamation] location and it may be that the risk contours change again … but if there's an incident, and we have large numbers of people living on the location, there'll be questions - why did the council let it happen?

"I can see the financial situation but we've got to look at the sensible resource-management approach … The responsible thing for us to do at this stage is to ensure we don't have large numbers of people in an area where it's not compatible."

Early this year the Department of Urban Affairs and Planning from New South Wales was called in to update a risk assessment it did on the western reclamation and tank farm in 1989.

The Australians were commissioned by the city, Ports of Auckland, Auckland Regional Council and the four major oil companies with facilities at the tank farm. They backed up the city planners' risk assessment on which the zoning is based.

While there are those pushing to shut down the tank farm, others want it retained; most leases run to 2026.

The apartment developments and services going up on the southern and eastern parts of the Viaduct Basin are "within the negligible societal risk band" - where the city's Harbour Edge Committee estimates it will have spent about $40 million by the time racing starts.

That figures includes land purchase and roading, widening the lighter basin by 20m, new seawalls, promenades and stormwater separation to stop sewage pollution.

"Totalling our contribution and Infrastructure Auckland's it means a redevelopment worth at least $120 million," says Harbour Edge project manager, Mark Kunath.

Craig Little , chairman of Infrastructure Auckland, says that whatever the outcome of the zoning argument, the final value of the village project is going to be substantial. How it's managed may well depend on who wins the cup.

If New Zealand retains it, and Infrastructure Auckland holds on to the facilities until another challenge in another four years time, then it is presumed the value will increase because of the stimulus the project has provided for private developers.

"We're creating a super-yacht service facility and the marine industry is one of the most successful in New Zealand at the moment… we may lease [the village development] in the interim period," says Little.

"While there's a whole lot of unknowns, I've got to say the way it's shaping is still very positive for us if we can hold on there long enough for property values to increase to the point where [the projected loss] comes back to zero. Hopefully that wouldn't take too long."

Even if New Zealand loses the cup, there's no requirement for Infrastructure Auckland to quit the development. The law says that, beginning June next year, the trust must report publicly and annually on the investment. But there's no direction on what it must do.

"We could sell then and there before the challenge starts, capitalise on expectation, although that's most unlikely because in effect we've become the catalyst for the whole event," says Little.

"There are imponderables. It could be better and it might be slightly worse, but the board of America's Cup Village Ltd have assured us they now have all of their funding needs met. If they wanted to come back to us for additional funding they'd have a very hard time getting it."

After the euphoria of Peter Blake's America's Cup win, the hard-heads who had to finance the defence regatta called in accountants Ernst and Young to assess the financial and economic impact to Auckland and New Zealand.

In 1996 the consultants came up with an estimated $600 million fillip for Auckland and $1.3 billion for the whole country, taking into account increased tourism, new jobs, marine services, food and beverages and intangibles such as New Zealand's international exposure.

Nearly 18 months ago Infrastructure Auckland's predecessor, the regional trust, commissioned economic analyst Dr Brent Wheeler to double-check the figures. He concluded that the assessment was "conservative" and put the spin-off for Auckland at between $500 million and $800 million.

Today, while Wheeler remains "quite happy" with the forecast parameters, the New Zealand and world economies have changed.

"The reasoning [for the benefits to Auckland] remain the same," he says, "but I think we're now closer to the lower $500 million mark. That's only being realistic… spending patterns have changed."

America's Cup Village chief executive, Rob Sutherland, does not accept Wheeler's "lower $500 million."

"He hasn't taken into account the visiting super-yachts. When we revisit [Ernst and Young's $1.3 billion figure] as we intend in the next few months we'll prove them quite conservative…

"While the world economic down-turn will have some effect, basically people with lots of money will still have plenty of it, and they'll want to have entertainment and fun here…"

He says 41 super-yachts have already paid a $35,000 non-refundable deposit for a minimum stay of four months and "they're still lining up."

United Yacht Carriers has 18 of the craft on a voyage to New Zealand in November next year and 28 on two earlier trips from America alone. There are another 111 boats on a waiting list.

Sutherland says there may be as many as 200,000 guests - "and they're the wealthy, who'll have an enormous impact, not 200,000 backpackers."

With guests coming and going, and the corporate sponsorships and entertainment facilities available for lease and still to be finalised, there are "hundreds of millions" involved.

One project underway is a $3 million-plus three-deck floating barge that will serve as a bar and restaurant. Unless they are members of the American Express Yacht Club, the public will not have access to it.

Sutherland says the competition estimates and cost benefits were compiled on the basis of 10 syndicates taking part. There are now 13 booked into the village, including Team New Zealand, although one may yet drop out. Another three syndicates are accommodated elsewhere. Previously the largest number of competitors at an America's Cup regatta was seven.

The chairman of America's Cup Village Ltd, Lindsay Fergusson, says a lot of people still haven't come to grips with just how big the event is and the extent of ongoing benefits to Auckland, economically and physically.

The putrid Viaduct Basin is being cleaned up and the water deepened. Five hectares of extra waterfront and a long-term marine base have been created with 1.5km of berths, public walkways and a man-made island which will be given to the city as a park.

"It would be very difficult to get all that for $16 million [the possible loss] spent in isolation. For every dollar we've spent down here [about $80 million including the Government's contribution of $10 million] we've generated $2 of private-sector investment.

"The benefit comes back to the community at large - it's not for the benefit of a relatively few wealthy… None of that [construction and apartment development] would have taken place but for us.

"This is not just a rich man's occasion as detractors make out. We're turning it in to an event for everyone both on and off the water, and the entertainment and facilities will cater for all tastes and pockets."

Says Sutherland: "When you look at the Government contemplating working with the city of Wellington to spend $200 million for a Commonwealth Games, an event which has rather lost its way, this is a far better payback… even if [the cup venue and development] cost $100 million as it did in Western Australia it would still be a very good return for this country."

Fergusson, chairman of the Citizens and Ratepayers Association, a Reserve Bank director and former chief executive of New Zealand Steel and Magnum Corporation among others, emphasises that all the estimates and returns have been conservative because "we don't want people at the end to have unpleasant surprises from an over-promise."

"That's why we have a commercial board of directors running this thing and a professional chief executive, and we'll keep that net cost to the public to a minimum, although we've never hidden what it may be …

"Our best assessment at the moment taking into account the proposed [district plan] zoning, is that the net cost to our shareholder, Infrastructure Auckland, could be $16 million.

"Clearly if the reclamation was given a higher value by broader zoning you could reduce that. By how much we don't know, but the zoning issue is crucial to swinging it around."