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Public bought old Le Cornu site for up to $14m more than valuations

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The Adelaide City Council spent between $7 million and $14 million more on the old Le Cornu site than independent valuers found it was worth in order to compete with a mystery prospective buyer last year, new documents confirm.

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The council bought the long-vacant North Adelaide plot of land for $34 million – a price which then-owner Con Makris described as a “bargain” that was “significantly below its commercial value”.

As InDaily exclusively revealed in February, that price was several million dollars above independent valuations of the property, which council sources had said ranged between the low $20 millions and about $28 million.

Lord Mayor Martin Haese has insisted the sale was a good deal for the public.

Now, the council has published a series of formerly confidential documents concerning the sale, revealing two independent valuations for the property.

One found it was worth $20 million.

Another found it was worth between $24.1 million and $27.1 million.

The State Valuer General had it priced at $15.7 million and another valuation, according to the Makris Group, had it worth $27 million.

Haese told InDaily this morning: “Council purchased the land, which had laid dormant for 29 years, through a competitive commercial negotiation to unlock the potential of this strategic site for the O’Connell Street precinct, and ensure an appropriate development is constructed in consultation with our community.”

According to prudential report commissioned by the council, Makris Group had advised it was considering a third party offer of $35 million for the property.

Lawyers acting for Makris Group had confirmed to the council that the offer existed but refused to let the council’s lawyers – Norman Waterhouse – see it.

“Cowell Clarke, acting for Makris Group, has confirmed to Normans the existence of the offer but have refused a request for Normans to sight it,” says the prudential report, compiled by BRM Holdich.

“The terms and conditions of the offer are therefore unknown.”

An October 2017 feasibility report by Property and Consulting Australia lists “council pays too much for the land” as one of five “extreme” risks of the purchase, all of which are “difficult to mitigate”.

“The purchase price exceeds independent land valuations received,” the risk matrix reads.

Based on the assumption that the council sells the site for less than what it was bought for, and does not receive development revenue, the potential consequence of this risk is described as “catastrophic” and its likelihood “possible”.

The council would have to “reduce premium paid above market value” to mitigate it.

For comparison purposes, the council also commissioned Property and Consulting Australia to come up with a development concept plan “that would justify a residual land value of circa $33 million”.

That plan involves constructing buildings as high as 15 storeys to house more than 400 apartments.

Such a development is estimated to cost $215 million.

Two-year “exit strategy”

A two-year “exit strategy” is listed as the key mitigation strategy for several of the identified risks.

“Currently there is no agreed or well defined plans to develop the site and therefore the cost vs benefit analysis is difficult to determine” is one of those risks, listed as “extreme”, “likely” and of “major” consequence.

Another “extreme risk” to be mitigated by the “exit strategy” is that the “opportunity cost of purchasing land has a flow on effect to other strategic projects (affecting) the Long Term Financial Plan and Long Term Borrowing costs”.

“Confirm an exit strategy around two year on sale of property which reduces impact after the first two years,” is the mitigation for this “almost certain” risk, whose consequences have the potential to be “catastrophic”.

A “high” risk is that there has yet to be any “market testing to ensure that a there is market demand for residential development of this nature”.

Completing market testing and community consultation before proceeding with any development of the site would mitigate the risk.

However, the report also lists a series of significant benefits from buying the property, including:

Previously revealed modelling, commissioned by the council, has also found site would create almost 1000 full-time jobs and generate more than $300 million in economic activity.

But the risk assessment also warns that the land may be difficult to sell after purchase.

This would force the council to on-sell it “at reasonable price with minimal conditions” – a scenario the report acknowledges “contradicts rationale for acquisition”.

Public could lose almost $10 million on resale

Financial modelling presented to the council suggests the public would lose $9.5 million on a resale of the property in two years, consistent with the “exit strategy”.

“The market value of the site is currently assessed at $24.5 million and a sale in two years’ time would likely be at this price,” the feasibility report says.

However, buying the site “will accelerate development relative to the existing scenario where the site is owned by the Makris Group or another third party and not developed”.

“Economic uplift will result in additional rates revenue in the precinct of $0.54 million, per year, from year seven post acquisition.”

Mystery buyers offered $35 million

According to the council report on the sale in early December, the Makris Group indicated it had previously rejected a purchase offer of $35 million for the site in January 2017, and was considering an offer “above $35 million” from an unnamed third party.

The Makris Group had identified it would like to reach an agreement with the council because of the “council’s intent to activate the site in the interest of the broader North Adelaide community and the associated perceived benefits to the local community and adjacent businesses (including other properties owned by Makris Group) within the precinct”.

Hours after InDaily revealed the discrepancy between the independent valuations and the sale price early this year, Makris was quoted in a story in The Advertiser arguing that the council had snagged a “bargain”.

He said he was parting with the property “for the good of Adelaide” and that he had spent $50 million trying to get it developed since he bought it in 2001.

According to the McGees Property valuation report for the site Makris bought the site for “circa $7 million”.

That valuation report was the one that found the property was worth between $24.1 million and $27.1 million.

The other valuation report, which had it valued at $20 million, has yet to be released but is referenced in the other documents.

The company that produced it has claimed it is commercial in confidence – but the council’s administration has asked it to reconsider.

InDaily contacted Makris’ representatives for comment this morning, but we have not received a response.

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