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City to face $66 million railway project shortfall

THE City of Perth’s preferred redevelopment option for land made available by the sinking of the railway between Perth and Northbridge has been estimated to yield a return of $34 million, according to a confidential preliminary financial analysis commissioned by the City of Perth.

Given that the entire project is expected to cost $100 million – including the additional purchase price of $25 million for the Entertainment Centre – the City of Perth would have to service the $66 million shortfall.

As of June 30 last year the City of Perth’s net assets were $291.3 million while its current and non-current borrowings amounted to $13.3 million.

It is understood that the City of Perth has around $88 million in reserve funds and a further $8 million was placed in reserve this financial year in preparation to service a $100 million loan it plans to attain from the West Australian Treasury Corporation to fund the project.

A City of Perth source said it was well within the council’s capacity to fund the project and was investigating releasing the land on long-term leases rather than freehold to generate cash flow and to ensure it retained ownership of the land in the future.

According to the report, which was conducted by Ernst and Young, if the subject land was developed wholly for commercial purposes it would yield a return of $85 million.

The City of Perth’s preferred redevelopment option comprises of only 33 per cent commercial with the remaining land to be used for civic and cultural facilities; public open space; and road reserve – in keeping with its policy of maximising the benefits for the whole city and not just the economic return.

One source said that the returns for the City of Perth’s preferred option could be improved if the land uses were altered by increasing the amount of land available for commercial uses.

The source said land near the Horseshoe Bridge would be more valuable per square metre if sold for commercial uses.

Ernst & Young director of property advisory services Brian Cole said the estimated return of $34 million was a conservative view of the potential of the project’s realisation.

He said the report was based on the more conservative Valuer General’s Office valuation figures for the subject land – John Garmony and Associates valued the 13ha site at $110 million, while VGO figures placed its value at $84.75 million.

“Our engagement was to look at the project from the view of the City of Perth and determine whether or how the City of Perth could afford it,” Mr Cole said.

He told WA Business News that the main areas where the City of Perth could collect returns from the project was the sale of development land to the commercial sector, expected rate uplift caused by increased land values in surrounding areas, additional rates from new developments and parking revenue.

Ernst & Young expect to release a final draft analysis of the City of Perth Rail Precinct Redevelopment Options in early August.

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