Agenda of Finance & Audit Committee

Palmerston North City Council

Minutes of the Finance & Audit Committee Meeting Part I Public, held in the Council Chamber, First Floor, Civic Administration Building, 32 The Square, Palmerston North on 18 March 2020, commencing at 9.01am

Members

Present:

Councillor Susan Baty (in the Chair), The Mayor (Grant Smith) and Councillors Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas and Tangi Utikere.

Non Members:

Councillors Brent Barrett, Zulfiqar Butt and Aleisha Rutherford.

Apologies:

Councillors Rachel Bowen, Billy Meehan and Karen Naylor.

Councillor Aleisha Rutherford left the meeting at 11.05am during consideration of clause 14. She entered the meeting again at 11.18am at the conclusion of clause 14. She was not present for clause 14.

Councillor Vaughan Dennison was not present when the meeting resumed at 3.50pm. He was not present for clauses 16 to 18 inclusive.

Councillor Lew Findlay QSM was not present when the meeting resumed at 3.50pm. He was not present for clauses 16 to 18 inclusive.

11-20

Apologies

Moved Susan Baty, seconded Tangi Utikere.

The COMMITTEE RESOLVED

1. That the Committee receive the apologies.

Clause 11-20 above was carried 13 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

The meeting adjourned at 9.02am

The meeting resumed at 10.46am

12-20

Confirmation of Minutes

Moved Susan Baty, seconded Patrick Handcock ONZM.

The COMMITTEE RESOLVED

1. That the minutes of the Finance & Audit Committee meeting of 19 February 2020 Part I Public be confirmed as a true and correct record.

Clause 12-20 above was carried 12 votes to 0, with 1 abstention, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

Abstained:

Councillor Leonie Hapeta.

13-20

Audit New Zealand Report to Council

Memorandum, presented by Stuart McKinnon, Chief Financial Officer.

Moved Susan Baty, seconded Leonie Hapeta.

The COMMITTEE RESOLVED

1. That the interim 2018/19 Management Report from Audit New Zealand be received.

2. That the final 2018/19 Management Report from Audit New Zealand be received.

Clause 13-20 above was carried 13 votes to 0, the voting being as follows:

For:

14-20

Palmerston North Airport Ltd - Interim Report for 6 months to 31 December 2019

Memorandum, presented by Steve Paterson, Strategy Manager - Finance.

Councillor Aleisha Rutherford left the meeting at 11.05am.

Moved Susan Baty, seconded Grant Smith.

The COMMITTEE RECOMMENDS

1. That the Interim Report and Financial Statements of Palmerston North Airport Ltd for the period ended 31 December 2019 be received.

Clause 14-20 above was carried 12 votes to 0, the voting being as follows:

For:

Councillor Aleisha Rutherford entered the meeting at 11.18am.

15-20	Palmerston North Airport Ltd - Draft Statement of Intent for 2020/21 Memorandum, presented by Steve Paterson, Strategy Manager - Finance.
	Moved Vaughan Dennison, seconded Grant Smith. The COMMITTEE RECOMMENDS 1. That the Palmerston North Airport Ltd (PNAL) draft Statement of Intent (SOI) for 2020/21 be received and the associated presentation, including the preliminary assessments from the Board Chair and Chief Executive of the impact of COVID-19 on the company, be noted.
	Clause 15.1 above was carried 13 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Vaughan Dennison, seconded Grant Smith. 2. That PNAL be advised the Council supports the proposed direction and implementation strategy and that an updated version of the SOI be prepared for Council consideration following the Board’s consideration of the potential impact of COVID-19 on the budgeted financial position.
	Clause 15.2 above was carried 13 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Vaughan Dennison, seconded Grant Smith. 3. That PNAL be advised that in the interests of supporting the proposed Terminal Development Plan, the Council is prepared to consider an amendment to the dividend policy, though the nature of that policy will need to be considered in the light of the updated financial forecasts.
	Clause 15.3 above was carried 13 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

The meeting adjourned at 12.02pm.

The meeting resumed at 3.50pm.

When the meeting resumed Councillors Vaughan Dennison and Lew Findlay were not present.

16-20	Fees and Charges Review Report, presented by Steve Paterson, Strategy Manager - Finance.
	Moved Susan Baty, seconded Brent Barrett. The COMMITTEE RECOMMENDS 1. That the Fees and Charges Review report be received and the current status of fees and charges be noted. Trade waste 2. That the proposal to adopt updated fees and charges for Trade Waste services effective from 1 July 2020 as attached in Appendix 2, be approved for public consultation and the Chief Executive be authorised to undertake the necessary consultative process under sections 82 and 150 of the Local Government Act 2002. Planning & Miscellaneous 3. That the Statement of Proposal (and the associated summary) to adopt updated fees and charges for Planning Services and Miscellaneous Services effective from 1 July 2020 as attached in Appendix 3, be approved for public consultation and the Chief Executive be authorised to undertake the necessary consultative process under sections 83 and 150 of the Local Government Act 2002. Building 4. That the fees and charges for Building Services, as proposed in Appendix 4 be adopted and following public notification take effect from 1 July 2020. Environmental Health 5. That the fees and charges for Environmental Health Services (in terms of regulation 7 of the Health (Registration of Premises) Regulations 1966) as proposed in Appendix 5, be adopted and following public notification, take effect from 1 July 2020. Animal Control 6. That the fees and charges for the Impounding of Animals (in terms of section 14 of the Impounding Act 1955) and for Dog Registration and Dog Impounding (in terms of sections 37 and 68 of the Dog Control Act 1996) as proposed in Appendix 6 be adopted, and following public notification, take effect from 1 July 2020 and that the preferred owner application and suggested process to retain preferred owner status – current preferred owner fee be deleted. Amended by Council on 25 March 2020 Clause 35-20 Burial & Cremation 7. That the fees and charges for Burial and Cremation, as proposed in Appendix 7 be adopted and following public notification, take effect from 1 July 2020. Service Connections 8. That the fees and charges for Service Connections, as proposed in Appendix 8 be adopted and take effect from 1 July 2020. Sportsfields 9. That the fees and charges for Sportsfields as proposed in Appendix 9 be adopted and take effect from 1 July 2020. Bulk Water Filling Station 10. That the fees and charges for the Bulk Water Filling Station as proposed in Appendix 10 be adopted and take effect from 1 July 2020.
	Clause 16-20 above was carried 11 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Renee Dingwall, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Tangi Utikere, seconded Lorna Johnson. An amendment was made that the words “and that the preferred owner application and suggested process to retain preferred owner status – current preferred owner fee be deleted” be added to Clause 16.6. The motion was carried 11 votes to 0, the voting being as follows:
	For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Renee Dingwall, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

17-20

Transforming PNCC's Business Continuity Practice

Memorandum, presented by Miles Crawford, Risk Manager.

Moved Susan Baty, seconded Brent Barrett.

The COMMITTEE RESOLVED

1. That the Finance & Audit Committee note progress made in developing Council’s business continuity arrangements.

Clause 17-20 above was carried 11 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Renee Dingwall, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

18-20

Committee Work Schedule

After discussion Elected Members requested a business continuity planning update be added to the work schedule for April 2020 with respect to COVID-19.

Moved Patrick Handcock ONZM, seconded Lorna Johnson.

The COMMITTEE RESOLVED

1. That the Finance & Audit Committee receive its Work Schedule dated March 2020.

2. That a business continuity planning update be added to the work schedule for April 2020 with respect to COVID-19.

Clause 18-20 above was carried 11 votes to 0, the voting being as follows:

For:

The meeting finished at 4.35pm

Confirmed 17 June 2020

Chairperson

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 17 June 2020

TITLE: Palmerston North Airport Limited - Updated draft Statement of Intent for 2020/21

Presented By: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATION(S) TO Council

1. That the Palmerston North Airport Ltd updated draft Statement of Intent for 2020/21 be received and the Company be advised that:

· Council supports the draft SOI recognising the uncertainty of significant assumptions that have had to be made in its preparation

· Council requests an updated company position be provided at the same time as the annual report for 2019/20 is presented (in September) and if changes have been significant that an amended SOI (including projections for 2021/22 and 2022/23) be provided to the Council for consideration

· Council encourages the Board to progress its capital development programme as soon as this becomes practicable.

1. ISSUE

Palmerston North Airport Ltd (PNAL) as a Council controlled trading organisation is required to prepare and adopt a Statement of Intent (SOI) each year before 30 June. An updated draft SOI for 2020/21 is attached for Council consideration.

2. BACKGROUND

PNAL’s draft SOI for 2020/21 was considered by the Finance & Audit Committee on 18 March 2020. The draft was prepared in advance of the implications of the COVID-19 pandemic becoming known.

At the meeting the PNAL Chair and Chief Executive provided an assessment of the potential implications of COVID-19 on the airport operations and in particular the assumptions and financial forecasts in the SOI.

The Committee resolved:

“That the Palmerston North Airport Ltd (PNAL) draft Statement of Intent (SOI) for2020/21 be received and the associated presentation, including the preliminary assessments from the Board Chair and Chief Executive of the impact of COVID-19 on the company, be noted.

That PNAL be advised the Council supports the proposed direction and implementation strategy and that an updated version of the SOI be prepared for Council consideration following the Board’s consideration of the potential impact of COVID-19 on the budgeted financial position.

That PNAL be advised that in the interests of supporting the proposed Terminal Development Plan, the Council is prepared to consider an amendment to the dividend policy, though the nature of that policy will need to be considered in the light of the updated financial forecasts.”

PNAL’s Board has reconsidered the draft and has approved a radically changed one that is attached under cover of the introductory letter dated 11 May 2020 from the Chief Executive.

PNAL’s approach and the key changes are highlighted in the letter. Due to the high level of uncertainty about the recovery profile the Board has needed to take action that is focused on preserving capital and taking a prudent approach to its borrowings and the associated caveats.

The previous draft had a strong emphasis on growth, terminal and property development. Whilst these are still medium to longer term goals the immediate focus is on facilitating re-establishing its core passenger travel activity. A significant planning assumption in the revised draft is that there will be passenger movements of 265,000 for the 2020/21 year with Air New Zealand recovering to 50% of its 2018/19 passenger levels by 30 June 2021. Given the relatively fixed cost profile of a significant portion of PNAL’s operating costs the forecast financial outcome is sensitive to the actual level of passenger movements. The financial projections are therefore subject to a high level of risk, though PNAL believes the scenario they have adopted is their worst case one.

Although PNAL is still forecasting an operating surplus for the 2019/20 year a loss of $0.8m is budgeted (under the scenario selected) for 2020/21. Council’s usual expectation is that a dividend of approx. 40% of after-tax profit will be paid. Due to the forecast operating and liquid position during 2020/21 it would not be prudent for the directors to declare a dividend based on the 2019/20 results. The SOI indicates the suspension of the dividend policy during 2020/21.

Due to the level of uncertainty financial projections have not been provided for the following two years as is our usual expectation.

It is pleasing to note that with the recent move to alert level 2 Air New Zealand has recommenced a basic flight schedule that will hopefully grow to at least the levels assumed in the draft SOI. However due to the physical distancing requirements at present flights have restricted passenger numbers.

At this stage it is suggested that the most practical approach to adopt is to advise PNAL:

· the Council supports the draft SOI recognising the uncertainty of the significant assumptions that have had to be made in its preparation

· the Council requests an updated company position be provided at the same time as the annual report for 2019/20 is presented (in September) and if changes have been significant that an amended SOI (including projections for 2021/22 and 2022/23) be provided to the Council for consideration

· the Council encourages the Board to progress its capital development programme as soon as this becomes practicable.

3. NEXT STEPS

Council’s decisions with be conveyed to PNAL and the Board will decide whether to adopt the draft in its current form or make further changes. The final SOI will then be provided to the Council and it will be made publicly available as required by the Local Government Act.

It is intended that PNAL’s annual report for the year to 30 June 2020 will be considered by the Finance & Audit Committee at its September meeting.

4. Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		Yes
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 1: An Innovative and Growing City
The recommendations contribute to the outcomes of the City Development Strategy
The recommendations contribute to the achievement of action/actions in the Strategic Transport Plan The action is: Work with the airport company to ensure the airport’s strategic intent aligns with the City’s aspirations
Contribution to strategic direction and to social, economic, environmental and cultural well-being	The airport is a key strategic gateway to the City

Attachments

1.	Letter from Palmerston North Airport Ltd dated 11 May 2020 ⇩
2.	Updated Draft Statement of Intent 2020/21 for PNAL ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 17 June 2020

TITLE: Public Rental Housing within Council's Whakarongo Subdivision

Presented By: Bryce Hosking, Manager - Property

APPROVED BY: Tom Williams, Chief Infrastructure Officer

RECOMMENDATION(S) TO FINANCE & AUDIT COMMITTEE

1. That the memorandum titled ‘Public Rental Housing within Council’s Whakarongo Subdivision’ presented to the Finance and Audit Committee on 17 June 2020 be received for information.

1. ISSUE

1.1 The report titled ‘Housing Portfolio Update (February 2020)’ was presented by Councillor Baty to the Economic Development Committee on 11 March 2020.

1.2 The Committee Resolved:

1. That the Housing Portfolio update report for February 2020 be received for information.

2. That the Chief Executive be instructed to undertake financial modelling on the possibility of retaining one third of sections at Whakarongo for public rental housing at market rates and reported back to the May 2020 Finance and Audit Committee meeting.

1.3 This report is in response to the second resolution.

1.4 Due to the COVID-19 Alert Level 3 and 4 restrictions this report was unable to be presented to the Finance and Audit Committee in May 2020 as requested, hence is being presented in June 2020.

1.5 In order to address the intent of the recommendation the following areas are addressed within this report:

Section 2 – Background

· A brief overview of the Whakarongo Subdivision;

· Cost and revenue expectations of the Whakarongo Subdivision under the existing scope;

Section 3 – Retaining Sections for Public Housing

· Critical assumptions;

· Estimate cost of construction of the public rental houses;

· Rental market overview and potential rental rates that could be achieved;

· Revenue implications of retaining sections; and

Section 4 – Additional Considerations

· Additional considerations.

2. BACKGROUND

Overview of the Whakarongo Subdivision

2.1 Palmerston North City Council owns an area of 9.63ha within the upper terrace of the Whakarongo residential growth area off James Line.

2.2 The land was acquired by Council for cemetery purposes but was no longer required. As obliged under the public works process the land was offered back to the previous owners to purchase, but no offer was received.

2.3 Given no offer was received, the parcel of land was subsequently rezoned for residential use.

2.4 The Long-Term Plan anticipated that Council will develop this land and funding was allocated beginning in the 2018/19 financial year through Programme 1485.

2.5 Once developed the site will create 115 new residential sections. Sections will be of a variety of sizes to appeal to a wide variety of purchasers by giving options regarding design, build type and purchase price.

2.6 Below is the proposed layout submitted with the resource consent approval:

Note, while this is the proposed layout of the site, it may be subject to minor changes as part of the consent process with PNCC and Horizons.

2.7 The development of the site will be split into two stages. The current consents that have been submitted are for Stage 1 (circa 79 sections), with the balance of sections to be delivered in Stage 2.

2.8 Stage 2 is subject to the approval of the comprehensive discharge consent (CDC) from Horizons Regional Council and is anticipated to closely follow, but remain distinct from, Stage 1.

2.9 Ideally, the timing of the CDC ties in with the completion of Stage 1 construction works to enable us to seamlessly roll from Stage 1 to 2 without further mobilisation and establishment of a contractor. This is subject to the performance and throughput of Stage 1 and approval of KiwiRail.

2.10 For clarity, as part of our stormwater requirements of the development, Council will be installing a culvert from our stormwater dry pond area, under the rail corridor, and into the oxbow in the below property on the other side of the rail tracks. Whilst provision will be made for this in stage 1 of the development, this will not actually be constructed until stage 2. KiwiRail require a specific formal approval process for this undertaking over and above the resource consent. There have been ongoing discussions with KiwiRail regarding this, but formal approval is still required in due course.

2.11 Below is a summary of the Stage 1 Development Programme:

· May/June 2020 – consent

· June/July 2020 – detailed design

· July/August 2020 – presales and procurement

· September 2020 – contract negotiations and mobilisation of contractors

· October 2020 – earthworks commencement

· February 2021 – civil works commencement

· August 2021 – titles issued.

Cost and revenue expectations – existing Whakarongo Subdivision scope

2.12 The development of the Whakarongo Subdivision is estimated as having a total project cost of $16.8 million plus GST. This includes items such as design and consent fees, professional fees, earthworks, construction, sales costs etc.

2.13 This estimated total project cost is to take the development through to fully serviced sections which are then sold. It did not include any dwelling construction.

2.14 It is also important to note that as we have not yet gone out for tender for construction phase of the project, this project cost is only an ‘educated estimate’ and will not be able to be confirmed until a tender is accepted, and Council enters into a construction contract.

2.15 The sections will be marketed for sale at competitive, but market determined sale rates.

2.16 Obviously with such a variety of section sizes the exact sale prices for each section will vary. Residential sections around the city are selling for $400-$450 per m².

2.17 For the purpose of this report and to provide an indicative total sales revenue figure, an average section sale price of $250,000 incl. GST will be adopted. This is based on an average section size of 588m² within the subdivision @$425 per m² (mid-range).

2.18 Confirmed sale prices for each section will be confirmed in July/ August as part of the Presales and Procurement phase.

2.19 Given the above the potential sales revenue from the subdivision could be calculated as around $28.75 million incl. GST. (115 sections @$250,000 each) or $25 million plus GST.

2.20 For clarity this means:

· There will be a potential profit (excluding GST) of around $8.2 million for Council once all sections are sold; and

· Crudely calculated, Council would need to sell 77 sections to cover the cost of the project.

3. Retaining sections for Public housing

Critical Assumptions

3.1 To assist in the financial modelling exercise, the following critical assumptions have been made in writing this report:

· That “retaining one third of sections” applies to the first stage of 79 sections of the development only, not the total development of 115 sections. This equates to 26 sections being retained.

· That any public housing built will be retained by Council and rented out at market dictated rates, not on-sold to the market in the foreseeable future.

· That the public housing built will be mid-range, 2 and 3-bedroom homes but constructed in line with what would be appropriate within a new housing development.

· That the sections retained will be “pepper-potted” throughout the subdivision rather than a concentrated Papaioea Place type complex.

· The sections retained will be a variety of sizes as opposed to just the smaller ones etc.

· There will be a continued high demand for purchasing sections, and as such sections will sell for market rates in a timely manner.

· The potential average sale price will be $250,000 incl. GST as per Clause 2.17.

· The development contributions (DC) for stormwater and local reserves is high for this catchment, although this might change given the plan to develop stormwater detention areas to meet Horizon’s requirements. This report will be adopting the current DC rate of $12,435 plus GST per section.

· A section with a $250,000 land value would pay annual rates of $2,680 incl. GST or $2,330 plus GST in 2020/21.

· There will be a continued extremely high demand for rental property in the region and as such rental houses will be tenanted quickly and low vacancy rates will be expected.

· The additional rental properties would be managed by Council’s housing tenancy team. Council would need to increase its staffing resources to manage the additional 26 houses effectively thus a property management cost will need to be considered.

· The current average market property management fee rate in Palmerston North is 8.5% of the gross rental collected. This includes a profit margin. A reduced property management cost of 6% will be applied when calculating costs to reflect management costs only.

· It is common for external property management companies to recommend landlords allow between 40-50% of the weekly rental to cover the ongoing costs of a rental property. Considering the properties would be new builds and rates are an internally charged expense, a 30% allowance will be used to calculate the net rental returns for the properties.

Estimated cost of construction of the public rental houses

3.2 Council Officers engaged with an experienced building company to get an idea of the appropriate housing build costs in the current market.

3.3 A summary of their feedback:

· $300,000 – $350,000 plus GST per house would be achievable and appropriate from a budgeting perspective;

· 2 and 3-bedroom, single bathroom houses would be most appropriate;

· There can be options to build houses with and without garages; and

· Brick cladding with a pitched roof is the most cost-effective option, and brick cladding will have less maintenance.

3.4 Given the feedback from the building company the cost of construction would be between $7.8 – $9.1 million plus GST (26 sections @$300/$350,000 each). This cost will allow for consenting and essentially make them available as ‘turn-key’ homes.

3.5 In addition to this it would be appropriate to allow $200,000, for professional and project management fees on top of the construction costs. From a budgeting perspective this would mean an effective budget of $8 – $9.3 million plus GST to deliver these 26 public rental houses.

3.6 This would be an additional, unbudgeted capital new expense.

Rental market overview and potential rental rates that could be achieved

3.7 At the time of writing this report there is a significant shortage of supply vs. the demand for housing, both for sale and in the rental market.

3.8 As a result, the achievable market rental rates have increased significantly over the last 18 months.

3.9 Considering these would be new homes, in the Kelvin Grove/ Whakarongo area, and low maintenance; Rental agents and Council Officers have indicated a weekly rental of $450-$550 would be achievable.

3.10 Assuming the 26 homes were rented out, below is some potential gross annual rental scenarios that could be achieved (‘x’ weeks tenanted @$450/$550 per week x 26 homes):

· 48/52 weeks tenanted – return would be $561,600 and $686,400.

· 50/52 weeks tenanted – return would be $585,000 and $715,000

· 52 weeks tenanted – return would be between $608,400 and $743,600.

3.11 Note: the above rental figures are gross rent. Expenses such as rates, insurance, and repairs and maintenance still need to be deducted.

3.12 Using the same vacancy scenarios as Clause 3.10 and the 30% allowance for expenses (as per the Critical Assumptions section, Clause 3.1), below is the potential net annual rental scenarios that could be achieved:

· 48/52 weeks tenanted – return would be $393,120 and $480,480.

· 50/52 weeks tenanted – return would be $409,500 and $500,500.

· 52 weeks tenanted – return would be between $425,880 and $520,520.

3.13 Note: this does not consider the interest cost of the capital new borrowings for the construction of the houses.

Revenue implications of retaining sections

3.14 There are several revenue and profit implications of retaining sections and subsequently building public rental housing. They can be summarised as:

· Reduced revenue and profit from the sale of sections – Based on the average sale price of $250,000 incl. GST per section, there would be a deduction of sales revenue of $6.5 million incl. GST or $5.65 million plus GST. This equates to around 69% of the potential profit.

· The development would not “pay for itself” in Stage 1 – Council would have to wait until Stage 2 sections sales to start making a profit.

· While development contributions will still be paid, it would be an internal transaction. By retaining 26 of the sections, Council would be forgoing this income. This would equate to $323,310 plus GST in lost revenue (26 sections @$12,435 plus GST per section).

· Rates for the sections would also be an internal transaction and thus not be collected as an external revenue. This would equate to $60,600 plus GST in lost revenue (26 sections @$2,330 plus GST per section).

· An additional property management cost of effectively managing the additional 26 rental houses. This equates to between $33,696 and $44,616 per annum depending on the vacancy rate ($561,600 @6% and $743,600 @6% - the minimum and maximum gross figures in Clause 3.10).

· Crudely, without considering interest, it would take approximately between 11 – 15 years of net rental income from the 26 homes to make up the profit Council would have made from section sales and development contributions.

4. additional considerations

4.1 The construction of the 26 houses would be an additional, unbudgeted capital new expense.

4.2 As mentioned throughout this report there is a significant shortage of supply vs. the demand for housing, both for sale and in the rental market.

4.3 A positive consideration for retaining sections is it would allow Council to directly provide an additional 26 homes for rent in the marketplace in a timely manner, rather than waiting on the private sector or other government agencies.

4.4 Some multi-unit development (e.g. Papaioea Housing) may provide more efficient land-use opportunities. This approach could allow supply of 26 dwellings in a smaller footprint of sections, although would require blocks of units to be retained rather than “pepper-potting” throughout the development. In turn this would free up more sections to sell to the market. Alternatively, PNCC could retain 26 sections and increase the number of units within these, rather than building 26 stand-alone dwellings.

4.5 The new home construction market, while being the most competitive it has ever been, is still under pressure to meet the demand due to contractor availability. Some group builders have 18-month wait times before construction begins. This has been further extended as a result of the COVID-19 restrictions and delays.

4.6 Depending on the desired outcomes Councillors are looking for, an alternative option could be to sell some sections to a government agency such as Kāinga Ora to build rental housing or “Kiwi-Build” houses themselves.

4.7 Currently there are limited amenities such as supermarkets in the area (the closest being the Countdown complex on Roberts Line) and the subdivision is not on a current public transport route. This may have some implications for tenants without vehicles and make the properties unsuitable for social housing until this was remedied.

4.8 Providing unsubsidised public rental housing is in direct competition to the private rental market. This could be viewed negatively by sectors of the market.

4.9 The Social Housing Plan focuses on providing warm, safe, and affordable housing for people on low incomes who:

· Are Super-annuitants;

· Have long term disabilities; or

· Experience barriers to renting in the private market.

4.10 Whilst providing more housing is in line with the Social Housing Plan; public rental housing will potentially be targeting a different user-group as market rental would be sought for these properties.

5. NEXT STEPS

5.1 Council to consider its options in respect to retaining one third of the sections within the Whakarongo subdivision for the construction of public rental housing, including the timing of construction.

6. Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do, they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		No
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 3: A Connected and Safe Community
The recommendations contribute to the outcomes of the Connected Community Strategy
The recommendations contribute to the achievement of action/actions in the Social Housing Plan The action is: Build new Council housing (by end of 2020/2021)
Contribution to strategic direction and to social, economic, environmental and cultural well-being	Build new Council housing (by end of 2020/2021)

Attachments

Nil

PALMERSTON NORTH CITY COUNCIL

Report

TO: Finance & Audit Committee

MEETING DATE: 17 June 2020

TITLE: CET Arena - Commercial Building Opportunity

PRESENTED BY: Bryce Hosking, Manager - Property

APPROVED BY: Tom Williams, Chief Infrastructure Officer

RECOMMENDATION(S) TO COUNCIL

1. That Council does not proceed with programme #1514 – Central Energy Trust Arena Manawatu – Commercial Building in the current financial year.

2. That Council considers the construction of a commercial building at Arena, along with the timing of such a development, as part of the 2021-31 Long-Term Plan.

Summary of options analysis for

Problem or Opportunity	Council has an opportunity to build a ‘Commercial Building’ next to the new embankment which will see the public enter from the pedestrian bridge through the building into Arena 1. The building would incorporate multiple tenancies which will be strategically leased out for a commercial return and with a lens to add value to the Arena. This building is an additional unbudgeted expense, and as such Council needs to decide whether to proceed with its construction or not.
OPTION 1:	Build a Commercial Building including a hospitality/ function facility on the top floor
Community Views	· No formal public consultation has been undertaken on the construction of a commercial building on the site.
Benefits	· The building would create unique feature building in the Arena entrance with potential to be a real showcase for the city. · A financial return can be achieved from the building helping with investment payback. · The strategic selection of tenants will add value to, and compliment, the Arena and its activities. · Multiple tenancies allow for the spreading of vacancy risk. · The creation of high-quality corporate hospitality and function space on the top floor creates future ‘game day’ opportunities and income, as well as functions and conference opportunities. · The building will help to create excitement and build anticipation for events as public approach the stadium and cross the bridge.
Risks	· The building would be a significant additional expense in the next 10-year plan, which is currently unbudgeted. · There are several competing financial interests in the 10-year plan. Accommodating an additional project of this size may be difficult. · The building is not an essential function of the Arena, and the redevelopment work currently underway can proceed without the building and still achieve an excellent outcome. · The construction of a building for commercial business purposes does not align with the current zoning at Arena and would require a discretionary resource consent to proceed. · The rental return on investment rate is below what could be achieved in the commercial property marketplace. · As Council would want to be selective in its tenants and coupled with the location not being a traditional location for some of the tenant industries, this may result in the building having an extended vacancy period or being hard to tenant.
Financial	$15,161,000 + GST
OPTION 2:	Build a Commercial Building without a hospitality/ function facility
Community Views	· No formal public consultation has been undertaken on the construction of a commercial building on the site.
Benefits	· The building would create unique feature building in the Arena entrance with potential to be a real showcase for the city. · A financial return can be achieved from the building helping with investment payback. · Multiple tenancies allow for the spreading of vacancy risk. · The strategic selection of tenants will add value to, and compliment, the Arena and its activities. · The building will help to create excitement and build anticipation for events as public approach the stadium and cross the bridge.
Risks	· The building would be a significant additional expense in the next 10-year plan, which is currently unbudgeted. · There are several competing financial interests in the 10-year plan. Accommodating an additional project of this size may be difficult. · The building is not an essential function of the Arena, and the redevelopment work currently underway can proceed without the building and still achieve an excellent outcome. · Quality hospitality, function and conference facilities are desirable in the city, so this may be a missed opportunity by not including this, especially in this unique setting and outlook. · The construction of a building for commercial business purposes does not align with the current zoning at Arena and would require a discretionary resource consent to proceed. · The rental return on investment rate is below what could be achieved in the commercial property marketplace. · As Council would want to be selective in its tenants and coupled with the location not being a traditional location for some of the tenant industries, this may result in the building having an extended vacancy period or being hard to tenant.
Financial	$11,105,861 + GST
OPTION 3:	Do not proceed with the construction of a Commercial Building
Community Views	· No formal public consultation has been undertaken on the construction of a commercial building on the site.
Benefits	· As there are several competing financial interests in the 10-year plan, so not proceeding frees up finances for other programmes. · The building is not an essential function of the Arena, and the redevelopment work currently underway can proceed without the building and still achieve an excellent outcome.
Risks	· May be viewed as a missed opportunity by the public, stakeholders and users of the Arena.
Financial	None.

Rationale for the recommendations

1. Overview of the problem or opportunity

1.1 As part of the redevelopment of the CET Arena there are three projects which have physical works commencing in the current 2019/20 financial year – The Speedway Pits Relocation, the new Entrance Plaza, and the Embankment Redevelopment. The construction of these projects will conclude in the 2020/21 financial year.

1.2 There were several complex safety issues associated with access, security and public separation with the speedway cars during events, while still allowing for the pits area to be viewed by the public.

1.3 The creation of a bridge from the entrance plaza to the embankment was selected through design and development as the best solution to overcome these safety issues and is to be constructed as part of the entrance plaza project.

1.4 Council has an opportunity to build a ‘Commercial Building’ next to the new embankment which will see the public enter Arena 1 from the pedestrian bridge, through into an atrium area within the building, and then through into Arena 1 itself. This is indicatively shown in red on the below plan.

1.5 In addition to the entrance atrium, the building would incorporate multiple tenancies. These will be strategically leased out for a commercial return and to tenants which would add value to the Arena and its activities.

1.6 Please note: This building is an additional unbudgeted expense, and as such, Council needs to decide whether to proceed with its construction or not.

1.7 If Council decides to proceed, the timing of the construction and availability of funds would need to be determined within the 2021-31 10-year plan.

1.8 To assist in Council’s decision making, Council Officers in conjunction with WT Partnership, have explored some high-level feasibility analysis including:

· Proposed building and tenancy sizes;

· Indicative construction materials and project costs; and

· Tenancy mix options and potential commercial returns.

This analysis work is detailed in Section 4 of this report.

1.9 Please note: the construction costs presented in this report are for planning and budgeting purposes only. While efforts have been made to ensure the costs are as accurate as possible, these figures are subject to change as scope is refined and detailed designs are formed.

2. Background and previous council decisions

Sports House Withdrawal

2.1 The Sports House building was proposed to be located and built next to the new entrance plaza near the Cuba Street edge of the Arena. The concept was set to include a mix of sports related tenants, commercial leasing opportunities and potentially even a ticket purchasing area for events.

2.2 However, Sports House was formally withdrawn from the Arena redevelopment in 2019, and this was an important change to the design for the Arena redevelopment.

2.3 While a disappointing outcome, the Pits and Plaza designs were able to be modified following withdrawal of Sports House to provide a range of design benefits including:

· Continued utilisation of existing buildings to reduce spend;

· Less impact on existing operations; and

· A reduction in long term impact to adjacent residents.

2.4 The withdrawal of Sports House also created the opportunity for a ‘replacement’ building of sorts to be considered as a feature of the entrance redevelopment in a revised location.

2.5 The final Pits and Plaza designs were created to allow an opportunity such as this building to be incorporated at a later stage in the development if desired by Council while still allowing for the Speedway Pits, Embankment and Entrance Plaza projects to still proceed immediately.

2.6 Equally, if Council chose not to proceed with a commercial building, the designs would still provide an excellent outcome for the site.

2.7 These designs were endorsed against the Arena Masterplan and deemed to be within the Masterplan parameters. These were presented to the independent planning commissioner and a non-notified resource consent has been granted.

2.8 In theory, it is possible for the building to house a revised Sports House concept once constructed on the ground floor. However, the feasibility analysis in Section 3 of this report is based on achieving commercial rentals for the space.

2.9 For clarity, if a favourable rate was offered for the Sports House tenant, it will further reduce the commercial return rate that can be achieved, and be association reduce the building’s ability to “stack up”.

Existing Financial Provisions

2.10 Following the withdrawal of Sports House, the $1,500,000 operational grant that was in the 10-year plan to contribute towards the Sports House construction project, was repurposed as part of the 2019/20 Annual Plan as a capital new programme: Programme 1514 – Central Energy Trust Arena Manawatu – Commercial Building.

2.11 As all work to date has been initial feasibility work. All analysis, high-level concept design, and commercial viability work to date is an operational expense and not capitalised against this Programme.

2.12 For clarity, if Council decides to proceed with the commercial building, some detailed design and planning could be undertaken this financial year and be capitalised against this Programme. However, this would not be anywhere near the $1,500,000 budget.

2.13 The balance of the Programme could be carried forward and form part of the construction programme budget provision.

City Planning and Zoning Considerations

2.14 Overall, the proposal to create a tenanted commercial building within CET Arena is a poor fit with the District Plan.

2.15 CET Arena has a very specific and unique ‘Arena Zoning’. It was created to provide for sport and recreation-based activities. This was a deliberate decision that was made in 2017 when the Recreation Chapter of the District Plan was reviewed.

2.16 Seeking to establish activities such as a commercial office, retail etc. unrelated to recreation or sport would trigger a Discretionary Activity resource consent, which would need to be assessed against the Arena Zone’s Objectives and Policies and the City-wide Objectives.

2.17 The Arena Zone’s Objectives and Policies only provide for recreation and sport-based activities and City View Objective 14 seeks to retain the City Centre as the primary focus for office and retail activities within the City. This suggests that a resource consent application would be difficult to obtain.

2.18 City View Objective 13 does provide some counterbalancing. It states that “investment within the City is stimulated and identified priority sectors such as education and public administration are well supported”.

2.19 Availability, or lack of, high-quality office space in the city centre could also form part of the application. However, if there is a lack of space this may not be enough grounds for consent approval given the other factors already mentioned.

2.20 If there was a sizeable new anchor tenant that could tenant the building on Arena, this same tenant could be better suited to work with a developer in the private sector to justify upgrades to existing buildings within the city centre, or to build something new.

2.21 Ultimately, there is no guarantee that a resource consent application would be granted for a commercial building to be built and tenanted, and depending on the industries tenanting the building, it could be viewed as these being better suited to being within the city centre, rather than at Arena.

3. Description of options

Build a commercial building including a hospitality/ function facility on the top floor

3.1 The proposed building is to be located next to the newly redeveloped embankment and will see the public enter Arena 1 from the pedestrian bridge, through into an atrium area within the building, and then through into Arena 1 itself.

3.2 In addition to the entrance atrium, the building would incorporate multiple tenancies. These will be strategically leased out for a commercial return and to tenants which would add value to the Arena and its activities.

3.3 The following description of the building is only an indicative construction and layout. Floor and tenancy sizes and layouts may be subject to change upon completion of final designs.

3.4 The proposed high-level dimensions of the building are:

Floor	Floor Size	Additional Features
Ground	1,283m²
First	1,056m²	Includes the atrium area/ connection to Arena 1
Second/ Top	1,358m²	Additional 75m² balcony overlooking Arena 1
Total	3,697m²

3.5 Please refer to Appendix 3: ‘Indicative Floor Plans’ and Appendix 4: ‘Commercial Building Concept Building Renders’ attached to this report.

3.6 Ground Floor

· 1,283m² of fully tenantable building space

· Will have a common lobby so it can accommodate two tenancies as well as a lift to upper floors.

· Independent ground floor access point for tenants and clientele to enter the building (as opposed to access along the pedestrian bridge).

· Both tenancies would have a lettable area of 550m² each.

· An alternative could be to combine these into one large tenancy.

3.7 First Floor

· 1,056m² floor which includes the pedestrian access and atrium area in through the middle of the floor.

· There is provision for two tenancies on this floor; one each side of the atrium. Both tenancies will have a lettable area of 400m² each.

· Primary access to these tenancies will be off the atrium and potentially have a 2^nd entrance off the embankment.

3.8 Top Floor

· The 2^nd floor / top floor being 1,358m²would be used as a corporate and hospitality function space.

· The space would also include a 75m² balcony that extends out over the embankment overlooking Arena 1.

· The space could be used for hospitality when events are on in Arena 1.

· Alternatively, the space would be fully bookable as a function/ corporate/ conference space for both the public and the tenants within the building.

3.9 Estimated construction cost: $15,161,000 + GST.

3.10 Please refer to Appendix 1: ‘Option 1: Indicative Project Costs’ attached to this report for a breakdown of the cost for Option 1.

Build a commercial building without a hospitality/ function facility

3.11 This option is essentially the same as the above, accept without the 2^nd/ top floor.

3.12 Given the primary function of the building as being a commercial building, the assumption has been made that the focus would remain on achieving lettable tenancies for a commercial return, as opposed to a hospitality and function space.

3.13 As such, by removing the 2^nd floor, there would not be a hospitality and function space in the building, nor would there be a balcony overlooking Arena 1.

3.14 Estimated construction cost: $11,105,861 + GST.

3.15 Please refer to Appendix 2: ‘Option 2: Indicative Project Costs’ attached to this report for a breakdown of the cost for Option 2.

Do not proceed with the construction of a commercial building

3.16 As the commercial building is not being built, the pedestrian bridge would instead connect straight to the embankment.

3.17 As the building is not being built, there is no construction cost for this option, however, there is an opportunity cost in not proceeding.

4. Analysis of options

4.1 For the purpose of analysis of the feasibility and viability of a commercial building on the site as described in Section 3 of this report, this section will focus on exploring the use of building, potential tenant mix and projected returns.

Overarching principles for tenanting the building

4.2 The commercial building will present a unique proposition in the marketplace unlike any other options in Palmerston North. Not only would it provide a unique location and views, but also provide a regular captured audience for the tenants whenever events are taking place within Arena.

4.3 The flipside of this, is the importance of selecting tenant industries who will add value to the Arena and its activities.

4.4 It would be recommended that PNCC carefully select the tenant industries and operators for the facility with the following considerations:

· Tenants are fit for purpose for Arena and compliment other Arena activities;

· Tenant businesses bring ‘attraction and excitement’ to the building and Arena and support the building as a drawcard;

· Businesses have stability and proven operational ability; and

· Tenants can reasonably meet the foreseeable growth and demand of the commercial activities (sustainability).

4.5 The benefits in taking this approach is Council is more likely to result in a lower turnover of tenants in the long-run and the tenants chosen will be more resilient.

4.6 The risk is, as Council would want to be selective in its tenants and coupled with the location not being a traditional location for some of the tenant industries, this may result in the building having an extended vacancy period or potentially being hard to tenant.

Tenant industry typologies considered

4.7 Putting aside the zoning considerations mentioned in Clause 2.14 – 2.21 of this report, the following tenant industry types were considered:

4.8 Conference and Function Centre

· Council’s existing Conference & Function Centre on Main Street has shown solid bookings over the last few years and has strong future bookings levels.

· A corporate and hospitality function space right next to Arena 1 could host private functions, conferences, game day corporate hospitality and should bring significant economic benefit to the Arena.

· As this industry is not relying on foot traffic or pedestrian flow, this removes any location issues the Arena may have compared to the city centre.

4.9 Hospitality

· This is a logical choice from a value-add point of view to the Arena as it would support a variety of events and activities.

· The tenant/s would have the ability to operate under standard business hours and not just during Arena events.

· Hospitality has a reputation for subjective popularity and is not as stable as other industries such as office tenants.

· Further to this, there are concerns around the potential lack of pedestrian flow and foot traffic outside of events, so the operators would need a robust marketing strategy to ensure the business remains viable.

· Options could be a sports bar, café and/or a restaurant.

4.10 Health providers

· A tenancy of health providers, such as physio and sport science centre are fit for purpose for Arena activities and could provide several synergies.

· The industry is not relying on foot traffic or pedestrian flow, this removes any location issues the Arena may have compared to the city centre.

· However, the demand and business growth of the industry is uncertain over and above existing providers already in the city.

4.11 Commercial Office

· High-quality office space is in strong demand in the city at present.

· Office space has a good rental return compared to other lease types.

· Office tenants do not particularly add value to the Arena and its activities however are one of the most appealing options rental-wise.

· Again, it is not particularly reliant on foot traffic or pedestrian flow, and removes location issues the Arena may have compared to the city centre.

· Typically, this is a stable industry type compared to others like retail and hospitality.

· A business hub concept could also be considered and would create different vibe from the traditional office space.

4.12 Retail

· Foot traffic is important to retail business so this would need to be a consideration.

· Since the Arena is not a typical retail zone, the tenant would need to have strong customer loyalty and attraction to sustain sales during the times when there is no event in the Arena 1 to draw enough pedestrian flow.

· A sportwear chain store could be an example of what could be considered on the site.

Tenant mix options for the building

4.13 With the above tenant typologies considered, there are three broad options for a building tenant mix that best support the desired outcomes from the building.

4.14 The most suitable option for the top floor is the conference and function centre. This is consistent through each of the tenant mix options.

4.15 The 1^st floor is best suited to house the hospitality tenancies such as a bar and a café/ restaurant. This allows for pedestrians to access these through the atrium and from both Arena 1 during game days, and via the pedestrian bridge.

4.16 The tenant mix options then consider the different complimenting options for the ground floor.

4.17 The following table provides three potential tenant mixes options considered:

	Tenant Mix 1	Tenant Mix 2	Tenant Mix 3
2^nd floor	Conference and function centre	Conference and function centre	Conference and function centre
1^st floor	2x Hospitality	2x Hospitality	2x Hospitality
Ground floor	Health provider/s	Retailer/s	Office/ Biz Hub

4.18 The below table compares the optimal combined annual rentals for each tenant mix that could be achieved and estimated return on investment based on the construction price for each option:

	Tenant Mix 1	Tenant Mix 2	Tenant Mix 3
Option 1 – 3 floor bldg.
Optimal Annual Rental	$915,500 + GST and outgoings	$794,500 + GST and outgoings	$937,500 + GST and outgoings
Estimated Return (@ $15,161,000 construction cost)	6.0%	5.2%	6.2%
Option 2 – 2 floor bldg.
Optimal Annual Rental	$603,000 + GST and outgoings	$482,000 + GST and outgoings	$625,000 + GST and outgoings
Estimated Return (@ $10,793,000 construction cost)	5.6%	4.5%	5.8%

4.19 Please note: The conference and function centre tenant on the 2^nd/ top floor is being treated as an external tenant paying market rates. In this model all income generated from this space would be the tenant’s revenue.

4.20 An alternative is for this floor to be operated by Arena staff as they do Council’s Conference and Function centre on Main Street. In this model, while there would be an internal rental charged, all income generated from the space would be Council’s.

4.21 A rental rate breakdown is attached detailing how the projected annual rentals were determined.

Return on investment comparison to property marketplace

4.22 Sales evidence in the commercial property marketplace derived from real estate firms and valuation data indicates investors are typically achieving 7%-8% returns for their long-term investments.

4.23 As a general investment strategy, the lower the return, the more secure an investor wants their tenant. This would typically be through long-term leases, guarantors, or secure national tenants such as banks or government organisations etc.

4.24 Given the motivations for the building are more than purely rental return, and it is very unlikely Council would ever sell the building in the future; the building would continue to add value to the Arena and its activities and be more of a long-term passive income source. Thus, a lower than market return rate is not necessarily an unfeasible outcome.

4.25 However, the returns that are forecast to be achieved are enough below the market achievable rates to question its viability.

5. Conclusion

5.1 Building a commercial building at Arena will present a unique proposition in the marketplace, providing a unique location and views, as well as a regular captured audience for the tenants whenever events are taking place within Arena.

5.2 Council would want to put added importance into selecting the right tenant operators and industries who will add value to the Arena and its activities as well as businesses have stability and proven operational ability.

5.3 As a long-term strategic investment, it is anticipated that the building would achieve a return on investment less than what could be achieved in the property marketplace. The viability of the building must be questioned.

5.4 By reducing the size of the building and not having the conference and function space on the 2^nd floor, Council is able to reduce the initial capital investment by around $4,368,000. However, this will have a direct impact on the income that is able to be generated, which when considered against a rate of return, makes the building less viable.

5.5 Ultimately the decision to proceed will come down to the perceived value from Council:

Does the value of adding a revenue generating building, which will complement the Arena and its activities and users, justify the significant unplanned financial input of an additional $15,000,000+ for a building at Arena into the next 10-year plan?

5.6 This question can be answered by considering the following:

· There is no existing funding for the construction of the building;

· The construction of the building is not an essential piece of infrastructure in the Arena redevelopment works;

· Aesthetically and strategically a building at the end of the bridge will provide a grand entrance type feel into Arena 1, which could become an iconic feature of the Arena;

· The current zoning of the Arena is unlikely to support a building being created for this purpose. A discretionary consent will be required and may be difficult to obtain;

· It is recommended that Council be very selective in the tenant process to get the best fit tenants, however, this may result in an extended vacancy period;

· The building will provide an additional revenue stream for Council and the Arena;

· However, the rental rate of return that can be achieved is less than what can be achieved in the commercial property marketplace;

· The building is not time critical. The building could be reconsidered at any time in the future should circumstances change, an ideal anchor tenant was found etc.; and

· The pedestrian bridge and embankment are being designed in such a way that they can connect and provide a feature entrance to Arena 1, regardless of whether the building is built or not.

5.7 Based on these considerations, it can be assessed that there is not an urgent need for the building being built in the next 12 months.

5.8 It is being recommended that Council instead consider the construction of a commercial building at Arena, along with the timing of such a development, as part of the 2021-31 Long-Term Plan.

6. Next actions

6.1 Council to consider the construction of a commercial building at Arena, along with the timing of such a development, as part of the 2021-31 Long-Term Plan.

7. Outline of community engagement process

7.1 No formal public consultation has been undertaken on the construction of a commercial building on the site.

Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		No
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 2: A Creative and Exciting City
The recommendations contribute to the outcomes of the Creative and Liveable Strategy
The recommendations contribute to the achievement of action/actions in the Active Community Plan The action is: Central Energy Trust Arena is the city’s main multi-purpose hub for sport and recreation and serves as the region’s premier sporting and events hub.
Contribution to strategic direction and to social, economic, environmental and cultural well-being	Palmerston North has fit-for-purpose facilities that meet demonstrated community’s sport and recreation needs and retains its ability to host major sporting events.

Attachments

1.	Option 1: Indicative Project Costs ⇩
2.	Option 2: Indicative Project Costs ⇩
3.	Indicative Floor Plans ⇩
4.	Commercial Building Concept Building Renders ⇩

Susan Baty (Chairperson)
Karen Naylor (Deputy Chairperson)
Grant Smith (The Mayor)
Stephen Armstrong	Leonie Hapeta
Vaughan Dennison	Lorna Johnson
Renee Dingwall	Bruno Petrenas
Lew Findlay QSM	Tangi Utikere
Patrick Handcock ONZM

1.	Appendix A - Submission from Les Fugle ⇩
2.	Appendix B - Planning & Miscellaneous fees & charges ⇩
3.	Appendix C - Trade Waste fees & charges ⇩