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An independent valuation of the Midland Landgate building used to inform negotiations before construction company Georgiou bought it for $17.3 million omits two crucial scenarios the state opposition claims could have boosted its estimated value.
The absence of the other sale scenarios was raised by Landgate itself in a review of the valuation.
An artists impression of the Landgate building refurbishments.Credit:Georgiou
The same valuation estimated the 20,000 square metres of office space, when unrenovated, should have been rented out for $2.9 million a year. The government deal to lease back the building it once owned is costing taxpayers $5.7 million a year for 13,700 square metres, requiring Georgiou to refurbish and refit the entire building.
The deal has drawn sharp criticism from the opposition, who questioned why the government didn’t simply retain the asset and refurbish it itself.
“It is hard to comprehend why this deal was even contemplated in the first place, let alone how it passed even the most superficial level of scrutiny by a moderately competent person. Something stinks about this whole deal,” Liberal leader David Honey said.
The government first flagged the sale of the building in the heart of the Midland CBD in August 2020 through an expression of interest process known as a “problem and opportunity statement” via its controversial market-led proposals process.
The sale to Georgiou in March for $17.3 million included a subsequent $85 million, 15-year leaseback of two-thirds of the building’s office space for Landgate and other government staff.
The government claims the sale will save taxpayers $12 million over the life of the deal by avoiding building refurbishment and fit-out costs but has refused to release the modelling that produced this figure for “commercial-in-confidence” reasons.
Honey has previously claimed the building had been undersold by $40 million.
In July, veteran property consultant Paul Collins estimated the state was $52 million worse off than had it retained and refurbished the building.
WAtoday used Freedom of Information laws to obtain the original independent market valuation of the Landgate building prepared for the Department of Planning, Lands and Heritage in March 2021.
That valuation provided an estimated market value of the building to the government, which was a key figure used in sale negotiations with Georgiou. The figure was redacted from WAtoday’s copy of the valuation.
However, the document reveals that the final market valuation figure was based on the lowest-value sale scenario — a sale without tenants.
Valuations were not provided for two other potential sale scenarios with continued government tenancy despite the department specifically requesting these be considered in November 2020.
The two omitted scenarios in developing a valuation for the property included a 15-year partial leaseback to the state of 6500-8500 square metres and the scenario that eventually played out – a 15-year partial leaseback of 11,500-13,500 square metres.
In an email chain between the valuer and the department, the valuer themselves acknowledged the two leaseback scenarios and asked the department to confirm “the wings and levels Landgate will occupy”.
In November 2021 Landgate, in its capacity as the government’s own valuation body, completed a peer review (pictured below) of the independent valuation where they pointed out the absence of the other scenarios.
The valuation noted “a prudent purchaser” would only be prepared to pay a highly reduced price for the property because it had the potential to be vacant for long periods because of its state and location.
Honey said the government needed to explain these key omissions in the valuation.
“The government’s intention was always to lease back this building, they are a blue-chip tenant with a long-term lease,” he said.
“If there was any logic to selling the asset in the first place, it should have attracted a premium price for the buildings and land; instead, it is a bargain-basement deal for Georgiou.”
The valuation estimated the amount of rental income the building could make from its 20,800 square metres of office space in its current state was $2.9 million a year ($43.35 million for 15 years).
The government deal locks it into $85.5 million over 15 years for 13,700 square metres. Taking the $17.3 million sale price off takes the net cost to taxpayers to $68.2 million.
However, the government said the modelling that estimated the $12 million in savings includes avoiding maintenance, refurbishment and fit-out costs as well as lease incentives provided by Georgiou. The government also refused to reveal these details because of commercial-in-confidence reasons.
In a press release in late September, Georgiou said it would spend “$100 million-plus” on the project.
Georgiou executive director Jon Smeulders said the transformation was a complex project and represented a significant undertaking for the company.
“This is anything but a simple and straightforward project — we are carrying out an exhaustive internal and external modernisation of the building, while at the same time ensuring the current occupier, Landgate, can maintain its full extent of business operations and its staff are able to work in a safe and comfortable environment,” he said.
The two sites sold by the WA government.
The $100 million is $70 million more than the figure quoted in a development application lodged with the City of Swan in December last year for major refurbishment works, which did not cover office refits or building plant equipment upgrades.
Honey said there was no sensible justification for the deal.
“It is either a monumental mistake that wasn’t picked up by the minister or the Labor cabinet or there is something else occurring,” he said.
“Remember, at the end of this deal, Georgiou will own an asset that, when fully developed, will be worth well above $100 million, including the development on the car park land.
“When you include this, the deal is actually much worse for the public purse than indicated by the initial analysis— let’s not forget, this was a government-owned asset occupied by a long-term government tenant.”
Honey said the government needed to release the modelling to provide clarity on the deal.
A Department of Finance spokeswoman said the details of the agreement for lease remain commercial-in-confidence but pointed to Georgiou’s recent announcement.
“The comprehensive financial modelling undertaken by the Department outlines an expected avoided cost of $12 million in net present terms over the life of the lease,” she said.
“This is in comparison to the State retaining ownership of the building, funding the base build improvement upgrades and fit-out plus ongoing maintenance.”
The department did not answer why the other two sale scenarios were omitted from the valuation report but said it supported the sale.
“The sale and leaseback transaction is supported by the independent valuation,” she said.
The spokeswoman said the sale process was competitive, and the outcome was subject to rigorous, independent assessment.
A spokesman for Finance Minister Tony Buti also defended the sale.
“This was a response to a Problem and Opportunity Statement released to the market and led by the Department of Finance, the process and assessment of financial outcomes was run by an independent committee,” he said.
“The alternate to this deal would be the WA taxpayer bearing the cost and financial risk of these works.”
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