Landgate Asset Sale Scrutinised

Landgate Asset Sale

WHY DID THE STATE GOVERNMENT SELL $100m+ OF REAL ESTATE FOR $17.33m ?

The State Government recently sold the above two sites, 1 Midland Square and 58 Morrison Road, in the Midland Town Centre for the sum of $17.33 million.

16,293sqm of town centre land would be a very good deal for a buyer even if the sites were just vacant!

However, one of these sites came with 19,430sqm of net lettable area across 3 buildings occupied by Landgate and the other is a prime, future development site of 3,693sqm at 58 Morrison Road, currently used as a carpark.

But wait there’s more!

1 Midland Square, Midland – 3 buildings comprising the Landgate offices

The Leader of the Opposition, Dr David Honey, revealed during Question Time at WA Parliament on 22 June 2022 that the deal also included a leaseback by the State Government of part of the buildings (13,700sqm) for 15 years at an annual rental of circa $5.7 million or $85 million over the 15-year term.

The new owner will spend $30 million (approved by JDAP on 6 January 2022) by 2024 upgrading the 3 buildings and converting some office space to extra parking, a larger café and a gymnasium.

The surplus NLA after refurbishment and lease to the State Government is 3,905sqm. Based on the Government rental being paid in its lease-back (average $416sqm per annum), there is a potential further income of $1.6m per annum.

The fully leased income potential is $7.3 million by the time the refurbishment ends in 2024.

I have been involved in the commercial property industry for nearly 25 years. I’ve sold assets as low as $10,000 and as high as $105 million. I’ve leased 21sqm up to 11,000sqm, including major leases to the State Government.

This deal is so bad for the State Government and outstandingly brilliant for the buyer, that I fail to understand why the Government has entered into it.

Let’s look at the sums:-

This deal stinks for the WA taxpayer.

Given the State Government’s sound financial position, why didn’t it do the refurbishment and then offer the 3 buildings for sale on a 15-year partial leaseback at the annual rent of $5.7million.

I have no doubt a sale price of at least $100 million could be achieved post refurbishment in 2024 even without the rent on the surplus lettable areas locked in.

Government guaranteed rent for 15 years is as good as a 10-year government bond which currently sit less than 4%.

Further, there is still 3,693sqm of land at 58 Morrison Road as a future development site, even perhaps building above the existing carpark, which the taxpayer could keep.

58 Morrison Road, Midland (3693sqm)

The Government would have at least $70 million (assuming $30 million refurbishment) in its kitty in 2024 plus the 3,693sqm site at 58 Morrison Road instead of just $17.3 million.

That is at least $52.7 million which could be spent on much needed affordable housing.

The sale settled in March 2022, 18 months after the State Government first called for bidders through its controversial market-led proposals process, criticised by transparency advocates for its opaqueness compared to regular tender processes.

Why did the Government do such a bad deal?

Why did the Buyer, Georgiou Capital Pty Ltd, get such a good deal?