CAR P ARKING - 2 DAVIES AVENUE (REVIS ED AUGUS T 2009)

Purpose of Report Significance of Decision Reporting Unit Reporting Officer Ward / Community Strategic High Property / Economic Rick Walden - Director Economic Manurewa

SUMMARY
2 Davies Avenue was successfully repurchased by Council in July 2009. Council officers undertook to report back to Council on options for the site after it had been secured. The site is in a strategic location and from a pure development perspective is a valuable opportunity. It is a prominent corner site and will benefit from the arrival of Manukau Interchange. Options for development of the site are increased if the site is combined with Councils adjoining site at 8 Davies Avenue. If the two sites are combined a significant development could be undertaken which takes advantage of the topography of the sites and the aspect overlooking Hayman Park. The combined sites are currently used for on grade car parking and supplies approximately 308 car parks to the city centre. Any future development will displace these car parks which will need to be replaced so that the city centre does reduce its competiveness by increasing a car parking shortfall. By combining both sites a mixed use development could be undertaken that incorporates into the design a car park building which could help to service car parking demand from surrounding buildings, service a future development on 9 Osterley Way which is owned by Council and also cater for the car parking requirements for the future development on 2 and 8 Davies Avenue. Expressions of interest on the Clist Crescent site were received in March 2009. They indicated that the private sector required significant guarantees from Council to mitigate the income risk they perceived with car parking within the city centre given the current pricing/charging regime undertaken by Council There was also a perceived locational risk associated with Clist Crescent. The responses to the Expressions of Interest were reported to a Council Forum and a request made for Officers to look at alternative locations. Three of the more favourable submitters for Clist Crescent were asked consider alternative proposals for Davies Avenue and to include within their considerations, hotel and retail facilities for the combined site. All three confirmed that they see any development on the site as being staged and that the first stage would be the car park building with retail and then hotel developments being undertaken as market demand allowed. All would seek guarantees from Council if they were to commit to the site. Given the strategic significance and infrastructural importance of providing additional car parking to unlock the site(s) for development retain existing business in the centre and unlock other Council owned sites within the City Centre it is proposed that work commence on a car park building as soon as practicable. Provision of $23.2 million over three years has been made in the LTCCP for funding of the construction of a multi storied car park

RECOMMENDATIONS
1 That Council officers proceed to -obtain resource consent for the car park and an agreed development plan for the retail and hotel at a latter date???

2 3

Obtain building consent and get the work tendered? Build etc and operate???

1.0

Introduction

Site Attributes 2 Davies Avenue is in a strategic location and future development options for the site are also increased if Council combines the adjoining site at 8 Davies Avenue. If the two sites were combined a significant mixed use development could be staged over time that could incorporate retail, hotel and car parking. The development could take advantage of the topography of the sites and the aspect overlooking Hayman Park. A mixed use development incorporating into the design a car park building would help to service car parking demand from surrounding buildings and also service a future development on 9 Osterley Way which is owned by Council. The dimensions of 9 Osterley Way are such that only a limited number of car parks would be able to be incorporated into its design. Its true development potential is constrained by car parking if additional car parking was provided at a combined site on 2-8 Davies Avenue a higher value for 9 Osterley Way would be achieved Any development on the site(s) will displace the existing car parking which needs to be replaced along with the car parking demand created by the new development. As indicated the site currently supplies approximately 308 car parks to the city centre. A mixed use Hotel/Retail development could conceivably create demand for 130 car parks Given the current economic climate it is unlikely that a retail development as of right would be undertaken now however it may well become feasible within the next five years if not sooner. A Hotel component is a reality as there are a number of operators who have voiced an interest in securing management rights to a Hotel within the City Centre. The major issue at present with the Hotel component is finding a funder/owner of the Hotel, this will continue to be a problem until the wider economy and in particular funding for developments improves A car park building as Stage One of any development is logical as is serves several purposes which are as follows. 1. 2. Caters for the displaced car parking on the combined sites Supplies car parking for Stages 2 and 3 of the development thereby increasing the values for these stages as a developer will not have to supply car parking but lease them from the owner of the car park Allows adjoining Council owned sites to be developed as the car park will provide car parking spaces for those displaced when the sites are developed and also allow additional car parking spaces to underpin those developments.

3.

Car Parking City Centre Analysis undertaken by independent consultants indicates that current parking facilities within the city centre are serviced by 500 fewer car parking spaces than the District 4 Plan requires . It is important to note that this shortfall does not relate to car parking provided on street for casual users but to the existing buildings requirement within the city centre.

Westfield have been forced to limit parking time to 90 or 120 minutes at the South side parking and 360 minutes at their new North side parking to prevent office and shop workers from occupying free parking spaces all day. This has effectively forced office and shop employees to take up the all day parking available on city streets, thereby reducing available car parks for visitors and casual users to buildings on that street. The Built Form and Spatial Structure for the future Manukau City Centre, 2 commissioned by MCC , recommends a pedestrian friendly environment in keeping with most modern city trends. This would mean a reduction of on street parking for areas within the main city block (Putney Way, Osterley Way, Amersham, etc) putting even greater strain on existing parking facilities, see Figure 1. Manukau city centre is in competition with other locations within Manukau and Auckland City to attract and retain corporate tenants who prefer a convenient location. A major driver in any tenants decision regarding preferred location is the transport infrastructure and the availability, type and cost of car parking. Whilst new roading and the rail link enhance the desirability of locating to Manukau CBD, the problem of car parking has a more powerful negative effect. The existing shortfall of parking provision within the city centre creates an immediate disadvantage in retaining, attracting and securing new and corporate tenants. Examples of this are:(i.) The Ministry of Education (a Tomorrows Manukau partner) are currently considering relocation from Manukau CBD, the main reason being that they need 100 car parking spaces which are currently unavailable. CST Nexia are also considering alternative premises outside the CBD, the only options which satisfy their car parking requirements are not in the city centre. Genesis Energy has already relocated from the city centre due to their inability to secure sufficient numbers of car parking spaces to meet their operational needs. They have relocated to Greenlane and are lost to Manukau from both the revenue and kudos aspect. ACC also moved from the city centre due to a lack of available, secure parking facilities for staff and clients. IRD could not be enticed into the proposed development on Lot 59 as only 200 parking spaces could be provided in the building and no guarantee of additional spaces could be given.

(ii.)

(iii.)

(iv.)

(v.)

Once tenants have chosen to relocate it is extremely difficult to attract them back, they are unlikely to return until the end of their lease which may be nine or twelve years hence and by then the cost of further relocation makes it unlikely that they would return at all.

2.0

Increasing requirement for Car Parking. There are several proposed developments as part of the Revitalisation Project that will generate the need for additional car parking within the city centre, these are:2.1 Confirmed commitments

Rail Interchange - 140 car parking spaces to satisfy District Plan obligations. Ministry of Justice requirement for a further 250 car parks to meet proposed expansion plans. 2.2 MIT Tertiary Campus Manukau Institute of Technology 500 car parks for staff and students for their initial uptake. 3.0 Displacement of existing Car Parking facilities With the Manukau Rail Interchange due to be completed by 2010/2011, the use of part of Lot 59 will alter from on grade (street level) car parking to a rail terminal/station and potentially associated commercial development. This change in use will displace existing car parking and by virtue of development create demand for even more additional car parking. It is anticipated that the area at the rear of Kotuku House (currently at grade car parking) will be developed as residential apartments for students/lecturers and others displacing 300 car parks many of which are leased to local businesses. Development of the lower western end of Lot 59 adjacent to the rail terminal would permanently displace another 140 car parks (plus many others during the construction phase) most of which are currently leased to businesses exacerbating the issue of relocation as discussed above. 4.0 Future City Centre Development Council is the predominant land owner in the city centre and development activity has all but ground to a halt in recent years. Virtually all of the potential development sites within the city centre are currently allocated to on grade car parking. Council is the owner of most of these potential development sites and in order to make them available for development the current function for car parking needs to be diverted to free up each sites potential. The most efficient and effective method of releasing these sites is to build car parking buildings (multi storey) to absorb these cars; the alternative being encroaching into Hayman Park or putting more on grade car parks south of the new motorway, again these options are not conducive to city revitalisation and growth. Further, the development of car parking buildings will allow additional car parking space to be created more cost effectively (six or more levels of parking as opposed to one on grade level in the same space); and allow economic development of the freed up prime land sites. A car containment parking system will also improve revenues and the security for Manukau visitors, residents and business rate payers. The current Pay and Display system for on street parking is abused by many and the high cost of recovering Parking Infringement Fines (currently less than 15% of fines are paid without court action) would indicate that a more practical solution is required. Car park buildings ensure parking payment is collected before the vehicle is able to exit. From a security point of view, containment parking is a more secure environment than widely spread on grade and street parking particularly after hours, thereby encouraging use of the city centre at night and weekends. Effectively, in real terms, Manukau City Centre is short of almost 2000 car parking spaces to meet current and short term future business requirements. It will be extremely difficult to attract new corporate tenants or prospective developers into the city centre without additional car parking capacity

5.0

Ownership/ Development Options. There are a number of permutations and combinations of ownership that have been considered, but essentially they are covered in three basic options; do nothing; outsource the entire development; and Councils builds, owns and operates using an established Manager.

A number of ownership structures/options that may have been attractive to Council and the private sector previously may no longer be viable given the deterioration in capital markets world wide. Strong sustainable cash flows could allow council to totally fund the development.
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6.0

Parking Strategy (District Plan 2002)

Clause 8.19 & Clause 8.20(d) of the District Plan details Councils Parking Strategy. 6.1 There is a need to quantify the costs associated with providing Council funded car parking and to assess mechanisms required to fund these developments in the short term while under construction and in the future should it be determined that these buildings require rate payer subsidisation. A fundamental element to the parking strategy is the acknowledgement that a shortage of parking has a negative economic impact on the viability of existing business. It is also a major constraint on the growth of those businesses. If additional car parking is made available this will attract new businesses and developments which will result in growth of the rating base. The question is whether parking buildings are the best form of parking infrastructure to be considered in association with the overall parking strategy of the city and who should own and operate them. The conclusion is that there needs to be a strong correlation with such initiatives as the Pay and Display parking and the use of these buildings as a primary source of parking to economically provide for new development and the current supply shortfall.

6.2

6.3

7.0

Council, Parking and City Centre Development 7.1 As the regulator of infrastructure Council is in the best position to further develop an effective parking strategy which can address the current needs of the city centre, serving as a provider of parking within the City. Additionally purpose built parking buildings, run as a profit centre, assists development through solving a long term problem developers face when contemplating investment in the city centre, namely how do they make a project viable considering the degree of parking that is required to be provided for each development? Encouraging revitalisation of the city centre by reducing development restraints, often attributable to the quantity of car parking required to be provided, will change the development model in favour of investment through more efficient parking structures. The immediate need is to provide for the undersupply of parking that is currently destabilising and constraining growth in the city centre and indeed is at such a premium that it is now in danger of creating a decline in real time business activity.

7.2

7.3

Although private sector investment is not out of the question in the current economic climate there is limited interest from the private sector to own and develop parking buildings, however, the demand for long term lease parking for existing and potential businesses in the city centre may mitigate this reluctance to invest. In addition, any developer would require an income stream guarantee and assurance from council that the proposed revitalisation of the city centre is not only confirmed within the LTCCP, but has a realistic and progressive time line.

8.0

Conclusions 8.1 Council should be in a position to manage and control the supply and cost of car parking within the city centre. Of the three options put forward, that of Council owns, builds and operates appears the most favourable at this time. It would ensure council control over a major aspect of city management and its future development in accordance with the City Centre Revitalisation Master Plan. To provide sufficient parking to meet current needs and in contemplation of future development and growth of the Manukau city centre, Council needs to embark on a well thought out construction programme of parking buildings to free up development sites. Councils Parking Strategy should be expanded to incorporate Council being the lead provider of parking infrastructure in the Manukau city centre and that forward planning of further parking buildings be pursued and considered as part of infrastructure development and revitalisation of the CBD. The attached appendices outline the financial considerations for the Options regarding a proposed car park building on council owned land at Davies Avenue. It is envisaged that Stages 2 and 3 of the site development be deferred until the economic climate improves so that the Private Sector are confident of the investment required. The change to Auckland Council in October 2010 will begin to have an impact on infrastructure developments long before the actual change over as ATA will feel reluctant to approve large scale projects in the months approaching appointment of the new CEO (expected June 2010). Consequently, it is felt that approval of this project should not be allowed to drift beyond October 2009.

8.2

8.3

8.4

8.5

8.6

8.7

Reference documents:

1. 2. 3. 4.

Economic Futures Report and Business Case Stage 1 (for LTCCP) Ascari October 2008 Manukau City Centre Built Form and Spatial Structure Plan RSA Sept 2008 Manukau City Centre Revitalisation Project Development Plan Incoll May 2008 Manukau Operative District Plan 2002

City Centre Car Park Cost to Council of options Stage 1 Davies Avenue Option 1 Do nothing Value of land Revenue lost operating costs Net Gain/(Cost) to Council No. of years Cost of capital Present value of option Option 2 - Outsource Entire Development Value of land Land lease Revenue operating costs Net Gain/(Cost) to Council No. of years Cost of capital Present value of option Option 3 - Own and operate Year Land cost Construction Cost Land lease Revenue operating costs Terminal Value Net Gain/(Cost) to Council Cost of capital Present value of option (2,500) 144 0 144 10 7.0% 1,010 Year 1 (2,500) -144 -10 (154) 10 7.0% (1,080)

5.75%

Revenue lost is the opportunity cost of holding land

Reflects the long term weighted average cost of funds (mainly debt)

5.75%

0 (2,500) (22,500)

10

1,084 (805) (25,000) 7.0% 1,281 280

1,238 (838) 400

1,411 (872) 539

1,867 (905) 962

2,300 (939) 1,361

2,805 (974) 1,831

2,925 (1,009) 1,916

2,998 (1,047) 1,952

3,073 (1,085) 1,988

3,200 (1,124) 35,094 37,170

Based on budgeted figures in March 08 Based on budgeted figures in March 08 Present value of future cash flow

Appendix A Financial considerations

SUMMARY OF FINANCIAL CONSIDERATIONS

Option 1 Do nothing This approach clearly shows that there is a cost associated with owning land which lies fallow, due to the revenue lost from the lands potential, either sold, leased or developed. The figure is based on a parcel of land sized and suitable for the construction of a car parking building. The cost of the capital tied up in the land, based on 7%, means that the present value of the Option on a ten year cycle is a cost to Council of $1,080,000 even though the real land value increases.

Option 2 Outsource the entire development This option is based on the assumption that an investor would build and operate a car park on our behalf. It assumes the same value of the land ($2.5 million) and that Council would receive revenue from the land at $144,000 per year with no direct cost implication. Consequently, the present value of the option is positive to the tune of $1,010,000 However, Council would probably have to give certain trading guarantees and accept a high risk for the project. Council could also lose control over the parking issues for the city centre and have little control over the parking fees and conditions set by the owner operator. It would also imply that any future development of parking facilities would be influenced by the initial developer. If the option was adopted and the land sold to a developer rather than leased then the only financial benefit to council would be the sale of the land, $2.5 million and the present value of the option would fall to $250,000

Option 3 Council builds, owns and operates (through a car park manager such as Wilsons Parking) This option is based on Council control. The land value is the same and the capital cost of the building would be $22.5 million, thus the initial cost of $25,000,000 based on 7% cost of capital makes the present value of the option as a positive $1,281,000 taking into account the land lease revenue to the Car Park Managers less the internal operating costs to council. After 10 years, the present value of future cash flow would be a very healthy $35.1 million and council would retain control of city centre parking.

As can be seen, Option 3 whereby Council builds, owns and operates the city centre car parking building would be the preferred option from a financial and strategic point of view.