Our twin cities are at present ‘in the heat of the moment’ on key projects – Hawke’s Bay Airport restructuring, Hastings’ Nelson Park re-development, the regional sports park, the Napier Museum & Art Gallery – whose outcome is going to impact the entire Hawke’s Bay for the foreseeable future. It is appropriate now to recap recent big ticket issues, to reflect on those outcomes, and perhaps draw on the wisdom of 20/20 hindsight.
An especially clear spring to drink from is the sale of Napier’s landmark Hospital Hill site and the recent news that the purchaser has failed (unashamedly) to meet the payment deadline. From a spectator perspective, my guess is the buyer has recalculated his commitment to buy, and in the blazing light of current property devaluations, has decided it is not worth $20 million anymore.
He has apparently opted for the lesser of two evils, choosing to pay the penalty and renege on the deal. This thought is not exactly rocket science; we all had a similar flash of brilliance at the time of the Auction.
At that time the entire Hawke’s Bay population took a deep breath of disbelief at the extravagance of these city slickers who bid three times the 2006 valuation to secure their dream. If, and it’s a big if, the retail value was $20 million in September/October 2007 and if this massive high profile residential site is subject to the same market forces as city real estate elsewhere in New Zealand – then simple logic results in a 30% markdown today on the value of that winning bid.
Up to the time of the Auction the capital value of the Hospital Hill site was just $7.1 million, but at auction this jumped bling, bling, bling … by a factor of almost three! Today a 30% devaluation puts best possible present value of these same properties somewhere in the range of $12-$14 million.
Most purchasers of property since mid-2007 are revisiting their decisions with some trepidation. If you or I had purchased the Hospital Hill site late last year we would probably conclude the deal has gone sour. We would probably be very upset to realise the same real estate has apparently lost as much as 30% of the value we offered for it. Even worse is that $20 million was way too high a price to pay at the time, that it was a silly egotistical brag and the Hawke’s Bay District Health Board would have happily accepted half that.
The collapse of the sale will result in a huge burden of associated costs leading a trail of blood directly to the front door of the vendor. We have to guess the real estate company who conducted the sale made a killing on the commission. Another cost to be now borne by taxpayers will be the lawyers who, although innocent of any ‘decision reversal’ involvement, also have to be paid.
At the time of sale, the DHB was overjoyed to be receiving a windfall and the plan was to reinvest any cash directly into local health care. Now this shock turn of events will reverse all expectations and the windfall may become a liability that will gouge out the shaky finances of the DHB. How much can the Hawke’s Bay District Health Board recover as penalty payment? Probably nothing. There will be a penalty clause in the contract, but it may take years of litigation to conclude.
It is the kind of result that will be replicated at the Hawke’s Bay Airport if large new markets and other airline customers are not found before big investments are approved there. Do decision makers, Mayors, etc, need reminding the airline industry globally is in meltdown as we speak? Are they unimpressed with the frightening forecast of a huge downturn in the tourism industry? Was there ever a more inappropriate time to enlarge an airport?
The moral of the story is that harsh, unfair and expensive results happen all too often.
The airport, Nelson Park “big box” development, regional sports park, the Napier Museum … this is an inappropriate time to be investing big-time in major projects where finance and income is unclear, and taxpayers are not wholly supportive.