The City of Fremantle agreed to sell the Queensgate Centre, Queensgate Carpark and Spicers site to Sirona for $29.5 million. Effectively they sold approximately $50 million of properties for less than $30 million.
Sirona was granted an option to purchase these properties from the City of Fremantle in 2012, with the Council voting to extend this option on several occasions, including again as late as 27 April 2016.
Unusually for a transaction of this type, no fee was payable to the City of Fremantle to secure this option in 2012 or on any of the option extensions. An option of this type has considerable value considering it involved the right but not the obligation to purchase the property, and this option remained in existence for more than four years.
These were income generating buildings that supported the city’s revenue base – this is now lost.
Between 2010 and 2015 the Queensgate Centre generated on average $750,000 for the City of Fremantle, with a maximum of $1.1 million generated in 2010. Based on this revenue, Fremantle Council valued the Queensgate Centre at $15.9 million in 2012.
Later in 2012, Fremantle Council agreed to grant Sirona a free option to purchase its $15.9 million property for $6.35 million.
The 2012 Kings Square Business Plan stated that the building was valued at “Fair Market Value on the basis of a total redevelopment”. In other words, it assumes that it is a vacant site after the building had been demolished – with no revenue stream associated with the multi-storey building, which was not the case.
Fremantle Council has since justified selling a property worth $15.9 million for just $6.35 million. In a full statement released by the City of Fremantle, and reported in the Fremantle Gazette on 5 May 2015, it was asserted that:
“It is true that the City could have put the building on the market in an “as is” state and possibly got a better value, however it would have been highly unlikely it would have been redeveloped, undermining our whole vision for an integrated redevelopment of the area.”
To make things worse, Fremantle Council agreed to provide the Queensgate Centre on a “vacant possession” basis. The city did not renew leases and started emptying the building of lease paying tenants. Between 2012 and 2017 the City of Fremantle missed out on millions of dollars of revenue from lease payments no longer paid.
The Spicer site generated approximately $360,000 per year for the City of Fremantle. Fremantle Council is often stating that it has been selling off underperforming assets, but based on the sale price of $6.65 million this property was providing the city with a very attractive 5.4% rate of return. This suggests the property was also sold below market price.
Sirona exercised its option to purchase this property and then immediately on-sold it to another property developer at a profit.
The City of Fremantle sold the 843 bay Queensgate Carpark for $16.5 million. In the same year the privately owned 450 bay Collie Street Carpark nearby sold for $38 million.
The City of Fremantle received $19,600 per bay while Collie Street owners received more than $84,000 per bay.
At the same time the city was selling the Queensgate Carpark, its 2015 Long Term Financial Plan was proposing that the city build a new 450 bay carpark near Fremantle Oval, which was estimated to cost ratepayers $15 million.
This smacks of complete financial incompetence.
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