Council’s real estate deals questioned

With the stated aim of making money, Redland City Council decided in late 2014 to set up its own real estate development company – the Redland Investment Corporation (RIC).

A plan to sell several blocks of ‘surplus’ Council parkland was envisaged but community outrage during City Plan consultation put this in the category of ‘seemed like a good idea at the time’.

So far, RIC has booked just one property sale on which it seemingly made a mark up of more than 100%. Closer inspection shows that this huge mark up was achieved only because the land was transferred from the Council to RIC at less than half of its market value.

The RIC also appears to have a role in negotiating the Development Management Agreement for the Toondah Harbour PDA Project. More for the community to worry about?

Can residents and ratepayers be confident they will benefit from the Council’s property development company? So far, there is no evidence to suggest that RIC is adding value. Its role, activities and performance should be clarified through more transparent reporting.

Council moves to sell 108 Old Cleveland Road

108 Old Cleveland Road, Capalaba

108 Old Cleveland Road, Capalaba (click to enlarge)

Council owned land at 108 Old Cleveland Road, Capalaba was used for years as overflow parking for adjacent sports fields. In 2014, Council decided to sell this land because it was underused and a replacement carpark could be provided nearby.

A recommendation to sell this land (and allocate part of the proceeds to providing a public car park nearby) was endorsed at Council’s General Meeting on 19 March 2014.

The officers report (Item 13.2.4) noted that:

Disposing of land falls within the provisions of the Local Government Act, specifically Sections 224 and 227 Div 2 and Section 236 Division 4, which state that Council must invite tenders or offer the land for sale by auction before entering into a contract.

For more than a year after this meeting there was no information on the public record detailing how Council would sell the property.

Redland Investment Corporation (RIC) established

RIC has developed its own branding as shown on the cover of its first quarterly statement

RIC has developed its own branding as shown on the cover of its first quarterly statement

Details in Council minutes about setting up RIC are scant, other than references to confidential sessions in late 2014.

In November 2014 Council resolved to create RIC and to appoint Council’s Chief Executive Officer and Chief Financial Officer as directors. The RIC was quickly registered (2 December 2014) with Australian Securities & Investments Commission (ASIC). Soon after, Council resolved to transfer land described as “underutilised” to RIC (the parcels were listed in a confidential report).

Subsequently, Council appointed a Director and Chairperson and agreed to other directors being appointed in consultation with Council. Council noted the sequence of pre-approved land transfers and resolved to change the financial treatment for the transfer of pre-approved land.

The forecast RIC dividend policy for 2015/16 was discussed as well as procedural matters including the transfer of an operational budget ($340,000) to RIC for 2014/15 so RIC could perform core duties. In addition Council transferred the 2014/15 sales revenue budget to RIC, as intended in the approved business case.

Clearly, RIC was getting ready for action – but well out of public view.

Leaked information – causing community alarm

It was not until June 2015, six months after its establishment, that the Council first made the community aware of the RIC’s existence.

In September 2015, a report by the Redland City Bulletin noted that 108 Old Cleveland Road had been sold months earlier by the RIC.

At the General Meeting on 7 October 2015, Council considered the RIC report for the period ending June 2015.  Interestingly, this was discussed in public though the agenda listed it to be discussed confidentially, in closed session ( item 16.1 of the Minutes).

Motions for noting are usually straightforward but on this occasion there was robust debate among the councillors. The Mayor roundly criticized nameless others for leaking confidential lists and causing “alarm” in the community. The video record provides a fascinating insight into the operation of Redland City Council – see Item 16 Closed Session (starts at 28 minutes).

The only completed RIC “project” in the quarter was the sale of 108 Old Cleveland Road, Capalaba. According to Real Property Data, the sale was effected on 7 April 2015. Agent and newspaper records indicate that the Ray White Commercial offered the property for sale by tender following a couple of advertisements in the Redland City Bulletin.  Other details of the process are unclear and the number of tenders received does not appear on the public record.

RIC makes a $million, sort of

The profit came from a single real estate deal

A million dollar profit? (click to enlarge)

The RIC’s quarterly financial update shows the property was sold for $2,120,000 (excluding GST) or $2, 332, 000 (including GST). RIC reported the “cost of goods sold” as $820,000. This seems to be the transfer price when Council passed the land across to RIC which reports a profit of $1,300,000 on the sale (before selling costs).

How the “cost of goods” was determined is unclear. The transfer from Council to RIC was an internal transaction, not at arms length.  The approach seems to artificially and grossly inflate the “profit” booked by RIC, making it look like a real estate wiz.

There is no indication that RIC performed any activity that might have added value to the property prior to its sale. RIC merely arranged for its sale through a local real estate agent. The selling price would have been the same whether it was sold by RIC or the Council.

RIC will be “Developing land with or without partners” according to its Statement of Corporate Intent. Presumably, this may involve further dealings in public land transferred from the Council to RIC. The manner in which these transfer prices are determined should be explained clearly to the community, especially if a transfer price is way under market value.

How did RIC perform at selling real estate

A good comparison sale to 108 Old Cleveland Road is the sale (by Council) of 96 Old Cleveland Road, The two lots are adjacent and share many attributes. A summary of Site and Sale Details as per RP Data Records for 108 and 96 Old Cleveland Road are as follows:

Property 108 Old Cleveland Road 96 Old Cleveland Road (KFC)
Sale date 07/04/2015 27/4/2005
Area 3 573 sq m 3 031 sq m
Sale price  $2,332,000 $1,565,000
Unimproved land value $1,550,000 @ 30/06/15 $1,250,000 @ 30/6/2015
The sale price equates to $653/ sq metre in 2015 $516/ sq metre in 2005
Vendor Redland Investment Corporation Redland City Council

Sale of the KFC site in 2005 was managed directly by Council with the final decision to sell taken at a General Meeting of Council after consideration of the Officers Report (in which all seven tenders were tabled).

The price per sq metre received by RIC  for 108 Old Clevelend Road represents an annual increase of only 2.3% over the price Council got for the adjacent property 10 years earlier.  Hardly a stellar performance by RIC in realizing value from Council owned real estate.

More transparency please

There are good reasons why the Local Government Act is very prescriptive in its requirements for transparency and probity when local councils sell publicly owned land.

There may also be good reasons for a local council to set up and operate a property development company. But so far Redland City Council has failed to make a compelling case for its RIC.

It’s time for a clear and rational explanation, and a lot more transparency!

Redlands2030 – 11 December 2015

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8 thoughts on “Council’s real estate deals questioned

  1. Driving by 108 Old Cleveland Rd site next to KFC Capalaba often wonder what is to be built there which is also near Fiteni Homes offices. Rumours are for further food outlets on the site. End Ingham St along fenceline with TAFE, an old Ingham Enterprises chicken shed was demolished, replaced with ‘ghetto’ style housing where Fiteni built many wall-to-wall homes destroying cluster of officially listed majestic koala food trees during the Don Seccombe Administration, thus causing great unhappiness to locals where we now see petty crime causing anxiety to some elderly residents. Proceeds from this development enabled KFC to build the facility they now occupy next to 108 Old Cleveland Road. Sadly, koalas that used the food trees in the adjacent park by Ingham St KAG helped me to plant, are no longer used and during Premier Newman’s Administration, TAFE grounds were earmarked for housing with many trees cut down, teachers dismissed, and popular courses cancelled forcing students to travel long distances as far away as Acacia Ridge by bus many parents could ill afford for courses. Thankfully, Labor’s Palasczcuk govt saved TAFE land from being turned into houses. Spoke last evening with resident on adjacent park, an elderly lonely woman, whose pleasure in life is her small dog and having had frequent visits by koalas she so fondly remembers, prior to their homes destroyed. In old age, simple pleasures are important like pleasant surroundings, seeing wildlife and children playing in the park, but today it seems developers don’t need to leave land for playgrounds or mature trees, using all available space to squeeze in as much brick and tile as possible for greater profits ignoring the need for recreational space for existing residents so sorely needed.

  2. I am not sure where this comment should be
    “THE FOOD CIRCUS PLAN”. I cannot believe that Council would even consider, allowing this business to operate on Public Parking, behind the Cleveland Library. No parking for Rate Payers using the library. No parking for Vistors who may or may not visit The Circus. It really is a good name that is what Cleveland is becoming a Circus
    The Cleveland Show Grounds is about the only Council controlled area that is big enough for this type of business If you have visited Eat Street, Hamilton, you can understand why the Brisbane City Council put it way down at Hamilton, the traffic is horrendous. RSL Cleveland own a very big piece of property in Cleveland, out of the City area, but close enough to encourage people to visit
    Sharon & Colin Mason should consider these areas, so as not to get the Locals off side. The restaurants in Cleveland have a hard enough time as it is without the likes of Street Eateries being put right in the middle of the City

  3. What does the Redland City Council trying to do…make its RIC look like a leader in real estate scams.

    With Governments generally opting out of owning businesses, a trend started by Keating and honed by Howard we have a small Council defying the trend but pumping up the ability of its fully owned company by what looks like a form of transfer pricing.

    Clearly Redlands 2030 is correct…It’s time for a clear and rational explanation, and a lot more transparency!

  4. What do we have now…Redland City Council doing deals with Ray White behind closed doors? Is this why we are now being informed of local parks and reserves being earmarked for housing? Frontage to Valantine Park, Finucane Rd Alex Hills (I was one of a bush carer group greening the park over ten years) to my horror was sold by RCC to a Ray White real estate agent in Capalaba then sold on to where the land is today in private hands. A Current Affair program on Channel 9 recently showed viewers how ‘out of control’ councils are today. Genuine consultation with ratepayers is urgently needed before areas of value to the community are lost.

  5. So RIC is a sham? That’s what your analysis seems to have highlighted.
    It is all double speak again. RCC flicked the site to RIC at a ridiculous price then RIC claims how wonderful they are at making 100% profit.
    Some might say: corporate duplicity at its best.

  6. …and so it goes. Thank you for this report. It confirms why the community is not using the word “trust” and “council” in the same sentence these days.

  7. Once you register a company. The right to information (RTI) no longer applies. A dangerous road set up by Peter Beattie to stop the public from finding out dodgy goings on.