PART B THE IMPACTS OF HERITAGE REQUIREMENTS ON THE FINANCIAL VIABILITY OF INDIVIDUAL DEVELOPMENT PROPOSALS, C Dominy

Tags: upper floors, Strand Arcade, Martin Place, heritage significance, Robert Young, heritage conservation, GPO, Sydney CBD, Project Costs, retail floors, Sydney City Council, case, heritage listing, Sydney GPO, Mr Young, heritage building, heritage restoration, the ground floor, Maitland City Council Local Environmental Plan, ground floor area, heritage preservation, financial perspective, floor level, Ipoh Strand Pty Limited, Maitland City Council, floor levels, retail trade, Radisson Plaza Hotel, commercial buildings, Case Study, Sydney Morning Herald, NSW Heritage Office, NSW Heritage Council, development scheme, heritage listings, property development, West Maitland, redevelopment, East Maitland, heritage-listed, City of Maitland
Content: PART B THE IMPACTS OF HERITAGE REQUIREMENTS ON THE FINANCIAL VIABILITY OF individual development PROPOSALS Prepared by THE NEW SOUTH WALES DIVISION OF THE AUSTRALIAN PROPERTY INSTITUTE For The NSW HERITAGE OFFICE Writer Colin Dominy AAPI, Dip.Val, GDLE, Certified Practising Valuer, Lecturer in Property Economics University of Western Sydney
Acknowledgements
1.
The writer wishes to acknowledge the invaluable assistance and contributions in
time, skill and care provided by the following people, without whose efforts this Report
could not have been compiled :
Mr Michael Collins, Deputy Chair, New South Wales Heritage Council, and New South Wales Divisional President, Australian Property Institute. Mr Ian Kelly, Principal Heritage Officer, State and Commonwealth Heritage, New South Wales Heritage Office. Ms Gail Sanders, Executive Officer, New South Wales Division, Australian Property Institute.
2.
The writer is also indebted to the following people in their capacities as owners,
or representatives for the owners in respect to our series of seven Case Studies, who so
willingly gave of their time and co-operation for the purposes of field interviews and
consultations, and each of whom are identified more fully in the References :
Mr Andrew Cant of Tony Cant Real Estate at Maitland, NSW. Mr Alan Champion of Ipoh Pty Ltd, Sydney NSW. Mr John Gillett of The Moran health care Group, Sydney NSW. Mr Frederick Goh of Wales House Nominees Pty Ltd, Sydney NSW. Mr Ian Gray of Jones Lang La Salle, Parramatta NSW. Mr Michael Leyne of The Walter Construction Group, St Leonards NSW. Mr Peter Moran of The Moran Health Care Group, Sydney NSW. Mr John and Mrs Barbara Murphy of Maitland, NSW. Mr Allan Vidor of The Toga Group of Companies, Surry Hills NSW. Mr Robert Young of No. 1 Martin Place Pty Ltd, Sydney NSW.
2
3.
Further, the writer wishes to thank the following members of the Peer Review
Committee of the NSW Division of the Australian Property Institute for their data
contributions, valuable feedback and editorial suggestions in relation to the assembly of this
Consultancy Report :
Mr Malcolm Garder, Valuer, Property Consultant and Town Planner, Sydney. Mr Phillip Harris, NSW Department of Public Works and Services, Sydney. Mr Peter Inglis, Associate Director, Knight Frank Valuations, Sydney. Mr Keith Norris, National Executive Director, Egan National Valuers (NSW), Sydney. Mr Robert Rowlands, Managing Director, Landsburys Property Advisory Services, Sydney.
4.
Finally, the writer gratefully acknowledges the invaluable assistance and co-
operation of each of the people more fully identified under the Personal Communications
component of the References to this Report, and extends his sincere thanks to his
colleagues in the School of Information Technology at the University of Western Sydney,
Quakers Hill Campus, for their technical assistance in the final compilation of this Report.
3
CONTENTS
Executive Summary
PART 1.
Introduction
1.1 Preamble. 1.2 Objectives and Client Instructions. 1.3 Research Methodology. 1.4 The Seven Chosen Case Studies. 1.5 Report Format and Other Content.
Page ..... 36 ..... 39 ..... 39 ..... 39 ..... 41 ..... 43 ..... 45
PART 2.
Developers and The Property Development Process
2.1 The Different Categories of Property Development Activity.
2.2 Property Development - Heritage Applications.
2.3 The Role of Property Developers In Society.
2.4 The Property Development Process An Outline Summary.
..... 46 ..... 46 ..... 47 ..... 49 ..... 51
PART 3.
The Seven Case Studies
..... 54
Preamble.
..... 54
Case No. 1 - The Sydney GPO, Martin Place, Sydney.
..... 58
Case No. 2 - Suburban Study at 60 Macquarie Street, Parramatta. ...77
Case No. 3 - The Strand Arcade, George Street, Sydney. ..... 87
Case No. 4 - Medina Apartments, Railway Square, Sydney. ..... 100
4
Case No. 5 - The Radisson Plaza Hotel, Pitt Street, Sydney. .... 114
Case No. 6 - Regional Study at 315 High Street, Maitland. ..... 127
Case No. 7 - Moran House, Bridge Street, Sydney.
..... 139
PART 4.
Case Study Findings
4.1 Preamble.
4.2 Difficulties of Adequate data collection.
4.3 Developer's Objectives and Priorities.
4.4 Development Economics - Cost Versus Value.
4.5 The Economic Impact of Heritage Incentives on Heritage-Listed Development Projects.
4.6 Subsidiary Property Development Issues.
4.7 The Property Asset Management Perspective All Cases.
..... 153 ..... 153 ..... 153 ..... 154 ..... 156 ..... 158 .... 162 ..... 163
PART 5. Conclusions and Recommendations For Future Research 5.1 The Commercial Redevelopment of Heritage Assets. 5.2 Commercial Asset Management of Existing-Use Heritage Properties. 5.3 Summary Conclusions. 5.4 Recommendations For Future Research.
..... 169 ..... 169 ..... 172 ..... 174 ..... 175
References, Bibliography, and Personal Communications
..... 178
5
Figures 1. The GPO Martin Place faзade 2. The GPO Clock Tower 3. Example of a restored section of the GPO interior 4. Interior of the GPO development, including the glass-roof atrium 5. Archival photograph of `Kia Ora' or `Houison's Cottage' 6. Macquarie Street faзade of `Kia Ora' at present 7. The Strand ­ Interior 8. Interior of the Strand, after the 1976 fire 9. Northern faзade of the former Parcels Post Office, now Medina Apartments. 10. Archival Print of Wales House 11. The cupola at the Southern end of Wales House 12. 315 High Street, Maitland ­ ` Mansfield' 13. Liner House ­ now Moran House 14. Interior of Liner House, featuring the spiral staircase
..... 55 ..... 57 ..... 58 ..... 59 ..... 77 ..... 80 ..... 87 ..... 90 .....100 ..... 114 ..... 115 ..... 128 ..... 140 ..... 145
6
EXECUTIVE SUMMARY This Consultancy Report has been prepared in respect to a research project which has been undertaken by the New South Wales Division of the Australian Property Institute in accordance with instructions received from the New South Wales Heritage Office. The NSW Heritage Office was commissioned by the NSW Heritage Council's Economics of Heritage Listing Working Party to manage this research project on a day-to-day basis. The NSW Heritage Council is acting on behalf of the national Heritage Chairs and Officials. The project was created under the working title of the Economics of Heritage Listing Consultancy, where the stated objective was to produce guidelines to enable the preparation and assessment of economic and financial information submitted in development applications involving heritage items and heritage conservation areas. The project was divided into two parts, Part A (a `macro' study of Social and Community Economic Costs and Benefits arising from heritage listings) and Part B (a `micro' study of the Impacts of Heritage Requirements on the Financial Viability of Individual Development Proposals). The NSW Division of the Australian Property Institute was charged with the task of addressing Part B of the project, which accordingly is the subject of this Report. Approval was also received from the client to investigate the Economic Impacts in respect to heritage listings in existing-use passive investment properties, in addition to adaptive re-use redevelopment scenarios. In accordance with the Consultancy Brief, our study is confined to a focus on commercial investment properties (as opposed to residential properties) in the urban environment. Our research methodology was based on the Case Study approach. Seven case studies were selected for this Part B component of the consultancy. Of these, five heritage-listed commercial property examples were selected from the central Sydney Commercial Business District. A further case was selected from the Parramatta CBD, which comprises a major commercial and heritage precinct in its own right, located some 20 kilometres west of the Sydney CBD. A final case at Maitland, some 170 kilometres to the north of Sydney, was selected as an example of a country-regional adaptively re-used and commercially redeveloped property. The Sydney CBD cases are geographically dispersed throughout the central city precinct and comprise a variety of characteristics in terms of property size, age, condition and the nature of commercial use. Similarly, there is a considerable variety in the character of the properties in heritage significance terms. Our case studies confirm the highly individual nature of heritage items, which is already a well-documented aspect of the heritage system. The highly individual nature of commercial property assets, per se, in their own property sub-markets, 7
has also always been an acknowledged consideration in professional property practice. This historical rule of the market place is also confirmed in our case study series. No two commercial properties are ever exactly identical, no matter how many elements of outward or more inward similarity they may possess. We are mindful that this Report is intended for distribution to and readership by a variety of interested parties throughout Australia. To this end, we have selected a series of Case Studies which we trust will be sufficiently cross-sectional and representative in their nature so as to be readily usable for comparison purposes in various other heritage and market environments throughout Australia. In each of our case studies we have examined, in some depth, the nature and degree of heritage significance of each property example. We have also explored the fundamental property characteristics of each case in their respective sub-market. Four of the cases comprise redevelopment examples, while three cases comprise examples of passive investment assets, thereby making up our total of seven cases. Accordingly, this Report has divided the findings and conclusions into two categories - those from the adaptive re-use / redevelopment standpoint, and those from the existing use / passive investment standpoint. In the heritage redevelopment context, we have found that the basic orthodox market-related principles which govern ordinary non-heritage property development activity - that is, the desirability of pre-emptive market research, the identification and satisfaction of unmet market demand, the presence of suitable sub-market and property cycle conditions which are conducive to development taking place, and risk acceptance relative to estimated financial return - have also been first and foremost the fundamental factors influencing the decision of developers to commit to heritage-listed projects. We have found that heritage considerations do not pre-empt the fundamental market-related factors in property development, but rather are simply part of the `next step' which comprise property availability and development approval considerations in the normal routine of the property development process. We have found that all four of the redevelopment case studies have comprised successful projects, both from the heritage preservation and financial viability perspectives. In the three remaining case studies, which are passive investment examples (as opposed to redevelopment cases), we have concentrated upon the asset management perspective. We have found that all three heritage-listed passive investment property examples are currently performing satisfactorily for their owners in a commercial investment context - particularly in light of the recent purchase prices which the current owners paid for the subject properties in the market place. 8
In respect to the same three passive investment cases, we found that the subject heritage listings have an impact upon yearly operating costs which varies in scale from a moderate degree to only a very minor degree - this depends on a number of heritage-listing features, the individual nature of which varies in each case. In two instances, we also discovered several heritage-related factors which have an economic impact on property performance from a longer-term life-cycle costing and value maintenance / enhancement perspective. These factors are commented upon in some detail within our Part 4 Case Study Findings and Part 5 Conclusion within this Report. To complete this Report, we have also provided what we believe are relevant suggestions for future avenues of meaningful and fruitful research in the broad Economic Impact of Heritage Listings theme of study. These suggestions are briefly presented at the very end of Part 5 of this Report. In summary, the chief objectives of this research consultancy are linked to the development economics of heritage-listed commercial property assets. Accordingly, our main findings from this Consultancy Report are as follows : · In property development terms, economic viability is dependent upon preemptive market-related factors which are not generally related to heritage considerations. · The individual nature of the heritage listing in each redevelopment case study was such that it did not deter project commitment by the developer. Nor did the heritage listing in any of the four redevelopment cases negatively affect the direct financial feasibility of the project - in particular, future economic performance expectations were seen to most favourable in each of our four examples. · The overall Project Costs in our heritage-listed redevelopment case studies were increased to a mild degree as a result of the heritage listing in each example. However, such costs were inevitably recovered, and in fact were counterbalanced and far exceeded by, the commensurate increases in Project Value which flowed into each of the three Sydney CBD schemes via the development incentives provided. In particular, substantial Floor Space Bonuses provided a key financial and economic incentive in each of the three Sydney CBD redevelopment cases. Rating and taxing subsidies, to various degrees, further contributed to a positive economic impact in overall terms, linked directly to the heritage listing. 9
PART 1 Introduction 1.1 The 'Economics of Heritage Listing' Consultancy. Background / Preamble. This Consultancy Report has been prepared by the New South Wales Division of the Australian Property Institute (the consultant), in response to an Instructional Brief received from the New South Wales Heritage Office (the client). The Brief was first forwarded to the consultant in Draft form early in 2000, and the consultancy agreement between the parties was legally formalized on 6 June 2000. The proposal for this Consultancy Project first arose in 1997 as a consequence of an earlier Economic Effects of Heritage Listing Study completed in July 1995 which was funded by the national Heritage Chairs / Officials. The NSW Heritage Council, being a member of the national heritage group, resolved to establish an Economics Of Heritage Listing Working Party to further explore the issues raised by the 1995 national study. These efforts culminated in the creation of the current 2000 Economics of Heritage Listing Consultancy Project. It was agreed that the project be steered by the NSW Heritage Council's Working Party, and that it be managed on a day-to-day basis by the NSW Heritage Office. This immediate Consultancy undertaking and report assembly, conducted by the NSW Division of the Australian Property Institute, could not have become a practical reality without the considerable preparatory work conducted by Mr Ian Kelly, Principal Heritage Officer, NSW Heritage Office, and Mr Michael Collins, Deputy Chair of the NSW Heritage Council. Mr Collins had been appointed to the Heritage Working Party in 1997, and in his additional capacity as New South Wales Divisional President of the Australian Property Institute, played the key role in arranging for the involvement of the API as one of two chief consultants. 1.2 Objectives of the Consultancy and Client Instructions. In its original format, the Brief focused upon a central stated objective, which was as follows : 10
The objective of this consultancy is to produce guidelines to enable the preparation and assessment of economic and financial information submitted as part of development applications involving heritage items and heritage conservation areas (HCA's) in a standardized, comparable and easily understandable manner. To maintain a manageable scope of work, the study will focus on commercial (non-residential) properties in an urban environment. The Working Party divided the project into two sections - firstly, a Part A 'macro' cost / benefit study from a wider community-value perspective, and secondly a Part B 'micro' cost / benefit study from an individual development project / developer's perspective. Professor Peter Abelson of Macquarie University was appointed as the chief consultant for the Part A study. The NSW Division of the Australian Property Institute was appointed as chief consultant for the Part B Study. The API in turn appointed Mr Colin Dominy of the University of Western Sydney as its representative in the consultancy task, to undertake the relevant field-based investigations and to prepare the Part B Final Report. This Report therefore addresses the requirements of the Part B Study, as per the Instructions contained in the Brief. At a meeting held at the Australian Property Institute's Sydney offices on 21 February 2000, the Institute was provided with additional, more finely-tuned verbal instructions in respect to the Part B Study. The additional instructions provided for the preparation of field studies, focusing specifically upon the financial viability and economic performance of heritage-listed commercial investment properties of various grades and types, with a particular emphasis placed upon properties which had been the subject of major recent development schemes. The thrust of the verbal instructions revolved around the stated intention to distribute the Part B Study outcomes on a nation-wide basis. Additional to the Report being distributed to Heritage Authorities throughout Australia, it was anticipated that commercial property developers and investors might also benefit from the contents and outcomes of the Study. It was confirmed at the February 2000 meeting that the concept of statutory heritage protection tends to be somewhat negatively regarded by some sections of the commercial property development and investment industry. The parties to the meeting discussed the proposition that much of this generalized negative perception has arisen, possibly as a result of past information entanglements, inaccurate 11
commentary and reporting, hearsay and the like, the nature of which has constituted a combination of part fact and part fiction. It was thus agreed at the February meeting that one of the key strategic objectives of this Consultancy was to 'sort out the facts from the myths' surrounding the true economic effects of heritage listings on commercial properties, as they exist in real-world situations. On a tactical level, the following areas of study were consequently identified as a means of addressing the overall strategic objectives : · an examination of the direct impacts of heritage listing requirements on properties which were the subject of major development schemes. · an examination of the restrictions and mitigating factors on development, arising out of heritage controls on individual commercial properties. · an examination of the countermanding and offsetting heritage-related inducements, management policies, and financial incentives conferred upon commercial development proposals by the relevant heritage authorities in the same development scenarios, the anticipated nature of which would likely contribute significantly to development viability. · a cost / benefit analysis of the financial feasibility of individual development schemes in light of the above three avenues of investigation - subject to available information from property industry sources. · an examination of the impact of heritage controls upon the ongoing economic and financial performance of so-called passive (or 'standing') commercial investment properties, particularly from a property asset management and life-cycle costing perspective. The methodology and scope of study in this Consultancy was consequently formulated in light of the above strategic and tactical implications, and also the budget and resources available for the work to be conducted. 1.3 Research Methodology - Case Study Approach. It was agreed between the parties that the central thrust of the Consultancy should be conducted via a series of Case Studies. The selected Case Studies were chosen with the intention of providing a representative cross-section of different commercial property scenarios, including examples which had been the subject of 12
recent major redevelopment schemes, as well as examples of passive (or 'standing') investments. Consequently, the chosen Case Studies involve a variety of different types of commercial property assets, and a range of various commercial pre-existing uses and adaptive re-uses. Each property in the study series contains characteristics such as size, age, location, and volume / magnitude of development, which varies considerably across the spectrum of properties so selected. A total of seven (7) cross-sectional Commercial Case Studies was thus decided upon. It was anticipated that the selected examples would, by their nature, be sufficiently similar and comparable in thematic terms so as to possess readily usable applications for heritage managers, property developers, and property investors who operate in Australian urban heritage and economic environments outside the limiting boundaries of New South Wales. Much of the deliberate differentiation in the case studies is expressed through the relevant project cost and sales-pricing levels which apply to the properties chosen for study. For example, in the four cases out of seven which constitute major redevelopment projects, the range of Total Project Cost varies from as little as $680,000 extending to over $600 Million at the top end of the series spectrum. In respect to the remaining three cases which constitute passive investment assets, recent market acquisitions by new owners were recorded at price levels of $6.5 Million (Case No. 7), $7.5 Million (Case No. 2), and $66.5 Million (Case No. 3). Thus it can be seen that in our selected study series, scenarios are invariably encountered where the economic stakes are very high indeed. Similarly, it was anticipated that the particular nature and degree of heritage significance attaching to each Case Study property would vary considerably. Although the specific heritage characteristics of each Case Study property were unknown at the outset of study, it was anticipated that by exploring the heritage merits of each case in detail, the highly individual nature of heritage significance and affectation which attaches to different properties in the real world would be clearly demonstrated. It was agreed due to the thematic objectives and also budgetary and resource constraints that the focus of study should be centred on commercial examples located within the Sydney Central Business District - as opposed to a broader study encompassing heritage cases in the various built environments of other capital cities and regions around Australia. Consequently, the majority of the Case Studies conducted for this Consultancy are situated within the confines of the local government area administered by the Council of the City of Sydney. 13
However as part of a wider strategic and thematic objective, two properties located outside of the Sydney CBD were chosen for inclusion in the study series. These properties comprised a Sydney Suburban Regional CBD example (at Parramatta) and a Regional Country-based example (at Maitland, on the central eastern seaboard of New South Wales).
1.4 The Seven Chosen Case Studies. In summary form, the seven Case Studies selected for the purposes of the Part B Consultancy task are as follows :
Case No. 1
The Sydney GPO Redevelopment Project
This case constitutes a redevelopment project of quite massive proportions, involving the preservation and adaptive re-use of the 1887 Sydney GPO building. The adaptive re-use scheme provided for the addition of major non-heritage commercial buildings and uses on land immediately behind the heritage building. The completed project constitutes an integrated mixed-use development scheme comprised of a 5-star international hotel, plus up-market retail, food-court, recreational and contemporary office-building elements.
Case No. 2
60 Macquarie Street, Parramatta
This case comprises an 1842 colonial residence located in the heart of a major suburban regional heritage precinct of Sydney, where the heritage building has been adaptively re-used as two-storey commercial offices since 1979. Further, a sevenstorey non-heritage commercial office building was erected on side and rear land immediately adjoining the heritage building in 1979, and since that time both buildings have been operated as a combined commercial investment asset. This case is principally examined in its capacity as a passive ('standing') investment, as opposed to a development scenario.
Case No. 3
The Strand Arcade, George and Pitt Streets, Sydney
This case constitutes the only mainstream retail investment property in our study series. The building has been in existence since 1892, and is an acknowledged heritage landmark within the Sydney CBD precinct. The property was almost destroyed by fire in 1976 and many of the conserved current-day heritage characteristics of the building were, by necessity, reconstructed in their original forms. This case is principally examined in its context as a passive commercial investment asset.
14
Case No. 4
The Medina Apartme nts Redevelopment Project, Railway Square, Sydney.
This case comprises a recently completed sizeable redevelopment project, well located amidst a major public transport hub and public infrastructure precinct on the southern extremity of the Sydney CBD. The 1913 six-storey heritage stone and brick building was custom-built as a government-owned Parcels Post Office, which by the 1990's had physically deteriorated due to technological change and disuse. The recent subject property redevelopment and heritage conservation proposals were included as part of a wider State Government pre-Olympic infrastructure renewal scheme at Railway Square. The property was redeveloped in 1999-2000 on the basis of an adaptive re-use scheme as serviced apartments. Included in the statutory approval was a provision for a roof-top floor-space addition which permitted the inclusion of some 20 extra apartments, or approximately 20% over and above the usable pre-existing floor-area volume.
Case No. 5
The Radisson Plaza Hotel, Pitt, Hunter & O'Connell Streets, Sydney.
This case constitutes a substantial commercial redevelopment scheme, based upon a comprehensive adaptive re-use of a 1928 former ten-storey office building known in the past as Wales House. The building enjoys notable prominence as a major Sydney CBD heritage asset, and considerable efforts were expended in the preservation of the heritage-significant external form and fabric of the building. The property has been adaptively re-used and completely redeveloped internally as a 5star international hotel. A three-storey roof-top extension to the pre-existing building, representing a 14% increase in the effective Floor Space Index, was conferred upon the development scheme under the provisions of the Pre-Olympic statutory approval process for hotel uses.
Case No. 6
High Street, Maitland - Redevelopment Project -
Adaptive Re-Use of Former Banking Chambers.
This case comprises our only country-based example in the study series. The subject property, which is in the final stages of redevelopment, comprises a fine three-storey 1888 former banking chambers. The internal and external form and fabric of the former banking chambers have been well preserved over time, however the property in an overall sense experienced an 8-year period of uneconomic disuse, neglect and asset-wastage prior to the recent acquisition and redevelopment by its new owners. The premises have been adaptively re-used as a ground-floor function / conference center, plus an upstairs bed-and-breakfast
15
guesthouse. A notable feature in this case is the very positive attitude to the heritage aspects of the property which has been displayed by the new owners, a husband-and-wife local small-business enterprise.
Case No. 7
Moran House, Bridge Street, Sydney.
This case consists of a small, purpose-built six-storey office building, formerly known as Liner House, erected in 1961. As such, the property comprises the only example in our study series whereby a subject heritage-listed office building is currently devoted entirely to the type of use - in this case, owner-occupied commercial offices - for which it was first designed. This case also constitutes a somewhat unusual example of a recently erected heritage-listed building (in timerelativity terms). This example is principally analysed in economic terms from the asset management perspective, where the focus is on the impact of the statutory heritage listing upon the annual operating costs and future life-cycle costing aspects of the building's financial performance.
1.5 Report Format and Other Content. This Report has been assembled as a collection of 5 sequential parts. The Case Study series which constitutes the core focus of this Consultancy is situated within the central, middle body of this Report, and is positioned as Part 3. This section occupies the greatest volume of the report work submitted. The preceding section in this Report, Part 2 entitled Developers and The Property Development Process, is positioned so as to deal with a description and explanation of preparatory data from both the heritage and property development perspectives, prior to a reading of the case study analyses. Part 4 of this Report consists of a summary analysis of Case Study Findings, evaluated under a number of centrally recurring heritage and economic themes which emerge from the Case Study series. Part 5 of this Report contains an End Conclusion and Evaluation of this body of work in its entirety. A brief schedule of Suggested Themes for future heritagerelated research is also provided, in an attempt to provide assistance for potential future directions of investigation by heritage authorities, property developers and commercial property investors alike. It is with much pleasure and privilege that the following Report is presented.
16
PART 2 Developers and The Property Development Process 2.1 The Different Categories of Property Development Activity. Many recent learned authors have provided admirable definitions to describe the profession of property development (e.g. Byrne 1996, Cadman & Topping, 1995, Darlow 1990, Millington 1993 & 1994, Ratcliffe & Stubbs 1996). The following definition constitutes an amalgam of previous authors' work. The word `development' infers a state of change. In the context of the economy in which our society operates, property development can be defined as being any process which involves changing the state of land - together with any retained existing improvements thereon - in a way which improves its economic performance and, in a wider sense, the economic benefits to the community. Thus, a property developer may be involved in a wide array of activities, all of which are intended to consequently change, for the better, the nature and characteristics of a given property and its immediate surrounding environment. The overwhelming majority of the population lacks any significant degree of detailed knowledge, understanding, or expertise as to the intimate workings of the property development process. In the minds of many within Australian society the term 'property development' is invariably simplistically associated with the demolition of old, outdated buildings and uses, and their replacement with new, bigger, better, buildings and uses which are commensurate with contemporary market needs. This demolish / replace / rebuild mindset is a very narrow and incomplete one however, and is not at all representative of the true nature of property development activity in its fuller, wider scope. The fuller, wider range of potential property development activity can be readily categorised as follows : · the construction of new buildings on virgin or `greenfield' lands. · the complete demolition of existing buildings and their replacement with entirely new buildings. This is sometimes termed 'brownfield' redevelopment activity and usually involves a completely new subject property use, compared to that which previously prevailed. 17
· the adaptation of existing buildings by way of re-design to make them more suitable for their existing use. · the adaptation of existing buildings by way of re-design to make them more suitable for an alternate use, or, in the case of specific heritage applications, an adaptive re-use. · the adaptation of existing buildings to increase the amount of useable floor space - commonly referred to as `additions'. · the adaptation of existing buildings by way of refurbishment making them more suitable for their existing use or an alternate / adaptive re-use in a heritage context, by improving the quality of building materials, finishes and fitout. · the adaptation of existing buildings to make them comply with contemporary statutory requirements, Building Codes, fire-prevention regulations, and so on. · Rural applications - pasture improvement, land clearing for new pastures, installation of drainage systems, and so on. Re-development of existing buildings, particularly in respect to those projects dominated by heritage considerations, usually involves a combination of the factors of re-design, adaptive re-use, refurbishment and, sometimes, additions to the existing magnitude of floor space. The exact presence, mix and magnitude of these variables will depend on individual case requirements. It is clear from observation of the property development industry in Australia that the greatest volume of property development activity - in terms of sheer project numbers - comprises the alteration of existing buildings in some manner, as opposed to the development of greenfield sites or the complete demolition / replacement of old buildings. 2.2 Property Development - Heritage Applications. Reference to the above schedule shows that, of the 8 categories of development activity listed, 5 involve the alteration of existing improvements in some way. This is a significant statistic which is highly relevant in the consideration of development activity involving heritage-listed properties. The underlying rationale of statutory heritage preservation is centrally concerned with the essential retention of existing buildings deemed to possess heritage 18
significance. Heritage preservation is all to do with the prevention of demolition of such structures, and an examination of how best to conserve the essential heritage significance of the asset while simultaneously encouraging its rejuvenation via effective contemporary sympathetic adaptive re-uses. Hence, while at first glance it might appear to the casual observer in society that property development and heritage preservation are at odds with one another, this is not the case at all in reality. Heritage preservation of the built environment can be readily married with the preexisting predominant form of development activity where the alteration, not demolition, of existing buildings takes place. All that is required is the merging of re-design, adaptive re-use, addition and refurbishment functions with desirable heritage preservation goals - using practical mechanisms where both developers and built-environment conservationists can 'own' a beneficial outcome. In a conceptual and theoretical property development sense, there is no inherent conflict of interest between property development activity involving existing improvements, and the statutory heritage system which seeks to preserve the essential heritage significance of nominated parts of the built environment. In a practical sense however, synergies between the interests of property development and heritage preservation are unlikely to be achieved without the presence of (i) appropriate statutory heritage policies. (ii) appropriate implementation mechanisms for those policies. (iii) an understanding by heritage authorities of developers' priorities. (iv) an understanding by developers of heritage authorities' priorities. (v) an understanding by developers of the statutory heritage system. (vi) an appropriate sense of social responsibility from developers. Statutory heritage preservation in Australia was first developed during the mid 1970's in direct response to a very turbulent period of socio-cultural and political unrest which had itself emerged in respect to built-environment issues during the late 1960's and early 1970's. The pre-statutory heritage conservation environment of the late 1960's early 1970's was very much an adversarial one, where the interests of developers and builtenvironment conservationists - expressed particularly through the protest actions of local resident action groups and the NSW Branch of the Builders Labourers Federation - were seen to be diametrically opposed to another during much of that era. The history of that era is nowadays well documented and requires little additional commentary in the context of this report. 19
Since the advent of statutory heritage conservation provisions throughout Australia, great strides have been made by all participants and stakeholders in both the development and heritage communities to successfully achieve a more mutuallybeneficial and co-operative approach, where the differing goals and objectives of each vested-interest group have been more readily captured and met in the consideration of heritage-listed development schemes. In both the heritage and the property development communities over the last several decades, the ultimate `macro' goal of improving the economic, social and cultural benefits of the built environment for the whole of Australian society has been more readily achieved. Success in these directions has occurred because parties with differing goals have mustered the capacity for 'win-win' compromise. This has involved an understanding of one another's motivations and vital interests, and a capacity for embracing the other party's interests in the negotiation process. In accordance with contemporary 'Win - Win' conflict resolution principles (for example, see Cornelius & Faire 1989, Mackay 1994, Miller, Miller, Nunnally & Wackman 1991) each party to a negotiated outcome has to be prepared to accept a degree of compromise and sacrifice in order for both sides to emerge with an acceptable degree of beneficial outcome. It is no overstatement to say that in more recent times the interests of heritage conservationists and commercial property developers have been more successfully negotiated through the operation of conflict resolution principles. Not only have both interest groups emerged with better outcomes, but also the built-environment benefits for Australian society as a whole have been substantive. 2.3 The Role of Property Developers in Society. Much of the following commentary is based on the work and published material produced by Millington (1993 and 1994). Other learned authors (Byrne, Cadman & Topping, Darlow, Ratcliffe & Stubbs, op cit) have also made valuable contributions in the this domain. Property developers are entrepreneurs. Just as other entrepreneurs supply goods and services to consumers, so do property developers supply completed development projects to various sectors of the real estate market. Developers take undeveloped, or more commonly under-developed land, or existing buildings which have reached a stage of obsolescence (be it functional, physical and or economic), and using their entrepreneurial skills they develop or redevelop properties in a way which satisfies market demand. 20
Like all other entrepreneurs, developers expect, rightfully, to receive an appropriate rate of remuneration - in other words, profit - which adequately reflects the skill and risk involved in the particular development undertaking. Property developers however possess a public image, which, in a similar sense to that of real estate agents, it must be said is not altogether positive. Property developers tend to be much maligned people. The historical image conjured by the press and other media have focussed more on the deficiencies and shortcomings of those developers in the minority who have exhibited, in some notable past cases, an exceedingly poor sense of social responsibility. Developers thus operate in contemporary society under the burden of a stereotyped negative image - one which is quite unrepresentative of the real-world situation. It is indeed unfortunate that the majority of property developers, who possess genuine skill, expertise, a sound sense of social responsibility, and most of all, pride in their work, do not receive the publicity which they deserve. In reality, the developer provides a specialist service in the provision of newlycompleted building projects which seek to satisfy the fundamental needs of people . Peoples' real estate needs are met through the operation of various kinds of differing property markets in Australian society. These different types of markets can be categorised principally by way of locational, size (magnitude of both sub-markets and individual properties) and usage criteria. In this respect of satisfying a given market and its needs, the developer is essentially no different from the producer and provider of any other type of consumer goods and services in our capitalist, free-enterprise-based economy. The developer commences the development process in much the same manner as would any other producer in examining a proposal to launch a new product. An attempt is made by the developer to analyse market needs, and to provide suitable products to satisfy those needs; to seek to provide them at the right place; at the right time; to an appropriate design in line with market needs; to an appropriate quality; and at the right price. In undertaking development projects for the use of other members of society, the developer automatically accepts inherent risks which most members of society would be unable and unwilling to take on their own account. In all forms of property development activity, the developer thus frees up the rest of society to allow individuals and organisations to pursue other activities at which they in turn are specialists. The property developer takes the risk in property development, and leaves other business people to deal only with the risks related to their own businesses with which they are familiar. The property developer effectively removes the problem of property provision from society in general. The property investor (either the purchaser of the completed 21
end-product or the developer who retains ownership and on-management) in turn removes the problem of expensive ownership from many small-business tenants in society, who could not otherwise afford the financial burdens involved. The property manager likewise removes the problem of managing the ongoing investment and physical performance of the property asset from those owners and users who might lack the necessary skills. Together, then, the property developer, the property investor and the property manager tend to work in synergy with one another to provide a pool of appropriate properties to allow other members of society to pursue their own activities with greater efficiency. In this sense, developers make a most valuable contribution to society which enables the capitalist economy to function more efficiently. Indeed, along with participants such as architects, heritage consultants, planners, and politicians, the property developer can be legitimately viewed as a key custodian of the built environment, charged with a responsibility for ensuring its quality and well-being. The property development industry provides employment for a wide range of people, ranging from labourers to the professional consultancy team, and of course further down the line to the producers, processors and distributors of raw materials. The underlying influence of the volume of property construction activity at any given point in time on business and property market cycles is very considerable and is well-documented. Additionally, the construction process and all those activities associated with it, provide large pools of tax revenues to governments at all three levels in the Australian society. 2.4 The Property Development Process An Outline Summary. Property development is much like any other economic activity, in that society's wants and needs are satisfied through the application of scarce resources. In the case of property development, society's needs are expressed through market demand. The market will express a demand for suitable space to work in, to conduct business from, to live in and to enjoy recreational and cultural pursuits. In short, the built environment is an essential pre-requisite for human existence. It therefore follows that the inherent quality of that environment, and the quality of life which it generates for society, should be of paramount concern to all those who serve the built environment in a custodian or stewardship role. It is essential for all property development activity to be driven by the underlying requirement to accurately identify, and then to astutely satisfy, market demand. To 22
ignore this governing factor can spell doom for the developer, in financial viability terms. Similarly, any statutory or other external influence on the development process which, to undue excess, compulsorily requires the developer to depart from a market-oriented product design, will only contribute to additional project risk and the possibility of financial loss. In a free-enterprise economy, the satisfaction of market demand can only be viably undertaken if it produces an acceptable profit for the entrepreneur. This economic rule of practice is no different in the world of professional property development. Property development entails the effective employment of a series of factors of production. The key factors of production comprise : · land, or in heritage applications, an existing property comprising land plus - buildings, where the buildings enjoy heritage significance of various possible kinds. · capital, which is required for an initial purchase of the property, plus design, construction, holding, marketing and selling costs. · labour, expertise and professional consultancy services, which are provided by a wide range of participants, all of whom play key roles in the development process. · building materials, comprising all of the wide-ranging products which are integral to the construction, finishes and fitout of a completed commercial building. · the entrepreneurial talent of the property developer to identify opportunities, to exercise vision, to initiate the property development process, and to ensure the entire process is conducted efficiently. Property development constitutes a highly complex undertaking which is invariably dynamic and exciting, but also at times significantly frustrating. It is a high risk activity which invariably involves large sums of money to be tied up in the production process for lengthy periods of time. Since the development process is often lengthy, the initial feasibility assumptions made as to project costs, value and profit can and often do change dramatically as the development project proceeds from inception to completion. Success in property development invariably depends upon a keen attention to detail, an accurate pre-emptive analysis of both specific market conditions and market demand, and an accurate initial assessment of likely development timelines, 23
production costs and end-values. It is essential that original feasibility projections are closely monitored as the development project physically proceeds. The identification of various potential project risks and the implementation of risk management mechanisms are also crucial to the process. A number of learned authors (op cit) have in the past provided various models and categorisations in an attempt to depict the workings of the property development process. Perhaps one of the best and most accurate descriptions of all has been created by Whiteside (1993), who depicts the logical sequence of phases in the property development process via a series of some fourteen (14) stages, as follows : * the initial idea for a development scheme in conceptual form. * the conduct of detailed preliminary market research. * the assembly of a comprehensive feasibility study. * the identification and acquisition of a suitable site and, in heritage scenarios, a pre-existing building, available for development. * the preparation of a detailed development brief. * the appointment of the development team, the design team and the supporting consultancy team. * the submission of, and securing statutory approval for, the desired design and specifications for the project. * the arrangement of a suitable financing package. * the execution of building contracts. * the physical construction of the project. * the implementation of a leasing and marketing strategy. * the commissioning and occupation of the completed scheme. * the arrangements for property asset management of the completed product, in cases where the developer retains ownership. * the sale of the completed product, in cases where a develop-and-sell strategy is pursued, and the receipt of entrepreneurial profit. 24
PART 3
The Seven Chosen Case Studies
Preamble
Part 3 of this Report constitutes the core analysis work of this consultancy project and comprises the greatest volume of the written material submitted, compared to any other Part within this body of work.
Each Case Study has been investigated through a detailed field research process, comprising at least one physical property inspection for each case in the series (and in some cases several repeated inspections). Contact was established in each case with either the direct owner / developer of the property concerned, or their nominated representative. Each was interviewed and the nature of their particular case scenarios was discussed in as much depth as individual circumstances permitted. Where appropriate, representatives within the local government and statutory heritage environment were also interviewed in an endeavour to collect further required information. In a background capacity, an additional series of property industry practitioners and consultants were also interviewed.
Each of the following case studies has been reported upon using a consistent format and headings basis. In the four redevelopment / adaptive re-use case studies the following headings layout has been adopted :
1.
Introduction.
2.
Heritage Status.
3.
Developer's Objectives.
4.
Approval Process.
5.
Cost Versus Value.
6.
Life Cycle Issues.
7.
Conclusions.
In the three passive investment cases, where existing uses prevailed as opposed to adaptive re-uses, most of the formatted headings were retained, the only general exception being that of No. 5 `Cost Versus Value', which was in the main omitted because it basically pertained to redevelopment scenarios only.
25
CASE No. 1 The Sydney General Post Office (GPO), Known Since 1999 As No. 1 Martin Place 1. Introduction Our first case study involves an examination of the recent 1997-99 major redevelopment of what is one of the most well-recognised and most publiclyappreciated heritage assets in the State of New South Wales. For some 125 years the Sydney GPO has enjoyed a premier status as one of the most significant public buildings within the Sydney Central Business District. The building is quite immense in its physical presence, being five storeys in height and occupying the whole of the southern side of Martin Place bounded by George Street and Pitt Street (Figure 1). The building literally dominates the streetscape in its immediate surrounding locality. The GPO has served as a public landmark and central focal point for the City of Sydney since the completion of the first stage of the building in 1874. Complementing its fundamental and considerable architectural significance is the pre-eminent locational strength of the property, which has established a prime historical importance for the building in a socio-cultural and aesthetic sense. Figure 1: The GPO Martin Place faзade. 26
It has also long been customary for reporting purposes within the property professions to measure the location and positioning of all other properties throughout the Sydney Metropolitan Area by reference to their direction and distance from the Sydney GPO. The subject property sits adjacent to the western entrance to Martin Place in what for all intents and purposes amounts to the geographical and cultural heart of the City of Sydney. Martin Place is one of the CBD's most important public thoroughfares and gathering places for the users of the city - particularly during daytime business hours. In 1968 the thoroughfare was converted from a vehicular street into a broad public mall and pedestrian plaza, bisecting several other major city streets in a lengthy east-west direction. The elimination of vehicular traffic has served to intensify the pedestrian usage of the Martin Place thoroughfare over recent decades. The focal point of Martin Place, however, begins at George Street and extends east to Pitt Street - precisely where the Sydney GPO building is located. This central public mall space contains the famous Sydney Cenotaph, which itself occupies a major socio-cultural and historical place in the hearts and minds of Sydneysiders and the people of New South Wales. Erected after World War One, the Cenotaph marks the starting point of the annual and solemn Anzac Day commemorative remembrance celebrations. A clear sense of `public place' exists in the built-environment inter-se relationship which exists between the Cenotaph and the GPO building which overlooks it. The current five-storey Sydney GPO building was erected in several stages between 1864 and 1905. The first stage of the building linking George and Pitt Streets was commenced in 1864 and was completed in 1874, amidst great public fanfare. A further extension of a wing fronting Pitt Street was completed in 1887. In 1891 a 73 metre-high clocktower was completed, sitting symmetrically at the centre of and soaring high above the GPO building's main Martin Place faзade (Figure 2). During the period 1897 to 1905, fifth-level Mansard roofed additions were made to the George and Pitt Street building wings. The original GPO site, prior to subdivision into front and rear allotments under the 1997-99 redevelopment scheme, was of very significant magnitude, having a total land area of approximately 7,202 square metres. This unusually large CBD site permitted the original addition of two further adjoining buildings to the rear of the main GPO structure, in 1927 and 1942 respectively. For most of its history the Sydney GPO building was actively used and operated by the now Australia Post (formerly the Postmaster General's Department) as a major postal and telecommunications facility. By the latter stages of the 20th Century however, and particularly during the 1980's, the property had fallen into a state of progressive disuse and disrepair, owing to various evolutionary 27
technological, business-related and economic changes in the postal and telecommunications industries. Figure 2: The GPO Clock Tower. Commencing at about 1984, Australia Post, in recognition of the building's inherent heritage worth, embarked upon significant repair work to the main structure. At about the same time, Australia Post engaged the services of leading heritage architects Clive Lucas, Stapleton and Partners Pty Ltd, with a view to formulating comprehensive heritage conservation guidelines to safeguard the future preservation of the property. By 1991, firm guidelines had been developed. In 1995 a Conservation Management Plan and Development Application for the adaptive re-use and redevelopment of the Sydney GPO property were submitted to Sydney City Council. This brought into play key involvements by the NSW Heritage Office, the NSW Heritage Council, and the Central Sydney Planning Committee of Sydney City Council, as specific stakeholders in the redevelopment and heritage restoration process for the Sydney GPO. In broad terms, Australia Post's 1991 restoration and adaptive re-use proposals called for : · the essential structural retention and restoration of the internal and external fabric of the entire main 1887 GPO building, in accordance with very detailed guidelines contained in the Heritage Conservation Management Plan prepared by Clive Lucas Stapleton. · the demolition of the obsolete rear buildings built in 1927 and 1942, except for the 1927 Postal Hall structure, which was to be partly 28
retained and restored. This demolition left the rear land available for major non-heritage commercial redevelopment. · the creation of a new glass-roofed atrium, or `grand courtyard', immediately behind the main 1887 GPO building. The former Postal Hall structure was to be enclosed within this new space, and this former inaccessible area opened up for public usage on a major scale. · the erection of a new (as then undefined in 1991) 'multi-purpose building' on the rear parcel of land behind the GPO, to be linked to the main building by the atrium. A mixture of office, retail and hotel uses was originally envisaged in this building. In the final development configuration, two adjoining towers, not one, were built. · The re-establishment of Postal facilities as a specific use within the restored main 1887 GPO building. In May 1995 the Grocon construction group, representing the interests of the Melbourne-based Grollo family, emerged as the successful bidder in Australia Post's tender process for the comprehensive redevelopment of the Sydney GPO. In its final configuration the development approval for the project provided for the comprehensive heritage retention and restoration of the original GPO building (Figure 3). In addition, the redevelopment scheme provided for the erection of a completely new non-heritage 26 level, 40,000 sq. metre office tower and a 31 level, 369 room hotel tower on the rear land immediately behind the original GPO building. Figure 3: Example of a restored section of the GPO interior. A 1,200 square metre, glass-roofed atrium (Figure 4) and grand courtyard was constructed between the two new rear tower buildings and the original GPO building which fronted Martin Place. This courtyard was designed to link the two 29
fundamental elements of the development scheme (old and new) and constituted the very heart of the newly-configured, integrated multi-use project. Figure 4: Interior of the GPO development, including the glass-roofed atrium. In essence, the GPO building was predominantly re-adapted to provide a very substantial integrated property use which was both supportive and complementary to the new non-heritage hotel tower which was erected behind it. However, a large component of the ground floor was devoted to a small-tenancy specialist retail use category, and other parts of the structure were adapted for major usage by the public at large, not necessarily connected at all to usage by hotel patrons. In this regard, the outstanding feature of the adaptive re-use proposals for the original GPO building was the multiplicity of new commercially and communityoriented property uses within the structure, over every level from basement to the uppermost fourth floor. These uses covered categories as diverse as retail, food court / bistro / hospitality / providoring, heritage hotel rooms, heritage ballroom / function centres, and recreational / spa / pool / health club facilities. This redevelopment project was an immense and hugely complex undertaking in terms of the magnitude of design, construction and cost. Construction commenced in May 1997 and was completed in September 1999. The Total Project Cost was quoted by Mr Robert Young, Chief Property Manager, No.1 Martin Place Pty Limited (personal communications, 18/12/00) at a sum of between $600 to $700 Million. Having been in operation as a completed redevelopment scheme for some 15 months as at the end of 2000, the newly rejuvenated and much-enlarged Sydney GPO property holding can be seen as an outstandingly successful project, both in a heritage preservation sense as well as in a future ongoing commercial investment context. 2. Heritage Status 30
The subject property is listed on Sydney City Council's Heritage Register under Inventory No. 2127 within the Central Sydney Heritage Local Environmental Plan 2000, Schedule 1. The property is also listed on the State Heritage Register as Item No. 763 under the provisions of the New South Wales Heritage Act 1977. Additionally, the property enjoys a listing on the Register of the National Estate (AHC) and also the Register of the NSW Division of the National Trust. The Sydney GPO building is also situated within the Martin Place Conservation Area as identified and documented by the National Trust. The relevant Sydney City Council Heritage Inventory document records that the Sydney GPO possesses architectural significance as one of the finest 19th Century public buildings in Australia. The building features excellent Victorian carved stonework and is a `monument' to the work of important colonial architect James Barnet, who designed the building. The property is also of environmental significance as the key element in the Martin Place streetscape. The State Heritage Inventory database, maintained by the NSW Heritage Office, reveals further significance across a number of important domains. Together, these two documentary inventory sources, plus other sources accessed for the purposes of this report, provide the following more detailed information. Historical Significance The Sydney GPO property comprises a significant place in the Australian National Estate. The site has been used for Post Office purposes since 1830. Inherent to the site's significance is the presence of the Tank Stream, which runs underground through the middle of the subject parcel of land in a north-south direction. The Tank Stream, which today extends underground through the City of Sydney for several kilometres southwards from Sydney Harbour at Circular Quay, originally provided the fresh water supply for the First Fleet and the Sydney Cove Colony from 1788 onwards. In 1866 the Tank Stream between King and Hunter Streets was enclosed in a brick sewer pipe. This facilitated the construction of Colonial Architect James Barnet's sandstone GPO building, which was erected in two main stages between 1864 and 1887. A documentary video, `Meet Me Under The Clock', created by No.1 Martin Place Pty Limited to commemorate the project completion in 1999, records that the GPO 31
building since its main construction in 1887 has played a key role in the history of communications in Australia. In 1928 the world's first large-scale mechanised mail sorting facility was installed in the building. During World War 2 the Sydney GPO housed much of the city's vital telecommunications equipment. A telegraph exchange was situated on the upper floor of the George Street wing and a telephone exchange on the upper floor of the Pitt Street wing. As a wartime defence measure the central 73 metre high GPO Clock Tower was removed from the building in early 1942. Since its erection in 1891 the clock tower had dominated the sightlines of the building. Fears of Japanese bombers using the clock tower as a focal aiming point had driven the decision to demolish this structure. The clock tower was not reinstated until 1964. A Postal Hall had been included in a larger 1927 building addition which was erected behind the main GPO structure. This addition was not visible from the street, however the retention of the significance of this Postal Hall was provided for in Australia Post's 1991 restoration and adaptive re-use guidelines. Architectural Significance. The Sydney GPO is constructed of sandstone facades to all three of its street elevations. The sandstone was quarried at nearby Pyrmont. The ground floor on all three street elevations is dominated by an outside promenade area, covered overhead with domical vaulting and supported by large grey polished monolith columns faced with granite, quarried from Moruya on the South Coast of NSW. The stonework facades feature inlaid decorative sculptures including royal, allegorical and heraldic figures and reliefs. The architecture of the Martin Place GPO building is inspired by the Palazzi Communali of Italy. In and of itself, the GPO constitutes the finest example of the Victorian Renaissance style of architecture in NSW. Internal structural support is provided by load-bearing sandstone walls, over wrought iron beams and girders, with non-supporting coke breeze arches between the beams. Suspended timber floors are provided, and ceiling joists support decorative lathe and plaster ceilings. The roof frame is of timber joists and steel trusses, while copper and copper-alloy sheeting comprised the original roof cladding. Aesthetic Significance. The Sydney GPO literally dominates the main western gateway to Martin Place in the central city block of this thoroughfare which is bounded by George and Pitt 32
Streets. While the property sits very sympathetically and comfortably amidst a group of many other fine old stone buildings in the immediate surrounding built environment, in the minds of many it is the GPO building, in and of itself, which imparts the essential 19th Century architectural / aesthetic character and flavour to this immediate precinct of Martin Place, George and Pitt Streets. As already mentioned, the inter-se relationship of the adjoining Cenotaph and the GPO building in this section of Martin Place is a mutually supportive one which generates a unique sense of `public place' in this city block. The immediate built environment at this western end of Martin Place thus enjoys a high identification factor in the community as a place of public meeting and gathering. The closure of Martin Place to vehicular traffic since 1968 has augmented this theme considerably. 3. Developer's Objectives The massive Sydney GPO redevelopment and restoration project was undertaken by the Melbourne-based Grocon Group. Upon project completion in September 1999 the property became known as No.1 Martin Place, and was thereafter held and onmanaged as an orthodox commercial property investment asset by a Groconaffiliated holding company known as No.1 Martin Place Management Pty Limited. Grocon comprises the chief property development and construction business entity of the Grollo family. The firm possesses a well-established reputation within the commercial property development industry, having been responsible for several major projects within Sydney and Melbourne. According to Robinson (Property Australia journal, August 1999, p. 26) : No. 1 Martin Place is the largest development undertaken by the Grocon Group on its own and represents a flagship effort for the developer in the Sydney market. According to information supplied by Mr Robert Young, Chief Property Manager, No.1 Martin Place (personal communications, 9/10/00), Grocon was first attracted to this particular redevelopment scheme in the mid 1990's for a number of reasons. Not unexpectedly, commercial and economic objectives, as opposed to specific heritage objectives, constituted the prime and over-riding motivation for the developer - as is the case, in fact, with most commercial investment development opportunities, be they heritage or non-heritage listed. Initial market research findings and projections, coupled with the approach of the Sydney 2000 Olympics, disclosed market conditions and a property cycle 33
environment which were deemed prima facie favourable from a commercial property development standpoint. Commercial objectives notwithstanding, however, the particular attractions of the GPO adaptive re-use proposal, in and of itself, also constituted a considerable inducement for the developer in this case. The subject property enjoys an outstandingly good CBD commercial location where opportunities for exposure and passing pedestrian trade presented clear attractions in their own right. The innovative multi-faceted and integrated adaptive re-use guidelines for the GPO project, already prepared by Australia Post and heritage architects Clive Lucas Stapleton, constituted a dynamic redevelopment opportunity which maximised the locational advantages of the site. The pre-existing high public recognition factor already inherent in the GPO heritage-listed property presented additional inducements for project commitment. In particular, the commercial viability of the redevelopment scheme was underwritten by the ability to develop a large non-heritage commercial office tower (ultimately at 26 storeys) and a 369-room hotel tower (ultimately at 31 storeys) on the available land immediately behind the original GPO building. The proposal for an international-grade hotel also attracted development incentives via Sydney City Council's Hotels Policy, whereby Floor Space bonuses in connection with hotel uses were available for application over the entire development project. This policy was linked to State Government initiatives and financial inducements designed to provide sufficient hospitality accommodation in light of the approaching Sydney 2000 Olympics. Moreover, the provision for some 5,000 square metres of retail space in the adaptive re-use scheme for the former GPO heritage building comprised a significant further attraction in terms of cashflow potential from a commercial and economic standpoint. The sheer scale and volume of the total development opportunity constituted a commercial offering, the nature of which was rare and in many respects unique. The opportunity to undertake a comprehensive heritage restoration and reconstruction program for such a prominent landmark property as the Sydney GPO also doubtlessly carried the potential for enhancement of the prestige, reputation, and industry peer-recognition of the developer concerned. Thus it can be seen that a series of major factors combined to provide considerable inducements for project commitment by the Grocon Group. In 1996 Grocon and intending joint venturers Lustig and Moar responded to a call by Australia Post for expressions of interest and the submission of preliminary development tenders in respect to the GPO redevelopment scheme. The Grocon­ 34
Lustig Moar consortium was announced as the successful tenderers on 28 May 1996. Lustig and Moar later withdrew from the project in early 1997 (House, Australian Financial Review, 29/5/96 and Sydney Cityscope, August 2000), leaving Grocon as the sole developer. The commemorative video M' eet Me Under The Clock' (op cit) records that Grocon was selected as the winning tenderer from 16 respondents, primarily because it met the requirements of Australia Post's adaptive re-use guidelines and paid particular attention to the heritage restoration aspects of the scheme. Development consent for the Grocon development proposal was issued in December 1996. In May 1997 construction work commenced on the project. In December 1997 the land title and ownership interests were finalised whereby the original large GPO site was subdivided into two separate holdings. The site occupied by the original GPO building was designated as one allotment of area 3,437 square metres fronting Martin Place, while the rear land was subdivided into a second allotment of area 3,765 square metres fronting Pitt Street. In respect to the site occupied by the heritage-listed GPO building, a 99 year leasehold agreement was entered into between Australia Post as the freeholder and No.1 Martin Place Pty Ltd (Grocon's holding company) as the leaseholder. The rear parcel of land, upon which the two new high-rise non-heritage towers were subsequently erected, was purchased by No.1 Martin Place in a freehold transaction dated December 1997 at a purchase price of $80,080,000. As reported by House (Australian Financial Review, 8/1/97), Macquarie Bank entered into a preliminary agreement with the developer in early 1997 to occupy the first 16 levels (out of a total of 26 levels) as anchor tenant in the new rear non-heritage commercial office tower. A 15 year lease agreement was arranged for commencement in January 2000. This leasing structure constituted a major coup for the developer because it secured a very substantial proportion of the overall potential cashflow obtainable over the foreseeable medium term from this very important office-building element of the redevelopment project. Macquarie Bank constitutes a prime institutional grade tenant whose stated intent was to establish its corporate headquarters in this prestigious new building. This further presented significant marketing and remaining leasing opportunities for the developer as the overall redevelopment project proceeded towards full completion. Somewhat later, but still well prior to project completion, the Australian Securities and Investment Commission (ASIC) was secured as the second major office tower tenant, with an agreement to occupy 7 of the residual upper levels of the tower, in a 10 year lease structure which commenced in July 2000. In early 1998, well prior to project completion, the Westin Hotels Group was also secured as the operator of the adjacent rear hotel tower, the agreement for which 35
was based on a management contract, with No.1 Martin Place Pty Ltd retaining the freehold interest. In addition, Robinson (op cit, 1999, Property Australia journal) records that all retail, restaurant and basement-level commercial areas within the redeveloped GPO heritage building were pre-leased before project completion in September 1999. The ability to have secured the pre-leasing of all commercial elements of the project prior to completion signified an outstanding achievement for the developer, in economic and financial terms. Mr Robert Young of No.1 Martin Place Pty Ltd (op cit, 9/10/00) remarked that the developer's success in securing the important objective of pre-commitment for all of the major tenanted precincts in the new development scheme aided considerably in reducing the development risk exposure in the project. Moreover, the financier for Grocon's project was much relieved by this achievement. Mr Young also emphasised that the key anchor tenants in this development scheme - Macquarie Bank and the Westin Hotels Group - came onboard as stakeholders at a sufficiently early stage in the construction process such that they were able to contribute markedly to the final design and fitout features of the major elements in the project. Mr Young also commented that the development and construction process, once commenced, flowed very smoothly throughout the period 1997 ­ 99. Mr Young stated in particular that the mutual understanding, the working synergies and the overall good relations maintained between all of the stakeholders, from all sides in this project (including Sydney City Council, Australia Post, the NSW Heritage Council, the NSW Heritage Office, the developer, the developer's architects and the heritage architects Clive Lucas Stapleton), was responsible for the efficiency and tight timelines achieved during the construction phase of this project. 4. Approval Process The December 1996 development consent was issued after much consultation between the various stakeholders in the scheme. In particular, the NSW Heritage Council and NSW Heritage Office provided considerable input into the specific heritage restoration provisions embodied in the consent. Key aspects in the GPO heritage restoration requirements called for the preservation and repair of all external sandstone building facades, walkways and the clocktower, and the recreation of the former Grand Central Staircase inside the main building entrance in Martin Place, which had been destroyed in 1927 when 36
the rear Postal Hall was built. In addition the lower half of the former 1927 Postal Hall was to be reconstructed and enclosed within the central atrium. Mr Howard Tanner (Sydney Morning Herald, 1/9/99) and Mr Robert Young (No.1 Martin Place Pty Limited, op cit) referred to a series of additional heritage retention, reconstruction and adaptive re-use provisions contained in the consent for the restored GPO building, as follows : · a major suite of 51 rooms on the GPO building's first and second floors, adaptively re-used for hotel accommodation in a specific heritage theme and decor, was retained to provide evidence of the building's original scale and form. These hotel rooms comprised a complementary component to the 369 rooms in the new 31-level non-heritage Westin Hotel tower which was erected behind the GPO. · the form and structural fabric of the vaulted east and west attics of the building were retained and adaptively re-used as a 250-person Heritage Ballroom (being the former telegraph exchange) and health club / pool facilities (being the former telephone exchange). · the basement vaults were adapted for providoring, dining and bar uses. The piped Sydney Tank Stream was also left exposed in a set-piece public viewing chamber within this basement area, to provide a permanent record of its historical significance for the general community. · an Australia Post retail outlet was installed in the ground floor George Street wing, thus linking the building's past with its future. · an impressive ornate Macquarie retail banking chambers was replicated on the ground floor Pitt Street wing. As reported by Neilson (1999) the reconstruction, internal finishes and dйcor of this area alone took 12 months to complete. The ground floor of the GPO building has been devoted to small-area specialty retail uses, each tenancy of which opens inwardly onto the grand courtyard. The open-plan, glass-roofed 1200 square metre courtyard behind the GPO building contains restaurant, bar and lounge areas which connect and integrate the GPO heritage building with the hotel tower and office tower behind. Below the courtyard, a grand ballroom has been constructed, accommodating some 900 guests. A basement carpark below the new two rear non-heritage tower buildings accommodates 400 vehicles over 7 levels. The design, height and site-positioning of the two new rear high-rise commercial buildings (office tower and adjoining hotel tower) were determined having regard 37
to the shadowing and height controls contained in Sydney City Council's 1993 Martin Place 'Area of Special Significance' Study, which had been prepared by Denton Corker Marshall Pty Ltd. The scale, form and fabric of the two rear buildings were designed by the Buchan Group (consultant architects for Grocon) so as to be in sympathy with the preexisting scale, form and fabric of the GPO heritage building in front. The records of Sydney City Council disclose that the December 1996 development consent for the Sydney GPO redevelopment project provided for a total Floor Space Ratio (FSR) which was not to exceed 12.75:1, calculated in accordance with the provisions contained in the Central Sydney LEP 1996. Assumedly the completed project was developed at or very close to this maximum permitted FSR volume. The FSR limit was also determined having regard to Council's Hotels Policy under the LEP, and the 'public benefit gained in having accommodation of this nature available in time for the Sydney Olympic Games'. In effect, a cost-free FSR bonus of some 27.5% was provided to the developer under this pre-Olympics incentive mechanism (12.75:1 compared to the standard 10:1 FSR under Council's code). The Hotels Policy incentive provided for a project completion date no later than 30 June 2000, to coincide with the September 2000 Sydney Olympics. A default provision applied whereby a failure to complete the project by 30 June 2000 would have required the developer to purchase the FSR differential between 12.75: and 10:1 as Heritage Floor Space, calculated at the then current market price for HFS. 5. Cost Versus Value There is some doubt prevailing over the exact figure which represents the Total Project Cost of the Sydney GPO redevelopment scheme. Several reputable media articles which date from the early phases of the project (e.g. House, AFR, 21/3/96 and 29/5/96) made vague, unspecific mention of a sum of $500 Million in respect to the cost of the project. By 1999 however, a series of other media and journal articles (e.g. Dennis and Tanner, SMH, 1/9/99, Neilson, Sun-Herald, 5/9/99, Robinson, Property Australia journal, 8/99) referred vaguely to 'the $700 Million Sydney GPO project'. 38
There is little doubt that this Project Costing element constitutes a somewhat sensitive domain for the current owners of the property. For the purposes of this report, Mr Robert Young (Chief Property Manager, No. 1 Martin Place, personal communications, 9/10/00 and 18/12/00) quoted an approximation range for Total Project Cost of between $600 and $700 Million.
In respect to the main heritage building at Martin Place, the direct total costs of the specific heritage restoration and adaptive re-use requirements are somewhat more concrete. The figure of $40 Million has been cited in the Sydney Cityscope publication (April 28, 2000).
This estimate was confirmed by Mr Young of No. 1 Martin Place as an accurate 'ballpark' estimate for reporting purposes, however the true total project cost attributable directly to requirements embodied in the property's heritage listing appears to have fallen within a range closer to $50 Million.
Mr Young has provided a somewhat detailed breakdown in respect to several of the major cost items associated with the heritage requirements of the redevelopment project. These are as follows :
* Diversion and Reinstatement of the Tank Stream
$1,500,000
* Underpinning and Support of the GPO Building
$900,000
* 3 Atrium Pedestrian Overhead Bridges
$1,400,000
* GPO Fitout - Premium Above Normal Costs
$13,800,000
The restoration work in the original GPO building was conducted in a meticulous, painstaking manner, with great attention to detail made to the replication of original ornate finishes and fitouts. While the total costs of the heritage restoration and reconstruction work were not provided, Mr Young has reported that a premium in cost of materials and labour was incurred, to the order of approximately 30% above the equivalent comparative cost-as-new. This premium was quoted by Mr Young at a sum of $13.8 Million (see above). By interpolation, on the basis of the above information, a total reconstruction, finishes and fitout cost of some $46 Million is indicated for the whole of the heritage GPO building. When other ancillary special construction requirement costs are factored in, it is not difficult to arrive at an all-up sum in the vicinity of $50 Million as the cost attributable to meeting the specific heritage requirements of the Sydney GPO redevelopment scheme.
39
On this basis, and with a degree of reliable accuracy, a proportional cost of between 7% and 8% of all-up Total Project Cost can be attributed directly to the additional amount incurred as a result of the heritage listing of the Sydney GPO and the various requirements associated therewith. In respect to Total Project Value and Project Profitability, these areas also appear to constitute domains of sensitivity and confidentiality, as far as the owners (Grollo Family / No.1 Martin Place Pty Ltd) are concerned. In our investigations and research for the purposes of this report we were unable to obtain a statement as to estimated Value on Completion from the ownership interests associated with this project. Mr Young did however divulge (personal communications, 18/12/2000) that Grocon, as the project developer, entered into the Sydney GPO scheme on the fundamental basis of a develop-and-hold investment scenario. Under this arrangement the holding company known as No. 1 Martin Place, representing the ownership interests of the Grollo family, commenced commercial property management operations for the new Sydney GPO complex immediately upon project completion. While we understand that market interest was quietly tested by the new owners in late 2000 in a speculative manner, the owner's current underlying intention, per information supplied by Mr Young, is to retain the total redevelopment project as an orthodox top-end institutional-grade property investment holding for at least the medium term future (except of course in a scenario of a purchase offer at a price `too good to refuse'). Mr Young also disclosed that the medium term profitability of the newly completed redevelopment scheme is essentially underpinned by the presence of the ground floor retail uses in the original GPO building, and more particularly, in the 26-level office tower, where the net lettable area amounts to some 40,000 square metres. The leasing structures, again particularly in the office tower, have been engineered to provide a security of longer-term tenancy and occupancy, thus strengthening the quality of the cashflow derived from this source. It is envisaged that the optimum financial performance of the Westin Hotel tower (with a combined accommodation, inclusive of the GPO heritage hotel rooms, of some 420 rooms) will take some time to build up, and to achieve a peak. Such market syndromes in hotel-use categories are not at all unusual. However, over even relatively short term projections, anticipated occupancy room-rates above and beyond 85% were quoted by Mr Young. In the current stage of the Post-Olympic economic and commercial property cycle, a period of income and cashflow consolidation would indeed seem to be a sound investment strategy for the redeveloped property - along the lines already suggested by Mr Young. 40
6. Life Cycle Issues In respect to anticipated annual operating expenses and future life-cycle costing issues, Mr Robert Young (personal communications, op cit, 9/10/00) in the main expressed no concerns. In the context of the two new rear non-heritage commercial towers (one an office building and one a hotel building), there appears little cause for concern in respect to either annual operating expenses or future life cycle issues. Both buildings are brand-new state-of-the-art structures with high technology building services installed. Efficiencies in annual operating expenses can be expected for some time to come. Life cycle issues such as plant and equipment replacement programs and other mid-life refits lay a long way off into the future. Normal sinking fund deposits and a sound pro-active asset management program over time would be expected to eliminate any possible immediate concerns in these areas. In respect to the restored GPO building, Mr Young similarly expressed few concerns. It is noted that the external form and fabric of the building was comprehensively restored, including the stonework and the copper roofing. Moreover, the building has been extensively remedied of any major structural defects - at considerable expense. Furthermore, the building was extensively remodelled internally and provided with completely new building services and facilities. Accordingly, the building is in many respects equivalent to an `as-new' building. This being the case, there is little immediate heritage-related impact upon either the annual operating cost or future life-cycle costing domains at the present time. As a point of interest Mr Young did comment on what he described as the increased estimated annual maintenance costs pertinent to the restored Sydney GPO building. He described as an example how the external cleaning of the facades and window areas of the building has to be accommodated via a `cherry-picker' crane from ground floor street level, at certain restricted times of the day, instead of the usual high-rise `top-down' roof-crane and sling method (due to the delicacy and shape of the GPO's copper roof). Mr Young provided an estimate of added annual maintenance costs for the GPO building to the order of approximately 20% to 25% extra per annum above otherwise normal benchmark rates. However, it must be remembered that maintenance costs comprise but one element in a whole series of other annual operating cost components, many of which are 41
invariably considerably more expensive on a pro-rata rate per square metre basis. Notably, it was only maintenance costs which Mr Young singled out for attention. Moreover, as Mr Young has confirmed, the site occupied by the GPO enjoys the benefit of a heavily-discounted Heritage Land Value, which is applied to the calculation of annual Land Tax. We have sighted a NSW Valuer-General's Notice of Valuation in this regard which indicates a discount of almost 50% as measured through the Heritage Land Value, compared to the `open market' Land Value for rating and taxing purposes. When this discount to annual Land Tax is factored in, it can be seen that any increases in maintenance costs are more than likely compensated for, and in all probability counterbalanced well into a positive excess, by the Land Tax discount element. In respect to other heritage-related financial incentives which have been identified in this case, it is clear that the cost-free FSR bonus of some 27.5% over the standard FSR limit has provided a very substantial financial compensation measure. Such a significant floor space bonus needs to be calculated and measured financially through the extra cashflow it generates, in order to fully appreciate its importance. The extra volume of leaseable or other income-generating floor space which has thus been facilitated in the office tower and hotel tower is a major consideration in this context. It is clear that this Pre-Olympic Hotels Policy FSR incentive implemented by the relevant statutory authorities has played a fundamental part in underwriting the essential financial viability of this redevelopment scheme. 7. Conclusions 7.1 The Heritage Perspective It is our understanding (from Mr Young, personal communications, op cit) that certain criticisms have been levelled at the completed Sydney GPO restoration and adaptive re-use scheme from some 'purist' elements within the heritage community. In our opinion however it is difficult, on balance, to envisage how a better practical heritage outcome could have been achieved in this case, given the need to retain a realistic commercial perspective on the developer's interests in particular, while at the same time being mindful of the essential heritage preservation goals for the building. In our opinion all of the various stakeholder interests, from all sides, have been more than amply satisfied in this instance. 42
In short, we believe that this Sydney GPO redevelopment project represents an outstanding success from the pure heritage perspective, let alone any other perspective. Both the major external and internal heritage-significant items in the building have either been restored or replicated / reconstructed - in many cases to a painstakingly and expensive detail and quality of workmanship. The central grand staircase on the ground floor, for example, has been completely reconstructed to its former grandeur after having been initially destroyed and absent from the building since 1927. The skills of a wide variety of artisans and craftspersons - as opposed to 'mere' tradesmanship - have been applied to the internal dйcor, fittings and fixtures in the building, to a achieve a faithful recreation of original forms and fabrics to the highest standards - none more noticeable, for example, than in the Pitt Street Macquarie retail banking chambers. In essence, the GPO building has been principally re-adapted to provide a very substantial integrated supporting and complementary property use to the new nonheritage hotel tower which was erected behind it. This objective has been achieved with what we discern as no loss to the building's heritage integrity - in fact in our opinion, there is every argument in favour of an enhancement in heritage integrity. The completed redevelopment of the Sydney GPO has successfully seen the rejuvenation of public use, involvement and interaction with the building. The quality and magnitude of public access and utility - both internally and externally has been outstandingly well combined with the restoration of the building's inherent heritage significance elements, in their widest context, and with commercial success in a contemporary economic and investment-property sense. In particular, the magnitude of public access and use into all parts of the newlyrejuvenated GPO building has been augmented, many times over, compared to the very restricted opportunities for public access and use - which was limited only to very confined parts of the premises - during the period when the building was used solely for postal and communications purposes. This prime objective of contemporary heritage policy has been very ably demonstrated, for all to see, in the beneficial outcomes which have been derived from the Sydney GPO redevelopment project. A series of media and industry journal articles were published at the time of project completion in September 1999. These articles speak of the successful heritage-related outcomes of the project in the most laudatory of terms. Former NSW Heritage Council Chairman, Mr Howard Tanner (Sydney Morning Herald, 1/9/99, p.6, op cit), states that : 43
A key virtue of the completed project is that it breathes new life and activity into both the historic building and the precinct generally. Similarly, Mr Leo Schofield, Master-of-Ceremonies at the grand opening of the completed project on 1st September 1999, stated in his keynote address (in the Meet Me Under The Clock commemorative video, op cit) that the GPO heritage restoration and adaptive re-use scheme has succeeded in : ... honouring its [the GPO's] past while adapting it for the present and future. We find it difficult to disagree with the above comments. 7.2 The Economic Perspective We have already highlighted in this case study report the manner in which the FSR bonus of approximately 27.5% (compared to the standard code provisions) constituted a prime financial incentive in this redevelopment scheme, and how it has contributed considerably to future investment viability of this scheme. The direct monetary worth of this compensatory measure needs to be counterbalanced against the added Project Costs which we have identified as being attributable to the heritage listing and the associated requirements thereof. Due to insufficient data we are unable to state a firm indication of the estimated Project End-Value in this case study. However, it is nonetheless clear that the proportional added capital value of the FSR bonus, which is pro-rata in the region of 27.5% of a hypothetical Total Project Value, far exceeds the added Project Costs (estimated at $50 Million) attributable to the property's heritage listing and the requirements associated therewith. Even on a conservative, notional but demonstrably indicative `thumbnail' financial calculation basis, the superiority factor of Added Value (via the FSR bonus) over Added Costs (due to heritage factors) is indicated at somewhere in the region of about 2.75 to 1, with every possibility that the actual `true' superiority ratio might be higher again (perhaps surpassing 3 to 1). Similarly, we are unable to provide a firm indication of initial Development Profit in this instance, due to insufficient available data. The available evidence is simply too insufficient to make any firm statement in this regard. However, in a developand-on-manage scenario, which is the case here, the importance of any initial development profit level (or even profit neutrality) is really of relatively little importance, compared to the far more important indicators and prospects for the future income / cashflow generation and capital growth for the property in an 44
ongoing portfolio investment context. The future investment performance prospects for the project do appear to be favourably placed, based upon the evidence which is currently available. In this regard, all of the key commercial elements in this project - office building, small-area up-market retail, and hotel use categories - are reported by Mr Young to be either already operating highly efficiently, or they possess the inherent capacity to do so in the near future. For example, in respect to the performance of the GPO scheme's hotel component in particular, a series of recent media and market commentary articles (e.g. Cummins, Sydney Morning Herald, 4/11/00, 11/11/00, & 27/01/01, and Glendinning, SMH, 2/12/00) suggest a favourable outlook over the next 5 to 6 years for growth in the hotel and hospitality industries as a result of business investment, business conference and tourist growth in the wake of the September 2000 Sydney Olympic Games. The completed project might possibly be seen by some in the property professions as a somewhat 'lumpy' asset (to use the common colloquial property industry phrase), by virtue of its sheer magnitude, scale and very high project cost. In other words, a prestige high quality commercial property investment asset such as this, worth several hundred million dollars, might well present opportunities limited to potential buyers only at the highest 'top-end' institutional levels, on an affordability basis. On the other hand, this completed development scheme in reality constitutes three rather flexible commercial property assets in one - a prestige high-rise 26 level office tower, a 31 level 369 room international 5 star quality hotel, and a five storey completely restored heritage building which contains substantial prime small-area retail space. As such, it clearly presents as an attractive commercial offering in our view. Apart from the FSR bonus factor which has already been highlighted, the economic and financial outcomes in this case really have to be examined in the context of the following additional factors, and taken as a whole `package' of positive contributory elements : · the essentially commercially-oriented nature of the GPO building's adaptive re-use provisions in this case, and the inherent integrated, innovative nature of the mixed use mechanism of the entire scheme. · the ability to have been able to adapt the GPO building to an `as-new' internal configuration in terms of the contemporary standard of building services contained therein. · the ability to have been able to erect two large non-heritage commercial tower buildings on the available rear land behind the heritage building. This mechanism has worked very well in this case, 45
and applications elsewhere in Australia might perhaps be based on this same fundamental type of conceptual opportunity in future. · other significant compensation measures such as the Heritage Land Value assessment which flows through into an ongoing Land Tax discount of apparent considerable proportions in this case. In respect to the impact of the heritage listing requirements on achieveable rental and income levels in this scheme, we have arrived at the conclusion that there seems to be no major impact in either direction. In other words, the impact of the heritage listing presence and the requirements associated therewith seem, in the main, to have had a neutral impact on rental and income levels in this case. The one exception which we were able to discern, however, is in respect to the tariff rates which are charged in the GPO building's Heritage Hotel Rooms, when compared to the normal benchmark tariff for similar scaled accommodation in the non-heritage Westin Hotel Rooms at the rear. The Westin Hotel charges a tariff of $475 per room per night for its GPO Heritage hotel rooms, compared to $432 per room per night for an otherwise equivalent (but non-heritage) room in the rear hotel tower. This represents a positive gross income premium differential of 10%, directly attributable to the heritage features present in the GPO building hotel rooms. A more accurate measurement of this rather superficial, simplistic differential would however be obtained by comparing the occupancy ratio figures of the heritage and non-heritage hotel rooms in both buildings, and testing the buoyancy of the comparative occupancy rates thereof. Regrettably, however, this data is unavailable to us at the present time. Mr Young has emphasised that the sheer scale of the project and the unique mix of diverse but interconnected uses is the underlying key to overall success of the redevelopment scheme. A physical inspection of this completed, now fullyoperational project would in our opinion tend to confer an unchallengeable validity to Mr Young's viewpoint. Finally, we would close on the following point. Mr Young has commented emphatically that the development, project management and construction processes flowed very smoothly and efficiently throughout the duration of this scheme. This can be put down to three key factors, according to Mr Young : (i) The Grocon Group brought much of their project management, design / construction, and consultancy team with them to this project, as a `package'. Many of the private sector participants in this project had worked with one another on other commercial projects in the past. 46
(ii) This successful project outcome constitutes an outstanding example of what can be achieved by a spirit of compromise and negotiation on the part of the various heritage-related, statutory planning, and commercial development interests involved in this case. The mutual understanding and respect which both sides (developer and statutory authorities) demonstrated towards each other in this scheme was, in the opinion of Mr Young, of a high standard. (iii) The prior heritage-related experience of the developer and the knowledge and understanding already acquired of the heritage conservation system therefrom, also played no small part in the smooth operation of the development project in this case. 47
CASE No. 2 60-64 Macquarie St, Parramatta 1. Introduction The subject heritage property in this case comprises a freestanding two-storey Old Colonial style Georgian residential building known alternately as both 'Kia Ora' and `Houison's Cottage'. The residence was built in 1842 (Figure 5). Since 1979 it has been retained, owned and adaptively re-used as two-storey commercial offices, in conjunction with an adjacent seven-storey commercial office building development which was erected immediately beside and behind the subject property at that time. Figure 5: Archival photograph of `Kia Ora' or `Houison's Cottage'. The two properties are held in the same ownership but they exist on separate land titles. In a physical sense the 1979 office building is positioned in a `wrap-around' configuration, to the side and rear, relative to the freestanding 1842 residence when viewed from the street. For the purposes of this report the immediate focus is placed on the 1842 heritage residence. However in a commercial investment and adaptive re-use context this heritage property must also be considered in direct connection with the jointlyowned office building which sits beside and behind it. The subject property at 60-64 Macquarie St occupies a strong central commercial location within the heart of the Parramatta Central Business District (CBD). The property is located approximately 20 kilometres west of the Sydney GPO and lies 48
within an area administered by Parramatta City Council. In an economic, business and investment context the Parramatta commercial precinct constitutes one of the most prominent regional CBD's in the Sydney Metropolitan Area outside of the Sydney Central Business District. In heritage significance terms the central Parramatta commercial precinct comprises one of the most prominent collections of heritage-significant properties in the Sydney Metropolitan Area outside of the Sydney Central Business District. The central Parramatta precinct contains many examples of fine, old, well-preserved architecturally and historically significant buildings, many of which date from the mid-19th Century through to the early 20th Century era. In this context the subject 'Kia Ora' property enjoys a strong heritage presence and is listed under the 'Local Significance' category. The 'Kia Ora' colonial residence was initially preserved as a condition of a July 1978 development approval on the property which allowed for construction of the current adjacent office building. Statutory heritage protection was then subsequently conferred on the historic residence under both the NSW Heritage Act 1977 and also later under both the Parramatta Local Environmental Plan 1996 (Heritage and Conservation) and the Sydney Regional Environmental Plan No. 28 (Parramatta) which superceded the Heritage LEP in August 1999. As at early 2001 both premises continue to be used for commercial office purposes. Both buildings were recently considerably refurbished in early 1998 and are fully occupied, free of vacancies, under standard-type commercial leases. Both properties were recently sold in June 2000 as a single fully-functioning commercial investment holding. The inclusion of the heritage-listed 1842 'Kia Ora' building in the combined investment offering, adaptively re-used for many years as commercial offices, was viewed by the market in very positive terms. During the two-month marketing period in mid-2000, all interested prospective purchasers commented upon the presence of the heritage-listed colonial residence as a notable 'bonus' addition to the underlying investment value of the holding, particularly in its capacity as an additional, adaptively re-used, commercial incomegenerating vehicle. The following report describes both the subject heritage property's recent preservation history, dating originally from 1974 in a commercial development context, and also its present status as a combined standing commercial investment. 2. Heritage Status 49
In an historical context the current heritage status of the subject 1842 colonial residence is directly linked to the original commercial development proposal for the erection of the present adjoining seven-storey office building. The development scheme, which actually took place in 1978, was first mooted in 1974. A report prepared in July 1987 by Order Architects Pty Ltd reveals the history of heritage protection in respect to `Kia Ora', which is as follows. Heritage preservation status was first conferred upon `Kia Ora' in 1974, prior to the advent of statutory heritage protection in New South Wales which first commenced through the operation of the NSW Heritage Act 1977. The Kia Ora property had at that point (1974) been in the ownership of Manufacturers Mutual Insurance Ltd since 1955. In 1974 it was proposed that the rear of the `Kia Ora' site and the site immediately adjacent to the west, would be developed for a commercial office building use. When the original application for Development Approval was made in 1974, Parramatta City Council proposed that the property owners, Manufacturers Mutual Insurance Ltd (MMI), enter into a covenant aimed at preserving the historic residence for all time. The original commercial development proposals by the owner were subsequently deferred until 1978, largely due to prevailing poor economic and property market conditions in the mid-1970's which at the time were deemed not conducive to development going ahead. In July 1978 Development Approval was granted for the erection of the seven­ storey commercial office building which now immediately adjoins the `Kia Ora' heritage residence. Development of the office building was completed in 1979. A specific condition of the 1978 approval for the development scheme required the permanent preservation of `Kia Ora' historic residence. As part of the Development Approval, a deed was executed between MMI Ltd and Parramatta City Council which prevented the demolition of the residence. This deed confirmed the preservation proposals which were first proposed by Council in the original 1974 development application. With the advent of the NSW Heritage Act 1977, a Section 130 Permanent Conservation Order was also placed over `Kia Ora'. This statutory protection prohibited demolition or variation of the building without the approval of the NSW Heritage Council and the NSW Heritage Office. In 1996 the subject property was listed in Parramatta City Council's Heritage LEP as an item of local significance. The relevant Heritage Inventory document (No. 356) discloses that the property was evaluated on the criteria of `Historic, Representative, Associative', in accordance with an historical theme detailed as 50
`2.2.4 Nineteenth Century Regional Town Building, Parramatta', and 3.2.3 `Private Housing'. The property is significant as the site of an earlier building in which John Batman (one of Melbourne's founders) was born. This fact gives the site a degree of prominence in Australian history. Additionally, the `Kia Ora' residence has a prominent position in the local history of Parramatta, having been built by colonial architect James Houison in 1842 as a residence for himself. The property remained in the ownership of the Houison family until the 1930's. Thus, the subject property today is also commonly referred to as `Houison's Cottage'. In architectural terms the property possesses significance as a fine, well-preserved representative example of a two­storey Old Colonial Georgian house, of rendered brick on sandstOne Foundations, with slate roof (Figure 6). Figure 6: Macquarie Street faзade of `Kia Ora' at present. Architecturally, the subject Inventory Listing notes the property's heritage significance embodied in the shuttered windows and the symmetrically placed front door and building entry, under a columned portico. Additional streetscape significance is conferred by the columned lamplights situated at each end of the building. Internally, a physical inspection (31/7/00) revealed the heritage significance embodied in the ornate timberwork surrounding the window areas, the high ground floor ceiling height, and a symmetrically located sandstone semi-circular staircase leading from ground to first floor, with feature-polished timber handrails. Both floor levels contain two large fireplaces at each end of the building. The building exudes a distinct charm and character which is truly representative of the mid­19th century architectural period in Australian colonial history. Based upon this writer's detailed physical inspection of the cottage it can be said that in a heritage context the internal ambience of the premises in particular has been excellently maintained. 51
Parramatta Cityscope (May 2000) also reveals that the subject property is classified by the National Trust, and that in May 1991 the Australian Heritage Commission entered the residence in the Register of the National Estate. 3. Objectives of the Owner Parramatta Cityscope records that the combined subject property (the two-storey historic residence plus seven-storey commercial office building) was purchased at auction on 29/6/89 by Mercantile and General Life Reassurance Co Australia. This firm is now known as Swiss Re Life & Health Australia Ltd. Prior to 1989, the subject property had been held by Manufacturers Mutual Insurance Ltd since 1955. The ownership history of the subject heritage-listed building, combined with its involvement in the initial, greater development of the adjoining building as a mainstream commercial-office scheme in 1979, thus discloses that the current configuration of the property as an investment vehicle has existed in its present state for many years. Likewise, during the period 1979 to mid-2000, the combined investment properties were held in ownership by Institutional-grade Investors (i.e. two separate life insurance companies over a period of twenty one years). In mid 2000, the combined properties were marketed and sold by Jones Lang LaSalle Parramatta, on behalf of the owner Swiss Re Life and Health Australia Ltd. This disposal of the subject commercial property asset essentially constituted a normal, routine property portfolio management and re-alignment decision by the owner, in a manner which is not at all untypical of many investors holding large commercial portfolios at Institutional-ownership level. The combined properties had been extensively refurbished in early 1998 as part of a `mid-life' renewal and refit program for the investment asset as a whole. Subsequently, a new commercial leasing regime was then established in respect to this commercial investment scheme during 1998 and 1999. Thus by the commencement of 2000, the asset had been given a physical `midlife' renewal via the extensive 1998 refurbishment program. Moreover, its prospects as an attractive income-generating investment vehicle had been augmented by the establishment of a completely new leasing regime, on favourable leasing terms and conditions, free of any vacancies. In short, the combined properties were then considered to be `ripe' for disposal and marketing, in a commercial investment context. Subsequently, the subject 52
properties were successfully marketed in April-May 2000, and were sold to a local investor, who assumed ownership in June 2000. 4. Approvals Process As already described in this report, the original commercial development proposals in respect to the subject property were postponed and re-examined throughout the period 1974 to 1978, largely as a result of prevailing poor economic conditions in the mid­1970's which were deemed not conducive to commercial development. In 1978 the existing owners decided to proceed with a commercial office building development scheme on part of the subject land, whereby the existing 1842 colonial-era would be retained and combined in a single holding with the office building. The re-development was completed in 1979. Since 1979 the combined properties have been operated under single ownership as a standing investment. In the property's overall economic context, significant efforts were made in the first instance in 1978 by Parramatta City Council to both secure the heritage protection of `Houison's Cottage' while simultaneously endeavouring to achieve a commercial office development which was as economically feasible for its owners as possible. The 1987 report by Order Architects Pty Ltd (p.10) evidences that Parramatta Council at the time of the 1978 development approval supported a successful appeal to the then Planning and Environment Commission by the owners, to circumvent certain provisions in the Section 130 Permanent Preservation Order on Houison's Cottage, in order to permit a seven storey height in the adjoining office development. The S.130 provisions would otherwise have had the effect of limiting the height of the office building to `not much more than 2 to 3 storeys', thereby limiting the economic feasibility of the project. In effect the property was thus able to be developed in accordance with the prevailing commercial floor-space code, on a completely unfettered basis, and completely unaffected in any adverse manner by the presence of the adjoining heritage-protected 1842 residence. 5. Cost Versus Value There is no detailed information available in respect to the original development proposal which dates from 1979, due to the passage of time and successive change of ownership. 53
However, it is clear from a comparison of the original pre-1979 scenario (single heritage residence, suitable for adaptive re-use as commercial offices) with the post1979 scenario (the addition of a separate seven-storey office building to the investment asset `package') that the economic viability of the property has been enhanced considerably in cost-benefit analysis terms. 6. Life Cycle Issues Both the office building and the heritage-listed residence have been conjunctionally used as commercial office space for many years. Parramatta Cityscope, September 1994, confirms that past commercial-office tenants in the subject heritage-listed residence have comprised solicitors and doctors. In an adaptive re-use context, a July 1987 report on the property prepared by Order Architects Pty Ltd (op cit, p.4) described the heritage-listed 1842 'Kia Ora' residence as having commercial tenancy attractions for small businesses such as solicitors, accountants, advertising agencies, and corporate and financial institutions. The report also cites a 1987 Jones Lang Wootten commentary that `strong interest would come from architects, doctors, antique dealers, gallery proprietors and estate agents'. Both the office building and the residence underwent a major capital refurbishment program in early 1998. The proportional capital cost injected into the two-storey `Kia Ora' historic residence was of the order of approximately $125,000. A notable feature of the refurbishment was the use of multiple-colour paint schemes and tones throughout the premises internally, which emphasise the inherent colonial character of the 1842 residence while simultaneously providing a sympathetic flavour to its adaptive re-use as commercial offices. An Investment Report on the combined property holding, prepared by Jones Lang LaSalle Parramatta, dated March 2000, makes mention of the 1998 refurbishments to `Houison's Cottage' in the following terms (p.10) : The recent refurbishment of the cottage has blended colonial craftsmanship with excellent joinery and the practicalities needed for the modern office. Some of the modern facilities of the cottage include male and female toilets, a kitchen and a lunchroom. The cottage is fully air conditioned and retains all its charm and character. The Investment Report also discloses that the `Kia Ora' ('Houison's Cottage) historic residence contains a total net lettable commercial floor area of some 196 square metres (106 sq.m on ground floor, 90 sq.m on first floor), which equates to an approximate gross building area of 206 square metres. Thus the capital cost of the 1998 refurbishment represents an expenditure in the order of approximately 54
$600 per square metre, on a gross building area basis. This represents a capital outlay of considerable magnitude, relative to the size of the heritage building, and denotes a refurbishment effort of significant importance. The majority of the total property holding (most of the office building and the whole of the historic cottage) was rendered vacant in the preparations leading up to the major capital works of renovation in early 1998. Subsequently, upon completion, a significant re-leasing program was commenced, which extended progressively from 1998 into 1999. The subject 'Kia Ora' heritage-listed property has been tenanted on a 4+4 lease by a private language school - known as Superior Learning Methods Ltd - since 1/9/99. Initial gross annual rental at lease commencement was $70,000 per annum, with 3.5% annual increases (now $72,450 p.a. after 1/9/00) and a market review at option date 1/9/03. The initial rental represented a rate of $357.14 per square metre of Net Lettable Area on a gross rental basis. The combined property holding (office building plus heritage-listed residence) was marketed for sale by public tender, commencing in April 2000. The property sold for $7.5 million after tender in June 2000. Ian Gray, Sales and Leasing Manager, Jones Lang LaSalle Parramatta (personal communication, 19/9/00) reported that four tender submissions were received. The winning purchaser was a local investor. Mr Gray remarked that the `Kia Ora' heritage-listed property attracted a notably positive response from all prospective purchasers. During the marketing period, he stated that there was no evidence of any negative response from the market by virtue of the heritage listing. All four tenderers saw the integration of old and new elements in this commercial investment scenario (refurbished seven-storey typical `B' grade office building, plus refurbished heritage-listed residence adaptively reused as two-storey commercial offices) as a positive factor. In particular, the winning purchaser viewed the presence of `Kia Ora' as a bonus in the property's total context as an excellent cashflow investment. The March 2000 Investment Report on the combined subject investment property holding contains a schedule of outgoings for the year 1999. Discussions with Mr Gray have disclosed that the operating costs in respect to the `Kia Ora' residence present no additional expense burdens attributable to its heritage listed status. In other words, the available evidence suggests that were the subject property to be hypothetically free of its heritage listing, then its annual operating costs would be about the same. In any case, the subject heritage property constitutes only 5.27% of the total Net Lettable Area in the combined investment holding. Particularly on a proportional basis, the operating costs in respect to the `Kia Ora' residence are of minor consequence only. The overwhelming bulk of annual operating costs for the entire 55
investment holding are borne by the adjoining free-standing seven-storey office building, by virtue of the sheer magnitude of its predominating floor area (some 94.73% of the total in the combined property holding). In a heritage incentive context, the subject property does not attract the kind of incentives such as Transferable Heritage Floor Space Rights which predominate in the Sydney CBD in larger, more significant properties. The greatest ongoing heritage-related economic concession and incentive in this case relates to the adaptive re-use of the residence as commercial offices, plus the original development rights which were conferred upon the subject property back in 1978, when the Development Application for the seven-storey office building was submitted. Hence in this context it can be seen that Parramatta Council's original favourable treatment of the allowable development floor space in the office building has conferred an ongoing economic feasibility to the property ever since. 7. Conclusions Together, the two combined properties in this case study constitute a successful commercial investment asset which combine both older and newer, and heritage and non-heritage buildings, in a manner which is considered to be both innovative and most economically viable in a heritage conservation context. The subject 1842 colonial residence enjoys significant local prominence in a heritage context. Its heritage status has not been excessively compromised by the adjacent development in 1978 of the seven-storey commercial office building. The fine, ornate mid 19th century colonial character of `Houison's Cottage' has been successfully preserved, and in an economic context has been well combined with a contemporary adaptive re-use as modern commercial office space. Together with the adjacent office building, the cottage underwent an extensive `mid-life' re-fit and refurbishment capital-works program in early 1998. In life cycle costing terms this capital outlay, although considerable at the time, has effectively prolonged the economic life of the asset and has enabled an effective contemporary commercial leasing structure to be established. The subject heritage building contributes some 5.27% of the total Net Lettable Area in the overall investment, yet it provides approximately 6.25% of the total Gross Rental derived from the entire property. The 1/9/99 $357 psm gross rental rate achieved for Houison's Cottage compares favourably with rentals achieved for similar sized upper-floor space in the adjoining office tower - where rentals secured at or about the same time period in 1999 show gross rates of only $275 $285 psm gross. This represents an income-superiority ratio for Houison's Cottage in the order of approximately 27% in economic terms. 56
The subject marketing program in mid-2000, together with the sale in June 2000 at a price of $7,500,000, revealed economic outcomes which can be described as favourable. An elementary financial analysis of the leasing structure indicates that, in an entirely hypothetical sense, the 1842 heritage-listed residence contributed a capital sales value to the entire investment holding in the approximate range of $500,000 proportionally. This represents approximately 6.6% of the total property's June 2000 sale price of $7,500,000. There is also little doubt that this heritage building's value in its adaptive commercial re-use configuration exceeds its equivalent value on a residential-use basis by a significant margin. The selling agent commented that the commercial integration of old and new was seen by the market in mid-2000 as a most positive element in the property's investment profile. This market response is testimony to the successful configuration of the combined property holding in economic terms. As a representative successful example of the combination of heritage preservation and economic viability, it is deemed that the conceptual nature and character this particular case study may possess considerable comparative worth for other potentially similar commercial development scenarios and proposals in other capital cities throughout Australia. The commercial character of the Parramatta CBD is after all considerably more comparable to that which might be found in a number of other, smaller CBD's in Australian capital cities or regional townships - compared to that of the Sydney CBD, which is by far the biggest in Australia. 57
CASE No. 3 The Strand Arcade 412 - 414 George Street, Sydney 1. Introduction The Strand Arcade (Figure 7) comprises a relatively small low-rise part three and five storey late 19th Century Queen Anne Revival style commercial building, situated in a prime retail location in the Mid Town Precinct of the Sydney Central Business District. The property enjoys a prominent street-front presence to both George and Pitt Streets and in its configuration as a retail arcade provides a direct pedestrian linkage between George Street and Pitt Street, in the city block bounded by King and Market Streets. The property currently contains 91 shops over 4 levels (Figure 7). The majority of tenancies comprise small-area specialty retail lettings with floor sizes limited to the range of approximately 15 to 45 square metres over the three main floors (ground plus levels 1 and 2). The basement floor area contains a somewhat larger main tenancy. The George and Pitt Street wings of the building contain two uppermost floor levels (levels 3 and 4) distinct from the three main lower retail floors. These uppermost wings are largely devoted to subsidiary small-area office tenancies. Figure 7: TheStrand ­ interior. 58
The property was purpose-built in 1891 as a shopping arcade at the height of the era of sophisticated elegance and flamboyance of building design which characterised Sydney's late Victorian period. A Strand Arcade promotional brochure produced recently by the current owner (Ipoh Pty Limited, 2000) aptly describes the ambience of the era : When the Strand Arcade opened in 1892 ... Sydney was a Victorian City. Grandeur and elegance was the style of the day as the city's architects created landmarks that echoed the familiar traditions of home town London. It is generally accepted within both the commercial property and the heritage communities that the Strand Arcade today enjoys a high public recognition factor as a focal point for specialist boutique shopping within the CBD of the City of Sydney. Moreover, the subject property enjoys a premier retail location immediately adjacent to Sydney's Pitt Street Shopping Mall. According to Cummins (Sydney Morning Herald, Commercial Property Supplement, 2/12/2000), the Pitt Street Mall is the third most expensive retail strip in world (in terms of achieveable rental per square metre). This city block in Pitt Street, bounded by King and Market Streets, is indisputably the centre-piece retail location within the Sydney CBD. The Strand Arcade is thus extremely well positioned to take commercial advantage of its close proximity to this pedestrian plaza. The Strand Arcade was deliberately titled after the famous London Street of the same name to denote an air of elegance, fashion and sophistication with which shoppers would readily associate. The Strand in London links the City of London with the City of Westminster and at the end of the 19th Century was known as a hub of high society featuring fashionable theatre, hotel and shopping facilities. The Strand Arcade's successive owners in recent times have taken due commercial advantage of its favourably perceived public reputation. The property's high-profile tenancy mix - including the Old Coffee Shop in occupation as a tenant since 1892 - constitutes a prime marketing vehicle in economic terms. The major product categories offered within the centre include fashion, jewellery, gifts and food. Prominent tenants enjoying high public recognition levels include Tony Barlow Menswear, Strandbags, Strand Hatters, Harris Coffee, and Timberland. The continued retention over time of the essential 'old world' charm and character of the property, both externally and internally, has enabled the arcade to maintain a very strong, long-standing reputation as a pleasing environment for 'cut above' fashionable shopping within the Sydney CBD. 59
When first opened in 1892 the Strand Arcade was the fifth and last of the shopping arcades of its type to be built in Victorian Sydney. At the beginning of the 21st Century it is the only one which remains in its predominating original style and form. In an architectural and historical sense its heritage significance can thus begin to be appreciated. The property is in fact specifically referred to as a landmark building for its type in its formal heritage inventory listing. The subject property was purchased by its current owner, Ipoh Strand Pty Limited, on 1st April 1999 at a price of $66,500,000. Ipoh enjoys a strong reputation for heritage-related retail property management and investment expertise, having gained widespread praise in the early 1980's for its efforts in firstly helping to save and then to restore and operate Sydney's famous Queen Victoria Building. Discussions with the current owner of the Strand Arcade have revealed that, in an economic and commercial investment sense, the property is currently operating in quite a satisfactory manner in its capacity as a retail property asset - particularly when related to its April 1999 purchase price. However plans are currently afoot to implement a refurbishment scheme focussing upon the upper retail levels. This scheme is linked to a newly-implemented marketing strategy designed to further strengthen the financial performance and appeal of the property for the ultimate benefit of all the various interests, both public and private, who have a stake in the future ongoing existence and success of the centre. In our opinion the Strand Arcade represents a most useful case study for the purposes of this Consultancy. Firstly, it is the only heritage asset in our seven-case series which is almost entirely devoted to a fully-tenanted prime retail investment use. The current use is not an adaptive re-use, in the sense that the property has been used continuously for some 108 years as a shopping centre. Rather, this case study is examined purely in its context as a passive investment property. Secondly, in heritage terms, the current historical, architectural, aesthetic and social significance of the building has been successfully maintained, despite having been almost destroyed by fire in May 1976 (this fire is cited in Sydney Cityscope, 28 April 2000) (Figure 8). Much of the interior form of the building now constitutes a reconstruction as a result of the loss of original features by severe fire damage at that time. In a heritage conservation sense this reconstruction process has done nothing to detract from the aesthetic feel and old-world character of the property. The building stands as a fine example of what can be achieved by this form of heritage conservation - as opposed to the more `authentic' forms of heritage management such as preservation and restoration, as those terms are defined technically under the provisions of the Burra Charter. 60
Thirdly, the subject property is only relatively small and narrow in terms of its plottage, size and shape. Its height and scale of development is limited to several floors only. This characteristic in our opinion confers a greater potential for comparison purposes, where heritage authorities and managers in other capital cities in Australia might derive more useful information from this relatively small-scale case study for applications in similar localised heritage scenarios. Figure 8: Interior of the Strand, after the 1976 fire. 61
2. Heritage Status The Strand Arcade is listed as Inventory No. 4033 on Sydney City Council's Heritage LEP 2000 under the Schedule 1 category. The property is also listed on the Register of the National Estate (AHC). The Statement of Significance contained in Council's Inventory document makes reference to the building's inherent rarity as the best and last remaining example of the original five such shopping arcades built in Sydney during THE VICTORIAN ERA. The property is also constitutes the best known work in the portfolio of the architectural firm Spencer and Fairfax. The property reflects the importance of Pitt Street and George Street in the relevant city block as the premier retail precinct in Sydney. The Statement of Significance includes the following notable description (page 2) which gives credence to the property's high public recognition factor : The Strand Arcade is one of Sydney's best known and much loved buildings and is significant for the continuity of occupation, and size of some of the tenants. It is significant as a landmark building. The building is furthermore significant for the presence of fine examples of late nineteenth century building construction contained within its internal fabric. These design and construction features are exemplified through the presence of the caged lift well structures at each end of the building as well as the cast iron structural framing, the cast iron curved roof trusses, coke breeze floors and tessellated ceramic tiling work. The property enjoys graded historical heritage significance which is classified under the Rare State category. State-level Rare significance is also registered under the aesthetic, social and scientific criteria domains. The external facades, the glazed atrium roof, the ground floor promenade, the lift surrounds, light wells, and all remaining internal original interior elements, all enjoy a High Significance registered grading. Council's Inventory document makes additional reference to the Preliminary Conservation Policy for the Strand Arcade where it is stated that the overall form of the property should be retained and conserved. The building should be continued in use as a retail arcade only. There should be no vertical extension to the building which would be visible from George or Pitt Streets or which might negatively affect the inbuilt internal natural skylighting. The faзade should be painted in appropriate colours. All remaining intact exterior faзades above the ground floor street awning should be conserved and door and window openings should not be enlarged nor closed in. 62
All remaining intact internal building fabric should likewise be retained and conserved. It is noted that the subject property was damaged by fire on two separate occasions - severely so, in May 1976, and then again to a less severe extent in March 1980. Thus a significant proportion of the building, particularly in its internal configuration, constitutes a replication and reconstruction of formerly original building fabrics, fittings, finishes and dйcor. Council records reveal that a sum of approximately $40 Million was outlaid in capital reconstruction and restoration works on the property between 1979 and 1985. Where major reconstructed elements exist, further adaptive re-use may be acceptable, according to Council's Inventory document, provided the interiors maintain compatibility with the original detail. 3. Owner's Objectives Sydney Cityscope, 28 August 2000, discloses that the subject property was purchased for $66,500,000 on 1 April 1999 by Ipoh Strand Pty Limited. Prior to the current ownership the property had been held in title by the Prudential Group between 1973 and 1998. However the Colonial Group acquired ownership of the subject property in August 1998 due to its corporate takeover of the Prudential Group of businesses. Ipoh Pty Ltd, a Malaysian-based property group, possesses well-established credentials in the field of retail property management, investment and development within Australia and New Zealand, having built up a long background of industry participation since the early 1980's. Moreover, the Ipoh Group possesses considerable experience and expertise in its dealings with heritage-significant property assets in both the development and commercial management domains. Ipoh is perhaps best known for its key initiatives and central involvement in the restoration projects for two of Sydney's most famous heritage assets - the Queen Victoria Building and Capitol Theatre. Discussions with Ipoh's Operations Manager Mr Alan Champion (personal communications, 18/10/00) revealed the current owner's motivations for purchasing the Strand Arcade in 1999. Ipoh regarded the subject property as an ideal market opportunity and a perfect candidate for addition to its existing portfolio of commercial investment and heritage-significant property assets. The Strand Arcade had been extensively refurbished by its previous owners, the Prudential Group, during the period March to August 1998. The refurbishment 63
program, which paid particular attention to the inherent heritage characteristics and requirements of the property, was subsequently completed throughout the remainder of 1998 by the Colonial Group following its takeover of Prudential in August 1998. The records of Sydney City Council reveal that the total cost of these refurbishment works was approximately $2,300,000 - denoting a refurbishment scheme of substantial magnitude. Thus by early 1999 the property presented as an attractive market offering in the eyes of the Ipoh Group, having just been extensively renewed in a physical sense and enjoying both a prime retail location and a sound commercial leasing structure. Furthermore the Strand Arcade is situated in close proximity to Ipoh's chief heritage-listed investment asset, the Queen Victoria Building, which is located only several hundred metres to the south in George Street. Reference to a Share Prospectus Report issued by the Ipoh Group dated 8 November 2000 reveals the attitude of the Strand Arcade's present owners towards this fine heritage-listed investment asset, and the group's future investment objectives in a corporate sense : The Directors are of the opinion that the property [the Strand Arcade] will require minimal capital expenditure over the next few years as the previous owner completed a heritage refurbishment programme before the sale. Ipoh's strategy is to focus on investment in, and management of, prime CBD retail property. Implementation of this strategy will involve both growing a portfolio of CBD retail assets in both Australia and New Zealand and implementation of a non-core asset divestment program. Ipoh's trophy retail property assets [bold by this writer] the Queen Victoria Building and The Strand, will continue to underpin the Company's earnings. 4. Approvals Process It is important to take note of the extensive refurbishment program which the former owners, the Prudential Group, initiated in respect to the Strand Arcade in early 1998 prior to the property being acquired by its current owner Ipoh Pty Limited in early 1999. This refurbishment program constituted a major mid-life renewal in a life-cycle costing sense. The nature of the capital works and the individual costs thereof are worthy of closer examination. 64
The property records held by Sydney City Council (inspected 4/01/01) disclose that development consent for Prudential's refurbishment scheme was granted on 17/3/98. The schedule of works and cost estimates is as follows :
* renew water and gas services in the building * replace atrium roof glass and sunshading * replace lighting facilities throughout the building * replace electrical switchboards * replace hydraulic services to basement * replace basement floor and floor coverings * repaint interiors completely (heritage emphasis) * refurbish internal signage * replace roofing ironwork * replace air conditioning cooling tower * repaint exterior facades (heritage emphasis) * other works, plus contingencies Total
$429,232 $392,000 $263,650 $224,912 $214,616 $173,000 $154,630 $98,869 $98,024 $95,000 $79,160 $87,310 $2,310,403
Prudential submitted an application for an award of 10,505 square metres of Heritage Floor Space (HFS) concurrent with its refurbishment DA. Under the provisions of Sydney City Council's LEP 1996 and the HFS Policy therein, such an award in respect to heritage buildings can only be made in conjunction with a development application for conservation works, and in accordance with an approved Heritage Conservation Management Plan. Prudential's refurbishment DA satisfied these eligibility requirements. Consequently, Council approved the award to Prudential of the said HFS. Prudential was subsequently permitted to allocate some 6,218 square metres of this HFS award to a redevelopment scheme for a property which it owned at 60 Castlereagh Street, Sydney. Additionally, some 1,046 square metres of HFS was allocated to a property at 37-51 Martin Place, Sydney.
65
Council's HFS register evidences that a residue of 3,241 square metres of HFS was retained in the ownership of the Prudential Group for sale at a later date. This HFS asset was subsequently assumed by the Colonial Group as part of its corporate takeover of the Prudential Group in 1998. The outcome of these dealings meant that when Ipoh Pty Limited purchased the Strand Arcade for a price of $66.5 Million on 1/4/99 there were no HFS rights which attached to the property (since HFS awards, unless sold off, generally attach to the owners of a given property, not the real estate asset itself). This information was confirmed by Mr Alan Champion of Ipoh Pty Limited (personal communications, op cit, 18/10/00). 5. Life Cycle Issues The operation of the Strand Arcade as a commercial investment property asset is governed to a very considerable degree by the requirements embodied in the property's heritage listing and the conservation policy which attaches thereto. In practical terms, all items of a structural nature and most of the existing cosmetic dйcor and detailing are required to be retained within the building, both internally and externally. No additional vertical extensions to the building are feasible, either in a non-heritage practical redevelopment sense nor in the general context of its heritage listing. Mr Alan Champion (op cit) disclosed that the internal columns, voids and common areas which currently exist within the building dictate the size and layout of the retail tenancies throughout all floor levels. The existing design, finishes, dйcor and floor-plan layouts of all shop-fronts and common areas, particularly on the ground floor, constitute items of considerable heritage significance. Accordingly, the opportunities for what Mr Champion refers to as `inter-tenancy penetrations', as desired by some tenants, are very restricted, in the opinion of the present owner. In other words, according to information supplied by Mr Champion, despite the preferences of some tenants within the building, the ability for flexible adaptation of retail tenancy floor plans, sizes and shapes, either horizontally or vertically, is extremely restricted due to the requirements embodied in the current heritage listing for the building. It should be noted that the above opinions are those of the present owner. In our field investigations we have not tested nor investigated this issue of `inter-tenancy penetrations' from the standpoint of the relevant environmental planning and heritage management authorities, and so it must remain as somewhat of a `grey area' at present. 66
Access to the upper retail floors - levels one and two - is currently provided via multiple staircases and lifts situated at each end of the building. However in the opinion of the current owner (Alan Champion, personal communications, op cit) the access opportunities to the upper retail floors are inadequate and require improvement via the installation of escalators. The current owner believes that the retail trading performance of the two upper shop floor levels - as measured by pedestrian traffic volumes and sales turnover is somewhat mediocre, compared to its potential, and is in need of substantial improvement. It is felt that the installation of escalators to the upper retail floors from the ground floor promenade would substantially enhance the retail trading potential of both upper floors. However we are advised by Mr Champion that the relevant statutory authorities have indicated that such a proposal would not be permitted, principally on heritage conservation grounds. We must point out that we have not had the opportunity to investigate this matter nor confirm the non-approval contention from the standpoint of the relevant planning authorities concerned. There would however appear to be substantial merit in the commercial arguments put forward by the owner where the installation of escalators is concerned. On two occasions late in 2000 we conducted a physical inspection of the Strand Arcade. On both occasions very vigorous levels of pedestrian trade were observed in the basement and on the ground floor retail areas. However, the passing pedestrian trade occurring on the two upper retail floors was noticeably weak - not to the point of being non-existent, but nevertheless at levels which were considerably less than that occurring on the main retail floors below. Moreover, this was at a time of pre-Christmas consumer spending when retail trade would normally be expected to be above the normal prevailing activity levels. It is clear in our assessment that an element of consumer resistance exists in respect to the use of the existing staircases and older-style lifts in the Strand Arcade. For time-poor shoppers who are often `in a hurry', escalators do indeed provide an easy, quick, low-exertion access to vertical shopping facilities. A precedent comparative example can be taken from the nearby heritage-listed Queen Victoria Building (QVB). There, the installation of multiple escalator access to the upper floors has resulted in an ease and speed of access for shoppers which has flowed through into very buoyant levels of upper-floor consumer activity. For example, the retail trading performance of the large ABC Shop retail tenancy, on the uppermost floor level of the QVB, was observed on 19 December 2000 (the same date as one of our Strand Arcade inspections) as being extremely vigorous. This can be put down almost entirely to the ease and speed of access provided for shoppers via the escalators installed therein. 67
The situation in the much smaller Strand Arcade by comparison presents a major difficulty however. The biggest limiting drawback of the Strand Arcade lies in its inherent small size and limited scale of development. In short, the Strand Arcade lacks sufficient spare space to successfully accommodate the installation of escalators. The site is very narrow, being only 20 metres wide on average. The ground floor promenade is correspondingly of a relatively narrow width. The installation of escalators on the ground floor common-area promenade would indeed seem to have the potential to cause significant interruption to the fine heritage appeal and integrity which is currently embodied in the internal form and fabric of the building - particularly on the ground floor, where the heritage appeal is the strongest. Substantial and valid arguments exist on both sides (heritage preservation versus perceived economic enhancement) regarding the issue of escalator installation in this case study. This case study thus presents an excellent example of the types of complex and difficult issues which can sometimes arise from a commercial investment perspective in heritage-listed retail properties. The issue of upper-floor escalator access aside however, Ipoh Pty Limited nevertheless have plans for the refurbishment of the upper floor retail and office areas, which we believe are currently before Council. At a projected cost of approximately $600,000 to $700,000 the plans call for a substantial upgrade of floor coverings, air conditioning facilities and improvements to common areas and shop-fronts. It is anticipated that this refurbishment program, which in our opinion is most appropriate, will substantially lift the potential for better upper-floor retail trading performance. Plans also exist for a program of tenancy precincting during 2001, in line with Ipoh's pro-active property management approach. In respect to the levels of annual operating costs, Mr Champion (op cit) expressed no concerns. The Strand Arcade is fundamentally a small low-rise commercial investment property, severely limited in its scale of development by its narrow site plottage. As such, a certain level of inefficiency pre-exists in terms of operating costs such as lift operations, lift maintenance, air conditioning costs, and other facilities which service a low volume of building area. The extent to which the requirements of the heritage listing add to the cost of annual outgoings is difficult to identify. The available evidence suggests that the direct additional impact due to specific heritage requirements is probably of only minimal proportions. In terms of future life cycle costs there appears to be similarly little potential for difficulties, given the recent major refurbishment program which the former owner Prudential carried out on the property in 1998. Mr Champion reports that all 68
building services (air conditioning plant and equipment, light and air ducts, electrical, fire safety and so on) are in good condition and meet contemporary requirements. This factor also assists in keeping annual outgoings costs down, in a relative sense. Mr Champion also disclosed a series of very positive aspects relating to the Strand Arcade. Rental levels in the building are reported to be healthy, particularly on the ground and basement floor levels where retail turnover and pedestrian trade is greatest. The property, while not constituting a retail `ant track' in the orthodox colloquial industry sense, nevertheless benefits considerably from its outstanding retail location adjacent to Pitt Street Mall - which comprises the busiest and most expensive strip shopping facility in the Sydney CBD. The available evidence suggests that the direct impact of the subject heritage listing upon achieveable rentals is completely neutral. In other words, the achieveable rentals in the building are neither enhanced nor adversely affected by the impacts of the heritage listing. While premium rentals are not capable of being secured in the Strand Arcade, according to Mr Champion, the tenants' response to the heritage character of the building is reported to be very positive. Tenants like locating their retail businesses in this property. Mr Champion emphasised that good marketing and promotion of the Strand Arcade as a prime retail centre is a very important and essential factor from the owner's standpoint. 6. Conclusions It must be borne in mind that Ipoh Strand Pty Limited's purchase price of $66,500,000 for the Strand Arcade in April 1999 was determined on the basis of a full awareness of the physical limitations of the property. Similarly, other crucial factors such as the nature of the leasing structure, the cashflow position, and the sound condition of the property following the 1998 refurbishment, were equally important considerations. Likewise, the nature of the subject heritage listing and the requirements attaching thereto constituted one of the most important considerations for Ipoh as a prudent purchaser. From the commercial and economic perspective, and in light of the price paid, Mr Champion (op cit) reported that the current owner is well satisfied with the financial performance of this retail asset. 69
The property enjoys a sound leasing structure with full occupancy on the strongly performing basement and ground floor levels. Only several minor vacancies currently exist on the more weakly performing upper retail floors. The property appears to be very well marketed, it enjoys an outstandingly good retail CBD location, and the recognition and goodwill factor amongst the shopping public appears to be high. Ipoh possesses a sound background of expertise in the pro-active management and portfolio asset management of its stable of prime CBD retail properties, several of which include heritage-listed properties of major significance. As pro-active commercial investment managers of the Strand Arcade, Ipoh Pty Limited are taking positive steps to improve the economic performance of the upper two retail floors in the building. The only real potential problem which we have been able to identify in this case study relates to the arguments and debate over the merits or otherwise of installing escalators on the ground floor promenade, in an attempt to enhance the retail trading potential of the upper floors via better, quicker, easier pedestrian access. Sound, legitimate arguments exist on both sides (economic enhancement versus heritage integrity and its preservation). As at the commencement of 2001, this problem has not yet been resolved to the satisfaction of the current owner. This problem highlights, probably better than many other examples, the type of complexities and difficulties which can arise in the management of heritage-listed commercial investment property assets, particularly perhaps of a retail nature. Much of the subject building comprises a reconstruction of the items of heritage significance which were previously destroyed by fire on two occasions, in 1976 and 1980. However, the aesthetic character and old world charm of this muchloved property have been very well retained through this process. In summary, the Strand Arcade can be seen as a successful and impressive property asset both from its heritage conservation and economic perspectives. The goals and objectives of the relevant statutory heritage managers and the ownerinvestor alike have in the main been successfully met - the issue of the escalators notwithstanding. 70
CASE No.4 The Medina Apartments Project, Ex Parcels Post Office, Lee Street and Railway Square, Sydney 1. Introduction This case study comprises an analysis of the recent 1998 ­ 2000 adaptive re-use and commercial redevelopment of the former Parcels Post Office building at Railway Square (Figure 9), in the southern sector of the Sydney Central Business District immediately adjacent to Sydney's historic Central Railway Station complex. Figure 9: Northern faзade of the former Parcels Post Office, now Medina Apartments. The subject property consists of a substantial freestanding sandstone and brick building, originally erected in 1913 as a major government owned public utility asset. At the completion of its original construction this building rose to a height of six storeys and its architectural characteristics were such that it added a commanding new dimension to the visual and aesthetic quality of the Railway Square and Central Railway Terminal built environment. The subject site is situated immediately to the west of the Central Railway Station complex and its associated pedestrian concourses and tunnels. In this context, the Parcels Post Office on its southern site boundary abuts the well-known Devonshire Street Pedestrian Tunnel which leads westerly from Central Railway's Suburban Rail Platforms through to the nearby Railway Square Bus / Rail Interchange. In a visual and streetscape sense, the subject building dominates and overlooks the immediately adjacent Railway Square Transport Interchange facility. The character of the western side of the Central Railway Precinct is such that the subject property occupies a site which is positioned on all four sides in isolation 71
from any other immediate surrounding structures of any significant height and magnitude. This relative isolation factor in a built-environment sense has imparted a visually dominating presence to the Parcels Post Office building throughout its history. The subject building enjoys particularly good lines of sight from local thoroughfares when approached from the west and the north. The combination of all of the property's abovementioned characteristics - the building's prominent architectural features, its sheer bulk, and solid, imposing, square shape (a length of approximately 30 metres on all four sides and a sixstorey height), its isolated positioning relative to other local buildings, and line-ofsight advantages - have conferred a commanding landmark status to the building ever since its erection in 1913. In the vicinity of the subject property, heavy pedestrian and vehicular traffic flow occur constantly on the western side of the Central Railway Precinct. In addition to an east-west pedestrian movement from the Railway Square bus interchange to Central Railway Station, nearby Broadway constitutes the main vehicular entry and exit route for traffic entering and departing the southern end of the Sydney CBD. Additionally, the major tourist destinations of Chinatown and Darling Harbour are located only a short distance to the west and northwest of the property. Major Tertiary Education facilities are also situated in nearby Harris Street and Broadway. All of these nearby facilities in fact generate much of the passing pedestrian flow from Central Railway Station via the Devonshire Street Tunnel. In short, the property's locational advantages are considerable, and from a commercial standpoint they featured prominently, right from the outset, in the current developer's decision to commit to this particular redevelopment scheme in 1997. During the period 1998 ­ 2000 the building was the subject of a major recent redevelopment project and substantial adaptive re-use conversion to a serviced apartment hospitality use. Project construction began in early 1999 and was completed in mid 2000, in time to capitalise upon the advent of the September 2000 Sydney Olympics. The building now comprises a functioning serviced apartment and retail mixed-use asset, rated at 4.5 stars quality, operating under the trading name of Medina Executive Serviced Apartments ­ Sydney Central. In its redeveloped configuration the building accommodates some 98 serviced apartments, together with supporting facilities comprising bistro, function rooms, spa, sauna, gymnasium, swimming pool and basement carparking. A substantial ground-floor retail component has also been incorporated into the overall completed project. The property was developed by the Toga Group, which is an enterprise with wellestablished credentials and major property portfolio holdings in the hospitality industry. The subject property constitutes the latest addition to its stable of 72
hospitality accommodation assets, all of which operate under the banner trading name of Medina Serviced Apartments. The fine original external sandstone and brick facades of the former Parcels Post Office building have been retained and restored as the centrepiece of the property's heritage conservation and adaptive re-use scheme. As part of the property's recent redevelopment, however, a somewhat controversial two storey Mansard roofed penthouse area has been constructed atop the original building. Despite being set back marginally to a depth of some 1.2 metres on all four of the building elevations, this roof-top addition is very prominent in terms of line of sight from all surrounding directions. The new Mansard roof addition departs significantly from the architectural style, character, form and fabric of the original 1913 building which lies beneath it. In this particular case, this feature of the project constitutes a favourable outcome for the developer (since it was exactly what the developer sought), at the expense of perhaps an otherwise greater sympathy with the visual and heritage integrity of the original building facades. The Total Project Cost of the Parcels Post Office redevelopment project was in the order of some $27 Million. From the outset the project was intended to be developed in a complementary and sympathetic manner relative to the immediate surrounding built environment. This project was merely one component of a much greater, major public infrastructure upgrading scheme known as Central 2000, which involved the rejuvenation of the whole of the Central Railway Precinct in the lead up to the Sydney Olympic Games which occurred in September 2000. In summary, this redevelopment project comprised both a favourable hospitalitybased commercial opportunity for the developer, completed on terms which were favourable for the developer, combined with a successful heritage preservation scheme which was centred upon the retention and restoration of the original masonry facades of the building. 2. Heritage Status The subject property is listed in the Heritage Register maintained by Sydney City Council as Inventory Number 5043 within the Central Sydney Heritage Local Environmental Plan 2000, Schedule 1. The property is also listed on the Register of The National Estate which is maintained by the Australian Heritage Commission under the provisions of the Australian Heritage Commission Act 1974. Additionally, the property enjoys listings on the Register of the National Trust of Australia (NSW) and the Register of Twentieth Century Architecture maintained by the Royal Australian Institute of Architects. 73
The relevant Sydney City Council Heritage Inventory document records that the Parcels Post Office building enjoys heritage significance in an aesthetic and architectural sense as a prominently located major public institutional building constructed in the Federation Academic Classical style. In an architectural and visual sense the four-sided external facades of the building constitute its most striking characteristic. While predominantly built of rusticated brickwork, the facades are also constructed with substantial sandstone balustrades, cornices, arches and lintels, particularly on the northern, western and southern sides where the building's visual impact is greatest. This elegantly designed and strategically located stonework breaks up the visual impact of the main brickwork and imparts a most pleasing variation to both the horizontal and vertical sightlines in the building. In particular this is a feature of the main western elevation fronting Lee Street and Railway Square, where a recessed bay extends centrally through the first, second, third and fourth storeys of the building. Imposing marble columns guard this recessed area on both sides, topped by an arched prominent sandstone lintel. Combined with its architectural significance the property possesses major historical and locational significance for its contribution to the early Twentieth Century public infrastructure and public utility character of the Railway Square / Central Railway Precinct. The building was designed by the NSW Government Architect's Office and constitutes a rare example of a major government owned postal institution, being the only extant example of such a large purpose-built building of its type in Sydney. The property's Post Office based historical theme is also integrally connected with the rail-transport theme, which itself is so prominently interwoven into the historical development of this particular section of the southern end of Sydney's CBD. The property accordingly enjoys an overall cultural heritage significance which is classified in the rare State-level category in respect to both its historic and aesthetic elements. A Preliminary Conservation Policy statement prepared in 1995 is contained in Sydney City Council's Heritage Inventory document. This policy declared that the overall external form, fabric and design of the building facades on all four sides were to be retained, preserved and restored as a pre-emptive condition in the consideration of any new redevelopment and adaptive re-use proposals. A 1995 Central Railway Station Conservation Management Plan prepared by the NSW Department of Public Works and Services is cited in Council's inventory 74
document. This Plan records that by the mid 1990's very little of the internal fabric of the original Parcels Post Office remained intact. An unauthored Property Australia journal article (Property Council of Australia, August 1999, p.39) states that the subject building had been `unoccupied for more than a decade'. Descriptions appearing elsewhere in Council's inventory document also give the impression that most of the internal integrity of the original building had by the mid 1990's been lost through a combination of building alterations, neglect, physical deterioration and disuse over time. Thus in a heritage conservation sense the visually striking and well-intact exterior facades of the building form the center-piece of its retention and restoration policy. The available evidence confirms that for all practical intents and purposes the building retained very few, if any, internal features worthy of preservation. Accordingly, in the 1999 ­ 2000 Medina Apartments redevelopment and reconstruction scheme, the heritage-significant external facades of the former Parcels Post Office were retained and restored. In a major bonus for the developer, however, the whole of the interiors of the building were demolished, virtually back to the bare structural shell, and then completely rebuilt. 3. Developer's Objectives The subject redevelopment project comprises the most recent addition to the stable of hospitality-based property interests held throughout Sydney and other Australian capital cities by the Toga group of companies. The Toga Group, based in corporate headquarters at Surry Hills on the south-eastern extremity of the Sydney CBD, specialises in the niche Serviced Apartments sub-market sector of the hospitality industry. The Toga Group promotes all of its serviced apartment assets to appeal to an entirely alternate target-market sector, compared to the type of clientele which gravitates to the orthodox hotel accommodation market. The group operates all of its property assets under the overall Medina Apartments commercial banner. Under this umbrella three separate marketing themes are utilised, these being the brand names of Medina Grand, Medina Classic, and Medina Executive. The subject newly-completed serviced apartments scheme at Railway Square has been promoted since its completion in mid 2000 as the Medina Executive, Sydney Central. It comprises the only asset within Toga's property portfolio which inherently contains a major item of heritage significance. 75
Essentially, the major difference in the Serviced Apartment theme of hospitality accommodation compared to the standard hotel style of accommodation, lies in the self-contained nature and lifestyle benefits offered to clients. In the subject ex-Parcels Post Office redevelopment scheme, some 98 serviced apartments in a mix of studio, one and two bedroomed units have been incorporated into the completed project. Each apartment is promoted by the operator as containing `state of the art' modern design and technology. Each serviced apartment has a fully equipped kitchen and laundry, plus lounge and dining areas. Supporting lifestyle facilities - ground floor and basement level shops, bistro, conference rooms, spa, sauna, gymnasium and pool - are integrated into the completed development project. Mr Allan Vidor, Managing Director of the Toga Group of Companies (personal communications, 29/8/00) disclosed that in the mid 1990's his organisation conducted comprehensive preliminary market research with a view to identifying a suitable development opportunity within the general southern extremity of the Sydney CBD. The market analysis conducted by Toga revealed a gap between consumer demand and available supply in the niche serviced apartment sector within the immediate locality of the Central Railway Precinct. Ongoing demand was assessed as being buoyant and a commercial redevelopment opportunity was identified in respect to the subject property, by virtue of its outstanding locational advantages and its future use potential from the serviced apartment perspective. A shortage of existing and likely future competing local supply was similarly identified. Underlying market conditions in the hospitality accommodation sector as at the mid 1990's were also seen to be favourable due to the onset of the Sydney Olympic Games scheduled for September 2000. Thus in a property development context, the all-important factor of correct timing in the relevant sub-market property cycle was seen to be very conducive to project commitment by the Toga Group. Moreover, concurrent with Toga's market investigations a major refurbishment scheme known as Central 2000 had been formulated by the NSW Department of Public Works and Services, for the complete pre-Olympics integrated redevelopment and upgrading of the public infrastructure facilities within the entire Railway Square Interchange / Central Railway Precinct. Various government agencies and statutory authorities were centrally involved in this scheme. Provisions for the restoration, refurbishment and hospitality-related adaptive re-use of the Parcels Post Office building were contained within the Central 2000 master plan. Plans were also formulated for the redevelopment of a government owned office building located slightly to the south of the subject property along Lee 76
Street. Both buildings were to become part of what would be known as the Henry Dean Place and Western Gateway sub-precinct. The Western Gateway plan was one part of the overall Central 2000 master plan, and it called for the creation of a series of public plazas between these two buildings. The adjoining Devonshire Street Pedestrian Tunnel and the nearby Lee Street / George Street pedestrian underpasses were also to be comprehensively upgraded, along with the Bus / Rail Interchange at Railway Square. Central Railway Station was similarly comprehensively upgraded as part of the overall Central 2000 master plan. The presence of these substantial upgrades to the immediate surrounding environment at Railway Square and Central Station constituted a considerable enhancement in the future commercial potential of the local precinct. These comprehensive Precinct proposals, plus the creation of specific guidelines by the Department of Public Works and Services for the heritage restoration of the Parcels Post Office Building, contributed significantly to Toga's decision to commit to the subject redevelopment project, according to Mr Vidor. 4. Approval Process Plans for the integrated redevelopment of the western side of the Central Railway Precinct were designed during the period 1995-96. Pursuant to Clause 17 of the Central Sydney LEP 1996, a western-side master plan was adopted by Sydney City Council in February 1997. Working under the auspices of the master plan, the Heritage Group, State Projects Division of the Department of Public Works and Services, on behalf of the NSW State Government, was responsible for preparing the detailed conservation and restoration guidelines for the redevelopment of the Parcels Post Office. The final draft of the Conservation Plan was issued in July 1997. Mr Allan Vidor (op cit, personal communications, 29/8/00) advised that the commissioning of a developer for the Parcels Post Office refurbishment scheme was conducted via a publicly advertised tender process which commenced in late 1996. Toga Pty Limited submitted its preliminary development tender in December 1996, and in March 1997 was announced as the winning bidder. Toga subsequently assembled a comprehensive development application and heritage conservation management plan, using the guidelines contained in the DPWS July 1997 conservation plan. The subject development application was submitted by Toga in January 1998 and included a corresponding application for an award of Heritage Floor Space. 77
Notably, Toga's redevelopment proposals provided for the addition of a two-storey Mansard roofed structure on top of the existing six storey building, accommodating some 20 serviced apartments and plant rooms. This proposal for the rooftop addition subsequently constituted perhaps the most controversial and debated element of the redevelopment scheme. The consideration of Toga's development application required substantial input and commentary from a number of statutory authorities. A series of concerns, objections and suggestions for amendments were expressed by various parties, both public and private, in respect to the exact design and magnitude of the two-storey roof-top addition to the building. The chief concern was that the design, form and fabric of the Mansard-roofed addition was seen by many to be significantly unsympathetic, in a heritage context, to the integrity of the pre-existing characteristics of the building beneath it. It was not until 14 July 1998 that Sydney City Council issued its development consent. Council's consent provided for the inclusion of a two-storey rooftop addition to the former Parcels Post Office building, `in principle'. Ultimately, the redevelopment of the Parcels Post Office building went ahead largely on the basis of Toga's original proposal for the two-storey Mansard roof addition. In effect, the subject developer possessed considerable bargaining power in negotiations for this particular scheme, which was able to be brought to bear. Reference to the subject property records of Sydney City Council (inspected 4/01/01) reveals several reasons for this course of events : · The State Government, in its pre-Olympic planning, had ear-marked the Parcels Post Office site as one which should be made available to the market for tourist-related development for the 2000 Olympics. · The Toga Group was the only respondent in the 1996 development tender process to include in its submission a `strong commitment to a Hotel / Serviced Apartment redevelopment scheme'. · During the period mid 1995 to early 1996 a series of preliminary hypothetical financial feasibility studies had been commissioned by a number of statutory authorities in respect to the Parcels Post Office site. These studies had disclosed the necessity to provide extra roof-top floorspace additions to the building in order to enhance the expectations for essential viability of a hospitality-based project. · Abandonment of the controversial roof-top additions would have entailed the loss of some 25% of the total gross floorspace and some 20% of the total number of proposed services apartments. The retention of the roof-top additions, in principle at the very least, was deemed necessary to ensure the financial viability of the redevelopment scheme in a commercial context. 78
· The former Parcels Post Office building was in a very run-down condition prior to redevelopment. From the standpoint of the statutory approving authority, in light of the heritage conservation benefits to be gained for the remainder of the building, regardless of the eventual style of roof-top additions, it was still in the best public interest to approve the development proposal as it then stood. Thus it can be seen that in this particular case the development outcome amounted to a cost-free FSR bonus for the developer, to the order of approximately 25% in gross terms, and some 20% in terms of the extra number of apartments permitted. Moreover, the approval incorporated a roof-top design which was very favourable from the developer's standpoint, at the expense, perhaps, of a more sympathetic design in heritage terms. This demonstrates the important point that on some occasions, the developer can indeed hold considerable sway in the development approval negotiation process where heritage properties are the subject of a redevelopment proposal. In return for this conferral, Council records show that the developer withdrew their application for an award of Heritage Floor Space in July 1998. An interim period ensued between development approval in July 1998 and commencement of project construction in early 1999. During this period Toga Pty Limited entered into negotiations for a 99 year lease over the former Parcels Post Office property, the freehold interest for which was retained by the NSW State Government. This leasehold agreement subsequently commenced in September 1998. NSW Heritage Office documents provided for our perusal reveal that this authority endorsed a series of major heritage restorative works to the external facades of the building. These capital works included the removal of former unsympathetic additions to the rear eastern elevation where a former external elevator had been located, and a comprehensive refurbishment of all exterior stone and brickwork. The 1998 development consent provided for a substantial retail adaptive re-use on the ground floor, to complement the main serviced apartment use in the upper floors. Furthermore, a single storey retail addition to the rear ground floor area on the southern side of the building was approved. This addition provided for the exposure of several shop tenancies directly to the refurbished Devonshire Street Pedestrian Tunnel, which abuts the property's southern site boundary. In its final permitted configuration, the redevelopment scheme comprised a total FSR of 4.25:1, which was still below the maximum 5:1 FSR permitted by Council's code for serviced apartment uses. The gross building area (GBA) of the scheme, including the two new roof-top floor level additions containing 20 of 98 serviced apartments, was some 7,646 square metres. This GBA included 79
approximately 979 square metres of retail and ancillary recreational uses, predominantly located in the ground and basement floor levels. Some 38 basement car parking spaces were further included in the overall scheme. 5. Cost Versus Value An August 1999 Property Australia journal article (unauthored, the Property Council of Australia, page 39, op cit) cites the Total Project Cost (TPC) for the Parcels Post Office redevelopment scheme at $27 Million. This sum was confirmed as reliably accurate by Mr Allan Vidor, Managing Director, Toga Pty Ltd (personal communications, op cit, 29/8/00). Mr Vidor also cited a cost of `several million dollars' out of the $27 Million TPC as the sum attributable to the direct cost of restoring and preserving the extensive brick and stone work facades of the building. As previously mentioned within this report, these works comprised the centre-piece of the heritage preservation and adaptive re-use scheme for the subject property. In an all-up sense, Mr Vidor stated that approximately 12% to 15% of the Total Project Cost was attributable to the direct expense of meeting the range of statutory heritage requirements associated with this redevelopment scheme. Mr Vidor also disclosed that Toga's original financial feasibility estimates for the scheme, as at the time of project commencement, provided for an End Completion Value at a sum in the vicinity of approximately $30 Million. As a result of market growth which took place during the course of the development project particularly in respect to value-growth in the retail element of the scheme, and strong interest on the part of prospective retail tenants - the End Value estimate was upgraded again by an additional sum of several million dollars beyond the original projection, by the time of actual physical completion of the project. It is clear that the proportional Added Capital Value conferred on the project through the award of the cost-free roof-top addition (which is in effect a Floor Space Bonus in this case permitting some 20% more apartments to be built), exceeds the heritage-related Added Project Cost by a considerable margin. For example, a purely notional, hypothetical pro-rata 20% financial calculation taken against the original Total End Value estimate of $30 Million (which by the way amounts to a conservative estimate of end value) yields up a capital sum of $6 Million of added value, measured through the additional roof-top apartments. If heritage-related Added Project Cost is calculated at 15% (a top-end estimate) of the total $27 Million all-up TPC, a figure of some $4 Million is obtained. On this notional basis, it can be seen that Added Value ($6 Million) exceeds Added Cost ($4 Million) by a factor of some 150% in this case study example. 80
It must also be borne in mind that the total development period, which in this case extended from early 1998 to mid 2000, coincided with a time of buoyant market sentiment, confidence and growth, due in no small part to the progressive onset of the Sydney Olympic Games in the several years leading up to September 2000. Admirable growth occurred across a number of CBD commercial markets during this period. This factor highlights the underlying all-important element in property development of taking advantage of correct timing opportunities in relevant markets, and the need to correctly correlate the development and construction period with favourable market cycles. 6. Life Cycle Issues In respect to anticipated annual operating expenses and future life-cycle costing issues, Mr Vidor (op cit) in the main expressed no concerns on these matters. There now appears to be little immediate cause for concern in respect to annual operating costs such as maintenance and repairs, power and energy costs and so on. This is primarily due to the fact that the building has been stripped back to its internal structural shell, and has subsequently been completely rebuilt internally to an `as-new' standard. The interior facilities and building services are as contemporary and as cost-efficient as would be found in any similarly-configured non heritage building. It is noted that the main heritage retention and restoration requirements applying to this project were in respect to the external, not internal, features of the building. Even in this context, there is little cause for concern regarding future life-cycle costing matters. For example, the pre-existing brick and sandstone facades were extensively restored and refurbished in the redevelopment process. Thus, the external facades might now be expected to incur only very moderate maintenance and repair expenses for many years to come. The most significant direct concessions and commercial benefits to the developer in this heritage case study were derived from the essentially generous adaptive re-use provisions. The opportunity to secure a cost-free FSR bonus equivalent to some 20% in terms of extra apartments, by virtue of the permitted two-storey roof-top additions, comprised a direct financial benefit which flowed through into a substantial added capital value component. To a very significant extent, this rooftop addition underpinned the financial feasibility of the project for the developer, based upon the evidence available. We are unaware as to whether or not a Land Tax Heritage Land Value has yet been determined in respect to the subject property. Given that the completed 81
project now exists at a total FSR of some 4.25:1, which is only marginally below the permitted maximum FSR of 5:1 for this use according to Council's code, the likelihood of any significant reduction or magnified discount in Land Tax exposure would appear to be de-emphasised in this instance. 7. Conclusions 7.1 The Heritage Perspective It can be seen that the heritage significance embodied in the original external form and fabric of the Parcels Post Office building has been successfully conserved and restored in this redevelopment project. The external physical appearance and aesthetic sight lines of the six lower floors in the building have been refreshed and rejuvenated via the restoration works which have been carried out. Where new materials have been incorporated into the pre-existing original facades - for example, where metal window frames have been installed on the mid level floors - such works have been inlaid into the original building fabric in as unobtrusive a manner as is possible. The major point of contention clearly lies in the presence of the new two-storey Mansard roof-top additions to the building. The design and character of this penthouse extension was commented upon by the NSW Heritage Council in a submission to Sydney City Council dating from mid 1998, just prior to development consent being granted. An extract from the said correspondence describes the approved addition as follows : The form and detail of the proposed mansard roof in this DA is not considered to be sympathetic to the former Parcels Post Office. The form of the roof is sharply angular and hard, and the overall massing is dominant. The position of the dormer windows and recesses bears no relationship to the articulation of the building's elevations, resulting in a lack of unity between old and new. It is difficult to disagree with the above description. In fact, it captures the physical and visual profile of the new roof levels most accurately. When compared to other fine, more sympathetically developed roof-top extensions in heritage buildings elsewhere in the Sydney CBD - most notably in the example of the Radisson Plaza Hotel (see our analysis in case study No. 5) - the contrast in this instance is even more pronounced. The reasons for granting approval of the developer's submitted roof-top mansard design are understandable, however. In short, it was deemed better to secure a heritage retention and restoration scheme for the former Parcels Post Office 82
building containing the developer's preferred roof-top design, sooner than to have missed the opportunity for a retention and restoration scheme at all. The developer in this case possessed considerable bargaining power which saw their desired rooftop design prevail in their favour. According to Council's records, Toga Pty Limited was the only development tenderer who came close to satisfying the deemed pre-Olympic statutory planning proposals for the site. The timely completion of the Parcels Post Office redevelopment scheme was desirable so as to correspond with the completion of the greater Central 2000 master plan which surrounded it, all of which was to be in place before the September 2000 Sydney Olympic Games. When the deteriorated condition of the subject property prior to redevelopment is factored in to the equation, it is clear that the outcomes in a heritage sense have still been successful in this case, on a before and after basis. 7.2 The Economic Perspective It can be seen that this redevelopment scheme constituted a successful commercial outcome for the developer concerned. The adaptive re-use scheme which was permitted in this instance, and the particularly unique background pre-Olympic circumstances which surrounded the approval process, has allowed Toga Pty Limited to realise, considerably on its own preferred terms, the development potential which it identified in its preliminary market research process prior to redevelopment taking place. The availability of the FSR bonus contributed significantly to project viability because it permitted the addition of 20 extra apartments in the scheme. The available evidence suggests that the capital value represented by this additional volume of development exceeded the extra heritage-related development costs by some considerable margin. All indications are that this project returned a buoyant financial return to the developer on an initial profit basis. The ability to strip back the building interiors virtually to the structural shell, thereby achieving a virtually 'as new' redeveloped building internally, also contributed significantly to the successful development outcome in an economic sense. In addition, the surrounding greater Railway Square / Central Railway Precinct gained considerably from the major pre-Olympic infrastructure upgrade which took place at the same time as the subject development scheme was proceeding towards completion. The quality of the surrounding built environment was therefore much enhanced at the time of completion of the Parcels Post Office redevelopment project, thereby directly assisting the desirability of the completed subject scheme even further. 83
Toga Pty Ltd have marketed the subject property well since project completion in mid 2000 by maximizing the promotional value of the inherently outstanding location. The marketing brochure for the subject Medina Executive - Sydney Central emphasises the property's central transport links (including proximity to the new post-Olympic Sydney Airport Rail Link) and also its proximity to the Chinatown and Darling Harbour tourist and cultural facilities. The available evidence suggests that the future ongoing economic and investment potential for this property would seem to be most buoyant. 84
CASE No. 5 The Radisson Plaza Hotel, Corner Pitt, Hunter and O'Connell Streets, Sydney 1. Introduction This case study involves an examination of the major commercial redevelopment and conversion of one of the Sydney Central Business District's prominent heritagelisted properties. The Radisson Plaza Hotel redevelopment project comprises a major adaptive re-use of a heritage-listed former ten-storey office building into a thirteen-storey five-star rated international-grade hotel. The construction project commenced on 26 August 1998 and was completed by 30 June 2000. In an historical and architectural context the subject building enjoys wide recognition, being known under its former name of Wales House (Figure 10). The building was erected in 1928 and was originally built as the headquarters for the major publishing house of John Fairfax and Sons. Until 1955 it served as offices for the Sydney Morning Herald before being sold to the then Bank of New South Wales. The property was acquired for redevelopment purposes by the current owners in September 1997. Figure 10: Archival print of Wales House. 85
The property enjoys a commanding streetscape presence within the heart of the prime `downtown' financial precinct of the Sydney Central Business District. Its original 1928 shape, architectural style and overall positioning were dictated by the property's triangular site plottage and its very prominent corner location at the intersection of three of the busiest streets within the CBD. The building very much dominates the immediate streetscape along Pitt Street and enjoys a good line of sight from nearby George Street where that busy thoroughfare intersects with Hunter Street, in the vicinity of Wynyard Railway Station. One of the most prominent architectural features of the building is its fine sandstone facades, which extend on all three street elevations. Moreover, the building features a 912 tonne cupola (Figure 11) which sits atop the building at the southern corner of the site where Pitt, Hunter and O'Connell Streets meet. The cupola alone commands a dominating presence, being approximately three storeys in height. Figure 11: The cupola at the southern end of Wales House. The redevelopment of the property is most notable for that element in its re-design and statutory approval scheme which called for the raising of the roof-top cupola by a height of some 4.1 metres. The cupola constitutes one of the most prominent heritage features of the property. The owner's redevelopment plans provided for the installation of three additional upper-most floors. From the developer's standpoint this floorspace addition was deemed necessary to maximise the economic potential of the property in its reconfigured development context as a five-star internationalgrade hotel. In order to retain the important heritage significance embodied in the cupola, its prominence atop the building was successfully preserved via a condition in the 86
development approval which required that it be raised above the three new floorlevels which were installed on top of the ten pre-existing storeys of the building. In its newly redeveloped configuration the hotel building now accommodates 337 standard-sized guest rooms, plus a further 26 suites each containing an extra lounge room. All hotel rooms in the project contain ceiling heights of 3.2 metres. Other facilities comprise a top-floor 'presidential' suite, a health club, a swimming pool, and a basement parking area accommodating 41 valet spaces. The ground floor contains a Bistro and dining / restaurant areas. According to information supplied by the owner's representative, Mr Frederick Goh (personal communications, 23/10/00) the property was purchased by its current owners, Wales House Nominees Pty Ltd, in September 1997 at a price of $56 million, on behalf of interests associated with Galileo Hotel Development Fund from the USA and T.A. Properties Sdn Bhd of Malaysia. The redevelopment project was completed in June 2000, whereupon the commercial hotel operations within the property then commenced. At a Total Project Cost of approximately $147 million (including the initial purchase of the real estate), the Wales House redevelopment constitutes one of the more major recent capital works programs in respect to one of the Sydney CBD's more prominent heritage-listed commercial assets. 2. Heritage Status The subject property is listed on Sydney City Council's Heritage Register under Inventory Number 2017 within the Central Sydney Heritage Local Environmental Plan 2000, Schedule 1. The property is also listed on the State Heritage Register as Item No. 586 under the provisions of the New South Wales Heritage Act 1977. Additionally, the property enjoys a listing on the Register of the National Estate (AHC) and also the Register of the National Trust of Australia (NSW). The relevant Sydney City Council Heritage Inventory document records that the property possesses heritage significance on a number of criteria. The property possesses an important visual relationship with other historic buildings in Hunter Street. In respect to its Inter-War Free Classical architectural style the property is additionally regarded as constituting a good example of a 1920's commercial building. Integral to the property's heritage significance are several features of the building, both external and internal, the preservation of which were required in the subject 87
redevelopment approval which was granted on 23 June 1997. Specifically, the development consent stipulated the preservation and restoration of the following features in the building : · the external granite and trachyte building base, sandstone building facades, and original steel-framed windows, all of which extend along the three streetscape elevations, containing strong simplified classical detailing. · the semi-circular entry porch, containing bronze doors, at the ground floor level on the intersection of Pitt, Hunter and O'Connell Streets. · a Pitt Street shopfront, dating from 1937, which was formerly known as the 'Mary Fairfax Gallery'. · the retention of the roof-top cupola in the reconfigured hotel development. · internally to the building, the surviving original interior decoration within the first floor former Fairfax Boardroom and Directors' Rooms (known colloquially as `the Oval Office'), plus the Manager's Suite. Notable finishes comprise a marble lined vestibule and other ornate marble, granite and timberwork inclusions. Apart from these notable requirements, however, the development consent provided for the complete stripping back of the building internally. The interiors on all floor levels, with the exception of the abovementioned ground and first floor heritage areas, were demolished back to a structural building-shell basis. The building was subsequently completely re-modelled and refurbished to accommodate the current five-star international hotel adaptive re-use. The ability to internally remodel the building so comprehensively can be seen as a major commercial advantage for the developer, since it permitted the achievement of a virtually `as-new' building in terms of interior design, fitouts and building services. The new hotel use, on an economic and financial feasibility basis, can be seen to have benefited greatly by this opportunity. 3. Owner's Development Objectives The following information was obtained from an on-site interview with Mr Frederick Goh, conducted on 23 October 2000. Mr Goh is the Australian representative for the overseas interests now in ownership of the property. 88
Mr Goh advised that in the lead-up to the initial purchase of Wales House in 1997, the primary aim of the current owners revolved around the identification and selection of a suitable site within the prime commercial precincts of the Sydney CBD, for the purposes of redeveloping an under-utilised existing property and converting the property into a major hotel use. A prime commercial location, according to Mr Goh, constituted the current owners' over-riding selection criterion. These criteria were determined as a result of detailed market research which indicated favourable prospects for the five-star hotel market within the Sydney CBD over the medium and longer term. Mr Goh stated that the current owners of this project are `in for the long haul'. In other words, the owners consciously opted for a long-term investment plan, on a develop-and-on-manage basis, as opposed to a short-term develop-and-sell option. Mr Goh advised that, from the standpoint of the developer in this case, heritagerelated matters in the redevelopment proposal comprised a strictly secondary consideration. Nevertheless, in terms of the site identification, site acquisition and development approval phases of the development process (all of which tend to occur quite early in the overall process), the heritage characteristics of the property quickly took on a major degree of importance for the developer, once this particular desired location was selected. As at early 2001 the property is now fully redeveloped and fully operational as an international-grade five-star city hotel. The property is held in a property trust portfolio operated by the present owners, who themselves comprise a major international hotels consortium with world-wide real estate interests. The nowcompleted Radisson Plaza Hotel comprises a major addition to the consortium's portfolio of properties. The current owners have designed a business plan in respect to the property's hotel operations which seeks to secure a buoyant market share and occupancy rate within the short-term future, derived predominantly from a business and corporatesector client base. 4. Approval Process Sydney Cityscope (April 2000) reveals that a series of development applications were submitted to Sydney City Council during 1997 in respect to this property, referenced by Application No's 200/97 and 1235/97. The final development approval in 1997 constituted the end-product in a protracted series of heritage studies, proposals and negotiations which first commenced back in 1990. The records of Sydney City Council (inspected on 4/01/01) disclose that heritagerelated restoration works to the property were first mooted by Westpac in 1991, 89
where an application for full faзade restoration works to the value of $4.615 Million was approved by Council. This proposal was never followed through by Westpac, however. In 1996, the Multiplex group completed some faзade repair work on behalf of the Lend Lease corporation, who in turn acted for then owner Perpetual Trustees Victoria Pty Ltd who had purchased the property in 1996. In July 1996 Lend Lease lodged an application with the NSW Heritage Council under Section 60 of the Heritage Act 1977, which proposed the addition of five extra roof-top floors to the building, featuring a glass curtain-walled design. The Heritage Council gave its approval in principle for the addition of three (not five) additional floors. However, an application for this proposal was never lodged with Sydney City Council. For the purposes of this Report we were supplied with information, courtesy of the NSW Heritage Office, which reveals that the ultimate 1997 statutory heritage and redevelopment approval approach was driven according to building conservation guidelines first prepared in 1990 by architects Jackson Teece Chesterman Willis (the relevant document is titled `Conservation Plan : 66 Pitt Street Sydney', but has not been sighted by this writer). A Heritage Impact Assessment prepared by Mr Howard Tanner in July 1996 for Lend Lease also influenced the final 1997 development approval outcomes. The ultimately successful development application was lodged on 9 April 1997 by previous ownership interests, prior to the entry of the current owner. Mr Michael Leyne of Walter Construction Group (personal communications, 13/10/00) advised that development consent for the current Radisson Plaza Hotel redevelopment project was granted on 23 June 1997. Upon the acquisition of the property by the current owner in late 1997, negotiations were commenced for a master builder for the project by way of a tender process. Mr Leyne advises that Multiplex was originally successful in winning 'Preferred Builder Status', however the owners subsequently invited the Walter Construction Group to enter into negotiations for a building contract in late 1997. The building contract was eventually negotiated between master builders Walter Construction Group and the property owner on a 'design-and-construct' basis, and was signed on 26 August 1998, whereupon the construction phase of the redevelopment project commenced. Council records disclose that in its original ten storey floorspace configuration, Wales House contained some 18,008 square metres of Gross Building Area (GBA), on a site having an area of some 1,725 square metres. This equated to a preexisting Floor Space Ratio (FSR) prior to redevelopment of 10.44:1. The June 1997 development consent permitted the addition of three extra roof-top floors which increased the new GBA to 20,547 square metres - equating to an FSR of 11.91:1. Thus, it can be seen that the financial feasibility of the hotel 90
redevelopment scheme (in terms of total number of hotel rooms) was underpinned, to a very significant degree, by the approval to increase the floorspace over three new levels by some 14%. The new uppermost roof-top floor levels are set back (recessed) from the original building alignment so as to minimise the visual impact of the additions at street level. Council's consent document states that the 11.91:1 FSR was considered having regard to the Hotels Policy under the provisions of the City of Sydney LEP 1996, and also the public benefit gained in having accommodation of this nature (fivestar international hotel) available in time for the September 2000 Sydney Olympic Games. Under Clause 38 of the LEP (Olympic Incentive For Hotels) the maximum permitted FSR for this site would have been 14:1, or a GBA of some 21,562.5 square metres. In its final approved configuration, this redevelopment scheme thus enjoys the benefit of a cost-free FSR bonus of some 14% (compared to the preexisting FSR of 10.44:1 in Wales House prior to redevelopment). As a condition of consent, a deed of agreement was signed between the developer and Council, specifying that if construction was not completed on or before 30 June 2000, the developer would have been required to purchase Heritage Floor Space equating to the difference between an FSR of 11.91:1 and 10:1 (the latter figure being the standard FSR under Council's code). Council's consent document also makes mention of an award of Heritage Floor Space of some 6,086 square metres, however the document is confusing and unclear as to whether this was additional to the Olympic Incentive For Hotels, or whether it was an original pre-Olympics incentive provision which was subsequently superceded and eclipsed by the later Olympics Hotels incentive. 5. Cost Versus Value The following information relating to Project Costs was supplied by both Mr Michael Leyne (Walter Construction Group, personal communications, 13/10/00) and Mr Frederick Goh (Wales House Nominees Pty Ltd, Australian representative for the overseas ownership interests, personal communications, 18/10/00). The Total Project Cost of the Radisson Plaza Hotel redevelopment scheme was $147 million (per Mr Goh). This sum is inclusive of initial purchase of the real estate at $56 Million in September 1997, plus design and construction, holding, interest and other ancillary charges. Of this total amount, the 'pure' Design-and-Construction Cost embodied in the building contract was a sum of $76 million (per Mr Leyne). This sum, which is termed the 'turn-key price', includes design fees but excluded builders' profit and final fitout costs. 91
Mr Leyne provided a breakup of several notable construction, restoration and refurbishment costs, as follows :
· The raising of the cupola by a height of 4.1 metres to retain its heritage significance and prominence
: $1.0 million
· The installation of concrete slab walls on each of the newly-created three uppermost floors, to support the new external sandstone facades
: $600,000
· The incorporation of a sympathetic stonework package to the external facades on the three new upper floors, to achieve compatibility with the preexisting 1928 stonework on the ten storeys below
: $2.1 million
· Additional restorative works on the pre-existing sandstone building facades on the lower ten storeys
: $300,000
· The copper and zinc roof covering for the top-floor Mansard Roof, newly created within the additions
: $500,000
· The installation of pre-cast concrete window architraves on the three new upper floors, plus final texture coating
: $455,000
· The provision of structural steelwork for the roof, and installation of roof-top plantroom
: $375,000
· Restoration works to the original steel-framed windows on the lower ten storeys
: $250,000
· Preparation of the Heritage Conservation Management Plan
: $25,000
· Ground floor restorative works - Pitt Street shopfront windows, bronze doors at Hunter Street entry, interpretative display panels and artwork, recreation of origina l decorative ceiling in Bistro
: $112,000
Total
$5,717,000
This sum of $5.717 Million represents a significant proportion of the total costs which are directly attributable to the heritage-related restoration and refurbishment works as stipulated in the June 1997 development consent. By calculation, the
92
above sum represents approximately 7.5% of the Total Project Construction Cost of $76 million, but does not include items such as heritage architect's fees and ancillary costs incurred over the life of construction period due to other, perhaps unidentified, heritage-related requirements. As a proportion of all-up Total Project Costs, the percentage of added cost directly attributable to the heritage requirements of this project is indicated at approximately 4% - a relatively minor economic impact, by any reasonable standard of measurement. In relation to an End Value of the real estate on the basis of Project Completion, Mr Goh stated that an independent valuation was commissioned for debt-finance purposes, in order to fund the redevelopment project at the outset of the development process. Mr Goh disclosed that the valuation for finance purposes was determined at a sum of $150,000,000. In accordance with development industry custom and practice, this valuation was doubtlessly commissioned at the preliminary stages of the overall development process for the Wales House project, prior to commencement of construction. Given the circumstances and underlying purpose of this valuation determination, there is every reason to assume, on the basis of orthodox industry practice, that this end-completion valuation represents a sum which may well lay at the more conservative lower echelon range in the context of a hypothetical market-value prediction. Thus, such an apparently narrow gap between Cost and Value ($147 Million versus $150 Million) constitutes a superficial indicator only, and is likely to be somewhat misleading and understated. Moreover, this hiatus makes no allowance for actual market value growth which in all likelihood would have occurred during the course of the development period between 1998 and 2000. The likelihood is thus considerable that a more realistic hypothetical Value to Cost ratio would have been somewhat in excess of this narrow margin. Thus, the available evidence, when put together, indicates that in this major heritage-related redevelopment project, an immediate initial Development Profit (albeit of some imprecise and presently indeterminable degree) did in fact present itself to the owners of the property. The available End-Value evidence, while substantially incomplete and lacking detail, nevertheless indicates an initial development profit somewhere within the low to moderate range, in relative terms. However, in this develop-and-hold investment scenario the indicated initial development profit is of little relative importance to the investor. What is far more important are the prospects for sound future investment performance of the asset in its particular hotel market class. In this regard, the outlook appears confident, if recent market research and media reports are to be believed. 93
6. Life Cycle Issues In respect to anticipated annual operating expenses and future life-cycle costing issues, Mr Goh in the main expressed no concerns on these matters. According to the current owner there is now little immediate concern in respect to annual operating costs such as maintenance and repairs, power and energy costs, and so on. This is due primarily to the fact that the building has been stripped back to its internal shell to such an extent that it constitutes the equivalent of a 'brand new' building, for all practical intents and purposes. This is particularly so in respect to the internal design and configuration, where, because of the contemporary nature of the building services, efficiencies in annual operating costs can be expected to be reaped, as they indeed would in any other 'brand new' building of similar size, use and design. It has already been noted that the majority of heritage-retention requirements applying to this property are in respect to external features, not internal ones. Even in this context, there appears to be little economic impact regarding future lifecycle costing issues. For example, the pre-existing stone facades on the lower ten floors of the building were extensively ground back, exfoliated, indented (in laypersons' terms, this refers to the equivalent of 'patching' the sandstone blocks) and cleaned by high-pressure water, as part of the restoration and refurbishment works. Thus, the external stonework facades of the building might now be expected to incur only very moderate maintenance and repair expenses for many years to come. Mr Michael Leyne (Walter Constructions, personal communications, 13/10/00, op cit) has advised that, while certain structural defects were identified in the redevelopment process, these defects were rectified as an inherent part of the reconstruction scheme. Having now been rectified, there is very little cause for concern in a structural defect context on a future life-cycle costing basis. For example, Mr Leyne referred to structural defects in the vertical columns within the building, which during reconstruction were identified as having deteriorated to such an extent that they could not support the load imposed from above by the addition of the three new upper-most floors. All such columns in the building required strengthening via the application of bolted steel joists, top and bottom. With the rectification of such defects now completed, there is little cause to expect significant structural problems to emerge, or re-emerge, in the short to medium term future life of the property as a commercial investment asset. In respect to annual operating costs, Mr Goh stated that a Heritage Land Value for Land Tax assessment purposes does exist in respect to the property. However, 94
given the generous post-project actual FSR in the redevelopment scheme, a discount in the Heritage Land Value of any significant magnitude, compared to the `open market' Land Value determination, would appear to be unlikely. Mr Goh did refer, vaguely, to a recent successful appeal against and reduction in the current Land Tax assessment (to the order of approximately 5%), but the direct impact of lower Land Tax exposure through a lower Heritage Land Value would appear to be de-emphasised in this particular case. 7. Conclusions In a heritage conservation context, this major adaptive re-use scheme can be seen as a notable success. The external heritage significance characteristics contained in the facades of the building have been well restored and preserved. Moreover, the heritage integrity and prominence of the roof-top cupola has been outstandingly well preserved by virtue of the provision in the development consent which required its raising to a height of some 4.1 metres, above the new upper storey three-floor additions. Similarly, the internal heritage-significant items in the building have been preserved in accordance with the subject inventory listing via the statutory approval for the adaptive re-use scheme. In heritage terms, the addition of three upper floor levels in the redevelopment project has done nothing whatsoever to detract from the building's appearance. Indeed, the stonework facades incorporated into the three new upper floors blend so well with the pre-existing stonework below, that to the unpracticed eye it is difficult to even discern that an addition has taken place at all. Furthermore, the visual impact of the upper floor additions, when seen from the street, is markedly reduced by virtue of the recessed rooftop design. Mr Michael Leyne (Walter Construction Group, personal communications 13/10/00, op cit) commented on the painstaking attention to detail and skill in workmanship which went into the construction of the upper floor additions. The additions were consciously designed with the objective of achieving a close harmony and sympathy with the pre-existing heritage-significant facades below. According to Mr Leyne `the proportions of the building now look right'. Even a casual kerbside physical inspection of the completed project lends credence to Mr Leyne's comment. The sympathetic nature of the completed upper floor additions can be further appreciated when they are compared to the original Lend Lease proposals, which entailed a glass curtain-wall design - this contrast was also emphasised by Mr Leyne. 95
Furthermore, when compared to other, higher-impact recent roof-top additions involving heritage redevelopment schemes elsewhere in the Sydney CBD, the subject design outcome is particularly pleasing. For example, a direct comparison of the Radisson Plaza Hotel rooftop additions with those contained in the Parcels Post Office project (where the two-storey mansard roof additions are seen by some as markedly unsympathetic to the rest of the building - refer to our analysis under Case Study No. 4 in our series) reveals the inherent superiority of the Radisson Hotel's design scheme, from the pure heritage conservation standpoint. Thus, it can be seen that the fundamental nature of the adaptive re-use scheme and the conversion from an office use to a prime hotel use, has been eminently successful in this case. Turning to the economic and financial perspective, the project outcomes appear to have been similarly successful for the current owner. The initial financial feasibility of the scheme was underpinned by two key considerations : · the FSR bonus award (11.91:1 compared to 10.44:1 prior to redevelopment), conferred under Council's Hotels Olympics incentive scheme, enabling a greater, more economically viable magnitude of hotel development to be achieved. · the ability in this case to strip the building back to virtually its bare structural shell internally, thus permitting the equivalent, for all intents and purposes, of an `as-new' building in terms of internal design and building services. Mr Frederick Goh (personal communications, 18/10/00, op cit) revealed that the owner committed to the project based first and foremost on long-term commercial investment motivations, underscored by a detailed preliminary market research and analysis process. The securing of a prime commercial location was the chief objective of the developer in this case. While the heritage aspects of the property were a secondary consideration from this developer's perspective, the adaptive re-use scheme has seen the heritage significance items retained to the extent where they now feature prominently in the finished redevelopment product. In terms of investment performance as a five-star hotel, Mr Goh expressed very confident expectations for the property's future trading and business turnover. One does not commit, after all, to a redevelopment scheme of this considerable magnitude of capital outlay ($147 Million) without a thorough market and risk analysis beforehand. 96
Mr Goh's expectations in this regard are supported by a series of market RESEARCH REPORTS and media articles which were published in late 2000 and early 2001 (eg Cummins, Sydney Morning Herald, 4/11/00, 11/11/00, and 27/01/01, and Glendinning, SMH, 2/12/00). All of these reports suggest a favourable outlook over the next half-decade for the hotel and hospitality industries as a result of business investment, business conference and tourist growth in the wake of the September 2000 Sydney Olympic Games. In respect to the superiority of Added Project Value over Added Project Cost, it can be seen that the positive economic impact of the 14% cost-free FSR bonus (expressed in capital value terms as a pro-rata percentage of the stated End Completion Valuation of $150 Million) exceeds the extra heritage-related design and construction costs (estimated at or about only 4% of total project costs of $147 Million) by a considerable margin. In conclusion, it is apparent that all interested parties and stakeholders, from all sides and from all directions in this heritage redevelopment case study, have emerged as winners. All stakeholders and participants in this adaptive re-use scheme can take considerable pride in both the heritage conservation and the economic outcomes obtained. 97
CASE No. 6 315 High Street, Maitland 1. Introduction The City of Maitland comprises a major commercial centre situated within the well-known Hunter Valley Region of New South Wales. The Hunter Valley is located approximately 170 kilometres north of Sydney on the State's eastern seaboard. Maitland township is located on the banks of the Hunter River, approximately 35 kilometres to the north-west of the regional capital city of Newcastle. In a commercial sense Maitland functions as the premier service centre for the middle and upper reaches of the Hunter Valley. Maitland supports a diversity of economic activities including agriculture, tourism, mining, and local manufacturing, transport and construction industries. The city and its surrounding precincts in the Hunter Valley enjoy a widely recognised reputation as a region of great heritage significance. Maitland is marketed by local tourist authorities as `our spectacular Heritage City in the heart of the Hunter Valley' (per Maitland Visitors Guide, Tourist Information Centre). The present city began life as 3 separate settlements, from 1835 onwards - West Maitland and Morpeth (developed as private townships), and East Maitland (developed as a government town). In 1945 the 3 towns were amalgamated into the present City of Maitland. Until well into the late 1800's Maitland comprised the predominant commercial and economic hub of the Hunter Valley, outstripping the penal settlement of Newcastle. The subject heritage property (Figure 12) comprises a fine, large freestanding three storey sandstone building, custom-built in 1888 as a major rural banking chambers for the regional operations of the commercial banking Company Ltd (CBC Bank). The property is located on the main commercial thoroughfare of Maitland township approximately 600 metres to the south-east of the central commercial precinct in High Street. The central commercial precinct is configured as a prominent pedestrian mall, and is known as Heritage Mall. The whole of the immediate commercial Town Centre in Maitland features many fine old buildings which date from the late 1800's and early 1900's which are today protected under statutory heritage listings. 98
Figure 12: 315 High Street, Maitland ­ `Mansfield'. In a heritage context the subject property very much enjoys a local landmark status in respect to its physical prominence on the streetscape and also in respect to its major heritage contribution to Maitland City. The property is situated in an area administered by Maitland City Council and lies within a precinct zoned 3b Support Business. The objectives of this zoning are to provide low intensity commercial activities which do not prejudice the commercial viability of the core retail areas of the city. Additionally, the zoning aims to preserve the historic character of the city by protecting heritage items and by encouraging compatible development both within and adjoining historic buildings and precincts. During the period 1888 to 1990 the subject property was used exclusively as a banking chambers by CBC Bank and later National Australia Bank Ltd (NAB). The chief heritage significance of the property is centred around its striking external architectural characteristics and the magnificently well-preserved internal banking chambers on the ground floor. The property changed hands into local private ownership in 1990, and for some 8 years the ground floor of the subject building remained vacant and boarded up. Only parts of the upper floors were leased out, intermittently, as office space during this period. This non-use of the major heritage-significant ground floor area (the reasons for which remain unclear) had the fortuitous side benefit of serving to protect and preserve the fine internal architectural characteristics of the original banking chambers (referred to by some as the 'mothball' syndrome). On 24 December 1998 the property changed hands once more, and was purchased by a local small-business family at a price of $350,000. 99
Upon contract settlement on 12 February 1999 the new owners, husband-and-wife business team John and Barbara Murphy, immediately set about implementing their plans for a retention and restoration of the most prominent heritage features of the building. Simultaneously, they sought to adapt the premises for sympathetic re-use as a function / conference centre on the ground floor, with a four-bedroomed Bed and Breakfast use on the uppermost 3rd floor. The new owners have plans to live in the premises, adapting the 2nd storey floor level for use as a four bedroomed family residence. The present owners have already demonstrated their stated love and affection for the subject property by the manner in which the works of restoration and adaptive re-use have been carried out so far. As at late 2000 the ground floor commercial adaptive re-use has been operational for some time already. The upper floors are still only partially restored and refurbished as at October 2000, however full completion of capital works is expected by the early part of 2001. In summary, the subject property has undergone significant redevelopment and has been subject to a substantial and very successful commercially-oriented adaptive reuse since its purchase by the current owners in late 1998. The current owners have, in a very real way, imparted a completely new lease of life and a rejuvenation to this important heritage asset, which for some considerable period beforehand had laid dormant and predominantly disused. 2. Heritage Status The subject property is a Heritage Item of State Significance, listed in the 1993 Maitland City Council Local Environmental Plan (gazetted 3/9/93), being registered as item number 155 in a heritage inventory containing some 290 properties. The relevant inventory document (Buildings and Other Works / Relics, Maitland Heritage Study 1993) discloses that the property is also listed on the NSW Register of the National Trust of Australia. Heritage significance is afforded under the State Heritage Inventory Program (S.H.I.P.) Themes of `Township, Commerce', as well as Local Themes of `Urban Growth, Regional Centre'. The property possesses heritage significance registered under the Historic and Aesthetic categories in the LEP inventory document, with evaluation criteria in a Contextual Values sense being registered under the Rare, Representative Value, Exceptional Example, Group Value, Integrity, Landmark Value, and Townscape categories. The subject Statement of Significance records that, aesthetically, the property comprises an exceptional example of the Victorian classical architectural style in a commercial building, with a high architectural standard and an important townscape element. In an historical significance context the property is recorded as 100
representing Maitland's former role as the premier city in the Hunter Valley, and one of the main cities in the colony up to the middle of the Victorian period. In heritage significance terms the property possesses notable features, both externally and internally, which are to be preserved within the current redevelopment scheme. Externally, the extensive sandstone facades of the building are to be preserved and restored. Internally, the chief heritage significance is embodied in the entire ground floor of the premises, which formerly comprised a banking chambers. It is here, internally, where the most significant heritage preservation requirements lay. The ground floor ex-bank chambers comprise a magnificently well-preserved example of the Victorian Classical architectural style dating from the late 18th Century. The main ground floor area includes a strikingly high ceiling height of some seven metres (22 feet), providing an old-world `cavernous', `main hall' ambience to the premises. Additional features comprise terrazo checker-tile flooring, ornate cedar polished doors and windows, two large doric marble columns, two large granite fireplaces, original embossed plaster ceilings, and a magnificent wide cedar staircase leading to the upper floors. An original ex-bank-director's boardroom, adjacent to the former central banking chambers, is also featured within the ground floor area. This room contains similarly appointed ornate fixtures and finishes of the late 18th Century period, and has been outstandingly adapted for use a function-centre dining room. Like many well-preserved old buildings, it is the ornate nature of the internal characteristics of the property which impart the greatest heritage significance of all. The entire ground floor of the subject property generates a `feel' and ambience which is genuinely `old-world' in its appeal. The premises are ideally suited for their hospitality-related adaptive re-use. The building contains a great deal of cedar in its construction, which was obtained from the nearby Paterson township at the time of erection in 1888. This not only adds considerably to the ambience and quality of the internal ground floor finishes of the premises, it also imparts an element of additional local historical significance to the property. 3. Owners' Development Objectives The following information was obtained from an on-site interview with the current owners, conducted 2/8/00, plus additional follow up personal communications on 10/9/00, 20/10/00 and 30/10/00. Additionally, copies of Council Minutes and 101
Development Approval documents were supplied by Ms Claire James, Council's Heritage Officer, at an interview also conducted 2/8/00. The current owners comprise a husband-and-wife small-business team with a history of commercial involvement in the regional and local hospitality industry. They were already familiar with the subject property well before purchasing it in December 1998. They possessed a long-standing affectionate interest in the heritage significance of Maitland in general, and had been attracted to the heritage character of the subject property for some time prior to purchase. Subsequent to the December 1998 purchase of the property, the new owners' plans involved reactivating the historically-significant but dormant ground floor of the building and giving it a new life, via an adaptive re-use as a function / reception / conference / catering facility. Additional objectives comprised the conversion of the old office use on the upper floors into an owner-occupied four-bedroomed residence (first floor) and a commercially-oriented four-bedroom Bed and Breakfast Accommodation facility (second floor). After settlement of the purchase in February 1999 the owners prepared a Heritage Conservation Management Plan in respect to the property, which then formed the basis of a combined development and construction certificate application lodged at Council on 6 July 1999. The final stages of complete redevelopment approval for the subject property are now in the last stages of consideration by Maitland City Council, whereby full development approval and issue of the relevant Construction Certificate are expected before the end of 2000. The current owners have advised that they regard the subject property as a significant heritage item worthy of their considerable preservation efforts. At the same time, they have identified sound commercial opportunities to incorporate their Family Business into the subject real estate, and also to live within the building on the entire first floor, adapting it as their family abode. Already, the ground floor adaptive re-use for the purposes of a function centre / reception / conference / catering facility has been operational for some time, since the start of 2000. The current owners report that business activity and turnover is proceeding at a pace which is outstandingly successful. The owners also advise that they regard the property as a long-term owneroccupied combined business and residential holding. They have stated that they have no plans for sale of the property in the forseeable future. 4. Approval Process Reference to Maitland Council Minutes (ordinary council meeting 27/6/00) in respect to the said development and construction certificate application, discloses 102
that Council vigorously supported the significant merits of the owners' redevelopment proposals in environmental planning and heritage conservation terms. However, various non-compliance matters were identified in respect to the deemedto-comply provisions of the Building Code of Australia. In particular, considerable concerns existed in respect to BCA fire safety requirements, relating to the use of the second floor of the building as a Bed-and-Breakfast Accommodation facility. These non-compliance matters had not been resolved as at the date of Council's Meeting of 27/6/2000, despite `numerous Council approaches and discussions with the owner', as stated in Council's documents. The owners, however, hold the view that `misunderstandings and misconceptions' have existed on the part of Council as well. These issues, together with some associated procedural problems caused by the owners' decision to submit a joint development and construction-certificate application - as opposed to entirely separate development and construction certificate applications - constituted the chief reasons for the protracted 12 month delays in statutory approval for the redevelopment project. Nevertheless, Council resolved at its 27/6/00 Meeting to approve the development application, notification of which flowed through officially on 13/7/00. Due to outstanding issues associated with BCA fire safety requirements in respect to the second-floor Bed and Breakfast use, the construction certificate application was refused. In practical terms, the ground floor adaptive re-use as a commercial function / reception / conference / catering facility had, with the consent of Council, been in operation for some time during the course of Council's D/A considerations. The ground floor adaptive re-use was formally approved in July 2000, along with the first floor owner-occupied residential use. The use of the second floor as a Bed and Breakfast facility was refused, pending satisfactory completion of fire safety requirements. As at late 2000, the fire safety issues have been largely resolved to the satisfaction of Council, and the owners have advised that a new construction certificate application will be submitted in the near future. The owners, in the interim period since July 2000, have developed additional proposals to re-create a separate outbuilding at the rear of the property, which has historical significance as the site of a former stables and loft, in connection with the original use of the property as banking chambers. The owners advise that they have obtained plans of the long-since-demolished rear stables / loft building from the original bank owners. This former rear-yard stables area will also be redeveloped. The proposal involves the demolition of a small 103
existing garage, and the erection of a replacement small two-storey building, comprising a ground floor garage, plus a first floor one bedroom Bed and Breakfast adaptively re-used premises, utilising an architectural and building style which re-creates the historic ambience of the former stables and loft facility. These proposals will be incorporated into the upcoming amended construction certificate application. While significant restoration and renovative works have already been completed, it is anticipated that full completion of the redevelopment program will be finalised early in 2001. The building possesses both external and internal features which are of deemed heritage significance, the preservation and restoration of which have all been embodied in the 13/7/00 development approval. These features have already been described under Heading No. 3, 'Heritage Status', within this report. There were no heritage incentives involved in this redevelopment proposal apart from the generous and commercially well-suited adaptive re-use provisions which were approved by the relevant statutory authorities. 5. Cost Versus Value A considerable capital outlay has already been injected into the redevelopment scheme for this property. The current owner, Mr John Murphy, advises that as at late 2000, a capital sum of approximately $280,000 - additional to the initial December 1998 purchase price of the real estate - has been outlaid on the refurbishment and restoration of the building. Mr Murphy further advises that an estimated sum of approximately $200,000 remains to be spent in refurbishment and restoration works. According to the information supplied by Mr Murphy, these sums also include expenditure for personal chattels, to the order of approximately $150,000. These chattels comprise extensive antique furnishings and furniture which have been incorporated into various rooms (at an average of $15,000 per room) in the building. As such, they are not regarded as part of the real estate in this redevelopment scheme. Thus, when all of these capital outlays are combined, a total project redevelopment cost of approximately $680,000 (inclusive of initial real estate purchase but exclusive of outlays on personal chattels) is indicated. Only a relatively small proportion of this refurbishment cost of the real estate, to the order of approximately 14% to perhaps 17% of Total Project Cost, is directly 104
attributable to the heritage requirements embodied in the July 2000 development approval, according to the comments and costing information supplied by the current owner of the property, Mr Murphy. It is clear that the overwhelming majority of the project's capital outlay is actually unconnected with the property's heritage listing. Due to the age of the building, combined with an eight-year prior history of predominant disuse, physical obsolescence and deterioration, the available evidence (including our physical inspection of the property on 2nd August 2000) suggests that the majority of the Project Redevelopment Costs would have had to be borne in any case, regardless of whether the property was heritage listed or not. The subject building has already been extensively re-modelled and re-designed on the upper floors, in accordance with the upper-floor use proposals which are largely non-heritage related. Moreover, the plumbing and electrical wiring has been completely replaced throughout the entire building. A large former ground-floor rear lunch-room has been adaptively reconfigured as a commercial kitchen to service the catering facilities inherent in the family's business-use of the premises. Mr Murphy has provided a series of individual costing breakdowns (both partially already spent and yet to be spent), as follows :
* Total Painting Costs
:
* External Sandstone Faзade restoration work :
* Re-creation / rebuilding of rear stables & loft :
* Architect's Fees
:
* Fire Prevention & Safety Upgrades (BCA) :
* Preparation of Conservation Management Plan :
Total
$80,000 $50,000 $74,000 $10,000 $10,000 $4,000 $228,000
In terms of financial viability, the initial hypothetical Value-On-Completion of the property after completion of all works of redevelopment would appear, in our opinion, to exceed the Total Project Cost of $680,000 by a sizeable sum. This conclusion is based upon an analysis of the local current market sales evidence which is available and at our disposal, as at late 2000. The estimated level of hypothetical initial development profit (measured against Project Costs) would appear to be somewhere within the range of 12% to 18%. Such financial feasibility calculations and estimates are strictly hypothetical in nature. They are of only relatively low importance however, since it is the stated aim of the owners to retain the property for at least the medium-term future. There is clearly no intention to sell the property immediately upon completion of the redevelopment scheme.
105
Hence, hypothetical initial estimates of development feasibility are relatively unimportant. What is more important is the likely future financial performance of the property over the medium term. In this respect, the current owners have expressed great confidence in the ability of the property to perform well in the future, in a business and commercial investment sense. Certainly, the property's financial performance throughout 2000, as some sort of indicator, augurs well for the future. 6. Life Cycle Issues In respect to anticipated annual operating expenses and future life-cycle costing issues, Mr Murphy expressed no concerns on these matters. According to the current owner, there is little or no Land Tax liability in respect to the property at the present time (Mr Murphy is presently unaware whether or not the property even attracts a current Land Tax liability). While he stated that local Council Rates had recently increased to the order of 50%, Mr Murphy appeared unperturbed by this prospect, since this involves a special one-out council levy, the revenues for which will be spent on local community infrastructure. Similarly, Mr Murphy stated that, to his knowledge, there are no rating and taxing concessions which currently apply to the subject property. In respect to ongoing maintenance and repair costs, power and energy costs and so on, the owner expressed no concerns. Mr Murphy estimates that such cost exposures will be well within comfortable parameters in the immediate future largely because the current capital works of refurbishment, restoration and modernisation have been so extensive and comprehensive. Council's local Heritage Officer, Ms Claire James (personal communication 2/8/00) advised that no Heritage Floor Space incentive mechanism currently operates within the local government area administered by Maitland City Council. While Mr Murphy advised that he has applied for financial assistance in respect to the expense of preparing the subject Heritage Conservation Management Plan (at a cost of $4,000), thusfar the application has not been successful. In overview, the generous, commercially-oriented adaptive re-use provisions which have already been approved by the relevant statutory authorities, constitute the greatest and most significant heritage incentive which has been conferred on the subject property, economically speaking. In a business context, the property's greatest contributor to income generation both on a present-day and future basis - comprises its ground floor commercial 106
adaptive re-use for the purposes of a function centre / reception / conference / catering facility. The current owner has advised that the relevant business turnover has been very successful, ever since the commencement of the ground-floor commercial operations in early 2000. In a wedding-reception / function-centre context, bookings are currently filled until the end of 2000 in respect to peak times of Friday and Saturday nights. In respect to other mid-week meetings and their associated catering functions, a variety of local community groups (including local council, government departments and professional business organisations) utilise the facilities offered by the property, according to the advice received from the owner. 7. Conclusions It is clear that this rural / regional-based heritage listed property has benefited considerably from its recent redevelopment and adaptive re-use since the current owners purchased the property in late 1998. Additionally, it can be said that the property has also benefited from its purchase by the particular current owners, and their clearly positive, emphatic, affectionate pre-disposition towards the restoration and preservation of the heritage characteristics of the building. By his own volition the current owner, Mr John Murphy, has stated that the property `deserves a bit of respect' in the context of its heritage significance and the worth in which it is viewed within the immediate community at Maitland. The available evidence suggests that the property enjoys a high level of recognition and affection within the local community. Moreover, Mr Murphy is very aware of the concept of blending a sympathetic adaptive re-use with the desirability of restoring the property in accordance with its statutory-listed heritage-value criteria. The affection and affinity which Mr and Mrs Murphy hold towards the subject property has clearly emerged in the personal contact we have conducted with them for the purposes of this report. The property enjoys not only considerable local heritage significance, but State-level significance as well. Compared to the history of the property from 1990 to 1998, during which period the building was largely disused and dormant, the current redevelopment scheme has injected a rejuvenation of usage and has imparted a new lease of life to its physical condition. The importance and success of the property's recent post-1998 redevelopment, its adaptive re-use scheme, and its resultant favourable economic outcomes, should not be underestimated. 107
The current owners, comprising a locally-prominent husband-and-wife business team, are eminently satisfied with the current economic performance being generated from the hospitality-oriented business embodied within the adaptive re-use of the property. This case study constitutes the only regional / rural example in our current series. Herein lies the chief importance of this particular case study. By its very nature as a rural / regional example, it contains key underlying and background characteristics which are entirely different from the all of our other case studies in this series. With the exception of this Maitland Case Study, each of our remaining examples are located in strong commercial and geographical locations in the Sydney Metropolitan Area. The slow but inexorably progressive economic and social decline which has been experienced by many rural and regional urban environments around Australia has been well-documented elsewhere, and requires only limited further elaboration in this report. This decline has had significant ramifications for the preservation of historic built environments in rural and regional Australia. For example, journalist Lyndell Crisp, in a notable recently published work (a feature double-page media article, entitled `Push For The Bush', Sun-Herald, 30/8/98) cites Mr Peter King, head of the Australian Heritage Commission, who states : The problem is it [the decline in rural urban environments] happened so gradually. ...... The population in rural Australia declined, incomes in the bush fell. ...... It crept up on people and led to inexpressable sadness among a lot of us who care about our rural culture. When you travel around this country you realise how diverse is its natural and cultural environment, and how important for our development and sense of community is our heritage. The article's author, Crisp, then paraphrases Mr King : King's answer, or one of them, is to preserve these buildings; not as museums but as living spaces where the public can enjoy easy access. Convert banks into restaurants, railway stations into shops, old homes into bed and breakfasts. Mr King goes on to state : I am not talking about locking up our heritage but about realising its potential for continued use and to reinvigorate local economies through the substantial expansion of heritage-based tourism. 108
According to a recent Queensland study, every dollar spent on heritage preservation has a treble result in terms of input to the local economy, through increased employment and greater economic activity. In conclusion, it can be said that the positive outcomes arising out of this Maitland adaptive re-use scheme are very much in keeping with the comments and sentiments expressed by Mr King. 109
CASE No. 7 Moran House - Formerly Known As Liner House 13-15 Bridge Street, Sydney 1. Introduction The subject heritage property comprises a six storey commercial office building, built in 1961, and used by its current owner as the corporate headquarters for its business operations. Whilst now known as Moran House, named after its current owner the Moran Health Care Group Pty Limited - who purchased the building for $6.5 Million in December 1996 - the building enjoys wide recognition under its former title of Liner House. The property was purpose-built in 1961 as a commercial office building intended for owner-occupation, and appears not to have been subjected to any redevelopment nor adaptive re-use proposals throughout its recent history. Prior to its current ownership by the Moran Health Care Group the building was used by its former owner Clute Holdings Pty Limited, up to 1996, predominantly for owneroccupation, with only the second floor being separately leased out (per information supplied courtesy of Mr Peter Inglis, Associate Director, Knight Frank Valuations Group). In the context of this case study the subject property is therefore examined in its current configuration as a standing smaller-sized commercial office building which has been used for the purposes of owner-occupation - as opposed to a mainstream tenancy and investment / cashflow related use - since 1997. The property (Figure 13) is situated in a very strong location within the prime northern sector of the Sydney Central Business District, in the heart of the 'downtown' financial precinct in Bridge Street, within the block bounded by George and Pitt Streets. Bridge Street lies only a short distance south of Circular Quay and Sydney Harbour. 110
Figure 13: Liner House ­ now Moran House. The immediate surrounding development in Bridge Street consists of a series of fine, older-style low to medium rise office buildings, some of which date from the early 20th Century, and which are constructed of original stone and brick work. The subject property is, for example, located between the former Burns Philp building (No. 5 Bridge Street, built in 1901 and restored progressively under heritage conservation provisions since 1996) and Singapore Airlines House (No. 17 Bridge Street, built in 1926 and also heritage listed). On the opposite side of Bridge Street a series of more modern but nevertheless sympathetically developed buildings have been erected in recent times. The olderstyle ambience in this section of Bridge Street has been successfully retained, in keeping with its inherent and fundamental heritage-related streetscape character. Examples comprise Exchange House at No. 8 Bridge Street and Exchange Square at No. 16 Bridge Street. In a direct heritage and historical context, the subject property enjoys significance as one of the first commercial office buildings erected in the Sydney CBD during the so-called 'modern' era, which extends from the late 1950's onwards. This is in contrast to the vast majority of other heritage-listed buildings situated in the Sydney CBD, most of which date from the mid to late 19th century or the earlier parts of the 20th century. The building holds heritage significance as a rare early example of the Post War International style of concrete-framed, glass curtain-walled office building. The subject property was awarded the prestigious Sulman Medal of 1961 by the Royal Australian Institute of Architects (NSW) in recognition of its architectural merit. 111
An extract from a commentary on the original 1961 Sulman Medal award (Metcalf, 1997) provides the following explanation of the building's significance in architectural and historical terms : Liner House is Sydney's radiant example of a 20th century office building depicted in its childhood ; it belongs to that generation of commercial buildings ...... whose appearance came before the ...... 'glass box'. This gem in Bridge Street is also the best work of [architect] Charles Madden. Altogether this space must be one of the premier 1950s commercial office building spaces in Sydney, such is the refinement of its design and the excellence of its detailing and construction. Metcalf includes a direct extract from the 1961 Sulman Medal Jury Panel's commentary in respect to Liner House, which constitutes the Jury's rationale for the award of the prize : We [the Jury] felt anonymous appreciation of what we considered the consistent honesty of the design and good taste of this building and very good manners to its neighbours, indicating a strong civic consciousness with its neighbours. Liner House also possesses historic significance as a major post-war contribution to the long established Bridge Street shipping administration precinct. In general the building retains its original design appearance and original fabric, both externally and internally. However, in pure contemporary property market terms, from the standpoint of commercial desirability, performance and its appeal in an economic context, the property possesses a somewhat dated appearance and functional utility in the eyes of many. In an overall Sydney CBD context, by any reasonable measure of relativity, the building can be reliably described as a modest commercial building, offering an economic and functional appeal more towards the lower end of the market spectrum. Information supplied by Mr Peter Inglis of Knight Frank Valuations (November 2000, op cit) discloses that during the mid 1990's, prior to the purchase by the current owners, the building was assessed for formal mortgage valuation purposes as a `C'- Class rated commercial asset under the well-known and widely-adopted commercial performance and functional grading system for office buildings, prepared by the Property Council of Australia. 112
Following the purchase of the property by the Moran Health Care Group in December 1996, the property was moderately renovated to meet the current owner's occupational needs. In its current state, and in light of the relatively moderate renovations carried out, the building can be said to currently attract a slightly higher grading assessment as a borderline 'B / C' commercial office building. This assessment also corresponds with the owner's own such current grading assessment (per John Gillett, Property Co-Ordinator, Moran Health Care Group, personal communication, 20 September 2000). In the context of our series of representative cross-sectional case studies, prepared exclusively for this consultancy project, it is to be noted that Liner House constitutes the only example within our eight-case series of a modern era office building, which was specifically designed, and continues to be used, as a mainstream commercial office building intended for owner-occupation. In its context as a functioning office building, therefore, the property in its entirety constitutes a most interesting case study from the standpoint of the juxtaposition between its heritage significance and its functional and economic utility in a contemporary commercial market sense. 2. Heritage Status Liner House is listed under Sydney City Council's Heritage LEP 2000 within the Schedule 1 category. The following descriptions of the property's heritage significance have been sourced from both Council's Heritage Inventory Document No. 2037, and from the database maintained by the NSW Heritage Office. Liner House was originally protected under Permanent Conservation Order No. 183, gazetted on 16 December 1988 under the provisions of the NSW Heritage Act 1977. The property thus enjoys heritage significance at the State level, and in accordance with legislative amendments which first came into effect on 2 April 1999 under the NSW Heritage Amendment Act 1998, it is now listed on the State Heritage Register, which replaces the former PCO protection. The relevant Council Heritage Inventory document also discloses that Liner House is listed in the Register of the National Trust of Australia (NSW), and within the relevant National Trust Conservation Area. The subject property is also listed in the Register of Significant Twentieth Century Architecture under the auspices of the Royal Australian Institute of Architects (NSW). The property enjoys declared heritage significance under a series of major criteria. The Statement of Significance contained in Sydney City Council's relevant Heritage Inventory document describes Liner House in the following terms : 113
Liner House is of historic significance as a major post war contribution to the long established Bridge Street shipping administration precinct. It is aesthetically significant as a fine and rare contribution to the refined modern commercial architecture as indicated by its Sulman Medal of 1961. It is aesthetically significant for its public art program [a major mural located in the entry foyer] including works by Annand. It was executed by a notable post war architectural firm [specifically, by Charles Madden, of Bunning and Madden] .... and ... shows the influence of Terragni on Australian work. It is significant as possibly the finest post war example of a sympathetic modernist component as part of a significant streetscape. It has social significance for its ability to exemplify by its modest scale the deliberate decision made by the client not to exploit the site for its maximum financial return but instead to erect a building which was modern yet sympathetic to the nineteenth and early twentieth century stone faced adjoining buildings. (bold and underline added by this writer) From this extract it can be seen that Liner House enjoys heritage significance under a wide series of criteria which span the historic, aesthetic, and social categories. Additionally, the property possesses a declared scientific significance, since it contains 'the first curtain wall construction in Sydney that did not leak' (extract from Council's Heritage Inventory document). The building is of steel columned and concrete floored construction. Several of its design and construction features, both externally and internally, are now captured for permanent conservation under the State Heritage Register listing. These important features are described below under the relevant sub-headings. External Street Faзade The external appearance of the building and its streetscape presence in Bridge Street is particularly striking in character. In a purely visual sense, Liner House 'stands out' markedly from its surrounding and neighbouring buildings, by virtue of its departure from the older style traditional sandstone and brick facades which were common to all other existing buildings nearby. Liner House consists of a street-front tinted-glass curtain wall faзade throughout its six storey height, each glass spandrel (in panels measuring 1.67 metres wide by 2.13 metres high) being trimmed by anodised aluminium frames. The building alignment is set back some 1.22 metres (four feet) from the street alignment. Additionally, the upper-most sixth floor level is stepped back to a further depth of 114
approximately 2.4 metres from the main building alignment, creating a roof-top recessed terrace. In an attempt to achieve sympathy with the surrounding masonry construction of its neighbouring buildings, Liner House features stone facings (English Portland type) applied to both of the street flanking external walls at the eastern and western side elevations. In both a visual and architectural sense, the building's street-front faзade is dominated by horizontal metal-framed louvres above each floor level. The building has a black granite street-front planter base on the ground floor, together with an entry foyer featuring a cantilevered awning, original double-glass doors, and surrounding bronze tile mosaic inlays. Internal Accommodation There are two areas within the building which possess specific heritage significance, these being the whole front-half of the ground floor level, and a former boardroom area on the upper-most floor. The ground floor area contains a side-foyer area off the main street entry on the eastern side, dressed in a checkerboard pattern of terrazo and grey scagliola floor tiles and side walls faced with cream and green marble and blackstone skirtings. This main foyer area leads back into the building to a depth of perhaps 12 metres, where a single 16-person capacity passenger lift is located, servicing the upper office floors. Of particular note, however, is the main ground floor area which lies immediately adjacent to the side foyer. This ground floor occupies only a relatively small area, and possesses its own separate internal glass-door entrance off the side foyer, some 6 metres back from the street-front building alignment. This ground floor area possesses heritage significance because of its original design as the shipping chambers for Wilhelmsen Agency Pty Limited, who as owners in the late 1950's commissioned the construction of the building, at the outset, as its Australian headquarters. At the time, the Wilhelmsen Agency group was Norway's largest shipping organisation, covering shipping pursuits stretching from Norway to the United States and Australia. 115
The front section of the ground floor in its present configuration retains most of the original design and fitout from 1961. This area contains two centre-piece features. Firstly, a double height open plan public reception area is dominated by a spiral staircase leading to a mezzanine floor-level (Figure 14). The staircase comprises a pair of steel stringers strung around a solitary marble-dressed column, with supporting cantilevered treads resting on steel carriage pieces. The staircase is located to the front of the ground floor chamber and is readily visible from the street through the glazed curtain wall. Figure 14: Interior of Liner House, featuring the spiral staircase. Secondly, the ground floor features a large suspended full-length mural, situated directly above a simple rectilinear reception counter. The mural was created by noted mid-twentieth century artist Douglas Annand, and is particularly striking in the manner by which it visually dominates and bridges both the former groundlevel shipping chambers area and the mezzanine level immediately above and behind it. On the uppermost floor level, the former Wilhelmsen boardroom has been specifically listed for permanent preservation. When originally constructed, this area was wall-panelled in English Beech timberwork with insert moulded beading and flooring of Tasmanian Oak (per National Trust Classification Report dated July 1988, provided courtesy of Mr Peter Inglis, Associate Director, Knight Frank Valuations Group). This dйcor has remained largely intact to the present day. The remainder of the office accommodation areas throughout the building are predominantly free of any major declared heritage significance. 3. Owner's Objectives Sydney Cityscope, 28 August 2000, discloses that the subject property was purchased for $6,500,000 on 16 December 1996 by Mirramba Pty Limited, a 116
holding company representing the interests of the Moran Health Care Group Pty Limited. The Moran Group enjoys wide recognition both within and external to the health care industry and has been in business for several decades, enjoying progressive expansion of its entrepreneurial and property interests over time. In discussions with Mr John Gillett (on behalf of the Moran Group, op cit, personal communications, 20/9/00), it was revealed that the current owners purchased the subject property for owner-occupation purposes, as the new citybased corporate headquarters site for its widespread business operations. Prior to this acquisition, the administrative headquarters for the Moran Health Care Group were formerly located in East Sydney. Due to continued business success and expansion, the organisation outgrew its old premises and thus sought a more prestigious, centralised corporate Sydney CBD location in which to base its entrepreneurial pursuits. Thus, locational, prestige and corporate 'up-grading' criteria featured prominently in the decision of the current owners to acquire the property. 4. Approvals Process Subsequent to their acquisition of the subject property in December 1996, the new owner submitted a development application to Sydney City Council on 19 May 1997, for works of refurbishment and additions to be carried out on Liner House. The development application included proposals for refurbishments based upon a Heritage Impact Statement dated 16 April 1997, utilising the services of prominent heritage architects Clive Lucas, Stapleton & Partners Pty Ltd. The owner also lodged a concurrent application for the award of some 2,008 square metres of Heritage Floor Space (HFS), in accordance with their perception of the spirit of the eligibility requirements for same, embodied in Clause 7.1 of Council's DCP. The subject site is very small, being only 14.12 metres wide and 27.43 metres deep. The site area amounts to a total area of only 401 square metres. The HFS award application thus represented the equivalent of a total Floor Space Ratio of 5:1, this being the differential between the existing under-developed building's actual FSR of 5:1 and the 10:1 FSR ordinarily permitted under Council's LEP 1996. Extracts from the subject 1997 Heritage Impact Statement have been provided courtesy of the NSW Heritage Office, for the purposes of this report. The extracts describe that the current owner proposed to refurbish the property to make it suitable for the needs of the Moran Health Care Group as the corporate owneroccupier, whilst simultaneously adapting the ground-floor and upper-most floor elements in the building to restore them in terms of their declared heritage significance. 117
The available evidence suggests that, at past points in its history, the building had been made subject to tenanted accommodation on various floors. For example, the current heritage-significant ground floor reception area had at some stage in the past been used in a retail configuration as a tenanted duty-free goods store. The re-establishment of complete owner-occupation in the building by the Moran Group from 1997 onwards, had in the eyes of Clive Lucas, Stapleton & Partners allowed a coherent and consistent approach to the refurbishment works, and, more importantly, the more discrete re-establishment of the original heritage-related significance of the property as a whole. Of particular note, the site is currently under-developed to a significant degree of approximately 50%. Indeed, the deliberate decision on the part of the original owners of the late 1950s, the Wihelmsen Shipping Group, not to develop the property to its full legally-permitted use and floor-space potential, is now captured within the declared statements of statutory heritage protection and preservation. The subject May 1997 development application included a proposal to make additions to the uppermost fifth floor level, by extending and projecting the top floor building elevation forward to street level, along a length of some 5 metres. This would have meant eliminating the existing 6 metre setback from the street alignment and then raising the roof plant room by a further level. In short, the proposal was to convert and extend the existing top floor plant room into office space. In its consent determination dated 21 August 1997, Council approved the refurbishment proposals for the lower floor levels, but refused to allow the topfloor extensions to proceed. The refusal was based upon heritage preservation grounds, since heritage significance is embodied in the existing top-floor recessed structure and design. To depart from the existing form and fabric on the top floor would have been seen as compromising the integrity of the inbuilt heritage conservation measures which are clearly described in the inventory document. In particular, the following extract from the Preliminary Conservation Policy embodied in the subject Sydney City Council's Heritage Inventory document (No. 2037, op cit) provides an explanation for the rationale behind the refusal : As the original building is surrounded by adjacent buildings of similar and higher size, the addition of further floors (maximum of two) to the building could be contemplated. Any additional floor should be stepped back behind the faзade so as not to impact on the existing view of the frame from the street. Alterations to the recessed podium should not be considered. Any future development should preserve the existing form, external surfaces and materials of the faзade. (bold emphasis inserted by this writer) 118
In its August 1997 consent determination, Council did not grant an immediate award of Heritage Floor Space. The award of HFS was deemed ineligible due to an anomaly in the planning scheme provisions which rendered all buildings erected after 1957 as ineligible for HFS awards. The problem was that Liner House had been erected in 1961. In all other respects, according to Council's records, the subject property met the HFS eligibility requirements. The anomaly arose due to the wording contained in Council's HFS Policy, whereby buildings erected after the 1957 amendment to the Height of Buildings Act 1912 were specifically excluded from eligibility for the award of HFS. A height limit of 46 metres (150 feet) for Sydney CBD buildings, included in the original provisions of the Height of Buildings Act 1912, was lifted in 1957. Documents provided by the NSW Heritage Office (op cit) evidence that on 31 July 1997, the Heritage Council Advisory Committee proposed to recommend to Sydney City Council that the use of transferable Heritage Floor Space rights be used in respect to Liner House, 'in this instance as a special case'. Sydney City Council in turn recognised the anomaly in its HFS policy wording, and agreed to defer the award of HFS for Liner House, pending a heritage system review. This matter continued as a deferral until 1999, where the `paper trail' via Council's property records ceases in respect to the subject property. As at March 1999, Council records indicate that an award of HFS for Liner House (by then known as Moran House) would be approved `in principle', but that a renewed request for a HFS award would have to be made by the applicant under Section 96(2) of the planning scheme to amend the terms of the original development consent. As far as we are able to ascertain, no such application has yet been made by the current owner of the subject property. 5. Life Cycle Issues The current owner (personal communications, per Mr John Gillett, Moran Health Care Group, September 2000, op cit) have commented on what they perceive as a series of detrimental impacts on the building's annual operating costs and performance capacity in economic and efficiency terms, arising out of the statutory heritage conservation requirements which attach to the subject property. For example, the owners have pointed to the presence of the extensive six-storeyhigh glass curtain-wall faзade on the property's north-facing street elevation. This can be seen to permit a large degree of natural sunlight into the building, at all times of the year, the tinting effect of the glass panels notwithstanding. Consequently, the current owners have maintained that this gives rise, relatively, to 119
a periodic excess of heat within the internal floor areas of the building - thus resulting in increased air-conditioning costs. Since the current external glass-wall faзade of the building is a central component of its declared heritage significance, this gives rise, perhaps, to some degree of complexity in any attempts to remedy this situation. The owners have stated that in their opinion, the current air-conditioning plant within the building is old, outdated and inefficient. They have advised that whilst they have carefully considered the cost-benefit feasibility of replacing the entire air conditioning system within the building, they have ultimately decided not to proceed with this proposal because in their minds it is uneconomic to do so. Additionally, the current owner has alluded to what they perceive as the restrictive nature of the front ground-floor reception area, stating that its current use potential is very limited. Much of the reception area constitutes a 'void' area in their eyes, capable of very little effective use, and would in their opinion be suitable for very few feasible alternate or adaptive use options within the scope of their operational plans for the building. Furthermore, the presence of the spiral staircase in the front ground-floor reception area has, in the current owner's view, presented security problems. The staircase leads directly to the mezzanine floor level, and contains no significant barrier of any kind to prohibit the public from gaining undesired access to the mezzanine level. Consequently, the Moran Group has been compelled to install a keypad security system to its mezzanine level office-entry and meeting room areas, adjacent to the staircase, in order to safeguard the security and selective access to these areas. Finally, the owners have declared that they are currently unable to find a fullcapacity functional use for the boardroom area on the upper floor, within the context of their requirements and desires as owner-occupiers. In an objective assessment of the building relative to its functional and economic efficiency in a contemporary commercial context, it can be seen that the above series of arguments put forward by the current owners are not without some degree of validity. For example, in a core functional and use-efficiency sense - as juxtaposed entirely to its heritage significance - it is difficult to envisage the ground-floor spiral staircase as having any real, modern-day practical use potential other than a mere 'ornamental' or 'novelty' value. On the other hand however, it must always nevertheless be borne in mind that the current owners entered into a purchase and occupation of the property at the stated 120
price of $6,500,000, with due prudence and an awareness of any inherent preexisting limitations within the building which might possibly be attributable to its declared heritage significance. Moreover, this report has established that the subject property is now eligible for an award of some 2,008 square metres of Heritage Floor Space, subject to certain bureaucratic requirements being met by the owner. Such an award, and the subsequent sale of that HFS at a current market price, would be likely go some considerable way to alleviating the cost burdens which have been alluded to under this section of our report. It is also clear that the commercial and economic opportunities for the property have in more recent times of tighter commercial market environments been considerably restricted by the limitations in the size and shape of the land. The site has an inherently small plottage of only 14.12 metres width and 27.43 metres depth - for a total site area of only 401 square metres. This inbuilt limitation has, and always will, restrict the functionality of the building in economic terms, and is irrespective of the presence of a heritage listing over the property. We are unaware of the Land Tax situation in respect to the subject property, since Mr Gillett (personal communications, op cit, ) was unable to provide us with any details in this regard. However given the property's existing 5:1 FSR (which is 50% of the full FSR permitted in principle under Council's code) and its eligibility for a Heritage Land Value to be determined, the potential for a substantial discount in Land Tax exposure would appear to exist, thus potentially easing the burden of annual operating costs in the building. 6. Conclusions It has been well-documented within this report that Liner House enjoys major heritage significance as a rare example of the late 1950's / early 1960's 'modern era' architectural style of a Sydney office building. The facts associated with its original 1961 construction, its ownership and development at the time, and its direct linkages with the maritime-related history of Bridge Street itself, all contribute to the property's heritage significance. It is not at all unreasonable to further suggest that Liner House constitutes a most unusual and in many ways, a unique building, in a contemporary commercial property office-market context as well - due in no small measure to its inherent ground and mezzanine floor characteristics, and its original overall deliberately under-developed design. 121
Our detailed physical inspection of the property (20 September 2000) reveals that the building possesses a somewhat dated appearance and ambience, which is in fact perfectly in keeping with its declared heritage-preservation elements. Entry to the ground floor reception area indeed conjures up the feeling of stepping into a 'time capsule' from the early 1960's era. If that response is one which has been amongst the heritage objectives set down for the property, then that particular objective has been successfully achieved. Yet, from a public access perspective, it is not difficult to envisage a 'quaint', almost indefinable appeal which attaches to the internal ground floor design. Nevertheless, in a contemporary commercial market-related context - quite apart from its officially-stated heritage appeal - there seems to be little doubt that the property is currently under-renovated and possesses only limited market appeal. Whilst the current owners have carried out a moderate degree of recent refurbishment to the mainstream office accommodation areas, for their own corporate-headquarters purposes, it must be noted that the approved refurbishment works have been more cosmetic in nature, rather than either structural or re-design oriented. It is difficult to define the extent to which the property is capable of a major redesign and upgrade in terms of improving its future economic and functional market appeal - particularly from a potential cashflow and future market-related investment / tenancy perspective - without compromising its declared heritageprotected elements. Similarly, there appears to be a undefined 'grey-area' which persists in respect to any attempt to estimate the degree to which maintenance and repair costs will continue to escalate over time in this building. There seems little doubt, in the absence of any major refurbishment effort in terms of building services and plant and equipment, that future maintenance and repair costs will continue to rise. The question is, by what degree and by how quickly. In conclusion, however, it is a fact that the current owners have been in occupation in the property for almost four years as at the start of 2001, and that in the main the building has served their needs satisfactorily, commensurate with the purchase price outlaid in 1996. Certainly, the current owners enjoy exposure and recognition in a corporate sense, both from a site location and a buildingcharacteristic perspective. Moreover, the former Heritage Floor Space bureaucratic anomaly has now been largely rectified, and the property has now been declared by Council as eligible, at least in principle, for an award of HFS to the order of approximately 2000 square metres. The potential value of the sale rights of this magnitude of HFS constitutes a considerable financial compensation measure and a counterbalancing offset to the 122
type of additional costs which allegedly arise (according to the present owners) as a result of the property's heritage listing. Given the highly unique nature of this property in its configuration as an office building, it is likewise difficult to assess the degree, if any, to which this building is representative of the `mainstream', more commonly-occurring types of life cycle and commercial utilitarian complexities which might perhaps arise in heritage-listed CBD commercial office buildings (particularly older style stone buildings from the early 20th Century era) on a wider scale. Further market and case-study research would seem to be in order in respect to the economic impacts of heritage listings upon low-rise or medium-rise CBD commercial office buildings, particularly those which date from earlier architectural eras. 123
PART 4 Case Study Findings 4.1 Preamble Our examination of the seven case study properties in this consultancy has resulted in the emergence of a series of findings and thematic outcomes. These findings and themes relate to issues which are central to the stated objective of our undertaking, which is to examine the economic impact of heritage listings upon commercial investment property classes, both from the property development and passive investment perspectives. The series of themes and outcomes are discussed under separate sequential headings, as follows. 4.2 Difficulties of Adequate Data Collection To address the objectives of this consultancy in a 'perfect world' scenario, it would be ideal to have been able to obtain the full particulars of the complete financial feasibility studies carried out by the subject developers in each of the four cases where major redevelopment projects were conducted. The reality is, unfortunately, that such essential 'hard core' financial information is rarely able to be secured from the participants. As is the case in many other business environments, it is the long established custom and practice within the property industry, rightfully and understandably, that such detailed information is held to be of a strictly private and confidential nature, and therefore not suitable for disclosure. Such information is usually only disclosed to consultants acting for the party concerned, where a formal client-consultant business relationship exists (for example, where a property economist is acting for a developer). Even then, considerable efforts are expended to safeguard client confidentiality. Accordingly, in our discussions with the developers, or their nominated representatives, we have had to rely on their willingness to provide certain limited financial details, suitable from their standpoint for release into the public domain. Therefore, we have had to form conclusions based upon the limited threads of financial feasibility data available. In several of the cases, the information gathered in relation to Project Costing was very detailed. As a general rule it proved far more difficult, however, to secure detailed information relating to Value-on-Completion data. Without this, it is not possible to extract profitability conclusions of any precision. 124
Similarly, in the three cases which constituted passive commercial investment assets, a similar obstacle was encountered. Much of the information furnished was of a descriptive nature only, as opposed to detailed financial figure-work. Moreover, the private-sector case-study participants with whom we dealt were able to provide only very limited time, out of their very busy business schedules and priorities, for the purposes of providing availability for interview. Our consultancy task also required that the relevant records of local government be accessed. We wish to publicly acknowledge the immense co-operative efforts of local government officers in making themselves available for consultation and in providing access to relevant property records. However, in some instances the data able to be secured was only partially available and partially complete. In one case, the records were unable to be located for us at all. It is anticipated that this fundamental problem of core-data unavailability and inadequacy will continue to be a major obstacle, should any future heritage case study projects of a similar nature to our consultancy be contemplated. 4.3 Developers' Objectives and Priorities It is noted that in each of the four redevelopment case studies, the underlying investment objective of the developer was to retain and on-manage the project, as opposed to the pursuit of an immediate develop-and-sell strategy. In the three Sydney CBD cases (Sydney GPO, Medina Apartments, Radisson Plaza Hotel), the projects as at start of 2001 are now being on-managed in orthodox investment scenarios, without any element of direct owner-occupational usage of the building (apart from the presence, perhaps, of on-site management staff). Only in the single regional-country based case (Maitland) has the developer adopted a partial owner-occupation usage, which is to use one of three floors as their place of residence. The anecdotal evidence collected from the developers (or their representatives) reveals that, in the main, the presence of the heritage-listed status on the subject property was not the prime factor driving their decision-making in the development process. Rather, the majority of respondents (Sydney GPO, Medina Apartments, Radisson Plaza Hotel) declared that the following factors primarily determined their decision to commit to development : · the presence of a perceived prime commercial location (i.e. a siterelated consideration more than a building-related one). 125
· the initial potential for the opportunity to secure a favourable position in the particular sub-market category (eg hotel, serviced apartments) as a result of market research which disclosed factors such as buoyant demand, a shortfall in available supply to meet the demand, and a favourable sub-market property cycle conducive to development. · the future potential for sound investment performance of the projected development proposal, given its particular intended commercial use category (hotel, serviced apartments) and its positioning in the relevant sub-market. This scenario is consistent with the same normal, historical decision-making process exhibited by developers of non-heritage property assets, and the criteria outlined above are in line with orthodox commercial investment and property development principles. While the presence of a heritage-listed property status was not the key attraction for these developers, it can also be said that nor was the heritage-listing an anathema or insurmountable obstacle to them, from a pre-emptive attitudinal standpoint. In other words, none of the three CBD developers were disinclined to deal with the property simply because it happened to be heritage listed. In two of the cases (Medina Apartments and Radisson Plaza Hotel), the developers outrightly stated that the heritage characteristics of the property were strictly secondary considerations to them. In the case of the Sydney GPO, it appears that the heritage aspects of the scheme were of considerably greater importance to the developer, particularly from the perspective of the integrated mixed-use nature of the completed development product. The GPO building enjoys an intimately connected relationship with the non-heritage development erected behind it, and so is a crucial component of the entire scheme. Given the prominence and magnitude of the GPO scheme, it is clear that a certain degree of prestige and enhancement of business reputation for the developer was also a factor of some regard. The crucial exception to the above was in the Maitland case (regional-country locale). There, the evidence suggests that, from the outset, the developer possessed a strong, positive attitudinal predisposition towards the development of a heritagelisted property, and in particular, the subject property. In other words, it appears that the subject property at Maitland was deliberately targeted by the developer due to its inherent heritage characteristics, and the fact that it was afforded protection via its statutory heritage listing. Here then, the heritage aspect constituted the primary driver in the development decision-making process. 126
This marked contrast between the city and country scenarios may suggest a potential paradigm attitudinal differentiation, the nature of which might be suitable for more detailed future research. 4.4 Development Economics - Cost Versus Value We have approached this theme from two standpoints : firstly, the concept of initial development profit versus the separate concept of future performance of the investment asset, and secondly the issue of added costs incurred as a result of meeting mandatory heritage requirements within the development scheme. (i) Indications As To Initial Development Profit, and Comparison With Expected Future Investment Returns In the simplest of terms, it is possible to assess project viability through an examination of Development End-Value versus Total Project Costs. Using this elementary Profit Residual approach, the measure by which End-Value exceeds Project Costs provides a prima facie indication of Initial Development Profit. As already emphasized under heading 4.2, the necessary detailed End-Value financial information required to reach concrete conclusions under this category is unfortunately, in most cases, unavailable to us in sufficient volume and detail. However, based upon the limited information available, it would appear that the level of Initial Development Profit varied considerably from project to project. In three of the four redevelopment cases, it seems that a clear profit was recorded. The exact degree of proportional profit in percentage terms is however difficult to quantify precisely in each case. The degree of proportional profit would appear to have been low to marginal in two cases, and somewhat more attractive in a third case. In a fourth case, the indications are that the initial profit was, at best, marginal, and at worst, that Cost and End-Value were about neutral. However, it would be invalid to read too much negativity into these results. Because all four projects were undertaken on an 'on-hold, on-management' basis, it is the future investment performance of these assets, and the returns generated therefrom, which take on the most importance, as opposed to a mere initial profit at commencement of the holding period. This is particularly the case with development projects of larger magnitude , where the initial development profit may appear small in proportional terms yet may nevertheless remain considerable in sheer dollar-sum terms. In this regard, all four developers (or their representatives) spoke in very confident terms of the favourable manner in which they view the prospects for handsome 127
capital value and net cashflow growth, over the medium term for the properties concerned. At least two of the four owners (Radisson Plaza Hotel and Maitland) expressed definitive intentions to hold their assets for long term periods. Such positive future expectations are well in line with the investment objectives and market research criteria which drove the original development decision-making process, which we have already discussed under heading 4.3 above. (ii) The Added Development Costs of Meeting Heritage Requirements Sufficient Project Costing data was available through our field investigations to reveal what we believe to be reasonably accurate findings as to added costs of heritage listings and their associated requirements in a property development context. It stands to reason, in our opinion, to expect a scenario whereby the Design and Construction Costs in a heritage-listed development project will, in the most generalized sense, be found to increase proportionately, as a direct result of various restoration, reinstatement and reconstruction requirements that attach to the given heritage building. The potential for variation in the proportional degree of extra cost of heritagerelated works is, however, considerable. The degree of excess cost will depend on a mix of multiple variable factors, such as the existing state of repair, structural integrity and age of the building; the exact particulars of heritage significance in individual cases; whether the required heritage works are of an internal or an external nature (or both); and finally (but by no means least) the magnitude of the building involved (expressed through the number of floor levels and the size of floor plates). Across the spectrum of our four redevelopment case studies, we have found the degree of added Project Cost, directly attributable to meeting the requirements of a subject heritage listing in a particular building, has ranged between 4% to 15%. The available evidence suggests that, in line with the concept of 'economies of scale', a lower relative added heritage cost level is more likely to be found in larger-scale projects. We suggest that it would be invalid and excessively simplistic to read too much negativity into this finding. While on the surface such a finding might be grasped with glee by those who oppose heritage conservation as a concept, this finding has to be analysed more deeply. Added heritage-related Project Costs examined in isolation are of little meaning. To reveal the real economic impact and true overall implications of a heritage listing, they need to be weighed up, counterbalanced and placed alongside the financial benefits and positive offsets which frequently accrue 128
under the incentive provisions inherently contained within the statutory heritage protection system. In this regard, the true economic impact of the heritage listings in all three of the Sydney CBD redevelopment case studies has been revealed as most positive. In particular, the cost-free FSR bonuses which were conferred upon these three properties have resulted in very handsome value-added superiority ratios where the proportion of Added Value has exceeded the proportion of Added Cost, several times over. This leads on directly to the next theme in our series of Case Study Findings. 4.5 The Economic Impact of Heritage Incentives on Heritage - Listed Development Projects (i) Floor Space Bonus Awards Our investigation of the property records held by the Council of the City of Sydney reveal that in each of the three Sydney CBD redevelopment cases, substantial cost-free Floor Space Ratio (FSR) Bonuses were awarded to the projects. These Floor Space Bonuses equate to the addition of approximately 14% over the existing floor space in the Radisson Plaza Hotel case (11.91:1 as opposed to 10.44:1), an addition of approximately 27.5% over the standard FSR code for the Sydney GPO scheme (12.75:1 as opposed to 10:1), and an addition of approximately 25% of gross rooftop floor space (compared to the existing gross building area) for the Medina Apartments project. In the Medina case, the net effect of the rooftop addition represents an increase of approximately 20% in the number of apartments permitted in the development scheme. The issue of FSR bonuses was never a matter for consideration in the Maitland case, and so it is excluded from discussions under this category. The GPO and Radisson Cases. In the Sydney GPO and Radisson Hotel Plaza cases, the FSR bonus was directly attributable to the 'Incentive Floor Space Ratio For Hotels' provisions of Council's Hotel Policy under the Central Sydney LEP 1996. It is also notable that in its determination of the FSR awards, Council had additional regard to 'the public benefit gained in having accommodation of this nature available in time for the Sydney Olympic Games' (cited from Council consent records). 129
Council's consent records also show that a related Heritage Floor Space (HFS) default penalty provision operated, whereby a time deadline for project completion of 30 June 2000 - just prior to the onset of the Sydney Olympic Games - was established under the above policies. If the projects were not completed at or before 30 June 2000, then the developers would have been required to purchase the floorspace bonus (above and beyond the 10:1 standard FSR level) as if it was HFS, calculated at the then HFS current market price. Thus, it can be seen that under this pre-Olympic Games incentive, the Hotel FSR bonus was awarded on a cost-free basis to the developers, on the proviso that project completion would occur by a nominated time deadline. While in a default scenario the FSR bonus would still have been available (being converted instead into a HFS purchase), the cost-free nature of the bonus represented a significant financial incentive in and of itself. Clearly, the FSR bonuses which were awarded in these instances do not constitute a direct award of Heritage Floor Space. Rather, they represent 'special' pre-2000 Olympics related financial incentives which in effect superceded and over-rode the pre-existing heritage-related HFS financial incentive provisions which were already available under the statutory heritage and environmental planning system. While they have, in practical terms, replaced the HFS financial incentive provision in these two cases, there is nothing to suggest that the same potential effective Floor Space Bonuses would not have continued to operate in the same way through the eligibility of an award for HFS, were the Sydney Olympics factor to have been hypothetically entirely absent from considerations. The Medina Apartments Case. In the case of the Medina Apartments project at Railway Square, the FSR bonus was determined in a somewhat different manner. Essentially, it was ultimately awarded on a cost-free unfettered basis as part of a broader pre-Olympics Masterplan upgrading proposal for the Railway Square Precinct, and in place of an original HFS application by the developer. The outcome also constituted the result of a negotiation and bargaining process between the subject developer and the relevant planning authorities. The provision for the addition of two rooftop floors to the existing six-storey former Parcels Post Office building had been envisaged, in conceptual terms, during the mid 1990's as a result of early financial feasibility studies for the site, conducted on behalf of the owner and public authorities concerned, at the time when the Central Railway Precinct West Side Masterplan was being formulated These financial feasibility studies had indicated the desirability of additional rooftop floor space in order to enhance the economic viability of the hospitality-based adaptive re-use which was envisaged for the property. 130
Likewise, the rooftop addition was approved in principle in the development consent of July 1998. The FSR bonus in this case was not awarded under the preOlympics 30th June time deadline provisions of the Hotels Policy. Rather, it was ultimately viewed by the various statutory authorities as an essential pre-requisite for financial feasibility of a desired hospitality-based redevelopment scheme for the subject building, in isolation. In effect, an original application by the developer for an award of HFS was withdrawn by the developer, in exchange for development consent being granted for a rooftop addition, the design of which particularly suited the developer's needs. The developer, Toga Pty Ltd, held substantial bargaining power in the approval process, since its development tender was the sole proposal submitted which came close to meeting the adaptive re-use guidelines of the Masterplan. The end design of the two-storey rooftop addition is, however, a somewhat controversial one, having drawn considerable commentary from various sources as to its degree of sympathy with the form and fabric of the main heritage building below it. This outcome demonstrates that it is indeed sometimes possible for the developer to secure the upper hand in negotiations on heritage-listed redevelopment schemes. In all three of the Sydney CBD redevelopment cases, it can be concluded that the FSR bonus awards were of such magnitude that they may well have made the crucial difference between the projects being feasible and unfeasible in an economic and financial sense. Given the somewhat slim initial development profit margins which appear to have existed in several of the cases (refer back to heading 4.4 (i) in this section), it is not unreasonable to envisage a scenario where the economic viability of all three Sydney CBD redevelopment cases would have been severely detrimentally affected (and possibly even have been rendered null and void) had the cost-free FSR bonuses not been provided by the relevant authorities. (ii) Adaptive Re-Use Considerations Our case-study coverage under Part 3 of this Report provides detailed descriptions of the individual Adaptive Re-Use provisions in each of the four redevelopment scenarios. It can be concluded in all four of the case studies that the adaptive re-use schemes have constituted effective inducements in encouraging redevelopment to take place. The adaptive re-uses in each case are, in our view, creative, flexible and dynamic in a contemporary commercial investment sense. Yet, at the same time, they are sympathetic with the heritage features of the given property, and 131
they have maintained an integrity with the key objective of preserving the best features of heritage significance in the buildings concerned. An adaptive re-use application to a particular heritage-listed property must, by nature, be determined on an individual, 'on-merit' basis. Adaptive re-use potential is directly governed by the individual heritage significance characteristics of the building concerned. Furthermore, in assessing the financial inducement 'package' which applies to any given heritage-listed redevelopment scheme, the different contributory elements bonus FSR or HFS awards, the essential commercial nature of the adaptive re-use proposal, and the fundamental heritage significance characteristics - must be treated as component parts of the whole incentive package, and not as isolated, unconnected entities. The design and construction parameters in a redevelopment scheme will be governed by a combination of all of these factors, operating together. In the Radisson Plaza Hotel and Medina Apartments cases, the primary heritage significance, and consequent retention and restoration works, are to be found in the external form and fabric of the buildings. In practical terms this has permitted the internal parts of the buildings to be stripped back, virtually completely, to the building shell, for the purposes of redevelopment and dedicated commercial alternate re-use. This can be seen as being to the developer's great advantage in each of these cases, because it has permitted the fitting out of virtually the whole of the building interiors (internal design, dйcor, finishes, building services) on an 'as-new' basis, which considerably enhances the future economic performance potential of the newly-adapted commercial property use. By comparison, in the Sydney GPO case, considerably more interior significant parts of the heritage building have been retained or reinstated (e.g. vaulted attics in each wing, vaulted basements, the grand staircase), at great expense to the developer. Yet, a range of commercial and other supporting re-uses has been adapted to the building in such a successful way that the functionality of all interior parts of the building has not been compromised, in contemporary commercial usage terms. In other words, there are no valueless, uneconomic or dysfunctional 'voids' which exist. Moreover, prior Heritage Conservation and Adaptive Re-Use Guidelines had already been put in place by the former public-authority owners of the GPO and Parcels Post Office properties, well before the current developers came onto the scene. These pre-emptive Guidelines can be seen to have represented a considerable time and cost saving for the developers concerned, since they enabled the preparation of far less complex development tender submissions. In effect, much of the Heritage Conservation Management Plan work had already been done for the incoming developers. 132
Even in the case of the Radisson Plaza Hotel, pre-emptive guidance was provided for the incoming developer due to considerable prior conservation and adaptive reuse planning work conducted by former owner Westpac, and its design consultants. Finally, the Maitland case really has to be considered as a separate entity, due to its regional-country location in a local, small, struggling commercial market. The redevelopment outcome, however, is seen by us to be most successful from an Adaptive Re-Use perspective. The fine old heritage building, and its immediate environs, were in a significantly depressed, run-down condition prior to redevelopment. The implementation of the Heritage Conservation Management Plan by the new owner has seen the property come to life again in a spectacular manner. The redevelopment project has been very well accepted and embraced by the local Maitland community, and the twin objectives of commercial viability and sympathetic heritage conservation appear to be soundly in place. 4.6 Subsidiary Property Development Issues (i) Relations Between Developers and Statutory Authorities In the course of our field-based investigations, each of the four developers (and / or their representatives) was interviewed, and asked to comment upon their relations with the various statutory authorities, and their experiences with the development approval process and heritage conservation process. Almost without exception, the respondents spoke very favourably in respect to their dealings and interactions with the Heritage Council and Heritage Office. The developers in the main remarked that the heritage authorities displayed a commercial astuteness, and an empathy and understanding of the commercial needs and objectives of the developers concerned. Mr Robert Young, Chief Property Manager, No.1 Martin Place (personal communications, 9/10/00 and 18/12/00) in particular commented upon the very strong, positive relationship which was maintained between the project architects, the design team, the heritage architects, the Heritage Council and the Heritage Office throughout the course of the Sydney GPO redevelopment scheme. In the opinion of Mr Young, this environment of mutual understanding and appreciation contributed markedly to the successful completion of the project in a tight, efficient manner. It was found, not unexpectedly, that those incoming developers who lacked a substantial background and track-record of previous heritage-system and heritage redevelopment experience in local or other Australian environments, were the ones who encountered the most difficulty with the heritage aspects of the development approval process. 133
(ii) Developers' Concerns - Time Delays All four developers commented to varying degrees that, in their opinion, inefficiencies were experienced with undue time delays during the development approval process. This problem is by no means a new one, and has been well documented in various industry and media literature for many years. A series of media articles published throughout the 1990's have commented upon the presence of time delays in the statutory approval process associated with non-heritage development environments. The issue in a property development sense is a generic one. It may well be the case, in NSW at least, that the 40-day approval time limit embodied in the Environmental Planning & Assessment Act 1979 may perhaps have been over-optimistic (perhaps even unrealistic) from the outset. A revision and extension in statutory timeline terms might possibly be appropriate, to help alleviate the pressures so created. In heritage-listed redevelopment schemes, the additional mandatory involvement by heritage authorities, additional to that of the wide range of pre-existing statutory participants, adds but one more dimension to a planning approval process which is already operating under much pressure, with a high demand for services and limited resource constraints. The concept of a 'one-stop shop', and of greater use of single-venue roundtable meetings to address the various statutory interests and issues which arise in the approval process, has already been identified by government as potential solutions to help alleviate concerns of this nature. 4.7 The Property Asset Management Perspective - All Cases Under this asset management category, there was little cause for concern expressed by the owners in the four redevelopment cases. This is primarily because each of the cases constitute virtually 'as new' premises after their extensive redevelopment. Internally, all four projects have been refitted with contemporary building services and facilities, thus offering the high levels of operating cost efficiency commensurate with that of a 'brand new' commercial premises. In the three 'passive investment' cases, the asset management perspective is of significantly more importance. Therefore, Case Studies No. 2. (Parramatta), No. 3 (The Strand Arcade), and No. 7 (Moran House) feature prominently in our 134
discussions under this theme, since they each constitute 'existing-use' passive commercial investments as opposed to recent major adaptive re-use schemes. Our following analysis focuses upon the impact of heritage listings on the achieveable market rentals, annual operating costs and life-cycle costs, as they pertain to the three case studies in our series which constituted passive investment assets. Where it is appropriate to make brief, one-out mention of any of the four redevelopment cases in this context, we have done so. (i) Income Levels The level of achieveable rentals and income in our passive investment cases appear to be neither detrimentally nor beneficially affected by the presence of a heritage listing. In other words, the impact under this category seems to be neutral. There appears to be no evidence which we can discern of the presence of premium rental levels, which might be attributable directly to the presence of a subject heritage listing. We had expected that there might possibly be evidence of premium retail rentals in the Strand Arcade case, however Mr Alan Champion, Operations Manager, Ipoh Ltd, (personal communications, 21/12/00) confirmed the absence of any such premium there. Interestingly, however, Mr Champion stated that premiums are being achieved in the retail rental levels in the heritage-listed Queen Victoria Building (situated in close proximity to the Strand Arcade, and also owned by Ipoh Ltd). In the main, the same 'rent-neutral' situation seems to prevail within our four redevelopment cases. The sole exception to this finding is in respect to the Sydney GPO case (No. 1 Martin Place), where the heritage hotel room tariff rate (within the GPO building) is charged at $475 per room per night, compared to $432 per room per night for an equivalent serviced room in the non-heritage Westin Hotel tower immediately behind. This represents a gross income premium differential of some 10%, directly attributable to the heritage features present. A corresponding examination of relative occupancy rates between the heritage and non-heritage hotel rooms, which would provide a more meaningful and effective basis for comparison, has not been possible however due to insufficient data being available. (ii) Annual Operating Costs Our focus here is once again upon Case No's 2, 3 and 7 - the passive investment examples. Based upon our interviews with the respective owners, there appears to be little if any detrimental impact on the annual operating costs arising out of the heritage listing associated with both the Parramatta and the Strand Arcade cases. 135
Both heritage buildings were recently extensively refurbished, thus maximizing the efficiencies achieveable in annual operating costs, relative to their underlying size and physical age. In the Strand Arcade case, the pre-existing site plottage is quite small, narrow and inefficient in a relative CBD commercial context. As a small, underdeveloped low-rise multi-storey retail premises, limited by design and site considerations, the building suffers from inbuilt outgoings inefficiencies, regardless of its heritage listing. Thus, periodic life-cycle capital expenditure programs are required to maintain its optimum financial performance, within the limitations of the total building and design envelope. In the case of Moran House, a number of difficulties were identified, however. Much like the Strand Arcade, this building suffers in a commercial performance context by virtue of its poor, small site plottage, its correspondingly small sized floor plates, and its fundamental underdeveloped low-rise design. The existing use of the building as commercial offices is also of prime importance in this case, from the standpoint of the economic impact of the heritage listing. In the case of Moran House, a series of heritage conservation requirements (glass curtain walls, ground floor reception area and mural, spiral staircase to mezzanine, upper floor boardroom) seems to have flowed through into higher annual operating costs (air conditioning, security, limited owner-occupied use potential). A significant counter-argument here is that the current owner purchased the property (for owneroccupation) at a price which reflected all of these alleged detrimental impacts. Furthermore, it has been established through our investigations of the subject property records at Sydney City Council that Moran House is eligible for the award of HFS, the sale of which by the owner in the market place might be expected to provide a sizeable 'sinking fund' to counterbalance added operating costs in the building. In closing, the issue of Heritage Valuations for Land Tax discount purposes requires brief discussion. The financial incentive opportunities and statutory eligibility requirements for Land Tax Heritage Valuations over heritage listed properties are well documented elsewhere. However, the degree of discount in the valuation is entirely contingent upon the existing FSR characteristics of the property, relative to the planning code, and the manner in which the characteristics are interpreted by the NSW Valuer General. In our case study series, the Sydney GPO site enjoys a handsome discount for annual Land tax purposes of almost 50%. It is our understanding that the Strand Arcade site enjoys the benefit of a Land Tax Heritage Value, although we are unaware of the discount in that case. We are unaware of the Land Tax particulars of the remaining CBD cases. Land Tax discounts have the potential for a significant reduction in annual operating costs of heritage-listed commercial 136
properties, however the degree of discount, if any, will always be contingent on the individual characteristics and case-merits of a given property. (iii) Life Cycle Costing Issues In terms of building services and plant and equipment, all of the four redevelopment case studies have been refitted and renewed to virtually an 'as new' standard - in some instances, at great expense. Similarly, the Parramatta case study underwent a recent mid-life renewal and major refurbishment in 1998. None of the owners in these five case studies have commented adversely in respect to life-cycle costing issues. However, in respect to the two remaining case studies - the Strand Arcade and Moran House - we would, in closing Part 4 of this Report, make the following observations. The Strand Arcade. Ipoh Ltd have owned this retail investment asset since April 1999. The asset is regarded as a prime component of the company's property investment portfolio. Since Ipoh Ltd is a publicly listed company, the investment performance of each of its portfolio properties is of considerable importance to a great many people. Ipoh have plans for a substantial refurbishment program for the Strand Arcade during 2001, to the extent of a $600,000 to $700,000 capital expenditure. The objective is to improve the financial performance of the two upper retail floors in the building. Based on two physical inspections which we conducted in late 2000, the upper floors are in need of a refit, and show evidence of a relatively poor pedestrian-shopper throughput, compared to the vigourous trading levels which are apparent on the ground and basement levels. As part of the upper floor revitalisation program, Ipoh expressed a desire to install escalator access to the upper retail floors, from the common-area ground floor promenade. While we have not sighted documentary evidence to this effect, we are advised by Mr Champion (op cit) that the installation of escalators has been refused by the relevant authorities, primarily on heritage listing grounds. In addition, the opportunity for inter-tenancy penetrations (the ability to alter the size and shape of tenancies by altering party walls, floors, ceilings and so on) either vertically or horizontally, which are viewed by owner and tenants as commercially and economically desirable, would seem to be somewhat constrained (but not necessarily unachieveable) by virtue of the Strand Arcade's heritage listing. 137
In a positive sense, the opportunity for tenancy precincting - that is, the ability to rearrange the tenancy mix throughout the building in order to enhance the owner's economic performance goals - does not appear to have been affected in any detrimental manner by virtue of the heritage listing which is present. The issue concerning the installation of escalators comprises the most notable area of difficulty in this case study. This example of opposing viewpoints between the owner and heritage managers, which currently seems to be at an impasse, is in our opinion one which gets to the heart of demonstrating the kinds of dichotomies between economic goals and heritage goals which can sometimes arise in heritagelisted commercial properties. Substantive legitimate arguments for the stance of each vested interest - owner and heritage managers - exist. Nevertheless, some solution must inevitably be found, to the satisfaction of both interests. It is not our intention to suggest a remedy, merely to demonstrate these issues as ones for consideration and contemplation, under the banner of the stated objectives of our consultancy. Moran House. The current owner purchased the property in December 1996. In May 1997 the owners lodged a combined Development Application and Application for an award of 2008 square metres of HFS. The Development Application was partly refused, on heritage-listing grounds, in respect to a 366 square metre floorspace (a lineal 5 metre extension to the streetfront facade) addition and structural infill on the recessed uppermost 5th floor level. Furthermore, the application for the HFS award was refused on the grounds of ineligibility, due to a bureaucratic and regulatory anomaly in the planning scheme which rendered all buildings built after 1957 as ineligible for HFS (the subject building was built in 1961, but met all other HFS award criteria). While the anomaly has been rectified and the HFS award has subsequently been approved 'in principle' by Council, it has not yet been awarded in practice, since certain bureaucratic procedures now need to be followed for this to occur. The proposal for the upper floor additions remains as a refusal. The air conditioning plant within the building is obsolete and performing poorly, according to the anecdotal evidence supplied to us by the owner's representative (Mr J. Gillet, personal communications, 20/9/00). The owner regards it as uneconomic on cost-benefit analysis to replace the air conditioning plant, largely due to the use restrictions imposed by the subject heritage listing. This issue of the air conditioning system is of some concern to the owner from a life cycle costing standpoint. While the property is currently performing perhaps 138
'satisfactorily' for the purposes of owner-occupation, concerns exist on the part of the owner for the prevention of the erosion of building investment value over the longer term. The future market value, commercial market appeal, and leaseability prospects from an incoming purchaser / investor standpoint are the key issues here, should the owner wish to dispose of the property at some future date. However, provided that the bureaucratic requirements for the HFS award are met, then the potential value of the sales rights of the 2008 square metres of HFS at market rates would represent a sizeable positive financial countermeasure against the owner's concerns noted above. 139
PART 5 Conclusions and Recommendations For Future Research 5.1 The Commercial Redevelopment of Heritage Assets (i) In our opinion all four of our redevelopment Case Studies constitute successful projects. The integrity of the heritage significance features has been successfully retained in each of the subject buildings, while at the same time commercially viable investment assets have been created for the owners through the application of sympathetic adaptive re-use schemes. (ii) Each redevelopment Case Study, either partially or wholly, involved major hospitality-based commercial adaptive re-uses - five star hotels, serviced apartments, function / conference centre, and bed & breakfast accommodation. In the largest project, the Sydney GPO adaptive re-use scheme, considerable office and retail uses are also prevalent in what can be described as one of the most innovative and dynamic integrated mixed-use commercial heritage redevelopment projects yet seen in the history of NSW statutory heritage protection and preservation. All project stakeholders and contributors can take considerable pride in this outstanding achievement. (iii) Prudent developers, both in theory and practice, contemplate commitment to a development proposal in a chosen market and location only in circumstances where detailed market research reveals that the market conditions, and the timing in the relevant sub-market property cycle, are favourable and conducive to project commencement. The two key objectives of the prudent developer comprise the satisfaction of unmet market demand, and the ability to derive a satisfactory return, relative to the risk exposure, from the outlay of investment capital - either via an initial return in a develop / sell scenario, or via a longer term orthodox investment return in a hold / on-manage scenario. These fundamental principles of property development hold true, regardless of whether or not a heritage-listed building is the subject of the proposal. (iv) In our four redevelopment case studies, the developers' decision-making was driven by these principles, first and foremost. The heritage-listed nature of the four subject proposals then became the next crucial factor for consideration in the property development process, in the context of searching out the availability of 140
properties suitable for development (so-called 'site' identification and acquisition in non-heritage scenarios), plus essential research associated with the statutory development approval process. Heritage issues did not pre-empt the initial market research phase of the development process. These findings are in accordance with Whiteside's depiction of the logical, sequential stages of the development process which is included at the end of Part 2 of this Report (refer to page 53, Part 2 herein). (v) Market conditions relevant to the subject adaptive re-uses, in the specific commercial locations chosen, were found to be most favourable and conducive to development proceeding. The onset of the Sydney Olympic Games can be seen as the most significant market contributor in our three Sydney CBD case studies. The Sydney Olympics influenced not only the local commercial hospitality markets and their participants, but also government policy in the desire to provide sufficient visitor accommodation. Government policies flowed through into the environmental planning and heritage preservation systems via the provision of cost-free FSR bonuses for our three Sydney redevelopment CBD case studies. However, even in the hypothetical absence of Olympics-related cost-free FSR bonuses, there seems little doubt that the opportunity to secure the equivalent additional floor space for heritage-related development purposes would still have been available via the cost-free award, or if necessary, the purchase, of Heritage Floor Space. (vi) In our view, the market influence of the Sydney Olympics should not be dismissed as a one-out `spike', but rather as a fortuitous, legitimate market catalyst, which will have beneficial ramifications for ongoing tourist and business-visitor market growth in the relevant hospitality markets (including, perhaps, other significant heritage assets) well into the forthcoming decade. The Olympic factor is really no different in concept to any other public-infrastructure market catalyst (such as the implementation of new freeways, rail links, airports, sea-port facilities, or the creation of new regional growth centres) except that its impact was on a massively bigger scale. The owners of the three Sydney CBD case study properties recognised the relevant future market potential when they decided to commit to such major redevelopment schemes in an on-management mode, and where the initial capital outlays and ongoing economic stakes were and will continue to be very high. One does not risk such large capital amounts casually. (vii) In our view, project viability in the three Sydney CBD Case Studies was underpinned by the opportunity to build to extra FSR levels, coupled with the ability to reconstruct the interiors of the subject heritage buildings to an `as-new' configuration. The commercially-oriented nature of the subject adaptive re-use schemes also contributed significantly to the 'package' of factors which led to a positive economic outcome in each case. 141
In the Sydney GPO example, the availability for redevelopment of the extra rear land within the overall property boundaries was also the crucial factor upon which financial viability depended, in the circumstances of that particular case. The additional rear land permitted the erection of a large prime non-heritage office tower and adjoining major hotel tower, which together with the FSR bonus, drove the financial feasibility process in that case. The generous FSR provisions, coupled with the commercially-astute adaptive re-use component, came into play to enable a high volume of non-heritage commercial development to accompany the heritagelisted GPO retail / hotel adaptation. The non-heritage commercial component was of sufficient magnitude to generate a financially-positive cashflow from the entire combined development scheme. In a conceptual sense, this was also the case in the Parramatta CBD example, where extra land was similarly available, but on a much smaller scale. There, the 1978 development consent (which was very much a pioneer model for its era) provided for a new non-heritage medium-rise office tower to be erected beside and behind a pre-existing Colonial heritage residence. The residence was adaptively reused as commercial offices, to accompany the new adjacent office development. The combined investment asset still performs most satisfactorily, some twenty two years on. (viii) While the evidence shows that Project Costs increased mildly in all of the subject cases as a result of the presence of the heritage listing, these cost increases were eclipsed and superceded several times over by the positive proportional added value which was achieved through the FSR bonuses conferred in each case. In the Maitland (country-regional) example, the adaptive re-use provisions alone provided sufficient financial inducement. (ix) We believe that the presence of a heritage listed building in a property redevelopment proposal, does, prima facie, represent an increase in the project risk exposure for the developer. The risk lies in the fact that a heritage listing introduces an additional overlay onto (or, if you like, an additional complicating extension to) the often already-complex considerations associated with the development approval and environmental planning process. However, in the four redevelopment case studies the additional project risk was accepted by each developer, and the project outcomes and future market expectations have in the eyes of the participants justified the additional risk so taken. The degree of additional heritage risk is, in our opinion, a matter for individual analysis and decision, based on the merits, circumstances and financial inducements pertaining to different cases. In our nominated case studies, a preparedness to adapt to the risks of the situation was displayed by all parties, on all sides, who had a stake-hold in the particular development project and the development approval process. 142
(x) In our opinion, the findings from our Case Studies comprehensively eradicate the frequently-voiced myth that `nothing can be done with heritage-listed properties, they can't be redeveloped or altered', and the notion that somehow heritage-listed properties are `frozen in their existing state and existing use for all time'. In all four of our redevelopment cases, it has been demonstrated that the heritagelisted buildings concerned have experienced a notable rejuvenation of life and transformation of use, in the commercial, heritage-protection and socio-cultural senses. In most of the cases, the subject buildings prior to redevelopment and adaptive re-use were, to various degrees, in either a semi-used or a disused, rundown condition, due in no small part to technological and socio-economic change which had eclipsed the uses for which they were originally built. On a before-andafter comparison, the multiple-benefit outcomes, both private and public, are clear. In closing, final mention must also be made of the important public benefit which has resulted in all four of our redevelopment Case Studies. Compared to the very restricted opportunities for public access in their former original operating modes, well prior to redevelopment, the case-study buildings now individually offer a degree and quality of public use, public access and public interaction which has been magnified many times over. The underlying `public good' rationale which underpins the heritage system could not, in our opinion, be better demonstrated than in our four chosen redevelopment case studies. 5.2 Commercial Asset Management of Existing-Use Heritage Properties (i) Our focus under this category is upon our three passive investment Case Studies - the Strand Arcade, Moran House and Macquarie St, Parramatta. These cases are different in character to our four redevelopment case studies, since they comprise long-standing existing-use based commercial investment assets. While they have all been subject to periodical refurbishment programs to various degrees in recent years, they have not been subject to massive redevelopment and adaptive re-use schemes. Unlike our four redevelopment case studies (with the notable exception of the low-impact Parramatta example), the heritage buildings in these cases continue to be used, by and large, for the purposes for which they were originally built and designed. (ii) The Parramatta heritage-listed converted colonial residence example comprises, in our opinion, a successfully operating commercial investment asset, with no outstanding problems or concerns apparent from a property asset management and life-cycle costing standpoint. 143
This is directly due in part to the recent refurbishment works carried out, but it is also due to the particular character of the asset in a commercial investment sense. The overwhelming bulk of the floor space, net cashflow and operating expenses occur in the adjacent seven-storey non-heritage office building on the subject property, not the freestanding two-storey colonial residence. The heritage building comprises only a very small, but nevertheless clearly beneficial, part of the investment whole. The subject heritage-listed building contributes 5.27% of the net leaseable area of the whole investment asset, yet it yields 6.25% of the gross rental cashflow from the property. It contributes approximately 6.6% to the total investment value of the asset, based on the evidence available. Its impact in terms of relative operating costs and life cycle costing issues is, in relative terms, minimal, yet it is viewed as a worthwhile cashflow bonus, contributing to the worth of the whole investment asset in the eyes of the new owner, according to the anecdotal evidence supplied to us by Mr Ian Gray, Commercial sales & Leasing Manager, Jones Lang La Salle Parramatta (personal communications, 19/9/00). In our opinion this example serves as a good demonstrative model applicable to any built environment elsewhere in Australia, of the manner in which a small residential heritage asset located in a commercial centre can be both protected in a heritage significance sense, while at the same time enabling a viable commercial adaptive re-use scheme to operate, utilising the erection of non-heritage development on available excess land. (iii) Our two Sydney CBD passive investment examples both constitute somewhat small, underdeveloped assets in the commercial sense, situated on somewhat inferior quality, undersized narrow sites. Because they comprise, in relative terms, pre-existing inefficient commercial investment assets by virtue of their age and small size and design, it clear that, again relatively speaking, they consequently possess inefficiencies in annual operating costs, irrespective of any specific use limitations under the subject heritage listings. In the case of the Strand Arcade - predominantly a tenanted retail use - it is difficult to discern any additional degree of annual operating expense which is solely attributable to any specific use limitations in the heritage listing. In a purely commercial sense, some would argue that the existing building envelope is about the most economic one possible, all other things being equal. In the case of Moran House - an owner occupied office building use - there is more substantial anecdotal evidence to suggest that annual operating costs have increased as a direct result of use restrictions embodied in the heritage listing. The exact degree of extra cost is difficult to determine due to insufficiently detailed evidence, but a guideline proportion of around 10% extra outgoings cost per annum was suggested to us by the owner's representative with whom we spoke. 144
(iv) Both the Strand Arcade and Moran House were purchased several years ago by their current owners, who paid market prices which reflected and allowed for all of the property characteristics mentioned above. Both properties appear to be currently performing satisfactorily for the owners, relative to the purchase prices paid. In both cases, the owners have recently wished to embark upon significant refurbishment and design-alteration programs, intended to enhance future value. However, important re-design elements in both proposals (which are separate from other refurbishment proposals which have been approved) have been refused on heritage-related grounds. The potential perhaps exists for the owners of the Strand Arcade to meet the criteria for the award of Heritage Floor Space by undertaking further heritage restoration works. The HFS so secured might then be sold off in the market place to provide a sinking fund for future life-cycle costing works. In the case of Moran House, it has been confirmed that, in principle, the owners are already eligible for an award of HFS. In both cases the greatest potential for positive economic and financial impacts from the heritage-listing perspective would appear to lie in the utilisation by the owners of the potential for securing saleable HFS awards, combined with the potential annual savings achieveable through discounted Heritage Land value determinations which are used for Land Tax assessments. 5.3 Summary Conclusions The chief objectives of this research project are linked to the development economics of heritage-listed commercial property assets. Accordingly, our summary conclusions are as follows : · In property development terms, economic viability is first and foremost dependent upon pre-emptive market-related factors which are not generally related to heritage considerations. The identification of unmet market demand, the presence of favourable market conditions, and the desirability of favourable timing in the relevant property cycle are essential pre-requisites for economic success in property development, regardless of whether a chosen property is heritage listed or non heritage listed. Heritage considerations come into play only after these pre-requisites have first been satisfied. · While our case studies show that Project Costs increased mildly in each instance due to the impact of the subject heritage listing, the Added Value component measured through the award of Floor Space bonuses exceeded the Added Cost component by a considerable margin 145
in each case study example. In the chosen Sydney CBD case studies, a pre-Olympics hotels-related FSR bonus scheme in effect replaced the otherwise orthodox eligibility provisions for the award of Heritage Floor Space. Rating and taxing subsidies, depending on the nature and characteristics present in any given case, also have the potential to offer considerable cost savings in an ongoing asset management sense. · The combination of financial incentives and the commercially-oriented nature of the adaptive re-use schemes in each of our Sydney CBD case studies outweighed any extra heritage-related costs and project risks which so arose, thereby resulting in positive economic outcomes in each of our CBD examples. The country-regional example proved to be economically successful on the strength of the adaptive re-use provisions alone. All four of the redevelopment case study properties possess sound prospects for successful future ongoing performance in a commercial investment sense. 5.4 Recommendations For Future Research The following categories can perhaps be viewed as a potential `wish-list' for meaningful, fruitful future research directions within the heritage system, should government funding and resources ever be available and extended to heritage managers to underwrite them. (i) Existing-Use Scenarios in Heritage-Listed Commercial Buildings. Asset Management Focus In this category, ours was very much a preliminary `pilot study' only. The information gleaned from our field investigations was very incomplete, which affected the quality and precision of our findings. Were our findings merely oneout anomalies, or were they part of a more widely-occurring pattern ? The question, until further researched, is at present unanswerable. In our present consultancy undertaking, resource and budgetary constraints prevented the examination of multiple cases of either CBD office buildings or retail assets where the existing office or retail use (or mixed use) is maintained under the umbrella of the heritage listing - as opposed to a major adaptive re-use / redevelopment scheme. It is recommended that further research be pursued in the future, concentrating on multiple core CBD examples, to attempt to discern trends or patterns in the economic impact of heritage listings on achieveable rentals, annual operating costs, and life-cycle costing issues. 146
(ii) Further Non-Core CBD Commercial Studies Only one of our six case studies in the Sydney Metropolitan Area involved a significant commercial asset located outside of the central Sydney CBD. Once more, resource constraints prevented a wider selection of non-core CBD commercial locations in our case study series. Yet, significant high-value heritage-listed commercial assets exist in suburban and Sydney Regional CBD's, beyond the boundaries of the central CBD - just as they do (albeit to lesser extents) in other capital cities around Australia. Issues suitable for exploration might comprise the economic impact of heritage listings in such non-core locations, and the nature of heritage concessions / financial inducements in these precincts. For example, does the use of HFS by local government authorities exist in non-core CBD commercial precincts, and to what degree ? What other financial incentives are used, and to what degree, in practice ? (iii) Further Country and Regional Based Studies Only one out of our seven case studies, for resource reasons already mentioned, involved a country-regional based example. The outcomes of this ex-city example were very positive, however, and on the limited scope of information available, this case provides worthwhile guidance in our opinion for similar scenarios elsewhere around Australia. It is well documented that rural regions around Australia are suffering, both economically, demographically, and also in a socio-cultural dimension. In some cases, a `slow death' seems to be occurring for many smaller country towns. In our opinion, it would be a fruitful undertaking to further research the manner in which the rejuvenation and transformation of country-based heritage assets, on an individual property and adaptive re-use case study basis, contributes to the economic well-being and restoration of the town or region concerned. Such studies could also extend well beyond mere economic rationalist limitations, and could venture into wider, more fundamental socio-cultural and quality-of-life domains. Can the trends of economic and social deterioration in urban areas of rural and regional Australia be mitigated or even reversed by the application of adaptive re-use schemes in heritage environments ? If so, to what degree ? (iv) The Lending Attitudes of Financiers in Their Approach to Heritage-Listed Commercial Assets We are unaware of any major studies, if any, as yet conducted in this direction. 147
Those who object to the statutory heritage protection and preservation process sometimes adopt the argument that financiers universally and indisputably regard heritage listed commercial property assets in a negative manner. The argument runs that this then allegedly, consequentially and without exception, flows through into loss of value to the asset concerned. Here is another of the `fact or fiction' conundrums which tend to orbit the periphery of the heritage system at the current point in time. Is this argument a myth ? Is there an element of truth to it ? If so, to what degree ? Or do financiers approach lending proposals in heritage-listed commercial property scenarios in the same basic manner as they do in other, non-heritage situations ? (v) The Approach to Heritage-Listed Commercial Property Assets By Building Insurers This appears to be another as yet incompletely explored domain. The limited research information already available has tended to indicate somewhat mixed, unclear outcomes and conclusions. How do building insurers approach the prospect of insurance in heritage listed commercial property environments ? Do they identify any higher replacement cost risk element, and if so, do they accept it ? Do building insurers apply weighted premiums in a replacement cost context ? Such hypotheses in our view would be worthy of further investigation. 148
REFERENCES
Byrne, P. 1996 Risk, Uncertainty and Decision Making in Property Development, 2nd Edition, E & FN Spon, imprint of Chapman & Hall, 2-6 Boundary Row, London SE1 8HN, UK. Cadman, D. & Topping, R. 1995 Property Development, 4th Edition, E & FN Spon, imprint of Chapman & Hall, 2-6 Boundary Row, London SE1 8HN, UK.
Cityscope Publications Pty Limited, Manly NSW, Sydney Cityscope, April 2000 and August 2000 Editions, subject entries for all five Sydney CBD Case Studies.
Cityscope Publications Pty Limited, Manly NSW, Parramatta Cityscope, May 2000 Edition, subject entry for Case Study No. 2.
Cityscope Publications Pty Limited, Manly NSW, Parramatta Cityscope, September 1994 Edition, subject entry for Case Study No. 2.
Cornelius, H. & Faire, S. 1989 Everyone Can Win ­ How To Avoid Conflict, Simon & Shuster Australia, Brookvale NSW.
Crisp, L. 1998 Push For The Bush - Man On A Mission To Stop Country Heritage Being Destroyed, The Sun Herald, 30th August 1998, pp. 48 & 57, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW.
Cummins, C. 2001 Post-Olympic Hotel Boom Silences Doubters, The Sydney Morning Herald, 27th January 2001, p. 54, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW.
Cummins, C. 2000 Glitz and Glam Draw The Crowds, The Sydney Morning Herald, 2nd December 2000, p. 74, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW.
Cummins, C. 2000 Welcome To Conferenceville : The World's Still In Love With Sydney, The Sydney Morning Herald, 11th November 2000, p. 76, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW.
Cummins, C. 2000 Budget Hotels Seen As Five-Star Opportunity , The Sydney Morning Herald, 4th November 2000, p. 72, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW.
Darlow, C. 1990 Valuation and Development Appraisal, The Estates Gazette Ltd,
151
Wardour St, London W1V 4BN, UK.
Ellercamp, P. 1999 A Perfect Topping, Property Australia journal, Vol. 14 No. 3,
149
November 1999, pp. 26-27, Property Council of Australia Ltd, George Street, Sydney NSW. Glendinning, L. 2000 Window Of Opportunity For Hotel Industry, The Sydney Morning Herald, 2nd December 2000, p. 72, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. House, K. 1997 Grollo Wins Macquarie For GPO, The Australian Financial Review, 8th January 1997, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. House, K. 1996 Consortium Wins Sydney GPO Project, The Australian Financial Review, 29th May 1996, p. 36, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. Ipoh Pty Limited, QVB Building, George Street, Sydney NSW 2000 Promotional Brochure For The Strand Arcade (Case Study No. 3). Ipoh Pty Limited, QVB Building, George Street, Sydney NSW 2000 Share Prospectus Report, 8th November 2000 (re the Strand Arcade, Case No. 3). Jones Lang La Salle, George Street, Parramatta NSW Investment Report, March 2000, 60 Macquarie Street, Parramatta (Case Study No. 2). Mackay, H. 1994 Why Don't People Listen ? - Solving The Communication Problem, Pan Macmillan Australia Pty Ltd, Market Street, Sydney NSW. Maitland City Council, High Street, Maitland NSW 2000 Council Minutes, Ordinary Meeting, 27 June 2000, and extract from Development Approval, 13 July 2000, re 315 High Street, Maitland (Case Study No. 6). Maitland City Council, High Street, Maitland NSW, Heritage Inventory Listing Document For 315 High Street, Maitland (Case Study No. 6). Maitland Visitor Information Centre, High Street, Maitland NSW, Visitors Guide, Published May 2000. Metcalf, A. 1997 Architecture In Transition - The Sulman Award 1932 - 1996, Extract for Liner House, 13 - 15 Bridge Street, Sydney (Case No. 7), Full publication details unavaila ble. Miller, S., Miller, P., Nunnally, E. & Wackman, D. 1991 Talking and Listening Together, Southwood Press Pty Ltd, Marrickville NSW. Millington, Professor A. F. 1994 An Introduction To Property Valuation, 4th 150
Edition, The Estates Gazette Ltd, 151 Wardour Street, London, W1V 4BN, UK. Millington, Professor A. F. 1993 Property Development & Project Management, Undergraduate & Postgraduate Property Economics Degree, Course Learning Materials - Lecture & Study Notes and Readings, University of Western Sydney, Nirimba Campus, Quakers Hill NSW. Neilson, D. 1999 Sydney GPO - Return To Splendour, The Sun Herald, 5th September 1999, pp. 54-55, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. NSW Heritage Office 2000, Wentworth Street, Parramatta NSW, State Heritage Inventory Listings & Data Base Extracts - subject entries relating to all seven Case Studies in this Consultancy. No. 1 Martin Place Pty Limited 1999 Meet Me Under The Clock - Documentary Video created to commemorate the completion and grand opening of the Sydney GPO redevelopment project (Case Study No. 1), Sydney NSW. Order Architects Pty Limited, Parramatta Road, Ashfield, NSW 1987 Architects Report - 60 Macquarie Street, Parramatta (Case Study No. 2). Parramatta City Council, Darcy Street, Parramatta NSW 2000 Heritage Inventory Listing Document - 60 Macquarie Street, Parramatta (Case Study No. 2). Property Council of Australia Ltd, George Street, Sydney NSW 1999 Unauthored Article, Central Railway Precinct, Sydney, Property Australia journal, Vol. 13 No.11, p.39 (re Case Study No. 4). Ratcliffe, J. & Stubbs, M. 1996 Urban Planning and Real Estate Development, UCL Press Ltd, Gower Street, London WC1E 6BT, UK. Robinson, S. 1999 Wraps Off, Property Australia journal, Vol. 13 No. 11, August 1999, pp. 26-33 (describing the Sydney GPO project completion in some detail), Property Council of Australia Ltd, George Street, Sydney NSW. Sydney City Council 2000 Heritage Inventory Register, listed entries for all five Sydney CBD Case Studies, the Council of the City of Sydney, Kent Street, Sydney NSW. Sydney City Council 2001 Property Files and Extracts From Consent Determinations, various entries in respect to all five Sydney CBD Case Studies, the Council of the City of Sydney, Kent Street, Sydney NSW. Tanner, H. 1999 CBD Centrepiece Towers Over Us In Its Renewed Glory, the 151
Sydney Morning Herald, 1st September 1999, p. 6, John Fairfax Publishing Pty Limited, Sussex Street, Sydney NSW. Toga Pty Ltd 2000 Promotional Marketing Brochure for the Medina Executive Sydney Central, (Case Study No. 4), The Toga Group, Crown Street, Surry Hills NSW. Whiteside, A. (ex Lend Lease Project Manager) 1993 The Property Development Process, Lecture Notes, Course Materials, Property Economics Degree, University of Western Sydney, Nirimba Campus, Quakers Hill NSW. BIBLIOGRAPHY Allom, R. 1995 Adaptive Re-Use The Kiss Of Life For Historic Buildings, Building Owner and Manager journal, May 1995, Vol. 9 No. 8, pp. 30-31, The Building Owners and Managers Association, George Street, Sydney NSW (BOMA - known since 1997 as the Property Council of Australia). Arnold, C. 1992 Transferable Development Rights - A Planning Tool For The Preservation of Heritage Buildings, The Environmental and Planning Law Journal, December 1992, pp. 458 - 472 (full publication details unavailable). Burgmann, M. and Burgmann, V. 1998 Green Bans, Red Union - Environmental Activism and The NSW Builders Labourers' Federation, University of NSW Press Ltd, Sydney, NSW. Chisholm, A. and Reynolds, I. 1982 Heritage Conservation In Australia - An Evaluation of Economic Incentives, Centre For Resource and Environmental Studies, Australian National University, Canberra ACT. Cohen, N. 1999 Urban Conservation, The MIT Press, Cambridge, Massachusetts, USA. Cummins, C. 2000 Pricey Pitt Street Is A World Heavyweight, The Sydney Morning Herald, 25 November 2000, p. 6, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. Freestone, R. 1994 An Introduction To Heritage Planning, Proceedings of the Heritage and Conservation Planning Short Course Held At UNSW, 11-12 August 1994, published by the University of New South Wales, Kensington NSW. Isaac, D. 1996 Property Development Appraisal and Finance, Macmillan Press, 152
Houndsmills, Basingstoke, Hampshire RG21 6XS, UK. NSW Heritage Office, Wentworth Street, Parramatta NSW 1999 An Introduction To The Heritage Amendment Act, Heritage Information Series, printed April 1999. Pearson, M. and Sullivan, S. 1995 Looking After Heritage Places - The Basics Of Heritage Planning For Managers, Landowners and Administrators, Melbourne University Press, Carlton, Victoria. San, B. 1996 Enhancing Heritage, The Sydney Morning Herald, 16 November 1996, p. 102, John Fairfax Publishing Pty Ltd, Sussex Street, Sydney NSW. Sydney City Council 2001 Extract From Sydney Central LEP 1996, Amendment No. 8, Award and Allocation of Heritage Floor Space, and Information Sheet, Heritage Floorspace Award Procedures, the Council of the City of Sydney, George Street, Sydney NSW. Tanner, H. 1994 Effective Management of Heritage Property , Building Owner And Manager journal, July 1994, p. 50, The Building Owners and Managers Association, George Street, Sydney NSW (BOMA - known since 1997 as the Property Council of Australia). Towart, L. 1996 Heritage Floor Space, Technical Paper, November 1996, Vol. 3 No. 3, p. 1, published by NSW Division of The Australian Institute of Valuers and Land Economists (now known as the Australian Property Institute), Sydney NSW. PERSONAL COMMUNICATIONS Interviews and Consultations Mr Andrew Cant, Principal and Licencee, Tony Cant Real Estate, 464 High Street, Maitland NSW (Case Study No. 6). Mr Alan Champion, Operations Manager, Ipoh Limited, QVB, George Street, Sydney NSW (Case Study No. 2). Mr Michael Collins, Deputy Chair, NSW Heritage Council and NSW Divisional President, The Australian Property Institute, Sydney NSW (all 7 Cases). Mr Ron Edgar, Architect and Heritage Consultant, Form Architects, 515 Parramatta Road, Ashfield NSW (Case Study No. 3). 153
Mr John Gillett, Manager, Property Operations, The Moran Health Care Group Pty Ltd, 13 - 15 Bridge Street, Sydney NSW (Case Study No. 7). Mr Frederick Goh, Executive Director, Wales House Nominees Pty Ltd (representing the ownership interests for The Radisson Plaza Hotel, Case Study No. 5), 27 O'Connell Street, Sydney NSW. Mr Ian Gray, Sales and Leasing Manager, Jones Lang La Salle, Parramatta NSW (Case Study No. 2). Mr Peter Inglis, Associate Director, Knight Frank Valuations, 175 Pitt Street, Sydney NSW (Case Study No.'s 1 & 7). Ms Claire James, Heritage Officer, Maitland City Council, High Street, Maitland NSW (Case Study No. 6). Mr Ian Kelly, Principal Heritage Officer, State and Commonwealth Heritage, NSW Heritage Office, Wentworth Street, Parramatta NSW (all seven Case Studies). Mr Michael Leyne, Senior Design Manager, The Walter Construction Group Ltd, 100 Pacific Highway, St Leonards NSW (Case Study No. 5). Mr Peter Moran, Director, The Moran Health Care Group Pty Ltd (representing the ownership interests for Case Study No. 7), 13-15 Bridge Street, Sydney NSW. Mr Peter Lindner, Manager, control systems, Morris Engineering Solutions, 4/11 Glenwood Drive, Thornton NSW (Case Study No. 6). Mr John and Mrs Barbara Murphy, owners of 315 High Street, Maitland NSW (Case Study No. 6). Mr Keith Norris, National Executive Director, Egan National Valuers (NSW), 15 Castlereagh Street, Sydney NSW (Case Study No. 1). Mr Robert Rowlands, Managing Director, Landburys Property Advisory Services, 580 George Street, Sydney NSW. Ms Gail Sanders, Executive Officer, NSW Division, The Australian Property Institute, 60 York Street, Sydney NSW. Mr Alan Vidor, Managing Director, The Toga Group (representing the ownership interests for Medina Executive - Sydney Central, Case Study No. 4), Crown Street, Surry Hills NSW. 154
Mr Greg Walters, Director, Fitzwalter Property Consultants, Harris Street, Ultimo NSW. Ms Anne Warr, Heritage Officer, Sydney City Council, Kent Street, Sydney NSW (all five Sydney CBD Case Studies). Mr Michael Wells, Heritage Planner, Parramatta City Council, Darcy Street, Parramatta NSW (Case Study No. 2). Ms Paula Wilson, Technical Services Co-Ordinator, Environmental Planning Department, Sydney City Council, Kent Street, Sydney NSW (all Five Sydney CBD Case Studies). Mr Robert Young, Chief Property Manager, No. 1 Martin Place Pty Ltd (representing the ownership interests for No. 1 Martin Place, Case Study No. 1), Martin Place, Sydney NSW. 155

C Dominy

File: part-b-the-impacts-of-heritage-requirements-on-the-financial.pdf
Title: economics_partb.PDF
Author: C Dominy
Author: halll
Published: Thu May 2 16:09:04 2002
Pages: 155
File size: 0.96 Mb


Elements, 3 pages, 0.27 Mb

, pages, 0 Mb
Copyright © 2018 doc.uments.com