Chch CBD masterplan - a major risk?

09:22, Sep 25 2011

The money may already be walking. Submissions on the recovery plan for Christchurch's central business district (CBD) closed only last week, but unhappy building owners are now speaking openly of taking their cash elsewhere.

"There's a lot of angry property owners out there. There's going to be a massive flight of capital. We're talking about billions of dollars going out of the city," warns investor Miles Middleton, who alone has some $90 million tied up in insurance claims for four earthquake-stricken office blocks, including the 14-storey Westpac tower.

The complaint is that Christchurch City Council has drawn up a new CBD masterplan that lacks commercial logic. It is naive, it is fraught with risks, and many property owners simply feel snubbed because they were not consulted during its drafting.

Christchurch is reaching a tipping point, agrees Lauren Semple, a lawyer with Anderson Lloyd, who works with many central city clients.

It is Christchurch's development community – a rather small number of perhaps 100 significant investors – who are going to have to underwrite the bulk of the CBD's rebuild, she says.

"The $2 billion the city council is putting into the four avenues will need to be matched by $20b of private investment. So it is 10 times the public spend."

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With the insurance settlements being made, and owners having to choose between the uncertainties of rebuilding in Christchurch or the swift purchase of some equivalent property in Auckland or Brisbane, well, it seems clear who ought to be buttering up who here.

Yet instead, read the headlines of the past few weeks, and the relationship between the Christchurch business community and civic leadership could hardly be more confrontational.

First there was the extraordinary whispering campaign that eventually culminated in an attempt by business interests to unseat council chief executive Tony Marryatt. Now following that – with Marryatt being reappointed, if albeit for a shortened term – the same people are calling for the Government to step in and replace the council with commissioners as it did with a recalcitrant Environment Canterbury last year.

If the earthquakes were not enough, Christchurch appears close enough to a civil war over who should run New Zealand's second city.

But in reality, the story is more complex, the possibilities more hopeful. Christchurch City Council has chosen to roll its dice a certain way, yet it is still a gamble that could come off.

What surprised many was the council's boldness.

After the first, September earthquake, the council – particularly Marryatt and Mayor Bob Parker – were lambasted for taking a too laid-back, "business as usual" approach to Christchurch's future. There was no visible engagement with the public about how recovery should be handled.

But after February's second, much more devastating shake, the council did not make the same mistake twice. In May, it held its intensive Share An Idea consultation exercise. Some 100,000 ideas scrawled on Post-Its or contributed online were boiled down to discover what Christchurch ratepayers actually wanted of their central city.

Then when the council's draft masterplan was unveiled in August. It not only reflected the public mood accurately, but also proved extremely detailed.

With so many hard choices to be made, sceptics had been predicting a flimsy vision statement that would strive not to offend. Instead the council delivered a 136-page blueprint, backed up by a second, 291-page volume of evidence, and more crucially, a third, 232-page volume of new planning rules – a regulatory framework to enforce the many proposed changes.

Council officers were clearly seizing the opportunity to get big things done. For more than a decade, it has been official policy to halt the erosion of the central city. Lax planning codes had allowed the suburban shopping malls and office parks to get out of hand, sucking shopping and jobs out of the CBD.

The council had been struggling to reverse the trend with a tighter approach to city limits and zoning. But with many entrenched interests, it was an uphill effort to pass changes with much bite.

Some thought the earthquakes might have finally knocked the stuffing out of this ambition. With businesses being forced out of the centre for at least a few years, and thousands of red-zoned homes needing to be relocated to cheap land on the city fringes, why not now just let Christchurch sprawl like it wanted? Decentralise rather than densify.

However, far from backing off, the council's masterplan has done the opposite, apparently fast-tracking every project and rule its urban design team could imagine.

There are proposals for all the things the council wants to do, from a replacement convention centre, swimming pool and central library, to a new covered market, free wi-fi network, district heating plan, kids' playgrounds, an Avon river park and even – if a feasibility study supports it – light rail.

Then equally there are all the rules to limit what developers will be able to do, from building height constraints, to parking restrictions, to a CBD precinct plan that decides what kinds of businesses and shops ought to go where.

With ample justification, the council can say this plan is what the people of Christchurch have called for.

However, its possible big miscalculation is that those who most have to buy into the vision did not get to shape its making.

Critics like Solid Energy boss Don Elder, spokesman for the Canterbury Business Leaders Group, contrast this with the rebuilding of the Californian town of Santa Cruz after its very similar 6.9 magnitude quake in 1989.

There, the recovery was a partnership from the start with business representatives and town hall officials – 18 from each side – sitting around the same table. Santa Cruz town planner Charles Eadie told on a recent visit to Christchurch how this ensured commercial viability was built in from the get-go.

"It allowed for creative compromises," Eadie says. For example, officials wanted to pedestrianise the main shopping street. Instead, it was agreed to have a road easily closed off for public events.

"This close working both inspired confidence and also psychologically tied the business community in. It made it their plan too," Eadie says.

For whatever reason, Christchurch City Council has done it very differently. And one thing being heard about are the bruised egos. "Christchurch has a number of families who have been investors over a long time," points out Semple. "They have a strong connection with the history of the city. And there is their philanthropic endeavour as well. They have invested in the music, arts and culture."

Not that a Kiwi would put it this way, but there is a sense of a social position not being properly honoured. Semple agrees that being left on the outside at such a key moment in Christchurch's history could be half the reason why Marryatt and Parker now have such bitter enemies.

However, she adds that there are then also the genuine concerns about the masterplan.

The vision they like. Semple says by definition, central city property owners want to see a thriving CBD. They are as much against the steady donutting of the centre by a ring of malls and business parks as anyone.

But they are being asked to make snap reinvestment decisions on some big changes in council policy. Car parking is one obvious example. Here, the council has done a 180-degree switch from setting minimum car park numbers for any building to maximums.

Where pre-quake the CBD rules said "at least", now the council wants to make it "at most". The actual proposed limits are not looking overly tight, says Semple. But for property owners, it still presents a new risk that they might struggle for tenants if freer parking is on offer in the suburbs.

Also, because the council wants more street frontages that are pedestrian-friendly, the new rules will insist parking is out of sight round the back of buildings. For some sites on road corners, it is hard to imagine how this can even work, says Semple.

And first-storey parking visible from the road – as was becoming popular with new tower blocks like Victoria Apartments – would go. This might force the much more costly option of building these car parks underground.

The council then wants to push multi-storey car parks to the farthest fringes of the CBD. On the masterplan's "indicative" map, the nearest big parking facilities are marked out near Latimer Sq and St Asaph St, the rest being right beyond the four avenues.

So, just on parking alone, there are a whole range of unfamiliar restrictions which owners would have to factor into their calculations about reinvesting in the city. The same with height regulations.

The council wants a new seven-storey height limit maximum in a town which has never had a limit before.

For a building owner like Middleton, this looks a real problem.

If his insurance payout is to replace 14 storeys, then only building half of that means losing the balance of what he had invested.

Middleton says he could borrow money to buy a larger site and spread the old floor area over a doubled footprint. However, Middleton says the more of these kinds of obstacles that get put in the way of rebuilding, the more likely CBD investors are to take flight.

The council's masterplan also hits the other end of the CBD market in setting a two-storey minimum height to preserve a distinct, urban feel.

Steven van der Pol, of project manager Arrow International, a committee member on the South Island Property Council, says Colombo and Manchester streets might have had their familiar long rows of two-storey heritage buildings.

But the commercial reality is that second storeys can be tough to let.

So many existing site owners would want just to rebuild single-level shops. And there is now another risk of capital flight if the council has not got the formula right.

Semple says a further bugbear is a proposed shop floor size restriction to keep big box retailers away from the heart of the city.

And then rules about green building, which are a nice-to-have for the CBD, but will slap on an extra 10 per cent to be recovered from tenants in rentals.

Semple says any one of the many changes is probably easily justified. They are what good urban design principles demand, and what the people of Christchurch have largely said they want.

But she says it is the way they add together that is the worry.

"There could be a point at which all of these good things tip into: `oh, we've actually gone too far'."

Semple says there are already so many unknowns for owners contemplating rebuilding in the CBD. "You don't know who your neighbours are going to be.

"You don't yet know the geotechnical conditions. You don't yet know the likely changes that will come in respect of the royal commission's work on the building code."

When you examine what owners are actually saying in their submissions on the masterplan, Semple says most of it is just about trying to manage the risks. They want to see more flexibility and common sense being built into the wording, so there is room to manoeuvre if experience proves some of the rules to be commercially impractical.

In more normal times property owners always at least had a strong fallback position in existing use rights.

If their buildings were destroyed in a fire or some other disaster, then so long as they got going within a year, they could rebuild exactly what they had before, regardless of any planning law changes that might have happened along the way.

So Middleton would be able to ignore the masterplan and do another 14-storey Westpac tower if he wanted.

However, the emergency earthquake legislation gives the earthquake minister the power to override existing use rights, and the ability to compulsorily buy a site.

If the masterplan needs to be enforced, there are tools to do it.

Semple says council officers have reassured owners they are not pushing for this to happen. Existing use rights will remain.

However, owners are not feeling too much trust for the council at the moment and would like to see these words somehow written into the masterplan.

The rights would at least give them the reassurance of some leverage if they get into negotiations with the council over the detail of consenting a new building design.

"What the development community are saying is this masterplan does seem a great vision that will attract people to Christchurch and add value to everything we do.

"But we need you to soften your plan a bit – de-risk it.

"We've got to have a better way of managing our risks."

Christchurch City Council strategy and planning chief Mike Theelen is too polite to put it so bluntly.

But while the masterplan certainly needs to work for the developers, the council has to be thinking of a bigger picture still. As has been frequently remarked, says Theelen, many of the CBD's existing owners are really just investors. They have bought a property someone else built.

The buildings probably already even had long-term tenants. All they had to do was source a deposit and mortgage, then collect rents.

So they don't really have the time, skills or nerve to start acting like bare-site property developers.

And with loans that need servicing, their most sensible option may well be to buy another new building quickly, even if it is in a different city.

But Theelen says that if they do leave, they will still have to sell their sites to others. And it is these actual eventual developers who will need to be happy with the CBD masterplan.

The council does not want to see existing money walk. Theelen says it hopes that local joint venture companies will emerge, where groups of investor-owners will pool their payouts and land to do projects of real scale.

For example, whole blocks of the city with a landscaped theme, or special ventures like a campus for foreign language students, that might mix accommodation and ethnic shops and restaurants as well.

Risks would be shared, and locals would be well-placed to spot the value of these kinds of opportunities.

Some of this talk is going on behind the scenes, he says.

But the experience of overseas disasters is that it is large corporate investors who usually lead the way; outside firms with their fortunes already in a number of cities and with the deep pockets to take the long-term view.

"The early years of recovery are very much dominated by institutional investment, not private investment. The private market tends to lag, tends to wait, until it can see there's a dollar to be made, a return to be had."

So Theelen agrees the council needs to foster good relationships to kick-start the CBD's rebuild. But part of the commercial reality of a city with 60 per cent of its existing structure being bulldozed is it is likely to be a new generation of owners who end up contributing a lot of that potentially $20 billion of reinvestment.

Critics of the council's response, like ex-mayor Garry Moore, are still worried. He says the council has become too distant from the needs of existing property owners, who are the ones with the big insurance bucks and the emotional tie to making the CBD happen.

Moore says a proactive council would be talking of public/private partnerships, where council and the business community were doing projects together. Instead, the whole recovery effort got off on the wrong foot and too much ego has got in the way. Even outside investors might be turned off by the friction.

Moore says there is still time to get a lot right. The masterplan is a draft. In the next few weeks will be the public hearings, then the council's review, and the Government's final review in December. "But it is all about relationships here," says Moore.

"And if the council doesn't have a good, sound, relationship with the private sector, then its central city plan is stuffed."

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