‘This deal stinks’: Expert says Midland Landgate building sale cost WA taxpayers $52m

A veteran Perth property consultant claims the sale of the Landgate building in Midland is one of the worst he had seen in his 25-year career and will leave taxpayers $52 million worse off.

An analysis of the $17.3 million sale in March to builder Georgiou, and the subsequent $85 million government lease-back of the 1 Midland Square building, suggested taxpayers would be worse off than even the opposition predicted last month.

The Landgate building in Midland.Credit:Hamish Hastie

Lloyd Collins Property Consultants’ Paul Collins said that was because of lost sales opportunities and a 3700 square metre car park down the road that was included in the deal but has not been publicly acknowledged by the WA government.

Collins, who has run for the Legislative Council as a Liberal and for the federal seat of Perth as an independent, said in a blog post earlier this month the government could have sold the Landgate building for about $100 million, had it refurbished it itself.

He said even if the government spent $30 million on a refurbishment, as Georgiou plans to do, a $100 million sale would have netted taxpayers $70 million, instead of the $17.3 million it has ended up with.

“This deal stinks for the WA taxpayer,” he said.

“I have no doubt a sale price of at least $100 million could be achieved post-refurbishment in 2024 even without the rent on the surplus lettable areas locked in.”

Collins cited the 2018 sale of the government-tenanted 16,116-square-metre Optima Centre in Osborne Park for $125.2 million to Charter Hall as a comparable deal.

“I have been involved in the commercial property industry for nearly 25 years. I’ve sold assets as low as $10,000 and as high as $105 million. I’ve leased 21sqm up to 11,000sqm, including major leases to the state government,” he said.

“I fail to understand why this deal is so bad for the state government and outstandingly brilliant for the buyer.”

The most controversial aspect of the sale is the government’s commitment to lease back 13,700 square metres of office space for $5.7 million a year over 15 years, which will ultimately cost taxpayers $85 million.

A condition of the sale was for Georgiou to refurbish the building. The company plans significant changes to the building, including converting the bottom floor of one of the building nodes to an undercover car park and part of the ground floor of another node into a gym.

The government claims the deal is saving taxpayers $12 million by avoiding building refurbishment and fit-out costs but has not yet provided proof of this figure.

Collins said in addition to the government-leased office areas, Georgiou will have a further 4000 square metres to lease privately, which could potentially yield them a further $1.6 million a year based on rent prices being paid by government tenants.

Car park sweetener

In addition to the Landgate building, the sale also included a 3700-square-metre car park 150 metres away at 58 Morrison Road.

The Morrison Road land was included when the Landgate building reverted to government ownership from a superannuation company in March last year.

The inclusion of the car park in the deal has not been mentioned in any of the state government’s public announcements about the Landgate building sale.

It was also not included in the initial request for expressions of interest from the private sector, known as a problem and opportunity statement.

The sale included the car park at 58 Morrison Road. Credit:Domain

The Department of Finance confirmed Georgiou could develop the car park on the condition the Landgate building still had access to the same number of bays.

“Should development of the car park occur in the future, Georgiou is obligated to provide the same number of bays within 200 metres from the Centre Node,” a finance spokeswoman said.

According to Georgiou’s development plan, approved in January, the conversion of office space into a car park would result in 82 new bays at the Landgate building site.

Release the math

Liberal leader David Honey said the deal was either “incompetence or misadventure” and called on the government to release its modelling.

“The government needs to explain clearly the commercial basis for the deal and in particular they need to explain how the deal was saving taxpayers $12 million, because it’s apparent taxpayers are tens of millions of dollars out of pocket.”

Honey also criticised the WA government’s cabinet for allowing such a deal to happen.

“Neither the minister nor a single person in cabinet could recognise that this was a dreadful deal for the taxpayers,” he said.

“Every person I’ve spoken to who has had the most cursory look at the details of this has said that they’ve immediately been startled by the fact that this is such a poor deal.”

A spokesman for Finance Minister Tony Buti described Collins’ analysis by a former Liberal candidate as “rudimentary” and did not consider a “range of factors”, but did not detail what those factors were.

He also defended the deal as the best result for taxpayers but would not give any further details due to commercial confidentiality.

“The lease option presents a superior financial outcome for taxpayers – as determined by the thorough and independent process,” he said.

“It also ensures an increased public sector presence in Midland.

“Commercial-in-confidence remains in place to protect the commercial interests of government, contractors and WA taxpayers.

The spokesman said the car park at 58 Morrison Road was considered part of the 1 Midland Square site and there was a provision in the contract to ensure the current level of parking was “maintained across the site”.

The Department of Finance spokeswoman also defended the sale.

“This number was derived from comprehensive financial modelling which compared the available options and took into consideration the relevant costs associated with upgrading the building and its fit-out, as well as the sale of the building and the 15-year leasing costs,” she said.

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