Tasmanian Labor continues to berate
anyone not supporting the disposal by UTAS of its Sandy Bay land for
residential housing. Liberals, Lambies and Greens are all portrayed as being disinterested
in solving the housing crisis by building 2,000+ new homes and/or helping to
fund a new STEM building.
UTAS’ surrogate spokesperson Dean
Winter has been instagramming images of the proposed development taken from
Deloitte’s two reports into the feasibility of the development of Sandy Bay
dated November 2021 and March 2022. It’s reasonable therefore to conclude the
development plan Dean has been spruiking is the same as described in those
Deloitte reports.
In summary this is what we learnt
from the Deloitte Reports:
·
The
planned development is a 30-year project, mostly for 2,656 new residences, a
combination of 1, 2 and 3 bedroom units with an average area of 88 square
metres to be sold at an average price of $880,000 (2021 prices).
·
The
project will be conducted in stages. Needless to say, outlays will occur before
revenue so funds will be required to fund the deficits in the early years. Peak
project debt of $234 million will occur in year 5, in 2027, but the project is
already 2 years behind schedule. The funds squirrelled away by UTAS to fund the
project’s debt have all but disappeared, due to cost overruns and delays with
the Hobart rebuilding and the increasing losses from core activities of
teaching and research which UTAS is yet to fix. UTAS can’t borrow more without
the Treasurer’s permission.
·
The
project will reach cash break even in Year 17, after which time the project
will start to rebuild UTAS’ equity. Over the ensuing 13 years cash profits of
$800 million are predicted. That’s $800 million in future $s, which roughly
translates to possibly $400 million in current $ terms. Not a great deal seeing
UTAS’s current equity stands at $1,341 million.
·
UTAS
initially hoped to run the project itself but due to its deteriorating
financial position is now looking at ways to take on a joint venture JV partner
and/or selling properties on a leasehold rather than freehold basis. The latter
may result from restrictions that may be placed on UTAS by the recently tabled
Bill in State parliament.
·
The
Deloitte Reports stress that the project is currently only at the 5% design
concept stage. To listen to politicians spruiking the deal one could easily
start believing they’re ready to turn the first sod.
·
The
project doesn’t even manage to meet the minimum target return if land and
buildings to be redeveloped are given a zero value. For the project to achieve
the target rate of return UTAS will have to pay the developer to take the land
off its hands. This won’t occur of course, but what it means is that UTAS will
have to accept a lower rate of return if a JV partner wishes to achieve a
target rate.
·
If
the project proceeds and the project land is given a value whatever that may
be, whether it’s zero or $26 million, it will likely be far less than the
current book value of the land and buildings. In which case UTAS will suffer a
large drop in its equity position, which won’t start to be recovered until Year
17. Sceptics of the redevelopment have been labelled reckless if they don’t sign
up as UTAS cheerleaders. It’s much easier to establish recklessness where
existing assets are trashed in the hope of getting some back 17 years later.
Its craziness on steroids.
·
Given
that the existing land and buildings obviously have a value as part of a
continuing institution for learning and research, it is that value that needs
to be plugged into any model when trying to assess a rate of return on a
project to convert a valuable asset to an above ground cemetery for cashed up
baby boomers. It will certainly paint a different picture than the misinformed messaging
from the Labor Party.
