Linwar Pty Ltd as Trustee for 89 Goondoon Street Unit Trust v Chief Executive, Department of Natural Resources
[2000] QLC 37
•28 June 2000
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BRISBANE
28 June 2000
Re: Appeal against Annual Valuation
Valuation of Land Act 1944
Valuation Roll No: 601-199
Local Government: Gladstone City
(AV98-829).
Linwar Pty Ltd as Trustee for 89 Goondoon Street Unit Trust
v.
Chief Executive, Department of Natural Resources
(Hearing at Gladstone)
D E C I S I O N
Background:
This matter relates to a property at 89 Goondoon Street, Gladstone, and described as Lot 4 on RP606125 and Lot 2 on RP 617215, Parish of Gladstone. The land is a 1581 square metre parcel located in the main Central Business District (CBD) of Gladstone, and on the western side fronting the Gladstone Mall. The Mall is an enhanced pedestrian shopping precinct in Goondoon Street between Roseberry Street and William Street. Traffic through the Mall is restricted to one way moving from south to north, and there is angle car-parking along the western side of Goondoon Street. The subject land also fronts Central Lane at its rear, and both Goondoon Street and Central Lane are bitumen sealed with concrete kerbing and channelling. Traffic in Central Lane is two-ways. The subject land is zoned "Comprehensive Development" under the provisions of the Gladstone City Council Town Plan of 15 June 1991, and current at the date of valuation of 1 October 1997.
It is agreed that the subject land slopes gently from Goondoon Street to the rear at Central Lane, and there is a cross-fall from north to south. All normal utility services are available, and the land is currently used for Commercial/Retail purposes. The key issues are the impact of the Mall, comparison of sales, relativity and changes in the market.
On 2 March 1998, the Chief Executive issued a valuation of the subject land at $225,000. The previous valuation at 1 October 1996 had been $250,000, and the Chief Executive had assessed the market as having declined by 10%, and accordingly reduced the subject land to $225,000. Following an objection the Chief Executive re-assessed certain later sales that occurred immediately after October 1997, and determined that a further reduction of 10% was relevant. The Chief Executive accordingly reduced the valuation of the subject land by another 10% to $202,500 on 30 September 1998. The appellant has now appealed that figure claiming that the unimproved value should be $30,000. Following advice from his consultant valuer (Mr CL Roffey), the appellant was granted leave to amend his estimate of the value to $158,000, the figure now contested for.
Mr Warren John Klein, solicitor, and sole director of Linwar Pty Ltd appeared and gave evidence on behalf of the appellant, also calling evidence from Chris Roffey, a certified practising valuer. Mr Damien Grealy, Counsel of Crown Law, appeared for the respondent, calling evidence from David Drew, the Departmental registered valuer responsible for determining the valuation.
The Evidence:
(1) The Impact of the Mall -
Mr Klein argues that the development of the shopping mall has had a significant negative impact upon the level of commercial and retail activity in the CBD. Mr Klein draws comparisons with similar other shopping malls in other cities, which have also subsequently been found to have not worked as originally intended, and which are now being abandoned by those councils. Mr Klein notes in particular the malls in Southport and Rockhampton, where traffic was either excluded or severely restricted; compared to malls at Mackay and Bundaberg where two-way traffic was allowed to continue, but under significant traffic calming arrangements.
Mr Klein argues that the Rockhampton and Southport Malls have recently been re-opened to two-way traffic in an attempt to provide more parking in the mall area, and hopefully thus rekindle interest in rejuvenating the malls as viable retail centres. Mr Klein is not critical of the aesthetic nature of the current Gladstone Mall, but only of its apparent impact upon CBD activities. The Mall was constructed by the Council in 1988 at a cost of some $674,564, in an attempt to upgrade pedestrian access to the CBD outlets. The development of mall concepts had been widely canvassed in planning circles during the 1970s and 1980s, and malls tended to be created without a full understanding of their dynamics. Some malls would appear to have been successful, while others have been dismal failures.
However both valuers agree that other factors have also drawn customers away from the CBD Mall, including the establishment of regional drive-in shopping centres. There is a successful example of such a centre in the Valley Centre located further south along Goondoon Street near Herbert Street. Mr Klein confirms that prior to those forces changing the dynamics of Gladstone shopping patterns, the area of Goondoon Street, between Yarroon and William Streets, was the best retail centre in Gladstone. Yarroon Street is the next cross street north of Roseberry Street.
To support his assertions, Mr Klein provides a copy of a report by consultants for the Gladstone City Council, which was undertaken in April 1998, not long after the date of valuation. That report entitled "Gladstone Central Economic Analysis" identifies a draft strategy involving 29 projects aimed at improving Gladstone's Central economic activities. The projected cost of those projects over a period of four years was estimated at $3.545 million, and was to be funded jointly between the Council, private investors and the Gladstone Central Stakeholders' Association. High on the list of priorities was a proposal to increase carparking by formalising off-street parking to attract local shoppers back into town and for long-term staff carparking. The report also identified three precincts including the Marine, Uptown and Valley areas. The subject land is located in the Uptown precinct.
The thrust of the carparking recommendations were to integrate rear off-street parking behind buildings, by linking those carparking areas to Goondoon Street by well-signed pavements, and thus assist in keeping through-traffic out of Goondoon Street. The report also emphasised the support for "alfresco" dining in the streetscape, such as coffee shops and sidewalk cafes. None of those recommendations are inconsistent with the current one-way traffic flow through the mall, and in fact depend to some extent upon the continued restriction on the width of the carriage-way needed for traffic. The re-introduction of two-way traffic would appear to be in conflict with the streetscape recommendations, and was noted in section 4.1.4 of the report.
The report recommended a mix of business in the Uptown precinct, including business and professional services and multi-user retail outlets, typical of the existing uses of the subject land. (Lot 2 is used as a retail outlet, and Lot 4 is for the professional offices of the appellant.) The report also analysed the current rating and valuation system, and the value of improved properties in the area. The rating analysis utilised the valuation expertise of Mr C Roffey.
The report found that there was an oversupply of retail space in the CBD, and that rentals are equivalent to the city as a whole, but well below those of the shopping centres. The reason for the attractiveness of shopping centres relates to a pleasant air-conditioned environment, and their ability to attract major anchor tenants. The report went on to encourage objections to current valuations in the CBD, which may appear to be incorrect, and for a cautious consideration of the introduction of a special levy to promote the CBD. However there was no evidence provided that the Council has formalised those recommendations.
Comparison of Sales -
To support his estimate of the unimproved value, Mr Roffey provides the following sales of land zoned as "Comprehensive Development":· Sale 1 - (132 Goondoon Street - Lot 5 on RP 612906)
This is a 2,111 square metre improved parcel with a showroom of 303 square metres, a warehouse/office of 243 square metres, and a dwelling of 87 square metres. The property was on the market for 12 months prior to sale, and sold on 22 May 1999 for $260,000 ($123 per square metre). Adopting a replacement rate of the building, less depreciation, the added value of improvements was assessed at $140,000, and an analysed unimproved value of $120,000 (or $57 per square metre) was adopted.
· Sale 2 - (70-72 Goondoon Street - Lot 1 on RP 614599)
This is a 1949 square metre improved parcel with a ground floor of 433 square metres, and a first and above floors of 1,415 square metres. The property was purchased for refurbishment, which has since occurred. However, a former tenant is the only new tenant, and the other areas remain vacant. The property sold on 29 April 1999 for $375,000 ($192 per square metre), which was analysed at $134,500 ($69 per square metre).
· Sale 3 - (33 Goondoon Street - Lot 4 on RP 616896)
This is a 1,471 square metre improved parcel with a ground floor of 530 square metres, and a basement of 180 square metres. The property sold on 14 November 1997 for $260,000 ($183 per square metre). The replacement cost was assessed overall at $870 per square metre ($630,000), which was then depreciated by 75% giving an added value of improvements of $158,000, and an analysed unimproved value of $100,000 ($68 per square metre).
This is the former Post Office building, which has subsequently been refurbished by a State Government department tenant at a cost of $350,000. The first floor is currently leased at $200 per square metre. The State department had formerly been paying $160 per square metre for its previous accommodation.
· Sale 4 - (39-47 Goondoon Street - Lot 1 on RP 608426; Lot 1 on RP 605685; and Lots 3 and 4 on RP 618012)
This is a 2988 square metre improved parcel with a basement of 169 square metres, a ground floor of 285 square metres, and a first floor of 297 square metres. The property sold on 21 October 1997 for $300,000 ($100 per square metre), and after allowing for the cost of new improvements for the ground and first floors at $870 per square metre, and the basement at $600 per square metre, was costed at a replacement cost of $608,000, and then depreciated by 80%, giving an analysed unimproved value of $178,000 ($60 per square metre). The existing dwelling provided no added value and has since been removed.
Mr Roffey also notes that his Sale 4 had only one vacancy at the date of sale, and continues to be leased at a rate of $53,500 per annum. The property at sale comprised five small shops with upstairs flats. Mr Roffey believes the on-going lease rental indicates some residual added value of improvements greater than the $55,000 allowed by Mr Drew. Mr Roffey agrees that the subject land is superior in location to either of his Sales 3 and 4, but he disagrees with the analysed rates of Mr Drew.
To support his determination, Mr Drew provides the following sales of lands all zoned for "Comprehensive Development":
· Sale 1 - (Cnr Goondoon and William Street - Lots 1 and 2 on RP 604809)
This is a 762 square metre improved parcel located in the mall, with pedestrian access to the mall, but difficult vehicle access via William Street. It is a relatively level corner site, which is overall inferior to the subject land. The sale was vacant for a few years, and the site was rented by the Police Department while a new building was completed.
The sale was sold on 12 September 1997 for $350,000 ($459.32 per square metre), which after allowing for improvements was analysed at $148,905 ($195.40 per square metre), and applied at $146,000 ($191.60 per square metre).
· Sale 2 - (Cnr Goondoon and Herbert Streets - Lot 1 on RP 616662)
This is a 602 square metre improved parcel located in the Valley precinct, well south of the mall area, and not in the main commercial development. Overall the sale is inferior. Mr Drew agrees that sale is removed from the CBD, but he sees the sale as providing support for the further reduction of an additional 10%, now included in the revised current valuations. The sale sold in March 1997 for $315,000, which was analysed at $76,270 ($126/m²), and applied at $76,000.
Mr Roffey argues that Sale 2 is in the Valley Shopping Centre which is a different business area, with specialty stores and a major anchor tenant (Woolworths). Mr Roffey sees that sale as not comparable.
· Sale 3 - (33 Goondoon Street - Lot 4 on RP 616896)
This is a common sale with Mr Roffey's Sale 3. The sale is seen as inferior to the subject land in location as it is not in the mall, and is overall inferior. Mr Drew analyses the sale to have improvements at a replacement cost of $600 per square metre, plus development costs, less 85% for depreciation, giving an added value of improvements of $89,000, and an analysed unimproved value of $171,000 ($116.60 per square metre). (Exhibit 9).
· Sale 4 - (39-47 Goondoon Street - Lot 1 on RP 608426; Lot 1 on RP 605685; and Lots 3 and 4 on RP 618012)
This is a common sale with Mr Roffey's Sale 4. The sale is seen as inferior in position, and inferior overall. Mr Drew analyses the sale at a replacement cost of $600 per square metre, plus development costs, less 90% depreciation on the ground floor and 85% depreciation on the first floor, giving an added value of improvements of $53,000, allowing also for clearing of the site of $2,500. The analysed value of the unimproved land was $244,915 ($81.96 per square metre). The building was seen to be in very poor condition.
Mr Drew argues that his Sales 1, 3 and 4 support the further reduction of 10% in the valuations. While adjusting for that reduction Mr Drew maintained the former relativities. Mr Drew was unaware that his Sale 4 was currently leased at $37,000 per annum, which he agrees appears to be a high return on a building with an added value of only $53,000. (70% return). Mr Drew has also not analysed any later CBD sales since 1997, and did not examine Mr Roffey's Sales 1 and 2. However Mr Drew believes that the market has remained relatively unchanged since late 1997. Mr Klein argued that use of the former sale of 97 Goondoon Street as a vacant site in 1995, provides no assistance, as the land is now valued at only 65% of its former value.
Relativity -
Mr Roffey argues that the following relativities with nearby parcels indicate an error in the unimproved value of the subject land:
Property Address Area Valuation Rate per m²1 109 Goondoon St 1929m² $183,000 $ 94.87
2 97 Goondoon St 1929m² $211,000 $109.38
3 95 Goondoon St 1626m² $162,000 $ 99.63
4 69 Goondoon St 1970m² $214,000 $108.63
5 Subject 1581m² $202,500 $128.00
Properties 1, 2, 3 and 5 are all located in the mall, while Property 4 is immediately to the north of the Grand Hotel, and has quality tenants including the largest legal practice in Gladstone, and for a period was partly leased to Australia Post. Mr Drew advises that Property 4 (Lot 100 on RP 892595) had a conservative valuation of $108.63 per square metre. Mr Roffey agrees that the adjoining property to the south of the subject land (95 Goondoon Street), also had a conservative valuation, and was slightly inferior to the subject land, due to its narrower frontage to the mall. (14.2 metres compared to 19.4 metres for the subject land). 95 Goondoon Street, however, has a larger carparking area at the rear fronting Central Lane. Mr Drew confirms that he was not aware of the design of the new building on 95 Goondoon Street, currently under construction, which makes provision for better access to that rear parking area. However Mr Drew advises that there is now an emerging market for unit sites in the CBD area. Mr Roffey advises that in his opinion the subject land reflects about 10% more than 95 Goondoon Street, because of its superior frontage on a relativity basis alone. Mr Roffey believes the subject land should be less than $128 per square metre.
Mr Klein agrees that the subject land is still one of the best sites in Goondoon Street, and because of falling rentals he has had to relocate his professional offices in order to capitalise on his investment. He advises that his lease for two years plus options on Lot 2 for retail purposes is currently at $52.52 per square metre, and his professional offices are worth $180 per square metre. The options to renew the lease for retail purposes have not been exercised by the tenant due to uncertainties in the market.
In assessing relativities Mr Drew has adopted a check method of applying a rate per linear metre of frontage. However he agrees that it is normal practice in the industry to consider commercial properties on a rate per square metre basis, or by direct comparisons.
Decision:
(i) The Impact of the Mall -
I turn first to the impact of the Mall and note that, while the appellant relies upon the experience of malls in Mackay and Bundaberg, where two-way traffic has been allowed to continue, those views are not supported by the "Gladstone Central Economic Analysis" study. The varied experience of CBD shopping malls in Australia has been widely noted in the texts. Expert opinions tend to attribute the different impacts of those malls to a divergent range of internal and external forces.
The internal forces include the aesthetic streetscape of the mall, its width which must be wide enough to provide a pleasant shopping environment, but not too wide so as to diminish the cohesion of a unified precinct; and most importantly the convenient and easy access to parking. The external factors include the presence of drive-in regional shopping centres such as Kin Kora Mall. These latter facilities provide a fully enclosed air-conditioned comfort ambience for shoppers in a purpose-designed quality environment, generally surrounded by carparking. The regional shopping centres also attract several major anchor tenants which provide the focus for shopping excursions.
The 1998 planning study reveals that, if the uptown precinct of the Goondoon Street area was to be re-opened to two-way traffic, there would only be a gain of some 9 to 14 carparks along the western side. (Page 29). However, the evidence does support that the mall is not the significant advantage that Council has expected, and any premium attaching to the subject land for its location on the mall, needs to be measured in perspective. The existing low lease rentals reflect that reality.
(ii) Comparison of Sales -
In the comparison of sales I find little assistance from Mr Drew's Sale 2, which is agreed to be in a different business precinct. Mr Drew's Sale 1 is a much smaller corner parcel, and the analysed rate of $195.40 per square metre reflects that difference. While Sale 1 is seen as overall inferior to the subject land, the difference in size makes direct comparisons more difficult.
Mr Roffey's Sales 1 and 2 are both late sales, well after the date of valuation. However, Mr Drew agrees that the market has not appreciably changed since late October 1997, and those sales provide some limited assistance. The matter of late sales was addressed by the High Court in McCathie and Ors v. Federal Commissioner of Taxation (1944) 69 CLR 1, where Williams J said at page 16:"Subsequent sales are just as admissible in evidence as prior sales, provided that in all the circumstances they are comparable. If between the material date and the date of the subsequent sale supervening events occur which alter the conditions previously existing, the subsequent sales would not be comparable and would be useless."
That was also followed in Federal Commissioner of Taxation v. Harris (1980) 38 ALR 10 at 18. However in Harris, Fisher J noted at page 25 that the subsequent event cannot create an expectation which was not in existence at the relevant date.
The main difference between the valuers then tends to lie in their analyses of the added value of improvements attributed to the two common sales at 33 Goondoon Street and 39-47 Goondoon Street. In respect of Sale 3, Mr Roffey has adopted a replacement rate of $800 per square metre ($630,000), while Mr Drew uses a rate of $630 per square metre plus development costs ($576,000). Mr Roffey then depreciates his costs estimates by 75% to $158,000; while Mr Drew depreciates his cost estimates by 85% to $86,000. The variation in those analysed rates demonstrates why the courts have long preferred the comparison of sales of vacant lands, where they occur. That was perhaps best explained in PH Clough v. Valuer-General (1981-82) 8 QLCR 70, where the Land Appeal Court said at page 76:
"It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements.
Because there is less room for difference of opinion as to value of the various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement. "
If I then compare the analyses of Sale 4, I find Mr Roffey has estimated the cost of improvements at $608,000, and then depreciated by 80%, giving an added value of $122,000. Mr Drew has analysed those same improvements at $425,000, and then depreciated by between 85% and 90% giving an added value of $53,000. Allowing for the differences between the valuers I find the following comparisons:
Sale Mr Roffey Mr Drew Agreed Comparisons3 $100,000 $171,000 Inferior
4 $178,000 $245,000 Inferior
In order to further assist in the analysis of Sale 4, I note that sale is currently leased at a rental of $37,000 per annum. While the building is old and showing signs of wear (Exhibits 5 and 8), an annual return of 70% on the depreciated building at $53,000 would appear inconsistent with the normal market expectations. I also note that Mr Drew has made no allowance for any basement level for that building, although the photo (Exhibit 8) would suggest that the basement provides little additional benefit to the site. In any case some allowance for the basement would only further increase the percentage rental return on the depreciated asset, and I believe would not be justified. I believe the added value of improvements on Sale 4 is greater than $53,000.As both valuers have adopted the recognised industry guides to building costs (Cordells and Rawlinsons), I believe the difference between them lies in their perception of the quality of the building structures. There is nothing to indicate that either valuer has made an error, and the variations can be attributed merely to professional opinions. However, it demonstrates the inherent problems associated with that method. At best those analyses provide me with a range of analysed values for those sales. Adopting some guide from those ranges would suggest that the subject land could be greater than Sale 3 at $135,000, and also greater than Sale 4 at about $200,000. However those mid-range values of the sales are quite subjective, and I look elsewhere for a guide as to the true unimproved value of the subject land.
(iii) Relativity -
The range of unit rates per square metre for the five properties compared, indicate that the most relevant property for comparison of relativity is the adjoining property to the south (95 Goondoon Street), at $99.63 per square metre. Both valuers agree that property is inferior in regard to frontage, and Mr Roffey offers an opinion of a variance of about 10%. That would assess the subject land, purely on a relativity basis, with the adjoining parcel at $110 per square metre. As the five properties compared are of comparable size, the range from $95 per square metre to $110,000 per square metre is consistent with Mr Klein's opinion that the subject land is still one of the best sites in Goondoon Street. At a rate of $110 per square metre the subject land would have an unimproved value of $174,000. Based upon relativity on a site basis, the unimproved value of the subject land compared to 95 Goondoon Street would be $178,000. Mr Roffey seeks to rely upon the applied unimproved value of 95 Goondoon Street at $162,000, which he argues is supported by section 33 of the Act; and also in accordance with the findings of TF and SA Shepherdson v. Valuer-General (1992-93) 14 QLCR 83, where the learned Member said at page 87:"Applying to this case the principles of law summarised above, it is desirable that valuations of comparable land should bear proper relativity. The appellants are entitled to rely on the valuations of properties in the vicinity of the subject land as being correct. ---- Although the comparable sales support a valuation in the order of that assigned to the subject land, it is appropriate that attention be given to obtaining some relativity to blocks in the same category of land. "
(iv) Changes in the Market -
Mr Roffey's late Sales 1 and 2 reflect a much lower rate per square metre than the subject land. This reflects, in my opinion, their location in Goondoon Street outside the mall precinct. The level of continuing vacancies in Sale 2 also demonstrates the lack of demand for that property.
Summary:
Considering the weight of evidence, in my opinion, the unimproved value of the subject land is between $178,000 and $200,000. I will adopt $190,000.
Conclusion:
Having considered the whole of the evidence I am persuaded that the appellant has partly proved his case. The valuation of the Chief Executive is set aside, and the unimproved value of Lot 4 on RP 606125 and Lot 2 on RP 617215 is determined at One hundred and ninety thousand dollars ($190,000).
(NG Divett)
Member of the Land Court
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