Perpetual Trustee Company Limited v Department of Natural Resources, Mines and Water
[2007] QLC 43
•31 May 2007
LAND COURT OF QUEENSLAND
CITATION: Perpetual Trustee Company Limited v Department of Natural Resources, Mines and Water [2007] QLC 0043 PARTIES: Perpetual Trustee Company Limited
(appellant)v. Chief Executive, Department of Natural Resources, Mines and Water
(respondent)FILE NO: AV2005/0802 DIVISION: Land Court of Queensland PROCEEDING: An appeal against the unimproved value of an improved commercial property in the Central Business District of Brisbane. DELIVERED ON: 31 May 2007 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER: Mr JJ Trickett, President ORDER: The appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of Lot 10 on SP 151098, Parish of North Brisbane (175 Eagle Street), as at 1 October 2003, is determined at Nine Million Five Hundred Thousand Dollars ($9,500,000).
CATCHWORDS: Valuation - unimproved value - Central Business District improved commercial site - highest and best use - methods of valuation - direct comparison with sales - analyses of sales
Valuation – statutory construction - Valuation of Land Act 1944 – unimproved value of improved land – method of valuation – relevance of sales – analyses of improved sales – comparability of sales for different purposes – river front commercial land – effect of easements and other impediments to development.
APPEARANCES: Mr R Traves SC and Mr R Anderson, for the appellant
Mr T Quinn and Mr S Fynes-Clinton, for the respondentSOLICITORS: Gadens Lawyers for the appellant
Legal Services, Department of Natural Resources, Mines and Water for the respondent.
This is an appeal by Perpetual Trustee Company Limited (the appellant), against the unimproved value applied to its improved commercial land by the Chief Executive, Department of Natural Resources, Mines and Water (the respondent), as at 1 October 2003, under the provisions of the Valuation of Land Act 1944 (the Act). It is one of five appeals against such valuations by commercial landowners which were heard consecutively, with the evidence in each case being the evidence in the others. Decisions have previously been delivered in respect of four of those cases: Multiplex 240 Queen Street Landowner Pty Ltd v Department of Natural Resources, Mines and Water[1], ING Management Limited v Department of Natural Resources, Mines and Water,[2] Multiplex 324 Queen Street Landowner Pty Ltd & Anor v Department of Natural Resources, Mines and Water[3] and ING Office Custodian Pty Limited v Department of Natural Resources, Mines and Water[4]. Many of the issues between the parties have been dealt with in those cases and the reasons for the decision in the present case should be read in conjunction with the reasons for decisions in those cases.
[1] [2007] QLC 10 (the 240 Queen Street case).
[2] [2007] QLC 19 (the 239 George Street case).
[3] [2007] QLC 36 (the 324 Queen Street case).
[4] [2007] QLC 39 (the 140 Creek Street case).
Background
The appellant is the owner of land situated at 175 Eagle Street, at the intersection with Queen Street in the Brisbane Central Business District (the CBD), two city blocks north-east of the Queen Street Mall. It has an area of 3,377 m² and is developed with a 19 level A-grade commercial office tower with some ground floor retail use and basement car parking for 162 vehicles. The tower was completed in 2002 and has a net lettable area of approximately 23,000 m². It is referred as to the CUA House.
As at 1 October 2003, the respondent assessed the unimproved value of that land at $12,500,000. After unsuccessfully objecting to the respondent against that valuation, the appellant appealed to the Land Court, contending for an unimproved value of $3,500,000.
The appellants grounds of appeal read as follows:
"The respondent's valuation is excessive having regard to the following:
1. Ground 1
The appellant's assessment of the unimproved value of Lot 10 on SP 151098 (the 'land') is lower than the respondent's assessment of the unimproved value of the land.Particulars
1.1 The appellant's assessment of the unimproved value of the land is $3,500,000.
1.2 The respondent's assessment of the unimproved value of the land is $12,500,000.
2. Ground 2
The appellant's assessment of the unimproved value of the land is supported by sales evidence.Particulars
2.1The appellant's assessment of the unimproved value of the land relies on sales of properties in Brisbane including but not limited to:
(a) 175 Eagle Street, Brisbane (Lot 10 on SP 151098);
(b) 75 Eagle Street, Brisbane (Lot 3 on SP 140664); and
(c) 120 Edward Street (Lot 5 on SP 135597).3. Ground 3
The appellant's assessment of unimproved value of the land has been made in accordance with the Valuation of Land Act, 1944.
Particulars
3.1The market evidence relied upon by the appellant to determine the unimproved value of the land supports the assessed value."
Those grounds of appeal were similar to the grounds in the other four appeals.
It should be mentioned that the respondent's annual valuations for the previous two years were also appealed, the Land Court determining the unimproved values for the subject land as at 1 October 2001 and 1 October 2002 at the same figure, $8,700,000.[5] The appellant further appealed to the Land Court which dismissed the appeals.[6]
[5] Perpetual Trustee Company Limited v Department of Natural Resources, Mines and Water [2006] QLC 17.
[6] [2007] QLAC 25.
At the hearing of the present appeal, the appellant relied on the evidence of registered valuer, Mr G Jackson, who had given evidence for the appellant in the earlier appeals. Mr Jackson produced valuation reports and gave oral evidence contending for a valuation of $3,650,000.
The respondent relied on the evidence of registered valuer, Mr M Denman. Originally the respondent was to rely on the evidence of registered valuer, Mr A Kirby, who was the respondent's valuer for the earlier appeals. However, when Mr Kirby became seriously ill, Mr Denman, who had worked with Mr Kirby, took over Mr Kirby's valuation responsibilities and gave evidence in this case. Mr Denman explained that he had reviewed Mr Kirby's valuation and accepted much of his work, but on occasions he had taken a somewhat different view. Both Mr Denman and Mr Kirby had in turn taken over the responsibility as expert witnesses in the present series of cases from the original valuer, Mr Ian Smith, who also was ill.
Mr Denman produced valuation reports and gave oral evidence contending for valuations of either $14,700,000 or $10,000,000, depending upon how s.3 of the Act was to be interpreted.
The respondent had intended to lead evidence to an unimproved value made by what has been termed the "deduction approach" under s.3(2) of the Act. However, in my decision on preliminary issues in these cases, I held that the evidence of valuations made under s.3(2) was inadmissible.[7]
[7]Multiplex 240 Queen Street LandownerPty Ltd v Department of Natural Resources, Mines and Water [2006] QLC 30.
Mr Jackson had prepared a valuation made under s.3(2) of the Act before the evidence of valuations made by such method was ruled to be inadmissible. However, he would not have relied on that valuation, as it resulted in an unimproved value of only $1,220,000, much lower than his contended unimproved value of $3,650,000.
The Subject Land
The land at 175 Eagle Street is described as Lot 10 on SP 151098, Parish of North Brisbane (the subject land). It is situated on the eastern side of Eagle Street at its intersection with Queen Street. It is an irregular "L" shaped allotment, with a frontage of 37.58 metres to Eagle Street and a much longer frontage of 88.2 metres to the Brisbane River at the rear. It is common ground that the subject land comprises a northern component upon which the office tower has been constructed, roughly rectangular in shape, with an area of 2,236 m², and a southern component of 1,141 m², which is used as a basement car park. A volumetric lot (Lot 11 on SP 151098) has been subdivided from what has been called the "parent parcel". Lot 11 is generally cuboid in shape, with a river frontage of 54.5 metres and ranges in elevation from RL 1.14 to RL 18, its footprint of 1,141 m² coinciding with that of the southern component. Immediately above and overlapping Lot 11 is Easement NN on RP 909669 extending from RL 14.2 to RL 250. That is an easement for light and air in favour of the adjoining property at 167 Eagle Street. There are numerous other easements registered on the title, including easements for reciprocal car park access rights for the subject land through the adjoining property at 167 Eagle Street and other easements associated with the adjoining property at 145 Eagle Street. Access to the subterranean car park is through 167 Eagle Street via the reciprocal easement rights.
The subject land is situated in the area known as the "Golden Triangle", an area bounded by Edward, Adelaide, Margaret and Wharf Streets, which is the long established prime commercial office location in the CBD. It is surrounded by a mixture of high and medium rise commercial office accommodation and high rise residential towers. It adjoins the heritage listed Customs House.
According to Mr Denman, the CBD is undergoing a demographic shift to accommodate more residential development, which he regarded as a broader wave of urban renewal, including large scale residential development within fringe CBD residential localities. At the date of valuation, the subject land was designated "Multi-Purpose Centre (MP1-City Centre") under the Brisbane City Plan 2000, which allows for a wide range of activities to be clustered together.
The preferred outcomes and strategies for the City Centre include the location of high intensity offices and higher order retail activities in a compact City Centre, linked by public transport to Major Centres. However, the City Centre is also to contain high intensity residential uses that promote the vitality of the centre and make best use of existing infrastructure.
Before proceeding to examine the evidence in this case, I will refer briefly to the legislation relevant to the determination of the valuation.
Relevant Legislation
The valuation under appeal is the "unimproved value" of the land. That term is defined for both "unimproved" land and "improved" land. Section 3 of the Act provides:
"3 Meaning of unimproved value
(1) For the purposes of this Act –
unimproved value of land means –
(a)in relation to unimproved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require; and
(b)in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.
(2) However, the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time as at which the value is required to be ascertained for the purposes of this Act.
(3) …
(4) Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that –
(a)the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and
(b)such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used;
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made."
The subject land in this case is improved land, so the provisions of s.3(1)(b) apply. In the 240 Queen Street case, I explained how the provisions of the Act had been judicially interpreted, including the line of authority to the effect that the best basis for arriving at the unimproved value is by comparison with sales of vacant or lightly improved land (site sales). However, where there are no such sales, it is necessary to have regard to improved sales and ascertain the unimproved value of improved land by comparison with unimproved values deduced from the analyses of sales of comparable improved land.
In that case, I also discussed what was referred to as "Mr Denman's theory". That theory is that for each successfully developed income producing property, such as the CBD appeal lands, the unimproved value should be arrived at by deducting the value of improvements from the improved value of the property itself (the deduction method), or by comparison with unimproved values derived from sales of similar improved land. Only by such methods, according to the theory, could the true unimproved value of such a property be ascertained.[8]
[8] [2007] QLC 10 at [34] – [43].
However, for the reasons explained in that decision, I found that I could have no confidence in the analyses of the improved sales by either Mr Jackson or Mr Denman, as the evidence in that regard was unreliable. Therefore, Mr Denman's theory was irrelevant to that case and I had to rely on the site sales.
The Valuers' Methodology
Mr Jackson's Approach
According to Mr Jackson, at the date of valuation the market for commercial office development sites was subdued, with few site sales in the preceding three year period. He referred to a number of new commercial office developments undertaken in that period, with further developments either under construction or committed, including the Riparian Plaza development and the Brisbane Square development, the latter being fully pre-committed prior to construction commencing. Those substantial commercial developments, he contended, led to a competitive leasing market as developers sought commitments from prospective tenants to occupy their premises.
Mr Jackson made the following comments about the residential development market:
The residential market was particularly active in 2001 and to a lesser extent in 2002. However, towards the end of 2002 that market was viewed with some caution due to concern of potential over-supply of apartments. The project known as "The Georgian" development was abandoned in November 2002 by joint venturers Devine Limited and Urban Properties, following a lack of demand. The Festival Towers site on the corner of Charlotte and Albert Streets was purchased conditionally by Devine Limited in April 2002, however an extension of the settlement was negotiated at a reduced price until August 2003. That extension was due to the perception of potential over-supply of apartments. Several sites were purchased for high rise residential accommodation in 2003 in the Mary Street and Margaret Street location, but no residential sales had occurred in the "Golden Triangle", the commercial heart of the CBD.
Mr Jackson's initial approach to assessing the unimproved value of the subject land was by direct comparison with sales of sites purchased for commercial development. However, he was able to identify only one sale of such a site within the 2001 to 2003 calendar years within the CBD. That was the purchase of the site of the Brisbane Square project at 6 Queen Street, for the development of new offices for the Brisbane City Council and Suncorp Metway, with those two major corporate occupants being pre-committed before purchase. The only other commercial site sale in that period was the purchase of a 50% interest in the site at 70 Eagle Street, an off-market sale between related ownership interests, purchased by the adjoining owner. Mr Jackson placed no reliance upon that sale.
Because of such scant evidence, Mr Jackson had regard to older site sales.
The commercial site sales upon which Mr Jackson relied are summarised below, in the order they appeared in his valuation report:
· 175 Eagle Street, area 3,459 m², for $21,500,000, in October 2000, which he analysed to $2,746 per m²; the sale of the parent parcel of the subject land before volumetric Lot 11 was excised;
· 75 Eagle Street (Riparian Plaza), area 3,663 m², for $15,000,000, in December 1998, which he analysed to $3,893 per m²;
· 6 Queen Street, area 7,348 m², for $25,480,000, in June 2003, which he analysed to $3,467 per m², but later adjusted to $3,121 per m² because of agreements for lease to two major corporate entities and because the land had been sold with the development approval in place; and
· 120 Edward Street, area 1,822 m², for $6,000,000, in May 1998, which he analysed to $2,841 per m².[9]
[9] Ex. 77, pages 20 – 21.
Mr Jackson stated that he was mindful of the decision of the High Court in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111, that where there are scarce sales of vacant land and more numerous sales of improved land, the improved sales cannot be disregarded, because the sale prices of the few vacant land sales may have been inflated due to a premium for scarcity. Therefore, because there were so few commercial development site sales and more numerous improved commercial sales, Mr Jackson undertook analyses of a number of sales of improved commercial properties within the CBD, to determine whether the purchasers of the few commercial sites had paid a scarcity premium. However, he stated that the results of those analyses satisfied him that the commercial site sales did not contain any scarcity premium.
The three improved commercial sales to which Mr Jackson had regard were:
· 145 Eagle Street, area 2,121 m², for $29,000,000, in March 2003, which he analysed to an unimproved value of $2,387 per m²;
· 260 Queen Street, area 1,384 m², for $24,000,000, in December 2002, which he analysed to an unimproved value of $3,863 per m² ($3,337 per m² in the 140 Creek Street case);
· 40 Tank Street, area 2,106 m², for $22,500,000, in June 2004, and $31,500,000 in March 2005; the sale and the resale of the same property within nine months. According to Mr Jackson, those sales were included not to identify the underlying land value, because 40 Tank Street is less favourably located than the subject land, but to indicate the substantial value in the leased component; the first sale was of the vacant building not subject to any leases, while the second sale occurred when the property was fully leased.
Mr Jackson also referred to the sales of sites in 2003 for high rise residential development in what he called the fringe areas of the CBD in the Mary Street and Margaret Street area. He contended that the level of density of those sites varies dramatically from 40 levels up to 80 levels. Furthermore, none of those residential site sales are located in the "Golden Triangle", the commercial heart of the CBD. Although he insisted that he did not rely upon them, Mr Jackson referred to three residential site sales. Those sales reflected rates per m² ranging from $2,675 per m² to $3,411 per m². According to Mr Jackson the rate per m² depended not only upon the location of each site, but more importantly, the level of density and aspect which was able to be achieved. Each of the sites will enjoy views and aspect from the developed apartments over the Brisbane River and/or the Botanical Gardens. In his opinion, it was difficult to apply the residential sales to the subject property because of the unknown level of residential density able to be achieved on the subject property.
The three residential site sales to which Mr Jackson referred were:
· 45 Eagle Street, area 4,206 m², for $16,000,000, in January 2004, which he analysed to $2,675 per m²; currently improved with a two-storey retail complex and two levels of basement parking, purchased for future development by the Stockland Property Group, the owner of the adjoining Waterfront Place; the analysed figure takes into account the existing tenancies, the basement car parks and the cost of demolition of the existing structures;
· 26 Felix Street, area 1,589 m², for $5,500,000, in November 2001, which he analysed to $3,411 per m²; since developed with a 40 level tower comprising 253 apartment with excellent views;
· 420 Queen Street (Aurora), area 3,099 m², for $12,000,000, in August 2001, which he analysed to $3,284 per m²; approved for development of a 69 level residential apartment tower comprising 478 units; situated directly opposite the subject property, with panoramic views in all directions from medium and upper levels.
Mr Jackson regarded the commercial and residential markets as separate and distinct and thought that the residential sales would be relevant only if the subject land had potential for residential development. He refused to consider that it had any such potential, because of his interpretation of the Land Appeal Court decision in Department of Natural Resources and Mines v QNI Metals Pty Ltd[10]. He understood that case to establish the proposition that for land to have a higher and better use than its present use, it must be demonstrated that the land would have an unimproved value higher than the value for its present use, plus the cost of demolishing the structures on the land. In the present case, he said, that could not be demonstrated.
[10] [2002] QLAC 71.
However, in the 240 Queen Street case, I found that Mr Jackson's interpretation of the QNI Metals case was mistaken.[11] Therefore, in my view, the decision in QNI Metals does not prevent regard being had to the residential sales and they should be considered as part of the overall sales pattern in the CBD.
[11] [2007] QLC 10 at [51] - [59].
Mr Jackson's Valuation
To arrive at the unimproved value of the northern component of the subject land, Mr Jackson reasoned that the commercial site sales indicated a range of $2,841 per m² to $3,893 per m², the upper end of the range being 75 Eagle Street (Riparian) situated in a superior location between two premium office towers, Waterfront Place and the Riverside Centre. The sale of the parent parcel of the subject land in October 2000 reflected $2,746 per m². However, that 3,459 m² parcel was reduced in area by a road truncation and contained what later became volumetric Lot 11, which was created by the registration of Survey Plan 151098 on 9 July 2002.
From the commercial site sales evidence, Mr Jackson came to the conclusion that the northern component of the subject land would have an unimproved value of $3,350 per m², higher than the analysis of the parent parcel sale, but less than the better located 75 Eagle Street.
For the southern component, the land below volumetric Lot 11, Mr Jackson reasoned that there was no directly comparable sales evidence, but as its utility was limited to a subterranean car park, he adopted the rate of $750 per m² for the 1,141 m² of that component, approximately 23% of the value he ascribed to the northern component. He said that he took into consideration that there was no potential for further development of the area above volumetric Lot 11 because of Easement NN for light and air in favour of the adjoining properties at 145 and 167 Eagle Street.
Although he maintained that he had analysed the improved sales only to ascertain whether there was any scarcity premium in the site sales, Mr Jackson considered the two improved sales, 145 Eagle Street and 260 Queen Street, were comparable to the subject land (as far as the land component was concerned) and their analyses supported his proposed unimproved value for the northern component.
However, while stating that the four residential site sales generally supported his contended unimproved value, clearly Mr Jackson placed no reliance on those residential sales as he referred to the different highest and best use and the allowances to be made for the time and uncertainty of achieving development approval and the extent of residential development that could be permitted on the subject land and for the removal of the existing structures.
Mr Jackson arrived at the site value of the subject land as follows:
Northern component 2,236 m² @ $3,250 per m² $7,267,000
Southern component 1,141 m² @ $750 per m² $855,750
Total site value $8,122,750Mr Jackson considered it necessary to make an allowance for the extensive site works undertaken to establish the existing development on the land. To do so, he referred to a quantity surveyor's estimate of the cost of construction of a coffer dam and bulk excavation and shoring works in March 1988 of $2,835,000. He adjusted that estimate to $2,409,500 to remove some inapplicable items, before escalating those costs to the date of valuation, using Rawlinsons Cost Construction Guide Building Price Indices for Brisbane, then deducting the resulting figure of $4,155,326 from the total site value. His calculations are set out below:
Site value $8,122,750
Less
Site works – coffer dam and bulk excavation and shoringBuilding Price Indices – Brisbane March 1988 89.58 $2,409,750
Escalate to Building Price Indices - October 2003 154.47Total costs $4,155,326
Sub-Total $3,967,424
LessHolding Costs during construction period of 6 months $214,605
Gross Land Value $3,752,819
Less
Holding Costs on Gross Land Value – 6 months @ 6.0% pa $109,305
Unimproved Value $3,643,514
Rounded to $3,650,000As in the other cases, Mr Jackson also relied on the settlements of valuations of nine other properties in the CBD. In the 240 Queen Street case, I dismissed the respondent's objection to the admissibility of relativity evidence.[12] However, in my view, the circumstances of those settlements are such that they are of no assistance in determining the unimproved value in these cases.
[12] [2007] QLC 10 at [65] - [67].
Mr Denman's Approach
Mr Denman purported to adopt two methods of assessing the unimproved value of the subject land, the direct comparison approach and deduction approach.[13] However, although he carried out an exercise deducting the added value of tangible and intangible improvements from the August 2002 sale price of $95,950,000, arriving at an unimproved value of $15,700,480, that was not one of his alternative contended unimproved values.[14]
[13] Ex. 89 p. 15.
[14] Ex. 89 p. 23.
He regarded that analysis as little more than a check to his primary method.[15] His two alternative valuations were arrived at (i) by direct comparison with the analyses of improved sales, $14,700,000 and (ii) by direct comparison with the analyses of site sales, $10,000,000.[16]
[15] T. 1746 – 1747.
[16] Ex. 89 p. 38.
Mr Denman's opinion as to the highest and best use of the land and, indeed, his whole approach to the valuation depended upon how s.3(1)(b) of the Act was to be interpreted. If the interpretation was that while it was to be assumed that the improvements did not exist, the impact of the prior existence of those improvements was not to be ignored, he would agree that the highest and best use of the land was for commercial office development with ground floor retailing and would value the land by direct comparison with the unimproved values derived from the analyses of improved sales.
On the other hand, if it was to be assumed that the improvements had never been made, he was of the opinion that the site was equally well suited to either commercial office development with ground floor retailing, or residential tower development with ground floor retailing. In those circumstances, he said, the unimproved value could be ascertained by direct comparison with sales of vacant or lightly improved land (site sales), including sales for residential development. However, after he adjusted the sale of 6 Queen Street, which he regarded as his most relevant site sale, he changed his opinion, contending that the highest and best use was for residential purposes.
Mr Denman's preferred method, in accordance with his theory, was by direct comparison with the analyses of sales of improved commercial properties. By that method, he contended, the impact of the prior existence of the improvements on the sales was not ignored, but was taken into account in the unimproved values derived from those improved sales. When the subject land was valued by comparison with those unimproved values so derived, he reasoned, the impact of the prior existence of the improvements on the subject land was reflected in the unimproved value of that land.
Mr Denman had analysed the sales of four improved commercial properties:
· 240 Queen Street, area 2,127 m², in October 2003, for $116,439,300, which he analysed to $15,539 per m²; that was the sale of a 26 level commercial office tower situated on the prime commercial site at the corner of Queen and Edward Streets, opposite the Queen Street Mall; the valuation of that site was determined at $6,300 per m² in the 240 Queen Street case;
· 324 Queen Street, area 1,820 m², in October 2003, for $80,000,000, which he analysed to $9,396 per m²; that was the sale of a half interest in a 23 level commercial office tower for $40,000,000 on the corner of Queen and Creek Streets; the valuation of that site was determined at $4,500 per m² in the 324 Queen Street case;
· 157A Ann Street, area 917 m², in September 2003, for $16,550,000, which he analysed to $3,875 per m²; that was the sale of a 13 level commercial office tower on the fringe of the CBD;
· 175 Eagle Street, area 3,377 m², in August 2002, for $95,950,000, which he analysed to $6,605 per m²; that was the sale of the subject land, the analysis being the result of Mr Denman's deduction method discussed above.
From the analyses of those improved sales, Mr Denman arrived at the unimproved value of the subject land as follows:
Northern component 2,236 m² @$7,500 per m² $16,770,000
Southern component 1,141 m² @ $750 per m² $855,750
Total $17,625,750
Lettable area 22,943 m² @ $775 per m² $17,780,825
Midpoint $17,703,288
Less shoring and revetment $3,000,000
Total $14,700,000
(rounded)Mr Denman's alternative unimproved value of $10,000,000, was arrived at by direct comparison with site sales. He reasoned that the designation of the subject land under the Brisbane City Plan allowed it to be developed for retail, commercial, residential or a mixture of those uses. He said that he considered a wide range of market evidence to provide a complete picture of the state of property investment behaviour.[17]
[17] Ex 89, p. 25.
The site sales to which Mr Denman had regard were:
· 175 Albert Street (corner Elizabeth Street), which he regarded as a dominant use retail site in the 240 Queen Street and the 239 George Street cases;
· 6 Queen Street (his most important sale), the sale of a large site for commercial development, with a ground floor retail component and large open space plaza area, which was discussed in detail in the 240 Queen Street case;
· 70 Eagle Street, the sale of a half interest in the site for the proposed Central Plaza Three commercial office development to the adjoining owner, a sale which was discussed and rejected in the 240 Queen Street case;
· 89 Charlotte Street, area 2,711 m², for $13,250,000, in January 2003, which he analysed to $4,990 per m², the site of the Festival Towers residential development;
· 420 Queen Street, area 3,099 m², for $12,000,000, in August 2001, which he analysed to $3,872 per m², the site of the Aurora residential tower, on the corner of Queen and Wharf Streets, opposite the subject land;
· 120 Charlotte Street, area 2,273 m², for $11,500,000, in December 2001, which he analysed to $5,059 per m²; the site of the Charlotte Towers 44 level residential development;
· 131 Mary Street, area 5,478 m², for $24,000,000, in March 2004, which he analysed to $4,382 per m²; the site of the Vision Tower mixed commercial and residential development with a retail component; that sale was six months after the date of valuation, but in my view it should not be disregarded as it confirms a trend;
· 64 Mary Street, area 1,523 m², for $6,488,000, in January and November 2003, which he analysed to $4,260 per m²; the site of the 44 level M on Mary residential development;
· 21 Mary Street, area 908 m², for $4,000,000, in April 2001, which he analysed to $4,626 per m²; an older sale of a small site.
From those sales, Mr Denman derived unimproved values ranging from $4,062 per m² to $8,253 per m². Mr Denman also referred to four sales which he called "minimum use sales evidence". However, it is clear that he placed little reliance on those sales and I do not regard them as of any assistance.
Mr Denman calculated his alternative unimproved value as follows:
Site area
Northern component 2,236 m² @ $5,500 per m² $12,298,000
Southern component 1,141 m² @ $550 per m² $627,550
Total $12,925,550
Lettable area 22,943 m² @ $575 per m² $13,192,225
Midpoint $13,058,888
Adopt $13,000,000
Less shoring and revetment $3,000,000
Total $10,000,000However, after he adjusted the sale of 6 Queen Street, and had revised his opinion of the highest and best use of the land, Mr Denman contended for an unimproved value of $9,350,000.[18] At no stage in his evidence did he attempt to support the respondent's valuation under appeal of $12,500,000. Indeed, he was of the opinion that the issued valuation was incorrect.[19]
[18] T 1764.
[19] T 1746.
In each of his exercises, Mr Denman made a calculation based on the net lettable area of the existing building. However, because of the varying level of density either existing or proposed for the various sales, I am of the view that any exercise based on a net lettable area approach is unreliable.
The Valuation Evidence Considered
Mr Denman recognised that there was a discrepancy between the unimproved values that he derived from the analyses of improved commercial sales and those from the vacant or lightly improved sales. He attributed that discrepancy (according to his theory), to the land value component of a successfully developed improved property reflecting its proven ability to provide an environment suitable for the proposed development on the site and to attract tenants. As such, he reasoned, the risk and profit from the development and its ongoing success, is embedded in the land value. By contrast, he asserted, the unimproved value of the subject land based on sales of vacant or lightly improved land "… includes only a conservative allowance for the likely costs incurred in gaining and implementing development approval … and does not contain profit and risk allowances, as the risks are yet to be encountered."[20] In his view, vacant land sales have never before been put to their intended uses and their sale prices reflect the unfulfilled potential of the properties and their associated development risks.
[20] Ex 89, p 30.
As in the four cases already decided in this series of appeals, both valuers compared the subject land with unimproved values derived from the analyses of improved commercial sales. Mr Denman did so as his preferred method of valuation, in accordance with his theory. Mr Jackson, on the other hand, did so only because there were few commercial site sales. In accordance with the decision of the High Court in Maurici, he analysed two improved sales in order to ascertain if any scarcity premium had been paid by any of the purchasers of the site sales. He said that from that exercise he was satisfied that no such premium had been paid, although how he came to that conclusion was not explained. However, that was not seriously challenged.
In this case, Mr Jackson acknowledged that the analyses of the improved sales of 145 Eagle Street and 260 Queen Street supported the value which he adopted from the site sales for the northern component of the subject land.[21]
[21] Ex 77, p. 28.
Mr Jackson had referred to those two sales in other cases in this series of appeals. Although in the present case the analyses of those sales supported the unimproved value arrived from his site sales, it is clear from Mr Jackson's evidence that he had no real confidence in the results of his analyses of such highly improved sales. He repeatedly said he had analysed them only to ascertain whether the site sales included a scarcity premium.[22]
[22] Ex 77, p. 17; T 1183, T 1612.
The unimproved value which Mr Denman arrived at for the subject land from his preferred method far exceeded the unimproved value from his alternative method, direct comparison with the site sales. Three of the improved sales were sales upon which Mr Denman relied in various other appeals in this series. In this case, he included the improved sale of the subject land in August 2002.
In the four cases so far decided in this series of appeals, I have rejected the valuers' analyses of sales of highly improved commercial properties, for the reasons explained in some detail in the 240 Queen Street case.[23] The introduction of the 2002 improved sale of the subject land has done nothing to change my opinion. From a sale for nearly $96,000,000, Mr Denman derived an unimproved value of $15,700,480. That analysis formed an important part of the basis for his preferred method of valuation by which he arrived at an unimproved value of $14,700,000. On the other hand, although Mr Jackson had no confidence in the unimproved values derived from highly improved properties, in this case the analyses of improved sales supported his unimproved value from site sales. However, his analysis of the improved sale of the subject land resulted in an unimproved value of only $1,220,000, far less than the unimproved value for the subject land of $3,650,000, derived from the commercial site sales.
[23] [2007] QLC 10 at [143] – [155].
Mr Jackson and Mr Denman had taken different approaches to the valuation of the various components of the improved sale. There is no utility in going through the detail of those differences. However, the 2002 sale of the subject land provides an illustration of how experienced valuers can arrive at vastly different results by analysing such a highly improved sale. The Perpetual Trustee Company case concerned appeals against the unimproved values applied to the subject land for the previous two years.[24] The Land Court rejected the analyses of that sale because of too many inconsistencies and uncertainties.[25] The valuer for the respondent, Mr Kirby, had analysed the 2002 improved sale of the subject property and arrived at an unimproved value of $22,090,000. This is in contrast to Mr Denman's $15,700,480 and Mr Jackson's $1,220,000 in the present case. To my mind, this illustrates how futile it would be for a Court to rely on the unimproved value derived from such a highly improved sale when three experienced valuers arrive at such vastly different results.
[24] [2006] QLC 17.
[25] [2006] QLC 17 at [92].
I can have no confidence in the unimproved values derived from the improved sales in the present case. As in the earlier cases, I must rely on the site sales.
Mr Jackson placed most reliance on the sale of the 3,459 m² parent parcel of the subject land in October 2000 for $21,500,000; later volumetric Lot 11 was excised and the area reduced by about 80 m² by the realignment of the road.[26] He derived an unimproved value of $9,500,000, or $2,746 per m², by deducting the value of the basement car park and associated works of $12,000,000. That figure seems to have come from Mr Jackson's inquiry of the purchaser who told him the added value was in the range of $12,000,000 and $15,000,000.[27]
[26] T 1607.
[27] Ex. 78, Annex 1; T 1626.
Mr Denman was critical of Mr Jackson's analysis of that sale. He regarded it as a poor basis as it was a sale of a site in "mid-project".[28] In the Perpetual Trustee Company case the Land Court rejected that sale for the same reasons it rejected the 2002 sale. The evidence in the present case is no more certain and I can have no confidence in Mr Jackson's analysis of the sale.
[28] Ex. 90, p. 24.
Mr Denman's most important commercial sale was 6 Queen Street,[29] as demonstrated by the fact that when his analysis of the sale was adjusted, he changed his opinion, not only of the highest and best use of the subject land, but also the contended unimproved value.
[29] T 1762.
The site sales relied on by the valuers in the present case are sales upon which they relied in one or other of the four cases in this series so far determined. Of those sales, I found only the sale of 6 Queen Street and the later residential sales to be of any significant assistance. Mr Jackson contended that the residential sales were not relevant. As in the 324 Queen Street and 140 Creek Street cases, Mr Denman did not differentiate between retail, commercial and residential sales for the reasons previously explained.
In Mr Jackson's opinion, the residential development site sales which he referred to and those relied upon by Mr Denman, did not provide a like with like comparison. He contended that the market for commercial development sites and for residential sites were separate and distinct; residential sites were purchased for a different use by a different class of purchaser. He was of the opinion that residential development was more suited to the less preferred commercial locations along Mary, Charlotte, Margaret and Alice Streets and in the northern sector of Queen Street, within the designated residential precinct.[30]
[30] Ex 78 p 12.
Furthermore, he had no doubt that as properties of a residential character are likely to attract a different class of buyer, they were unlikely to provide a reliable indication of value of the land, the highest and best use of which is commercial.[31]
[31] Ex 78, p 13.
With due respect to Mr Jackson, I do not accept that view. In the 240 Queen Street case, I found that regard should be had to the residential sales. That was consistent with the findings of the Land Court in the Perpetual Trustee Company case.[32] Although I accept that purchasers of commercial sites and purchasers of residential sites were competing in the same market at the date of valuation, the type of development carried out would depend on the particular attributes of each site. As was said in the Perpetual Trustee Company case:
"…that does not necessarily mean that the same sites will be of equal interest to each …".[33]
[32] [2007] QLC 10 at [166].
[33] [2006] QLC 17 at [39].
As I found in the 240 Queen Street case, I am of the view that at the relevant date, the distinction between the commercial and residential markets was no longer so apparent, given the encouragement of the planning scheme for residential development and the trend for mixed residential and commercial development in the same complex.[34] In the Perpetual Trustee Company case, the Land Court referred to the significant residential component in the Riparian development, as well as the Felix residential development which was inside the Golden Triangle, opposite the Waterfront Place prime commercial site.[35]
[34] [2007] QLC 10 at [171].
[35] [2006] QLC 17 at [126].
In the present cases, there was evidence of the mixed development in Vision Tower, as well as evidence that part of the site at 400 Queen Street, which was originally intended for "The Georgian" mainly residential apartments, later sold for commercial development.[36]
[36] Ex 74, p. 25.
Despite his reservations, Mr Jackson at least acknowledged that residential and commercial developers do and will compete for available sites, but he thought it would be an extraordinary coincidence if they perfectly aligned, because of the different attributes which motivate purchasers.[37]
[37] T 1454.
Mr Denman maintained that there had been a merging of the markets, and relied on both commercial and residential site sales.
In my view, the evidence demonstrates that a merging trend was evident before the date of valuation in these cases and continued after that date. Although I find that the highest and best use of the subject land was for commercial development with ground floor retailing, the residential sales cannot be ignored.
The Most Relevant Sales
Both valuers regarded different sales of the subject land as important. Mr Jackson relied on the October 2000 sale, of the "parent parcel" for $21,500,000, which he analysed to $2,746 per m². On the other hand, Mr Denman relied on the August 2002 improved sale for $95,950,000, which he analysed to $15,700,480. However, Mr Denman did not rely entirely on that sale, it was just one of the improved sales the analyses of which was his basis for applying $7,500 per m² to the northern component and $750 per m² to the southern component of the subject land.
In the Perpetual Trustee Company case, the Land Court rejected both those sales. The Court rejected Mr Jackson's analysis of the 2000 sale because of the $12,000,000 which he attributed to the basement and river works for the same reasons it rejected that evidence in respect of the 2002 sale. The Court also rejected Mr Kirby's analysis of the sale because of what it considered to be the inferior and uncorroborated documentary material relied on by Mr Kirby.[38]
[38] [2006] QLC 17 at [111].
In respect of the 2002 sale, the Court found that it could have no confidence in the analysis of that sale by either of the valuers. Mr Jackson conceded that in view of the Court's criticism, it was difficult to rely on the sale in the present case.[39]
[39] T 1617.
In the present case, I find that I am in no better position than the Court in the earlier case and cannot rely on either of those sales.
In that earlier case, somewhat surprisingly, Mr Jackson had relied on the analyses of three improved properties. Although Mr Kirby did not rely upon any improved sales, he provided what he considered to be more accurate analyses of Mr Jackson's three sales. The differences between the two valuers analyses were of such magnitude that the Court concluded:
"The difference in the rates per m² reached by each of the valuers again tends to highlight the difficulties associated with having to analyse highly improved sales back to a vacant land value. However, of greater concern to me is that here neither valuer has provided sufficient evidence to give me any confidence in the conclusions reached by them."[40]
[40] [2006] QLC 17 at [101].
In determining the 2001 appeal against the annual valuation of the subject land in that case, the Court found that the sales of Aurora, Felix and Emerald Tower offered the best evidence of unimproved value for the northern component. The 1998 sale of Riparian was also important because both the subject land and Riparian are riverfront sites and both are encumbered by easements.
In the present case, Aurora was referred to by both valuers, because of its proximity. Felix was among Mr Jackson's residential sales, but he placed no great reliance upon it. It was included as a more appropriate residential sale than some referred to by Mr Denman.
In the Perpetual Trustee Company case, notwithstanding its date, the Riparian sale was significantly relied on by both valuers. Mr Jackson analysed the sale to $3,869 per m² ($3,893 per m² in the present case), while Mr Kirby analysed the sale to reflect between $3,893 per m² and $4,082 per m². After considering the evidence of the various attributes of the two properties, the Land Court adopted the rate of $4,000 per m² for comparison purposes.[41]
[41] [2006] QLC 17 at [133].
Mr Denman did not rely on the Riparian sale in the present case. He considered it to be out of date. In any case, further evidence was produced concerning the sale, particularly in relation to the development lease and the cost of freeholding it, in addition to other evidence which cast doubt upon the analysis of that sale. In the circumstances, I do not consider the sale of Riparian to be of any assistance.
In the present case, both valuers referred to the sale of Aurora at 420 Queen Street. Mr Denman analysed the sale to $4,469 per m², excluding a 414 m² component which is affected by easements in favour of adjoining lands and provides access to Adelaide Street; it is not able to be developed with the balance of the site. If that area is included, Mr Denman's analysis over the whole site is $3,872 per m². Mr Jackson analysed the sale over the whole area of the site to $3,284 per m². He reasoned that the 414 m² component could be considered along with the balance of the site because it not only provides access to Adelaide Street, but had been taken into account in the granting of development approval for a 69 level residential apartment tower comprising 478 units.
In the Perpetual Trustee Company case, after considering the various attributes of the sale and the subject land, particularly the benefits of river frontage, views and access to the boardwalk, allowing Mr Jackson's discount for the delayed settlement, but not allowing his 10% discount for the pre-commitment prior to the date of settlement of the sale, the Land Court adopted a rate of $3,800 per m² for the Aurora site for comparison purposes.
The Aurora development is immediately opposite the subject land, but has no river frontage. There are panoramic views in all directions from the medium and upper levels, while the lower levels benefit from views across the low-rise heritage Customs House building. Although the sale was over two years prior to the date of valuation, in my opinion the Aurora sale cannot be ignored. However, there is evidence from the later residential sales that the market for residential development sites had increased in that time. In addition, any comparison with the subject land must take into account its river-frontage advantage. Therefore, the valuation of the northern component of the subject land must, in my view, be more than shown by the August 2001 sale of Aurora.
As in the cases previously decided in this series, both valuers relied on the sale of 6 Queen Street, although in this case Mr Jackson did not regard it as his most important sale. However, I have rejected the other commercial site sales relied on by Mr Jackson, the 2000 sale of the subject land and the 1998 sale of Riparian, while there is little assistance from the 1998 sale of 120 Edward Street. Therefore, the sale of 6 Queen Street is his only remaining commercial site sale.
Mr Jackson originally analysed the sale to $3,467 per m², but later adjusted that analysis to $3,121 per m². He applied the rate of $3,250 per m² to the northern component of the subject land which would seem to indicate that he saw that component as superior per m².
Mr Denman regarded the sale of 6 Queen Street as the most important site sale, it was so significant that after making adjustments to it for GST, he reconsidered his opinion of the highest and best use for the subject land and altered his contended unimproved value from $10,000,000 to $9,350,000.
In his alternative valuation, made by comparison with site sales, Mr Denman applied a rate of $5,500 per m² to the northern component of the subject land, whereas his analysis (confined to the building envelope of the sale) was $5,202 per m². That seems to indicate that he considered the northern component of the subject land to be superior to the sale on a per m² basis.
In my view, the northern component of the subject land considered as a separate entity is superior to the sale of 6 Queen Street considered as a whole, on a per m² basis. Not only is it considerably smaller, but it is more favourably situated in Eagle Street, in the vicinity of the two prime riverfront commercial properties, Riverside Centre and Waterfront Place.
I have found that the highest and best use of the subject land is for commercial office development with ground floor retailing. However, if the land was unimproved at the date of valuation, which must be assumed under s.3(1)(b) of the Act, it would also have been in demand for residential development, or perhaps mixed use development, similar to Riparian. Mr Jackson refused to consider that it had potential as residential land, but that was partly because of his interpretation of the QNI case.[42] Certainly it is at the heavily trafficked intersection of Queen and Eagle Streets, but being situated on a busy thoroughfare did not prevent the residential development of Aurora. However, Mr Jackson said that if he could be persuaded that it should be valued as residential, he would apply in the middle of the range between $2,675 and $3,411 per m² to the northern component.[43]
[42] T 1610.
[43] T 1622.
There were no sales in 2003 to demonstrate the movement in the residential market in the vicinity of the subject land. However, there were sales in the Mary Street/Charlotte Street precinct which were referred to by Mr Denman. In the cases so far decided in this series, I have found that those residential sales close to the date of valuation were relevant. They reflected unimproved values ranging from $4,300 per m² to $5,000 per m². They included 64 Mary Street (M on Mary) in 2003 at $4,260 per m², 89 Charlotte Street (Festival Towers) in January 2003 at $4,990 per m² and 131 Mary Street (Vision Tower) in March 2004 at $4,382 per m².
Both valuers agreed that the market for commercial sites was subdued at the date of valuation, with few sales in the three-year period prior to that date. However, Mr Denman considered that there had been growth in the market on the fringes of the CBD for residential development. Those later residential sales tend to confirm his view. However, those sales are located in an area of significant residential amenity, out of the heavily trafficked city centre but close to it, in a quieter locality, near the river and the botanical gardens. The subject land enjoys many of those attributes, with the added advantage of river-frontage and superior views. On the other hand, it is situated on a very busy thoroughfare.
In the Perpetual Trustee Company case, the Land Court determined the unimproved value of the northern component as at 1 October 2002 at $4,200 per m², which included a 20% premium on the rate of $3,500 per m² reflected by the non-riverfront sales. The premium was also to account for the distinction, if any, between residential and commercial sales.
In my view, the markets had merged even further at the date of the present valuation. For properties such as the subject land, I can find no distinction between the residential and commercial markets. There was some confirmation of this in the admittedly hearsay evidence that the developer of the subject land had lost money and expressed regret that the development had not been residential.[44] The situation was different for prime commercial sites, such as 240 Queen Street, which has many attributes favouring commercial office development, but fewer favouring residential development. In that case, I found that the commercial potential far exceeded the level of values being obtained for the best of the residential sites.
[44] Ex. 89 Annex; T 1643.
In the circumstances, the unimproved value of the northern component of the subject land cannot be less than the rate of $4,200 per m² determined by the Land Court in the Perpetual Trustee Company case in respect of the appeals against the annual valuations in 2001 and 2002. The evidence in the present case indicates that there had been some increase in the market for land suitable for commercial development and an even greater increase in land suitable for residential development. That being so, the rate of $3,250 per m² applied to the northern component by Mr Jackson is simply too low. However, the evidence does not support a rate as high as $5,500 per m² initially applied by Mr Denman. Having regard to the whole of the evidence, I have come to the conclusion that the value of the northern component should not be less than the top rate of $5,000 per m² being achieved at the date for the residential lands in the Mary/Charlotte Street area. I will adopt a rate of $5,200 per m².
The Southern Component
In the Perpetual Trustee Company case, in arriving at an appropriate value for the southern component, after considering the restrictions on use to which it was subject, the Land Court found that the rate per m² attributed to the northern component should be discounted by 45%. In that case, Mr Kirby had adopted a 30% discount, while Mr Jackson had adopted a discount of 83%. In the present case, Mr Jackson discounted by 77%, while Mr Denman discounted the rate by 90%.
That is a significant difference from Mr Kirby's opinion in the earlier case. Mr Denman saw only limited value in the southern component. While development above ground level is effectively prevented above the lower surface of volumetric Lot 11 and by Easement NN, the southern component does provide important and valuable car parking, and has direct access to the riverside boardwalk. Although the benefit of the light and air provided by Easement NN and the benefit of access to and from the car park enhance the value of the northern component, the southern component in my view makes a not insignificant contribution to the overall value of the subject land.
Therefore, I cannot accept that the rate per m² is only 10% of that of the northern component. While I have reservations about the extent of discounting adopted by Mr Jackson, there was no evidence in this case of a higher percentage. Therefore, in the circumstances, I prefer the percentage discount adopted by Mr Jackson. The value of the southern component will be 23% of the rate per m² of the northern component, or $1,200 per m².
Site Works
The calculations by the valuers of the siteworks on the subject land were set out earlier in these reasons. Mr Jackson allowed for a coffer dam, bulk excavation and shoring, based on estimates of a quantity surveyor in March 1988 of $2,835,000, adjusted to $2,409,500 to exclude some non-relevant works, then escalated by reference to Rawlinsons Cost Construction Guide Building Price Indices between March 1988 and October 2003, to arrive at a value for site works of $4,155,326.
Mr Jackson had adopted a similar approach in the Perpetual Trustee Company case. The Court rejected that approach which it found to be beyond Mr Jackson's area of expertise and an appropriate expert was not called. In the present case, Mr Denman's estimate for shoring and revetment works purported to be based on several sources. However, he emphasised that any such analysis does not reveal what a prudent purchaser would pay for such improvements, even suggesting there may have been some adverse impact.[45] He described his figure of $3,000,000 for the value of the site works as "the best guess".[46]
[45] Ex 89, p. 35.
[46] T 1789.
After considering the evidence as to site works the Perpetual Trustee Company Limited case, the Land Court arrived at a value of $3,500,000. Although the present valuation under appeal is 12 months later, I find that I have no more reliable evidence in this case. I intend to allow the same figure of $3,500,000 as found by the Land Court in the earlier case.
The Statutory Presumption of Correctness
In the 240 Queen Street case, I considered the effect of s.33 of the Act. In this case, under those provisions, the valuation made by the respondent of $12,500,000 is deemed to be correct until proved otherwise. For reasons similar to those in the 240 Queen Street case, I find that the evidence has proved the respondent's valuation not to be correct. The statutory presumption has therefore been rebutted.
Conclusion:
In accordance with my findings, the unimproved value of the subject land as at 1 October 2003 will be calculated as follows:
Northern component 2,236 m² @ $5,200 per m² $11,627,200
Southern component 1,141 m² @ $1,200 per m² $1,369,200
$12,996,400
Less site works $3,500,000
$9,496,400
Adopt $9,500,000
Order:
The appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of Lot 10 on SP 151098, Parish of North Brisbane (175 Eagle Street), as at 1 October 2003, is determined at Nine Million Five Hundred Thousand Dollars ($9,500,000).
JJ TRICKETT
PRESIDENT OF THE LAND COURT
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