TUGGERANONG TOWN CENTRE PTY LTD AND COMMISSIONER FOR ACT REVENUE
[2008] ACTAAT 22
•24 September 2008
AUSTRALIAN CAPITAL TERRITORY
ADMINISTRATIVE APPEALS TRIBUNAL
CITATION:TUGGERANONG TOWN CENTRE PTY LTD AND COMMISSIONER FOR ACT REVENUE [2008] ACTAAT 22 (24 SEPTEMBER 2008)
AT07/25
Catchwords: Rates and land tax – determination of unimproved value of shopping centre site in Tuggeranong – comparable sales evidence – adjustments for income earned from existing land use, differences in size, location and date of sale, special benefits and method of sale – hypothetical development analysis.
Administrative Appeals Tribunal Act 1989, s 37
Rates Act 2004, ss 6, 10
Taxation Administration Act 1999, s 107
AG Robertson Limited v The Valuer-General of New South Wales (1952) 18 LGR 261 (NSW)
Commonwealth v Arklay (1951) 87 CLR 159
Commonwealth Funds Management Limited & PT Limited and Commissioner for ACT Revenue [2005] ACTAAT 26
Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322
Tribunal:Mr M H Peedom, President
Ms P O’Neil, Senior Member
Dr D McMichael, Senior Member
Date:24 September 2008
AUSTRALIAN CAPITAL TERRITORY )
ADMINISTRATIVE APPEALS TRIBUNAL ) NO: AT07/25
GENERAL DIVISION )
RE: TUGGERANONG
TOWN CENTRE
PTY LTD
ApplicantAND: COMMISSIONER FOR
ACT REVENUE
Respondent
DECISION
Tribunal : Mr M H Peedom, President
Ms P O’Neil, Senior Member
Dr D McMichael, Senior Member
Date : 24 September 2008
Decision :
The decision under review is set aside and substituted by a decision that the unimproved value of Block 3 Section 1 Division of Greenway as at 1 January 2006 is $25,000,000.
………………………..
President
AUSTRALIAN CAPITAL TERRITORY )
ADMINISTRATIVE APPEALS TRIBUNAL ) NO: AT07/25
GENERAL DIVISION )
RE: TUGGERANONG
TOWN CENTRE
PTY LTD
ApplicantAND: COMMISSIONER FOR
ACT REVENUE
Respondent
REASONS FOR DECISION
24 September 2008 Mr M H Peedom, President
Ms P O’Neil, Senior Member
Dr D McMichael, Senior Member
The application for review of decision
This is an application to review a decision of the respondent which disallowed an objection by the applicant to the determination of the unimproved land value of Block 3 Section 1 Division of Greenway (“the subject land”) at 1 January 2006 at $39,500,000.
2. The respondent had earlier determined the unimproved value of the subject land as at 1 January 2004 at $17.6M and as at 1 January 2005 at $20m so as to give an average unimproved value of $25.7M over three years. The average unimproved value of the land was used by the respondent to calculate the applicant’s liability for the payment of rates for the year 1 July 2006 to 30 June 2007.
3. The application to review the respondent’s decision is made pursuant to section 107(1) of the Taxation Administration Act 1999.
The hearing
4. At the hearing of the appeal the applicant was represented by Mr D Miller, of counsel. The respondent was represented by Dr J Griffiths, SC and Mr D Mossop, of counsel. A number of documents were tendered in evidence and the Tribunal had before it the respondent’s statement of reasons for the decision under review and the material required to be lodged with the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1989.
5. Evidence was given on behalf of the applicant by Mr G Jackson and Mr M Tebbatt. Written statements prepared by Mr R Rowlands were tendered in evidence on behalf of the respondent. In the event of his inability to attend the hearing, evidence was given in support of his expert opinion by Mr A Shephard who had assisted him in the valuation. Evidence was also given on behalf of the respondent by Mr M Chappé de Leonval (Mr Chappé).
6. Mr Jackson is a director of m3property, property strategists. He is a certified practising valuer; licensed valuer (WA); practising real estate valuer (NSW); registered valuer (Qld); Fellow of the Australian Property Institute (FAPI); Past Councillor of the Victorian Divisional Council of the API; Member of the Divisional Professional Board of the API; Past Member of the Tax Reform Committee of the PCA and a Member of the Municipal Group of Valuers. He holds an Associate Diploma in Valuations (RMIT) and has had extensive experience in statutory valuations in all the major CBD’s throughout Australia, major shopping centres around the country, industrial estates and a number of specialised properties including ski fields, oil refineries, telecommunication facilities and privatised public infrastructure.
7. Mr Rowlands is the chief executive of Landsburys, Independent Property and Advisory Services. He is a registered valuer without limitation in New South Wales and Queensland and a licensed real estate agent in New South Wales. He is a Fellow of the Australian Property Institute. He has over 30 years’ experience in the property industry with significant expertise in all property types. He has provided advice, research and valuation across a diverse range of projects and developments throughout Australia including shopping centres and bulky goods throughout New South Wales.
8. Mr Shephard is an associate director of Landsburys. He holds a Bachelor of Property Economics (Hons), University of Technology. He is a certified practising valuer and a registered valuer and an associate member of the Australian Property Institute. He has practised as a valuer for 6.5 years assisting the directors of Landsburys. His expertise is primarily in development and providing valuations for large master plan estates including retail and commercial precincts.
9. Mr Tebbatt is a director of WT Partnership, Quantity Surveyors and Construction Cost Consultants. He holds a Bachelor of Applied Science and is an associate of the Australian Institute of Quantity Surveyors.
10. Mr Chappé de Leonval is a director of Rider Levett Bucknall, quantity surveyors. He holds a Bachelor of Science in Quantity Surveying from the University of Natal, Durban.
Statutory provisions
11. Provision is made for the annual re-determination of the unimproved value of rateable land and for the method of determination by sections 10 and 6 of the Rates Act 2004 (“the Rates Act”). They state:
10 Annual redeterminations
(1)As soon as practicable after each 1 January, the commissioner must redetermine the unimproved value, as at that date, of each parcel of land rateable on that date.
(2) An annual redetermination of the unimproved value of a parcel of land applies to rates for the period—
(a)beginning on 1 July in the calendar year in which the relevant date when the redetermination is made falls; and
(b) ending on 30 June in the next calendar year.
6 Meaning of unimproved value
(1)The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b)the circumstances that existed on the prescribed date also existed on the relevant date; and
(c)on the relevant date, the lease had an unexpired term of 99 years; and
(d)a nominal rent was payable under the lease for the 99 year term.
(2)The unimproved value of a parcel of land held in fee simple is the capital amount that might be expected to have been offered for the parcel at a genuine sale on the relevant date on the reasonable terms and conditions that a genuine seller would require, assuming that no improvements had been made on or to the parcel.
(3) In this section:
prescribed date, for a parcel of land, means—
(a)for a determination of the unimproved value of the parcel—the date the parcel became rateable; or
(b)for an annual redetermination of the unimproved value of the parcel—the date the redetermination applies; or
(c)for a redetermination of the unimproved value of the parcel under section 11 (Redetermination—error or changed circumstances)—the date for the redetermination mentioned in the notice under section 11 (2) .
12.“Relevant date” is defined in the Dictionary to the Rates Act as follows:
relevant date, for a parcel of land, means a date when a determination of the unimproved value of the parcel is or is to be made.
13. In the present case the relevant date is 1 January 2006 and the prescribed date is 1 July 2006. The effect of section 6(1)(b) of the Rates Act is that, although the valuation must be as at 1 January 2006, it must assume that the circumstances existing on 1 July 2006 also existed on 1 January 2006.
Approach to valuation
14. Consistently with the observations expressed by the High Court of Australia in Commonwealth v Arklay (1951) 87 CLR 159 at 170 the Tribunal’s approach to determining the unimproved value of land in accordance with section 6 of the Rates Act is to rely upon the evidence of comparable sales of other land either before or after the date of valuation.
15. The expert valuers on whose evidence the parties relied took a similar approach although they also sought to support their opinions by reference to the hypothetical development method of valuation.
Agreed and disagreed matters
16. Directions given by the Tribunal required the parties to submit a statement identifying the issues upon which their respective expert witnesses agreed and in respect of which they disagreed. The following were some of the matters that were the subject of agreement:
(1) The subject land is Block 3 Section 1 Greenway;
(2)As at 1 January 2006, the date of valuation, the land had planning permission for the following uses:
i)Not more than three (3) Supermarkets to a maximum gross lettable floor area (“GLFA”) of 10,823m2, with each supermarket having a minimum GLFA of 1,300m2;
ii)Not more than three (3) Major Department Stores to a maximum GLFA of 28.991m2 with each store having a minimum GLFA of 7,000m2 but excluding a supermarket;
iii)Not more than four (4) Minor Department Stores to a maximum GLFA of 4,857m2, with each store having a minimum GLFA of 620m2 BUT EXCLUDING a supermarket;
iv)Shops (excluding supermarkets and department stores);
v)Financial establishments;
vi)Business agencies;
vii)Health facilities;
viii)Take away food establishments;
ix)Restaurants;
x)Eating and drinking establishments;
xi)Public agencies;
xii)Offices;
xiii)Indoor entertainment facility (limited to amusement arcade);
xiv)Indoor recreation facility (limited to gymnasium and fitness centres);
xv)Childcare centre;
xvi)A cinema complex consisting of no more than eight (8) cinemas, with a maximum GLFA of 4,851m2 having a maximum seating capacity of 1,979 seats;
PROVIDED ALWAYS THAT the maximum combined GLFA for the uses (iv) to (xv) do not exceed 20,474m2 and each individual occupancy shall not exceed a maximum GLFA of 685m2 EXCEPT THAT 1,650m2 of the above GLFA shall only be used for the purposes of financial establishments, business agencies, health facilities, restaurants, eating and drinking establishments, public agencies, offices, indoor entertainment facilities (limited to amusements arcade) and indoor recreation facility (limited to gymnasium and fitness centres).
(3) The subject land area is 81,280m2;
(4) Permissible gross floor area (“GFA”) – 86,840m2;
(5) Permissible GLFA – 70,142m2;
(6) Car parking – 2,228 car bays;
(7)The subject land is zoned in ‘Town Centres (Commercial B) as administered by the Territory Plan’. The subject land is predominately within ‘Precinct A – Retail Core’ with a component within ‘Precinct D – Car Parking Area’.
(8)The highest and best use of the land was as a regional shopping centre, consistently with the fact that, at the date of valuation, there was erected on the land a regional shopping centre of approximately 67,076m2 GLFA.
17. The main areas of disagreement between the parties were as to whether all of the sales relied upon by their respective valuers were comparable to the subject land and whether appropriate adjustments had been made to reflect the differences between the value of the subject land and the land which was the subject of the sales relied upon.
The applicant’s comparable sales
18. Mr Jackson relied upon five sales as indicating the unimproved value of the subject land which by this method he calculated as $25,000,000. Those sales, listed in order of comparability and the adjustments made by him to them, are set out in the following table:
| Address | Sale Date | Sale Price | GFA | Analysis |
| Westfield Belconnen | Nov 07 | $17,000,000 (incl works & excl GST) | 27,094m2 | $627/m2 GFA & $627/m2 GLA |
| Coles Development Block 1 Section 13, Gungahlin (now Blocks 3,4 & 6) | May 03 | $4,344,350 | 28,320m2 18,670m2 (Retail only) | $153/m2 GFA (originally) $233/m2 GFA |
| Big W Development Block 1 Section 14 Gungahlin | Mar 03 | $6,186,840 (incl works & excl GST) | 30,870m2 | $200/m2 GFA |
| Aldi Development Block 1 Section 10 Gungahlin | May 03 | $2,309,657 (incl works & excl GST) | 16,395m2 | $141/m2 GFA |
| Woolworths Marketplace Block 1 Section 19 Gungahlin | Jan 98 | $2,500,000 (incl works & excl GST) | 9,593m2 | $261/m2 GFA |
Westfield
19. As can be seen from the table, Block 21 Section 52 Belconnen (“Westfield”) has a GFA of 27,094m2. The Crown lease permits the land to be used for retail purposes. It was purchased by the owner of the adjoining Belconnen Regional Shopping Centre in November 2007 for $17M. At the date of sale Westfield provided government operated open at grade car parking that provided about one-third of the centre’s car parking needs. Mr Jackson gave evidence that it was the intention of the purchaser to further expand the existing shopping centre at some time in the future.
20. Mr Jackson adjusted the sale price by $4.8M to remove the estimated capitalised value of the income from the car park resulting in a GFA value of $450/m2. He also adjusted the comparative value of the land by 5% to have regard to its substantially smaller size than the subject land; by 5% because of what Mr Jackson considered was a special benefit to Westfield, the purchaser, as owner of the adjoining shopping centre site; by 30% to have regard to what he considered to be the preferred location of Westfield to the subject land; by 10% to have regard to the later date of sale of Westfield than the subject land. These adjustments resulted in an overall reduction of 50%, an adjusted GFA analysis of $225/m2 and an indicative unimproved value of the subject land of $19,552,494.
21. On behalf of the respondent, Mr Rowlands and Mr Shephard accepted that the sale of Westfield was a comparable sale on which the Tribunal could, subject to necessary adjustments, place reliance. They also accepted that $4.8M was an appropriate deduction to be made in respect of the income component of the carpark but Mr Shephard considered that the value of the land itself should be added back as only 4,492m2 of Westfield had any retail development rights associated with it as part of the direct grant. Therefore, the land granted that did not have retail development rights associated with it was 40,056m2. Dr Griffiths, relying upon values ascribed to the Westfield land by independent valuers, identified the value of the land that did not have retail development rights as $100/m2. This would increase the figure of $12,182,000 resulting from Mr Jackson’s adjustment to $16,187,600 or $597/m2 GFA.
22. The proposition that a land value should be added back in following a deduction of the capitalised value of the car park income was not put by Mr Rowlands in any valuation report prepared by him nor were the valuers whose reports were relied upon as establishing a value of the land as $100/m2 called to give evidence. We do not understand that their reports attribute a land value in that sum to all of the land in question. Some of the land to which the $100/m2 value was attributed appeared to be an access road to Westfield. We accept Mr Jackson’s evidence that his approach of stripping out the capitalised car park income value shows the amount that was paid for the development rights also takes account of the land on which the car park is located and reflects its value. We also accept, therefore, that after making the necessary adjustment for car parking income a GFA analysis of $450/m2 results.
23. Mr Rowlands and Mr Shephard also disagreed with the other adjustments made by Mr Jackson in respect of special benefits and location but did not disagree that an adjustment of 5% pa was appropriate to take account of the difference in the time of the sale of Westfield and the date of valuation. We consider that an adjustment of 9%, which takes account of the 22 months between the respective dates is appropriate for the time difference.
24. Nor did the respondent disagree that a discount to the sale price of Westfield to take account of differences involved in the greater risks associated with a larger project of longer duration. We consider that the 5% reduction adopted by Mr Jackson is acceptable.
25. We consider that the potential for the loss of control of the Westfield site and the consequent requirement for a replacement car park to be constructed for the adjoining shopping centre as well as the potential loss of opportunity for expansion of the shopping centre and the prospect of competition from another purchaser would have impacted upon the price the purchaser would have been prepared to pay for the subject land. We consider it inappropriate, however, to make a -5% adjustment, as Mr Jackson has done, as that consideration should be offset by the absence of the involvement of a commercial competitor in the Westfield sale which was negotiated directly with the purchaser and because the price paid was consistent with the pre-sale estimates of independent valuers.
26. In relation to the question as to whether an adjustment should be made to take account of the difference in location of Westfield to that of the subject land, in his report Mr Rowlands acknowledged that retail rental values in Belconnen were superior to those in Tuggeranong. He considered, however, that rental differentials could be explained by the fact that Belconnen was more highly regarded by the retail market, by the mix and type of retailers, as well as the proportions of space occupied by speciality retail, majors and mini majors. He said that it would be more relevant to compare the turnover per m2 of occupied space. In his opinion, 7% was an appropriate level of adjustment to be made in respect of location.
27. Mr Jackson relied upon the comparative moving annual turnover levels achieved in each location in support of the -30% adjustment made by him. According to information provided by tenants in shopping centres around Australia to Shopping Centre News, the speciality moving annual turnover level of tenants in Belconnen was $8,473 compared to $5,631 in Tuggeranong, a difference of about 36%. The moving annual turnover level of tenants from all trades excluding speciality tenants in Belconnen was $6,342 compared to $3,434 in Tuggeranong, a difference of around 54%.
28. Mr Shephard expressed doubt upon the reliability of the moving annual turnover schedules relied upon by Mr Jackson by suggesting that they did not include a number of items that would be incorporated in a shopping centre. He also expressed the view that turnover levels would be affected by the identity of the operator of a shopping centre.
29. Having regard to Mr Rowlands’ acceptance of the assistance to be derived from a comparison of turnover levels as an indicator of difference attributable to location, the absence of any analysis by the respondent’s valuers of the data relied upon by Mr Jackson or any detailed analysis to explain the 7% adjustment proposed by Mr Rowlands and having regard also to Mr Jackson’s considerably greater experience in valuing shopping centres than Mr Shephard, we consider that we should prefer Mr Jackson’s evidence on this issue. We note that the adjustment made by Mr Jackson in respect of location difference (30%) is less than the figures reflected by the moving annual turnover data. We consider that we should accept 30% as the appropriate level of adjustment to be made on account of that difference.
30. We therefore consider that the total of adjustments to be made to the GFA analysis after adjustments for income and to isolate retail value only is -44% resulting in an adjusted GFA analysis of $252/m2 and an indicative unimproved land value of Westfield of $21,883,680.
Gungahlin
31. Of the sales of sites in Gungahlin, Mr Jackson placed greatest reliance on the three sales of vacant land that were most proximate in time to the relevant date, that is, Coles, Big W and Aldi.
32. Mr Rowlands and Mr Shephard declined to place any reliance on those sales because of the mixed use permitted for those three sales and, in the case of Woolworths Marketplace, because its date of sale occurred in a different economic environment before development of the Gungahlin Town Centre and at a time when the Territory government was keen to see some commercial development in Gungahlin. They also discarded reliance upon them because they were not sold at auction; there was no evidence available to them of how the price or conditions of sale were negotiated; Gungahlin was in its early stages of development without a significant office support base; the town centre involved street-based retail developments each anchored by a single major tenancy, either supermarkets or discount department stores but no department stores or a well-established retail/services component and the population was substantially less than Tuggeranong.
33. That there are significant differences between the style and layout of operation of the Tuggeranong and Gungahlin town centres was not disputed by Mr Jackson. In the view of the Tribunal the Gungahlin sales relied upon by Mr Jackson afford less reliable evidence of the unimproved value of the land than Westfield. On the other hand, we do not consider that they should be disregarded.
34. Mr Jackson gave evidence that, in analysing the sales he had undertaken an investigation of the documentation surrounding them and that he had taken account of the mixed use of the Gungahlin properties in adjusting upwards by 30% the differences in location. In respect of the Coles sale, which he regarded as the most comparable of the Gungahlin sales, he had attributed the whole of the purchase price to retail use, thereby maximising the figure for retail purposes.
35. Mr Jackson also made adjustments to the Coles sale of -20% to take account of the difference in size of that site and the subject land and +30% to take account of the difference in location. We consider that the making of these adjustments is a reasonable approach to the analysis of the Coles sale. Consistently with the view we have taken of the Westfield sale, we consider that a +5% adjustment should be made to take account of the fact that the sale was made directly with the purchaser rather than by a more competitive process and that a +13% adjustment should be made to take account of the fact that the Coles sale occurred about 2 years and 8 months in advance of the relevant date.
36. On this analysis the $233/m2 for retail only reflected by the Coles sale is required to be adjusted by a total of +28% resulting in an adjusted GFA analysis of $298/m2 and an indicative unimproved value of the subject land of $25,899,161.
37. A similar approach taken in relation to the Big W and Aldi sites results in the following adjusted GFA $/m2 and indicative unimproved land value of the subject land:
Big W $285/m2 $24,766,768
Aldi $213.50/m2 $18,540,340
38. We accept the view of both valuers that the sale of Woolworths Marketplace justifies little reliance being placed on it having regard to its date of sale in January 1998.
The respondent’s comparable sales
39. In addition to the sale of Westfield, Mr Rowlands relied upon four site sales as summarised in the following table:
| Address | Sale Date | Sale Price | GFA | Analysis |
| DFO/Bulky Goods Block 8 Section 48 Fyshwick | Dec 05 | $36865,000 (incl works & excl GST) | 60,000m2 | $614/m2 GFA |
| Bulky Goods Block 1 Section 4 Gungahlin | Dec 05 | Estimate $11,000,000 (incl works & excl GST) Estimate based on full 10% GST | 28,000m2 | $393/m2 GFA |
| Bunnings Warehouse Block 13 Section 32 Belconnen | Mar 04 | $8,653,000 (incl works & excl GST) | 20,500m2 | $422/m2 GFA |
| Westfield Belconnen Block 27 % 25 Section 52 & Block 4, Part Block 6 & 8 Section 50 Belconnen | Nov 07 | $17,000,000 (incl works & excl GST) | 27,094m2 | $627/m2 GFA |
Epicentre
40. The sale of Block 8 Section 48 Fyshwick, known as Epicentre, was a market auction which occurred relatively close to the date of valuation. It is proposed by the purchasers that it contain approximately 52% of its area for the sale of bulky goods and 48% for direct factory retail sales, both permitted uses under the Crown lease. Mr Rowlands relied upon the proportion of retail space and associated basement car parking as making it comparable to the subject land. The difference in GLFA between the Epicentre and the subject land is not significant and does not call for an adjustment on account of difference of size.
41. Mr Jackson did, however, identify a number of matters which he considered did not enable the Epicentre sale to be regarded as comparable to the subject land. Those matters included the following.
42. As agreed by the valuers, the construction and fit-out costs of a regional shopping centre are ordinarily of a higher standard than a bulky goods development or a direct factory outlet and requires greater provision for common area walkways and amenities, thereby increasing the costs associated with their development and a greater reduction of GFA that is lettable. In addition, the purchaser was required to undertake site works at an estimated cost of $495,000.
43. The reserve price was fixed by the Land Development Agency for the sale of the Epicentre land at $13,500,000 following the provision to it of two valuations in September 2005 of $12M and $13.5M. An “independent backcast valuation” commissioned by the Auditor-General and carried out by an independent valuer valued the land at $21,000,000 on the basis of equal uses of direct factory outlet sales and bulky goods sales. All of the valuations represent a substantial discount to the sale price of $39,500,000 achieved at auction.
44. Prior to the Epicentre sale there had been a monopoly in the market for factory outlet retailing at the Canberra Airport, the owner of which was a competitive bidder at the auction. There was no apparent prospect of a lease permitting similar use becoming available for purchase. Based on his enquiries, Mr Jackson gave evidence that the purchase price was affected by a concern to protect a monopoly and for a competitor in a restricted market to break it.
45. Dr Griffiths relied upon the fact that the enquiry commissioned by the Auditor-General in respect of the sale had concluded that the auction was conducted “fairly and with appropriate accountability, separately by the (Land Development Agency) and by the ACTPLA, the planning regulator”.
46. The Auditor-General’s audit of the sale was, however, not concerned to determine whether the auction achieved a sale price that reflected the capital amount that might be expected to have been offered on the relevant date for the Epicentre site. The task of the audit was to provide independent opinion as to whether the sale was in accordance with relevant legislation, policy and accepted better practice; was conducted fairly and with appropriate accountability and achieved appropriate financial and planning outcomes for the Territory. A sale price which exceeded expectations, as is suggested by the applicant, would not have failed to achieve an appropriate financial outcome for the Territory.
47. It is to be noted also that in the introduction to the audit report summary, the Auditor-General’s audit was said to have arisen following significant community interest and media reporting about it as well as requests by Members of the Legislative Assembly to review the pre-sale and sale processes. It made reference to litigation regarding the sale being undertaken on the grounds that the nature of the development permitted on the land was uncertain. We accept that the circumstances surrounding the sale suggest that caution needs to be taken in relying upon it as evidence of the unimproved value of the subject land. We also have regard to the fact that Mr Jackson’s evidence of the need for caution in applying the Epicentre sale was based upon enquiries made by him of the purchaser and the absence of similar enquiries being made on behalf of the respondent.
Bunning’s
48. The Bunning’s hardware store is located at the edge of the Belconnen retail area. The sale price at auction of the land on which it is located equates to $422/m2 GFA. The Crown lease permits it to be used for the sale of bulky goods. Mr Rowlands considered that, because of its permitted use restrictions and fringe location, it was inferior to the subject land and it therefore supported a higher GFA/m2 value for the subject land.
49. In our view, there is greater difficulty in placing reliance upon the sale of a bulky goods property for the purpose of a comparative sales analysis with a shopping centre than is associated a comparison with a direct factory outlet/bulky goods operation. The type and range of products sold is significantly different to that on offer at a shopping centre. The costs associated with its construction are substantially less; the lettable area of the GFA is significantly greater than a shopping centre and arrangements for access are not ordinarily comparable to those available at a shopping centre. We consider that little reliance should be placed on this sale.
Bulky Goods Homemakers and Services Site
50. Block 1 Section 4 Gungahlin was sold in December 2005 for a sale price estimated by Mr Rowlands to be $11,000,000 including site works. Its permitted uses included a homemaker and services precinct with compatible commercial/retail uses. Mr Rowlands analysed the GFA of 28,000m2 at $393/m2. He considered that regard should be had to it as the sale occurred relatively close to the date of valuation and, as inferior to the land, supported a higher valuation to that analysed by Mr Jackson of the land. Mr Jackson noted that the Crown lease permitted a range of uses that were different in nature to a regional shopping centre and prohibited the sale of food or clothing.
51. In our view the same difficulties in making comparisons with the land that are associated with the Bunning’s site apply also to this sale.
Tuggeranong Town Centre
52. Although not referred to in Mr Rowlands’ reports, Mr Shephard introduced information regarding the sale of the subject land to the original purchaser in 1985. In cross-examination Mr Shephard explained that he did not list the sale as comparable sales evidence but as background information that should be available to the Tribunal.
53. We consider that for the same reasons both of the parties’ valuers had for disregarding the Woolworths Marketplace sale which occurred in January 1998, no reliance should be placed on this sale.
Conclusion
54. We consider that the evidence before us supports Mr Jackson’s opinion that the unimproved value of the subject land is indicated to be $25M.
Hypothetical Development Method
55. When these proceedings were commenced (5 June 2007) the sale of the Westfield Belconnen site had not occurred. At that time both parties were conscious that the property sales on which they were each relying for the comparable sales method of valuation might not be accepted as strictly comparable, as none of them was for a regional shopping centre site. Consequently both parties undertook a second analysis using what is known as the hypothetical development method of valuation.
56. This method has been described by Sugerman J in AG Robertson Limited v The Valuer-General of New South Wales (1952) 18 LGR 261 (NSW) at 262 in the following way:
(the method) erects a hypothetical building upon the subject land, capitalizing the anticipated net return there from, then subtracts the estimated building costs from the capitalization, the balance being treated as the unimproved capital value (of the land)
57. In his first report (Exhibit 3) undated, but which it was agreed was prepared on or about 19 October 2007, Mr Jackson derived an unimproved value for the land of $20.9M as at 1 January 2006. In arriving at this figure, he relied on the report prepared by Mr Tebbatt to establish the design, development and construction cost, and on his assessment of the capitalised value of the rentals detailed in the Tuggeranong Tenancy Schedule, and on a range of assumptions set out in his report.
58. Mr Tebbatt has 28 years’ experience in property valuation, including having valued numerous regional shopping centres, but he agreed that he had no experience in the ACT. In his report of 11 October 2007 he arrived at a new replacement cost of $265,789,086 for the Tuggeranong Centre. To these Mr Jackson added a number of additional costs including tenancy contributions, interest, purchase costs of the land, stamp duty on sub leases, rates and taxes and leasing expenses, bringing the total replacement cost to $311,477,930.
59. Mr Jackson’s capitalised value of the Centre, less selling costs and allowing for a profit and risk factor of 15%, was $331,879,254 which yielded an unimproved value of $20,401,323 when the estimated construction costs were subtracted. This figure was then adjusted to account for the additional 577m2 of GLFA or 3,700 m2 of GFA able to be developed under the amended Crown lease, to yield the $20.9M figure cited above.
60. Mr Rowlands undertook the hypothetical development estimate work for the respondent, assisted by Mr Shephard. He relied on the estimate of the development costs developed by Mr Chappé.
61. Mr Chappé, who is based in Canberra, has some 30 years’ experience in the construction industry, the last 10 years being in Australia working on a range of projects including major Canberra developments. However, he had not previously valued a regional shopping centre.
62. In his first report dated 26 November 2007 Mr Chappé estimated the construction cost at $204,430,000, some $61M less than Mr Tebbatt’s estimate. In his first report dated 11 February 2008 Mr Rowlands added to this figure allowances for statutory charges, leasing and selling expenses etc and came up with an overall replacement cost of $269,094,598, while his estimate of the capitalised value of the Centre was $366.7M. When interest and other costs were taken into account, he concluded that the “residual value” was $50M, which he adjusted to $52.3M after taking into account the additional area available for letting under the amended lease. In a document tendered at hearing (Exhibit 23), the figures differed, yielding a residual value of $54,578,206.
63. In a joint report dated 13 June 2008, prepared by both Messrs Tebbatt and Chappé in accordance with the Tribunal’s directions, the estimated costs had become $233,020,157 for Mr Tebbatt and $223,010,000 for Mr Chappé. While the difference between the two estimates had narrowed to $10,010,157 (a figure which excludes works required on Anketell Street) there remained major differences between them in relation to a number of aspects of the estimates which could not be reconciled, in particular the cost of external lighting, external infrastructure, roof, lessor fit-out and other base variances. Evidence given during the hearing revealed that the two valuers had adopted different basic approaches (elemental estimates vs functional areas) to their estimates of the construction costs, had worked from inadequate plans, and had used different trade rates in making their estimates. The respondent submitted that Mr Tebbatt’s costs figure should be reduced by $8,421,361 in order to adjust for these differences, thus increasing the residual value.
64. In a report dated 27 June 2008, jointly signed by Messrs Jackson and Rowlands, the differences between their unimproved values derived by the hypothetical valuation method were considered and revised calculations were made. However, there remained significant differences in their estimates of inputs into the potential net rental calculation, resulting in a value for the completed centre of $366,700,000 by Mr Jackson and $362,860,000 by Messrs Rowland and Shephard – a difference of almost $4M.
65. It is clear from the above brief account of the evidence given that no agreed estimates of either the construction and development costs of a hypothetical building or the value of the completed centre were available to the Tribunal and there seemed little prospect of reaching agreed figures, given the differences in so many of the variables involved in the calculations.
66. The Tribunal has previously been confronted with determining the utility of this method in establishing property values. In Commonwealth Funds Management Limited & PT Limited and Commissioner for ACT Revenue [2005] ACTAAT 26, the Tribunal referred to the difficulties attendant upon the methodology, citing the description of it by Cripps J in Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at 326 as follows:
The hypothetical development method is normally suspect because it depends on a number of assumptions and a number of estimates, e.g. the cost of building, estimated gross rentals obtainable, probable outgoings, and most significantly, the rate percentum of return which could be expected and the profit and risk factors expressed in percentage terms. It has been said that because many estimates and assumptions must be made, the hypothetical development method ought not to be used where some use can be made of comparable sales.
67. In that case, the Tribunal was faced with the absence of any comparable sales evidence and was obliged to rely on the hypothetical development model evidence. As a consequence, it considered the evidence about the assumptions made in estimating both the construction costs and the completion value, and adopted values that it considered appropriate and decided an unimproved capital value.
68. However, in this case there is comparable sales evidence as outlined above. Consequently the Tribunal does not place any reliance on the unimproved values that were derived using the hypothetical development method. It takes some comfort from the fact that both the applicant and the respondent urged that the hypothetical development model should not be relied upon, given the availability of comparable sales evidence.
FORM 33
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Member's Staff
________________________________________________________________________
PART A FILE NO: AT07/25
APPLICANT: TUGGERANONG TOWN CENTRE PTY LTD
RESPONDENT: COMMISSIONER FOR ACT REVENUE
PARTY JOINED: N/A
COUNSEL APPEARING: APPLICANT: MR D MILLER
RESPONDENT: DR J GRIFFITHS SC & MR D MOSSOP
PARTY JOINED:
SOLICITORS: APPLICANT: GADENS LAWYERS
RESPONDENT: ACT GOVERNMENT
SOLICITOR
PARTY JOINED:
OTHER:APPLICANT:
RESPONDENT:
PARTY JOINED:
TRIBUNAL MEMBER/S: MR M H PEEDOM, PRESIDENT
MS P O’NEIL, SENIOR MEMBER
DR D MCMICHAEL, SENIOR MEMBER
DATE/S OF HEARING: 2-4 SEPTEMBER 2008 PLACE:CANBERRA
DATE OF DECISION: 24 SEPTEMBER 2008 PLACE: CANBERRA
_______________________________________________________________________
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION (X)
COMMENT:
1