Le Cornu site contract reveals council’s reliance on apartment sales

The Adelaide City Council has released the land contract for the $250m development at 88 O’Connell St after initially keeping it under wraps, with the document revealing apartment sales for the project are critical to the council recouping the money it spent to buy the long-vacant old Le Cornu site.

Aug 09, 2022, updated Aug 09, 2022
An architect’s render of Woods Bagot-designed towers at Eighty Eight O’Connell. Photo supplied.

An architect’s render of Woods Bagot-designed towers at Eighty Eight O’Connell. Photo supplied.

Council CEO Clare Mockler decided on Monday to give Lord Mayoral candidate Rex Patrick access to the “Executed Land Facilitation Agreement” (LFA) for the commercial and apartment development in North Adelaide.

The document confirms that the expected return to the council is more than $8m below the price paid by ratepayers and taxpayers more broadly for the city’s purchase of the site.

Council administration initially refused to release the document under Freedom of Information on the grounds that the contract contained confidential material and information that could “adversely affect the financial and property interest of Council”.

But the council came under pressure to release the contract after developer Commercial & General called for it to be released in the public interest and waived its right to object to the contract’s disclosure.

In her FOI determination to Patrick, Mockler maintained that releasing the contract still had the potential to adversely affect the council’s interests but said she would release the document in full.

“While certain information set out in the in the LFA also concerns Council’s financial affairs and interests, and its release has the potential to adversely impact those affairs and interests, I am satisfied that, in circumstances where ‘financial close’ in respect of the affairs set out in the LFA was achieved on 16 June 2022 … the public interest now lies in favour of disclosure of the document, in full,” Mockler wrote.

She also noted Commercial & General’s decision to waive its right to object was a factor in her decision.

The contract reveals the structure of the $25.5m in payments Commercial & General is due to pay the Adelaide City Council for the 7500 square-metre plot of vacant land in North Adelaide.

InDaily first reported in February 2018 that the Adelaide City Council purchased the land for $34m – with the help of $10m from the Weatherill Government – which was millions higher than independent valuations received by the council which ranged between $20m and $28m.

The Adelaide City Council is expecting to recoup around $25.5m from Commercial & General for the project.

The contract reveals that $18.5m of the $25.5m in payments are tied to apartment sales, with proceeds from unit sales each month directed first to the project financier, then the council and then the developer.

Ratepayers had an absolute right to know and understand this and it should have been spelt out publicly prior to the contract being signed.

Commercial & General is due to pay the $18.5m “Balance Payment Amount” to the council by June 30, 2025.

If it does not reach the target, the developer is required to provide the council with a detailed “cure plan” setting out what it is doing to remedy the situation and new timeframes for payment.

“The Developer must use all reasonable endeavours to complete the Project such that the Balance Payment Amount is received in full by the Council, in accordance with this agreement before 30 June 2025,” the contract states.

A render of the Eighty Eight O’Connell development. Image: Commercial & General

Patrick said the contract shows the council “has a financial interest in the speedy sale of the units”.

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“As each apartment sells, provided the financier has been fully paid, the council receives the money up until its fully recovered the $18.5 million,” he said.

“If enough units don’t sell, the ratepayers could be left holding the apartments. The council should have been open and upfront about these arrangements.

“Ratepayers had an absolute right to know and understand this and it should have been spelt out publicly prior to the contract being signed.”

A Commercial & General spokesperson told InDaily that sales for the Eighty-Eight O’Connell St project “have been very strong in line with expectations”.

“We’re currently over 60 per cent sold by project value and confident the remaining properties will be sold across the balance of the three-year build program,” the spokesperson said.

Eighty Eight O’Connell will have 160 residential apartments priced upwards of $400,000, with 15 per cent dedicated to affordable housing. The project is comprised of two 13-storey towers and one 15-storey tower accommodating retail and commercial space.

Council said on Monday that the developer has met all its contractual milestones to date, meaning the remaining $7m of the $25.5m contract that is not linked to apartment sales has already been paid.

Eighty-Eight O’Connell, which began construction in April, is expected to be completed by March 31, 2025, according to the contract.

Patrick’s FOI request reveals the council also received an independent valuation from real estate firm JLL in September 2020 advising the City of Adelaide on Commercial & General’s $25.5m offer for the vacant plot of land.

JLL estimated the land’s value was between $18,865,000 and $20,751,500.

“[The developer’s] proposed financial payment terms appear reasonable, assuming the City of Adelaide is not exposed to any risk/cost associated with the proposed development,” JLL’s valuation states.

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