Waking up in Geelong

With planning completed for the Melbourne Metro and construction work now underway, much has been written about the flashy new underground railway stations that will serve the city. But one thing that has been hiding in the shadows is the commercial buildings that will be built atop these new stations, and who will profit from them.

Town Hall Station

Town Hall Station will be located below Swanston Street, next door to Flinders Street Station, and will have two street level entrances: one beneath City Square at Collins Street, the other on Swanston Street beside Young and Jacksons Hotel.

Construction of the southern entrance requires the compulsory acquisition of a number of properties: the McDonalds, KFC and Commonwealth Bank buildings on Swanston Street, and the Port Phillip Arcade on Flinders Street.

Once construction of the Melbourne Metro tunnel is completed, the site will be turned over to the private sector to build an over site development.

The development was approved in October 2017, and is subject to the following conditions:

This document allows for demolition, including bulk excavation, and the development and use of the OSD Land for Shop, Food and drink premises (excluding Hotel and Tavern unless with the consent of the Minister for Planning), Office, Place of assembly, Education centre, Residential hotel, and advertising signage generally in accordance with the following plans and subject to the requirements of this document.

The maximum building height is 40 metres, in order to protect solar access south of the site.

Any future development must not increase the shadowing of Federation Square between 11am – 3pm from 22 April to 22 September.

Any future development may consider the shadowing of the Flinders Street station steps between 11am – 3pm from 22 April to 22 September.

State Library Station

State Library Station will be located below Swanston Street, next door to Melbourne Central Station, and will have two street level entrances: one on Franklin Street, the other at the corner of Swanston and La Trobe Street.

Construction of the latter entrance requires the compulsory acquisition of a number of properties: the Hungry Jacks restaurant on the corner, an apartment building to the west, and a future apartment block site to the north.

Once construction of the Melbourne Metro tunnel is completed, the site will be turned over to the private sector to build an over site development.

The development was approved in October 2017, and is subject to the following conditions:

This document allows for demolition, including bulk excavation and the development and use of the OSD Land for Accommodation (including but not limited to Serviced Apartments, Residential Building, Student Accommodation and Residential Hotel but excluding any beds within the podium levels of the building/s), Education Centre, Office, Place of Assembly (other than Amusement parlour and Nightclub), Restricted Recreation Facility, Retail Premises (other than Adult sex bookshop, Department store, Hotel, Supermarket, and Tavern unless with the consent of the Minister for Planning) and advertising signage and staging generally in accordance with the following plans and subject to the requirements of this Incorporated Document.

The maximum building height is 180 metres at the north-western corner of the site – around 55 storeys tall – stepping down to 150 metres at the south-west corner, and 113 metres at the south-east corner, in order to protect solar access to the State Library forecourt.

Any increase to the building heights indicated on the Building Envelope Plan required for a matter listed above in notes(i) (a)-(c) must demonstrate that there is no net increase in shadow impact (from the combined impact of existing, under construction (393 Swanston Street and 224-252 La Trobe Street (Aurora)) and planning permit approved (2011013727A and TP-2013-817) shadows as at October 2017), on the State Library Forecourt between the hours of 11am and 3pm from 22 April to 22 September.

Parkville Station

Parkville Station will be located below Grattan Street, next door to Melbourne university, and will have three street level entrances.

The station entrances will be built on land acquired from the University of Melbourne, with no over site development planned at the site as part of the rail project due to the site being located under a road reserve. From the Melbourne Metro business case:

The Department has assessed the potential for over site or air rights developments at Parkville station. However, this station is proposed to be located within existing road reserves and as such is not considered to provide a footprint suitable for a significant over site development.

However the design of the new station entrances is required to preserve the ability for the air space to be developed in future.

7.3 Parkville Station

7.3.3 include an entrance on the northeast corner of the Royal Parade and Grattan Street intersection (Royal Parade entrance);

7.3.10 provide a design and construction solution at the Royal Parade entrance that does not preclude the construction of 60 metre high OSD and does not preclude OSD with a clearance of eight metres above the existing natural surface;

7.3.4 include an entrance on the north Grattan Street frontage of the University of Melbourne between the Gate Keeper’s Cottage and the Medical Faculty Building 181 (University entrance);

7.3.11 provide a design and construction solution at the University entrance that does not preclude OSD with a clearance of eight metres above the existing natural surface; and

7.3.12 if any part of the main Station box is located on land acquired from the University of Melbourne, provide a design and construction solution which does not preclude the construction of 60 metre high OSD over the portion of the Station box which is on acquired land.

These requirements replaced earlier plans to build underground retail tenancies inside the station box.

Amend the edge of the Parkville Station box footprint immediately to the south of the existing Triradiate Building (Building 181) by removing the retail along the northern edge of the Station box, such that that Station box does not encroach into or otherwise impact the development potential of University of Melbourne and at this location (-495m2).

North Melbourne (Arden) Station

North Melbourne Station (originally called Arden) is located west of Laurens Street in North Melbourne.

Located on a brownfields site owned by the State Government and previously leased by a variety of industrial tenants, these buildings are being cleared to make room for a construction compound, open cut station box, and the station entrance.

Once construction work is complete, the site will be turned over to the State Government as part of the Arden-Macaulay Precinct urban renewal project.

Development of the site is being managed separately from the Melbourne Metro project.

Commercial development on surplus land at Arden – the urban renewal opportunities at the Arden-Macaulay Precinct will have limited direct interface with the Arden station works. Accordingly, a separate government agency will be responsible for overseeing the urban renewal of this precinct and commercial developments at Arden will not be procured as part of Melbourne Metro.

But the design of the new station must allow for future over site development.

Arden Station must:
7.2.1 be located west of Laurens Street;
7.2.3 include an entrance at Laurens Street (eastern entrance);
7.2.8 be developed to not preclude an OSD (designed and constructed by others) of mixed used development up to 150 metres in height, sited over the Station and Station entrance.

Anzac (Domain) Station

Anzac Station will be located below St Kilda Road at Domain Interchange. The Melbourne Metro business case examined possible development opportunities, but did not find any.

The Department has assessed the potential for over site or air rights developments at the Domain station. However, this station is proposed to be located within existing road reserves and as such is not considered to provide a footprint suitable for a significant over site development.

So who profits from these developments?

The government likes to crow that they have fully funded the Melbourne Metro project, but that is a half truth – they have signed taxpayers up to yet another Public Private Partnership, where we agree to pay a private company a bucket-load of money over a 30 year period, instead of the government borrowing the money at a cheaper rate.

The government’s official description of the financial arrangement is:

A multi-billion dollar availability based Public Private Partnership (PPP) includes the design and construction of the twin nine-kilometre tunnels and five underground stations, private finance and the provision of maintenance and other services during the operating term.

PPP works will be undertaken by the Cross Yarra Partnership (CYP) consortium. CYP comprises Lendlease Engineering, John Holland, Bouygues Construction and Capella Capital.

A PPP model drives innovation, best practice and value for money on the project. In an ‘availability PPP’ the State Government provides regular payments to the private party for making the asset ‘available’ for use. For this package, that will mean making the tunnel and stations available for public transport operations and Victorians to use.

The Registration of Interest (ROI) document issued by the government in November 2015 details the full scope of the PPP:

Tunnels and Stations (Availability PPP)
• 9km twin tunnels and five underground stations including fit-out
• Mechanical and electrical systems
• Tunnel and stations maintenance
• Commercial development opportunities

But this Public Private Partnership is a little different from those those seen in Victoria before – the concept of “value capture” is being used to reduce the cost of the taxpayer, as described by the Melbourne Metro business case dated February 2016.

Opportunities exist to partially defray the cost of the project through value associated with air rights development at CBD North and CBD South, and through the sale of surplus land. Additional opportunities also exist at Arden.

It then went into some specifics of the type of the value capture opportunities.

Value capture opportunities considered as part of this assessment have included the potential to:

– Incorporate retail or other commercial opportunities within the new stations
– Expand station infrastructure to accommodate additional development
– Capture value from existing properties and/or planned developments in the vicinity of the new stations (such as by offering direct pedestrian access via underground pedestrian walkways)
– Develop ‘air rights’ above the new infrastructure (over site development)
– Develop surplus land (land required for construction purposes but not for ongoing use by the project)
– Stimulate urban renewal and capture value from the associated new development activities.

As well as detailing who would be best placed to delivering these opportunities.

Commercial opportunities associated with the project include general amenity retail offerings in stations, station airspace rights (over site development) and broader precinct development opportunities. The preliminary packaging considerations in relation to these opportunities are:

– Commercial opportunities in stations – it is desirable to package these with the Tunnel and Stations package so that stations can be designed to best accommodate retail and other potential opportunities

– Station airspace rights – over site development opportunities exist at CBD North and CBD South stations. Given the significant interface between design and construction of the station boxes and any over site developments, it is desirable to package these development opportunities with the Tunnel and Stations package

– Commercial development on surplus land at Arden – the urban renewal opportunities at the Arden-Macaulay Precinct will have limited direct interface with the Arden station works. Accordingly, a separate government agency will be responsible for overseeing the urban renewal of this precinct and commercial developments at Arden will not be procured as part of Melbourne Metro.

In July 2017 it was announced that the Cross Yarra Partnership (CYP) – a consortium led by Lendlease, John Holland, Bouygues Construction and Capella Capital – was selected as the preferred bidder for the AU$6 billion tunnel and stations public private partnership, with contracts signed in December 2017.

The rights to the over-site development at Town Hall Station were assigned to Lendlease through their subsidiary Lendlease (OSD South) Pty Limited, while the rights to the over-site development at State Library Station were assigned to John Holland via their subsidiary John Holland Nth OSD Developer Pty Ltd.

I wonder which site is worth more money, and how the allocation of developers was decided – the maximum height limit at the CBD North site is far higher, but CBD South is in a busier part of the city.

Some curious ways of cashing in

Next door to the Town Hall Station site, the owner of the KFC building at 27-29 Swanston Street made a curious planning application in October 2016, in a bid to inflate the amount they would receive following the compulsory acquisition of their property.

The owners of the KFC building at 27-29 Swanston St in October lodged a planning application with the City of Melbourne for 14 apartments above the three-storey building.

The Melbourne Metro Rail Authority (MMRA) in October 2015 made it known that the building was among those it was looking to acquire to build the CBD South Station.

The planning application comprises little more than architectural drawings, with the council still seeking essential details before it can properly assess the bid.

The owners are seeking council permission to build the extra seven floors, construct two apartments per floor and connect each of them direct into the heritage-protected Nicholas Building, which they also own.

Under the Land Acquisition and Compensation Act 1986, compensation is based on the value of properties at the time of acquisition. In an information sheet prepared by the MMRA in 2015, the authority said: “Compensation recognises the value of improvements and renovations that add value to your property.”

The Australian Financial Review explains further:

For the sum of $8189 the Cohens and their co-investors submitted a plan for 14 single-bedroom apartments, adding more than 1500 square metres of residential space overlooking St Paul’s Cathedral.

On rough estimates, that extension if granted could add between $10 million and $15 million to the worth of the building.

Its owners could expect that additional value to be reflected in any acquisition by the MMRA.

Therein lies a question for the authorities: why approve an extension to a building that is going to be knocked down anyway?

While over at the State Library Station site, a different agreement was reached between the State Government and an existing landowner – Scape Student Living.

Student accommodation developer Scape Student Living has struck a unique “collaboration agreement” with the Victorian government, which is acquiring two of its sites for the Melbourne Metro Rail project.

Title documents show the state government’s economic development department has filed caveats on two Scape-owned properties on La Trobe Street and Little La Trobe Street on the basis of purchaser contracts.

Scape, backed by global investors Bouwinvest, APG and China’s ICBCI International, had planning approvals to build around 800 student units in two towers, worth $200 million or more, on the adjacent sites that sit above the new metro’s CBD North Station.

The government did not use its powers of compulsory acquisition for the transactions. Those powers are only available after full planning for the rail project and its multiple underground stations has been approved.

Compulsory acquisition would have been a far more costly process for the government, which may have had to pay not only for the real estate, but an estimated development return and a proportion of the earnings that the facilities generated for Scape in the future.

Given Scape’s expenditure on development planning, the government may have outlaid upwards of $40 million to buy the two properties.

The acquisitions considered early purchases for the Metro project, made through agreement with Scape.

While the government cut its acquisition costs, Scape also benefits from the so-called collaboration agreement, which gives it opportunity to return eventually to develop its proposed facilities above the site.

The agreement between the developer and the government allows the consortia building the Metro Rail station to engage with Scape on the potential for student accommodation above the new station.

A government spokesman declined to comment. Scape’s Craig Carracher confirmed the existence of an agreement to “help with planning and development of the new CBD North Station”.

This arrangement is reflected in the signatories to the Metro Tunnel Tunnel and Stations PPP, Commercial Development Agreement, CBD North:

Developer:

The unincorporated joint venture comprising

John Holland Nth OSD Developer Pty Ltd ACN 623 274 564 of Level 5, 380 St Kilda Rd, Melbourne VIC 3004

and

Scape Little Latrobe Operator Pty Ltd ACN 607 697 183 of Tenancy 3A Swanston Square, 551 Swanston Street, Carlton VIC 3053

Guarantor:

John Holland Property Developments Pty Ltd ACN 617 899 297 of Level 5, 380 St Kilda Rd, Melbourne VIC 3004

More plans

These plans are from the ‘Metro Tunnel: Over Site Development Incorporated Document’ linked below – CBD North / Town Hall.

And CBD South / State Library.

Sources

• Metro Tunnel Tunnel and Stations PPP, Project Scope & Technical Requirements Part A: Project Scope
• Metro Tunnel Tunnel and Stations PPP, Commercial Development Agreement, CBD North
• Metro Tunnel Tunnel and Stations PPP, Commercial Development Agreement, CBD South
• Melbourne Metro Rail Project, Expressions of Interest – November 2015
• Melbourne Metro business case – February 2016
• Melbourne Metro Rail Project, EES Map Book – April 2016
• Metro Tunnel: Over Site Development – CBD North Incorporated Document – October 2017
• Metro Tunnel: Over Site Development – CBD North Incorporated Plans – October 2017
• Metro Tunnel: Over Site Development – CBD South Incorporated Document – October 2017
• Metro Tunnel: Over Site Development – CBD South Incorporated Plans – October 2017