CM21/07 NORTH BEACH BATHERS PAVILION REDEVELOPMENT Report ... · Ordinary Meeting of Council Page 182 19 February 2007 Wollongong City Council ITEM 19 REF: CM21/07 NORTH BEACH BATHERS

Ordinary Meeting of Council Page 182 19 February 2007

Wollongong City Council

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9 REF: CM21/07

NORTH BEACH BATHERS PAVILION REDEVELOPMENT Report of Manager Commercial Projects and Property (PC) 31/01/07 05.03.01.001

PRECIS

Council at its meeting of 23 August 2004 approved lease conditions in respect to the North Beach Bathers Pavilion. Since that time the successful tenderers, Pavilion Pty Ltd [the developer] lodged a development application in December 2004 which was referred to the NSW Heritage Office [Heritage Office] for consideration. The Heritage Office was not satisfied with the manner in which the design addressed the existing structure. The Heritage Office engaged Architects Tonkin Zuliakha & Green to develop a set of guidelines for the adaptive re-use of the Bathers Pavilion and presented a new design to the developer for consideration. This design was provided to Council on a Strictly Confidential basis not for public distribution and has therefore not been attached to this report. This new design has resulted in an increase in the cost of construction and has resulted in the developer seeking to re-negotiate these lease arrangements. This report provides Council with an update on those negotiations and recommends an amendment to the lease terms.

RECOMMENDATION

1 On the basis that an amended DA is submitted consistent with the NSW Heritage Office design/guideline, Council agree and seek approval of the Minister of Lands to amend the special conditions of the agreement for lease as previously adopted at its meeting of 23 August 2004 to remove the requirement of Pavilion Pty Ltd to:

• Construct the stairway to Cliff Road; • Widen the shared pathway behind the Pavilion building; and • Demolish the existing toilets behind the Pavilion building.

2 Council agree to construct:

• The stairway to Cliff Road; • Demolish the existing toilets and widen shared pathway behind the Pavilion building; • Construct community toilets/change room; and • As part of either toilet or stairway, construct a waste holding area.

BACKGROUND

Following an Expression of Interest being called, Council at its meeting of 16 December 2002 accepted a submission from Pavilion Pty Ltd for the redevelopment of North Beach Bathers Pavilion. A further report [see Attachment] was submitted to Council’s Ordinary Meeting of 23 August 2004 in regard to proposed lease conditions and Council resolved unanimously that:

“1 Subject to the approval of the Minister of Lands, Council enter into an Agreement for Lease with Pavilion Pty Ltd in accordance with the terms and conditions outlined in the body of this report.

2 An amendment be made to the section in the report titled ‘Terms of the Proposed Lease’ –

Maintenance – 3rd dot point to read “Lessee shall maintain the heritage fabric of the building in accordance with the heritage report and any such maintenance be carried out only after consultation with Council’s Heritage Officer.”

Ordinary Meeting of Council 19 February 2007 Page 183


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3 Authority be granted to affix the Common Seal of Council to all lease documents relating to this

matter.” A development application was then submitted to Council in December 2004. During the assessment of the development application, the North Beach Precinct was listed on the State Heritage Register. As a consequence, the application was referred to the Heritage Office resulting in the Heritage Office engaging architects Tonkin Zuliakha & Green to prepare a set of guidelines for the adaptive re-use of the Bathers Pavilion. The resulting design was presented to the developer by the Heritage Office for his consideration. The design has the approval of the NSW Heritage Council. A copy of the design was also presented to Council on a “Strictly Confidential” basis to allow Council officers to assess the cost to construct and carry out a comparison with the design presented in the development application. The result of that work, conducted by a qualified quantity surveyor engaged by Council independently is as set out below: Design Development Application Heritage Office Construction cost: $2,590,000 $3,687,610 Net lettable area 948m2 953m2 Annual gross rental $411,990 $393,623 The increased construction cost has resulted from the change of design and the more complex building which involves a first floor cantilever over the walkway at the rear of the building. In addition, the design adopted by the NSW Heritage Council has required the community facilities to be constructed outside the Pavilion. Whilst net lettable area has increased, the internal/external area has changed resulting in lower rents being achieved. The lease terms adopted by Council at its meeting of 23 August 2006 included the following:

• The lessee shall construct stairs from Cliff Road down to the entrance of the building and widen the shared way along the western side of the building. Such works are to be carried to the satisfaction of Council and in consultation with Council’s Landscape Architect;

• The lessee shall demolish the existing toilet block adjacent to the building and construct new ladies and gents toilets and change rooms in the pavilion.”

The new design does not cater for public toilet facilities/change rooms within the building but proposes that they be constructed where the existing external toilets are located behind the building. This however does not allow the widening of the shared walkway which will require additional widening beyond the original design as the proposed boardwalk around the front of the Pavilion has been removed. This will require the community facilities to be located away from the Pavilion. The costs of the construction of new external toilet facilities are included in the above estimates. They also include an amount of $200,000 which was the previous estimate of the stairs and shared walkway. Council has been approached by the developer to amend the terms of the lease in light of the increased cost of construction of the new design and the lower income to be received. In respect to the income, whilst the net lettable area is slightly larger than the previous design, the balance of undercover and patio area has changed resulting in a lower level of projected income.



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9 Gross Areas Undercover Patio Gross Rental P/A Original design 652m2 296m2 $411,990 Heritage Office design

578m2 375m2 $393,623

In addition, the floor plan layout of the Heritage Office design has impacted on a further 70m2 that will not be lettable due to floor plan, design and staircase impacts as well as provision of lifeguard facilities in the building. A comparison of the investment performance of the two options is as follows: Original Heritage Office 1 Cost to construct $2,590,000 $3,687,610 2 Debt payback September 2016 September 2020 3 Internal rate of return ( ) 15.95% 12.65% 4 Target IRR 22% 22% A “Target IRR” of 22% for this type of development would normally be considered marginal in light of the risk of:

i) Increased construction costs due to unknown footings. The developer has not been able to

conduct tests of the underlying ground conditions for footings; ii) The ability of the market to bear the proposed rentals which are above the current market.

Those premiums are being sought in light of the quality location.

The IRR from the Heritage Office’s design is not a commercially viable proposal as funds can be invested elsewhere at much better returns. It leaves only a margin of 3-4% above the cost of capital. The approach by the developer has been that Council share the increased cost of construction by amending the lease arrangements to exclude the requirement of the developer to construct stairs from Cliff road, widen the shared walkway adjacent to the pavilion and construct the new community toilet/change room facilities. Should Council agree to this variation and commit to undertaking these works, the project remains viable for the developer. PROPOSAL

Council in the past has indicated a desire to redevelop the North Wollongong Bathers Pavilion in order to: 1 Through adaptive re-use preserve the building site which currently needs considerable

refurbishment; and 2 Through the commercial arrangements, pass maintenance costs to a lessee. It has also been recognised that the shared walkway behind the Bathers Pavilion provides a range of hazards. In particular, the northern end is considered to be a dangerous ‘pinch point’ that provides a high risk of injury through the mix of cyclists and pedestrians in this narrow pathway. It had been intended in the original design to construct a boardwalk along the front of the Bathers Pavilion and to widen the shared walkway at the rear to address this hazard. The design now presented by the Heritage Office has removed the boardwalk and placed the community facilities external to and behind the Bathers Pavilion.



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This does not address the hazard and risk as this area is quite narrow. The community facilities will need to be moved from behind the Bathers Pavilion in order to allow the necessary widening to be achieved and address the risk associated with the conflicts. The increased construction costs have reduced the investment benchmarks that would make this proposal a viable proposition. If the developer is required to carry these costs in full, then he has indicated that he is not prepared to proceed and would seek reimbursement of costs to date, which is estimated at $194,250. In order to preserve the commercial viability, it is proposed that Council agree to bearing half of the increased cost of construction by: 1 Constructing external toilet/change rooms; 2 Constructing stairs to Cliff Road and widening of shared walkway behind the Pavilion; and 3 In conjunction with either a toilet facility or stairway, construct refuse/waste storage area. In early discussions and agreement with the developer, the developer agreed that these works would be completed in parallel with the Pavilion construction works to facilitate opening of the new facility. In this latest round of discussions, it has been suggested that the developer be engaged to complete these works in order to:

• Take advantage of lower set-up costs; • Avoid two separate work teams on the one site; and • Meet timelines to open the facility.

There are advantages to this proposal but the value of the works (estimate $600,000) will require Council to seek tenders in terms of Section 55 of the Local Government Act 1993 and the developer would have the opportunity to tender for these works. In the interim, and subject to Council endorsing the recommendations of this report, it is proposed that an amended development application will be lodged by Pavilion Pty Ltd to reflect the scheme prepared by Tonkin Zuliakha & Green as adopted by the NSW Heritage Office. CONSULTATION AND COMMUNICATION

The proposal has been negotiated in consultation with representatives of the Design Division and the Works and Services Division. Council’s consultant valuer, Mr Rob Aubin of Martin Morris & Jones has been consulted in respect to projected rental used in the financial/investment analysis. Quantity Surveyor has been engaged to provide the construction cost estimates. The NSW Heritage Office has been consulted in respect to the proposed relocation of the community toilet and change room facility away from the pavilion. PLANNING AND POLICY IMPACT

The proposed redevelopment of the Bathers Pavilion is consistent with the North Beach and Stuart Park Plan of Management and the Conservation Management Plan for the Bathers Pavilion. The proposed variation to the lease terms is consistent with Council’s Commercial Leases of Council Land Policy (File Ref: 13.07.189).



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9 ECOLOGICAL SUSTAINABILITY This matter is consistent and complies with the principles of Ecologically Sustainable Development (ESD) as outlined in the Protection Administration Act 1991, as amended by the Protection of the Environment Operations Act 1997. ESD is interpreted to mean development that improves the quality of life, both now and in the future, in a way that maintains the ecological processes which life depends. The four principles of ESD have been considered and the effect of this proposal on them is as follows: Precautionary Principle Council is undertaking action which will mitigate any environmental impact and enhance the current amenity without any scientific evidence of environmental impact. Inter-generational Equity Council through this proposal will enhance the quality of life for current and future generations. Ecological Integrity This proposal will not affect the ecological diversity of the existing life systems and will enhance and maintain the essential ecological processes and life systems of the local area by adhering to environmental safeguards. Pricing The ecological, social and economical costs of this proposal have been considered and adequately assessed as part of this project. RISK ASSESSMENT

The proposal provides an opportunity to address the risk that currently exists from the conflict between pedestrians and cyclists at the rear of the Pavilion. This risk needs to be addressed as a priority. FINANCIAL IMPLICATIONS

The original proposal to redevelop the Bathers Pavilion also included the demolition of the existing toilet facilities, construction of a stairway to Cliff Road and widening of the shared walkway behind the Pavilion. At that time (2004) the estimated cost of these works was $700,000 and was to be funded as follows:

- $350,000 grant funds - $200,000 developers - $150,000 Council contributions

Should Council adopt the recommendations in this report, then Council will be responsible for additional works that have been estimated at $600,000. Grant funds of $350,000 are held and will bring total works including some outside the original scope to $950,000. It is not proposed to alter the rental return as per the decision of 23 August 2004. The requirement to complete these works would most likely fall in the 2007-2008 financial year and will form part of the overall City Foreshore Improvement Program and are to be costed into those works. Should Council decide not to proceed with the proposal then it will need to consider: 1 A claim by the developer for costs incurred since he was invited to develop and submit a

development application. As outlined earlier these are estimated at $194,250.



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2 The costs of the shared pathway widening, which would still be required to address the risk

issues behind the Pavilion. Whilst the stairway to Cliff Road could be eliminated from those works, it would still be necessary to relocate the toilet facilities either as part of a refurbishment of the Pavilion or relocated as proposed.

3 The cost of refurbishment of the Pavilion building which although not costed at this time, is

anticipated to be excessive due the requirement of the NSW Heritage Office for building restoration works to be included to ensure the preservation of this building.

4 The ongoing maintenance of a heritage building which is estimated at $10,000 per annum. OPTIONS

1 Council agree to vary lease conditions as proposed. 2 Council compensate the developer for funds expended to date and conduct an analysis of the

cost to refurbish the Bathers Pavilion and the widening of the shared walkway to solve the present conflicts and pinch points.

CONCLUSION

Whilst there is a need to address the risks currently with the Bathers Pavilion and despite the need for Council to contribute towards the costs, it still appears to be less of a financial burden than deciding not to proceed.

Name Position Title Date Signature This report provides Councillors with all the relevant information and is correct at the time of writing.

This information has been relied upon in preparing the report and its recommendations. Signed by:

Peter Coyte Manager Commercial Projects and Property

31/1/07

Stephen Payne Chief Financial Officer 7/2/07

ATTACHMENTS

1. Report to Council Meeting of 23 August 2004

Page 188 ATTACHMENT 1 - Report to Council Meeting of 23 August 2004


ITEM 17 OF COUNCIL GENERAL BUSINESS 23 AUGUST 2004 NORTH BEACH BATHERS PAVILION - REPORT OF ASSISTANT

MANAGER PROPERTY

PRECIS

Council at its meeting of 16 December 2002 accepted a submission from Pavilion Pty Ltd for the redevelopment of the North Beach Bathers’ Pavilion and invited the applicant to lodge a development application. The lodgement of the development application has been delayed pending the completion of negotiations in respect of the lease conditions and this report outlines details of the proposed lease for Council consideration.

RECOMMENDATION

1 Subject to the approval of the Minister of Lands, Council enter into an Agreement for Lease with Pavilion Pty Ltd in accordance with the terms and conditions outlined in the body of this report.

2 Authority be granted to affix the Common Seal of Council to all lease documents

relating to this matter.

BACKGROUND

As a result of Council calling for expressions of interest for the redevelopment of the North Beach Bathers’ Pavilion, Council accepted the only submission received and invited the applicant to lodge a development application for consideration. To date, the lodgement of the development application has been delayed pending agreement on the proposed lease terms and the scope of the work to be undertaken by the developer outside of the building envelope. The following information outlines the issues that have been considered during the course of negotiations. 1 Heritage Issues

The pavilion is a heritage item of regional significance and lies within the heritage curtilage precinct that includes the North Beach Kiosk and North Beach Surf Life Saving Club building. The building is covered by a Conservation Management Plan and the development must comply with the recommendations of this report.

ATTACHMENT 1 - Report to Council Meeting of 23 August 2004 Page 189


2 External Capital Works The Expression of Interest document did not require any work outside of the footprint of the building other than the demolition of the existing toilet block. However, following extensive consultation with Council officers, it is deemed necessary to undertake additional capital works to ensure that the development is provided with adequate and safe access for its patrons and the public using the shared way. These works will incorporate the construction of a new stair access from Cliff Road and the widening of the shared way at the rear of the building.

These works form part of a landscape master plan for the area that has been prepared by Council although no funds are available in the current budget. As a consequence, the developer proposes to undertake these works that are estimated at a cost of $200,000. These works are proposed in lieu of the payment by the developer of Section 94 Contributions. This proposal will be considered by Council’s Section 94 Committee as part of the development application.

The Proposed Development The proposed development involves the construction of a two level light weight steel frame structure that fits wholly within the existing building footprint (see Attachment 1). The southern wing of the development is proposed to incorporate a restaurant and the northern wing incorporating a café/bistro. The existing toilet block at the rear of the pavilion will be demolished and new toilet/change room facilities incorporated into the ground floor of the proposed development. Council lifeguards will be retained in their existing offices and the developer will refurbish these offices to Council’s specifications. The proposal also provides for the construction of a pedestrian boardwalk along the beach side of the Pavilion. Council’s Quantity Surveyor has estimated the cost of this development to be $3.3M. In addition, the developer will construct stair access from Cliff Road and widen the shared way at the rear of the Pavilion at an additional cost of $200,000.

PROPOSAL

TERMS OF PROPOSED LEASE

Lessee: Pavilion Pty Ltd Permitted use: Café, restaurant and bistro



Condition Party

Responsibility Comment

Term - 35 years N/A

Commencing on the issue of occupation certificate of the proposed development.

Public Competition for site: Complies with policy

This was the only submission received during the calling for expressions of interest.

Rent: Lessee Yr 1 - 20 Rent free Yr 20 - 25 15% of market rent

with review to market every 5 years

The market rent to be determined by independent valuer.

Payment of Outgoings: Lessee The licensee to be responsible for all Sydney Water rates and charges, electricity, gas, telephone, water usage, garbage disposal charges and land tax relating to the leased area.

Public Liability & Building Insurance:

Lessee The lessee to effect public liability insurance for a minimum of $10 million and the cost of building insurance.

Maintenance: Lessee • Lessee shall be responsible for all maintenance of the leased area;

• Lessee shall be responsible for the structural maintenance of the building (not including the existing building fabric).

• Lessee shall maintain the heritage fabric of the building in accordance with the heritage report.

Payment of Legal Costs: Lessee Each party pays for their own legal fees.



Condition Party

Responsibility Comment

Special Conditions: Lessee • The lessee shall be responsible for all fire service inspections relating to the leased area.

• The lessee shall construct stairs from Cliff Rd down to the entrance of the building and widen the shared way along the western side of the building. Such works are to be carried to the satisfaction of Council and in consultation with Council’s Landscape Architect.

• The lessee shall demolish the existing toilet block adjacent to the building and construct new ladies and gents toilets and change rooms in the pavilion.

• The lessee shall refurbish the lifeguard areas of the building to ensure that visibility of and access to the beach not be impeded.

• The building works are to be in accordance with plans and specifications approved by Council and Council shall be the building certifier.

• The public boardwalk proposed for the eastern side of the building shall remain open for unrestricted public access at all times.

CONSULTATION This proposal has been negotiated through the Property Division in consultation with Director Environment & Planning, Director City Services, Manager Strategic Planning, Manager Development, Manager Assessment and Compliance and the Department of Lands. Council’s consultant valuer, Rob Aubin of Martin Morris and Jones Pty Ltd, has been consulted in respect of the financial implications of this report.



NEIGHBOURHOOD COMMITTEES

It was not considered appropriate or necessary to consult with the Neighbourhood Committee on this matter.

PLANNING AND POLICY IMPACT

This proposal is consistent with the Stuart Park/North Beach Plan of Management and is a permitted use under Council’s LEP 1990. The terms of the lease have been negotiated taking into account the principals of Council’s Commercial Lease regulations.

ECOLOGICAL SUSTAINABILITY

This matter is consistent and complies with the principles of Ecologically Sustainable Development (ESD) as outlined in the Protection Administration Act 1991, as amended by the Protection of the Environment Operations Act 1997. ESD is interpreted to mean development that improves the quality of life, both now and in the future, in a way that maintains the ecological processes which life depends. The four principles of ESD have been considered and the effect of this proposal on them is as follows: Precautionary Principle Council is undertaking action which will mitigate any environmental impact and enhance the current amenity without any scientific evidence of environmental impact. Inter-generational Equity Council through this proposal will enhance the quality of life for current and future generations. Ecological Integrity This proposal will not affect the ecological diversity of the existing life systems and will enhance and maintain the essential ecological processes and life systems of the local area by adhering to environmental safeguards. Pricing The ecological, social and economical costs of this proposal have been considered and adequately assessed as part of this project.

FINANCIAL IMPLICATIONS

The receipt of only one submission through the Expressions of Interest clearly indicates the difficulty in achieving a commercial return from the project. A Quantity Surveyor has assessed the cost of the project, including the additional capital works to be $3.5 million. As the developer is not proposing to operate a business in the completed building, the only means of income will be the rent received from the sub leasing of the premises.



The assessed market rent of the completed building as determined by Council’s consultant valuer is in the order of $380,000 pa and based on these figures, the developer will require 20 years to amortise his investment with only a 4% return over this period. This demonstrates the significant commercial risk that the developer is accepting and recognising the prime intention of this exercise to preserve this significant heritage building, the lease terms have been negotiated and agreed as follows: 1 An initial rent free period of twenty (20) years to enable the lessee to significantly

reduce the financial overheads with an extended lease period of 35 years. 2 15% of the market rent payable to Council for the duration of the lease period. 3 Consideration being given to the cost of additional capital works being offset against

the assessed Section 94 Contributions for car parking. This matter will be subject to consideration by Council’s Section 94 Committee as part of the assessment of the development application.

4 The ongoing recurrent maintenance of the building will be the responsibility of the

lessee for the duration of the lease period. This proposal will effectively relieve Council of any recurrent costs in relation to this building and ensure that the ongoing conservation of this building is maintained to a standard as determined by Council’s Heritage Consultant and the Conservation Management Plan.

OPTIONS

Given the current market trends involving restaurants and cafes, and recognising the very limited interest shown in this proposal through the expression of interest process, the only viable option is for Council to proceed with the recommendations of this report.

CONCLUSION

This preservation and ongoing conservation of the pavilion is a significant priority coming out of the North Beach Plan of Management. Council is now given the opportunity to secure a long term tenant of that building that proposes to introduce a magnificent dining facility for the community whilst assuming full responsibility of the ongoing maintenance of the building.

ATTACHMENTS

1 Plan of proposed development



ATTACHMENT 1





Documents

CM21/07 NORTH BEACH BATHERS PAVILION REDEVELOPMENT Report ... · Ordinary Meeting of Council Page 182 19 February 2007 Wollongong City Council ITEM 19 REF: CM21/07 NORTH BEACH BATHERS