The publicly owned area of the Viaduct Basin, which is controlled by America's Cup Village Ltd (ACVL), has been swamped in controversy.
There have been claims of a massive loss of public funds, a huge payment to a former director, poor business decisions and a disastrous investment in the American Express Yacht Club.
Many of these charges are untrue, but ACVL is partly to blame for poor news coverage because of its reluctance to make a full and frank disclosure of its activities.
To get a full picture of ACVL's financial position, and its involvement in the Viaduct Basin development, we must go back five years.
After Team New Zealand's victory in 1995, Sir Peter Blake approached the Auckland Regional Services Trust to help to develop the Viaduct Basin as a home for America's Cup syndicates. At the time the basin was a rundown, semi-derelict area badly in need of development.
The trust, which was established in 1992 to manage a range of publicly owned assets and debts, agreed to take on this responsibility.
It was in a strong financial position because its main asset, an 80 per cent shareholding in the Ports of Auckland, was performing well.
ACVL was formed as a fully owned subsidiary of the trust to carry out the development.
The other important event at the time was the sale of 18.2ha of land surrounding the Viaduct Basin by Ports of Auckland for $75 million. This went to Tramco Holdings, a company owned by prominent Auckland businesspeople.
Over the next three years, ACVL transformed the Viaduct Basin. Its major initiatives were:
The log farm was bought from Tramco for $10 million and syndicate bases numbers eight to 11 were established.
Land off Halsey St was reclaimed and syndicate bases five to seven established.
Halsey St Wharf was transformed into bases one to four.
The Halsey St Wharf was extended to form the New Western Viaduct, and Hobson Wharf was extended to form the Harbour Entrance Protection Wharf.
The water area in the Lighter Basin was substantially redeveloped
An island, called Te Wero, was developed off the Eastern Viaduct and facilities for superyachts were created around the island.
A huge dredging programme was completed in the basin area.
The total development was on time and within budget, and Rob Sutherland, ACVL's former chief executive, received a bonus topping $200,000 for achieving these goals.
The decision to base the America's Cup syndicates in the Viaduct Basin and ACVL's role in achieving this are the main reasons for the area's rapid development.
Many of the apartments, bars and restaurants would not have been built if the regional services trust had not agreed to fund the development.
One of the main beneficiaries of the trust's involvement was Tramco, which was able to sell areas of the basin to developers as leasehold land.
The other role of ACVL was to run activities in association with the Cup defence, and this is where the major mistakes were made.
Sponsorship was difficult to obtain, and royalties and commissions from the sale of food, drink and merchandise were much lower than expected.
One reason was that visitors preferred to eat and drink at many of the privately owned facilities in the basin area.
But the biggest disaster was the American Express Yacht Club at the western end of Te Wero. Membership of 10,000 was forecast, but less than half that was achieved.
The yacht club, including the Winstone building, which was leased for an expected overflow from the club, operated at a loss of $4.4 million. This includes a writedown in the value of the yacht club barge.
At June 30, 2000, ACVL had cumulative losses of $35.3 million, made up of the following items:
Total losses of $13.8 million resulted from the sale of the log farm back to the previous owners for $10 million, the sale of Te Wero to Auckland City Council for $6.5 million, and the sale of the New Western Viaduct and Harbour Entrance Protection Wharf to Ports of Auckland for $8.5 million.
These losses were mostly unavoidable because they were subject to prearranged agreements.
The remaining properties have been written down by $8.9 million to $37.9 million. These include the area containing syndicate bases one to seven and the superyacht facilities around Te Wero.
Operation losses, including all tax credits, have totalled $12.6 million since the company's establishment (the tax losses have been sold to Ports of Auckland).
These losses have reduced ACVL's shareholder funds from $85.7 million to $50.4 million.
As the Auckland Regional Services Trust (now called Infrastructure Auckland) received grants of $10 million from the Government and $800,000 from the Ports of Auckland for the basin's development, only $24.5 million of the loss is attributable to the ratepayers of the Auckland region. (As Te Wero was sold to Auckland City Council for $7.5 million less than it cost, it could be argued that the total loss to ratepayers is only $17 million.)
There are three important questions relating to ACVL:
Will the company experience any more operating losses?
Will it realise $37.9 million for the remaining property?
Have Auckland ratepayers received a good deal for their money?
ACVL is now expected to operate at a profit because its only activity in the next America's Cup defence will be leasing seven syndicate bases and the superyacht berths around Te Wero.
As most of the cost associated with these properties has already occurred and six of the seven bases have been leased, the company is reasonably assured of a profit.
There is no question that ACVL's remaining assets are not worth $37.9 million as syndicate bases.
But after the next Cup challenge, the company is free to sell its Halsey St site and the superyacht facilities round Te Wero.
The company's Halsey St holding has huge potential as a commercial property or residential apartment development, and ACVL's realisations will depend on property market conditions at the time.
If market conditions are strong in three years, ACVL should obtain $37.9 million or better. If market conditions are weak, a much lower price may be realised.
A final property realisation of just $25 million - assuming a break-even operating performance - will increase ACVL's total losses from $35.4 million to $43.9 million. This is after taking into account the transfer of tax losses.
ACVL has made several commercial mistakes, particularly the American Express Yacht Club, but it was always going to experience large losses. It was handed non-commercial activities including the dredging of the Viaduct Basin and the development of Te Wero, the New Western Viaduct and the Harbour Entrance Protection Wharf.
To some degree, ACVL has been a victim of its own success. The rapid development of privately owned eating and drinking facilities in the Viaduct Basin had a negative impact on ACVL's royalty and commission earnings during the Cup campaign. These hospitality facilities and the whole Viaduct Basin area are now a huge asset for Auckland City and it is difficult to put a cash value on them.
Looking at the bigger picture, ACVL's controlling shareholder, Infrastructure Auckland, which is effectively owned by the ratepayers of the Auckland region, has had far more successes than failures.
ACVL's losses are insignificant compared with the increase in the value of its 80 per cent shareholding in the Ports of Auckland.
Adding up all the figures, the ratepayers of Auckland can feel very satisfied with their investment in Infrastructure Auckland, ACVL and Ports of Auckland.
Infrastructure Auckland has nothing to be ashamed of - it is financially strong and has been the catalyst behind the long-awaited and successful development of the Viaduct Basin.
Caption1: :Caption
Body1: The publicly owned area of the Viaduct Basin, which is controlled by America's Cup Village Ltd (ACVL), has been swamped in controversy.
There have been claims of a massive loss of public funds, a huge payment to a former director, poor business decisions and a disastrous investment in the American Express Yacht Club.
Many of these charges are untrue, but ACVL is partly to blame for poor news coverage because of its reluctance to make a full and frank disclosure of its activities.
To get a full picture of ACVL's financial position, and its involvement in the Viaduct Basin development, we must go back five years.
After Team New Zealand's victory in 1995, Sir Peter Blake approached the Auckland Regional Services Trust to help to develop the Viaduct Basin as a home for America's Cup syndicates. At the time the basin was a rundown, semi-derelict area badly in need of development.
The trust, which was established in 1992 to manage a range of publicly owned assets and debts, agreed to take on this responsibility.
It was in a strong financial position because its main asset, an 80 per cent shareholding in the Ports of Auckland, was performing well.
ACVL was formed as a fully owned subsidiary of the trust to carry out the development.
The other important event at the time was the sale of 18.2ha of land surrounding the Viaduct Basin by Ports of Auckland for $75 million. This went to Tramco Holdings, a company owned by prominent Auckland businesspeople.
Over the next three years, ACVL transformed the Viaduct Basin. Its major initiatives were:
The log farm was bought from Tramco for $10 million and syndicate bases numbers eight to 11 were established.
Land off Halsey St was reclaimed and syndicate bases five to seven established.
Halsey St Wharf was transformed into bases one to four.
The Halsey St Wharf was extended to form the New Western Viaduct, and Hobson Wharf was extended to form the Harbour Entrance Protection Wharf.
The water area in the Lighter Basin was substantially redeveloped
An island, called Te Wero, was developed off the Eastern Viaduct and facilities for superyachts were created around the island.
A huge dredging programme was completed in the basin area.
The total development was on time and within budget, and Rob Sutherland, ACVL's former chief executive, received a bonus topping $200,000 for achieving these goals.
The decision to base the America's Cup syndicates in the Viaduct Basin and ACVL's role in achieving this are the main reasons for the area's rapid development.
Many of the apartments, bars and restaurants would not have been built if the regional services trust had not agreed to fund the development.
One of the main beneficiaries of the trust's involvement was Tramco, which was able to sell areas of the basin to developers as leasehold land.
The other role of ACVL was to run activities in association with the Cup defence, and this is where the major mistakes were made.
Sponsorship was difficult to obtain, and royalties and commissions from the sale of food, drink and merchandise were much lower than expected.
One reason was that visitors preferred to eat and drink at many of the privately owned facilities in the basin area.
But the biggest disaster was the American Express Yacht Club at the western end of Te Wero. Membership of 10,000 was forecast, but less than half that was achieved.
The yacht club, including the Winstone building, which was leased for an expected overflow from the club, operated at a loss of $4.4 million. This includes a writedown in the value of the yacht club barge.
At June 30, 2000, ACVL had cumulative losses of $35.3 million, made up of the following items:
Total losses of $13.8 million resulted from the sale of the log farm back to the previous owners for $10 million, the sale of Te Wero to Auckland City Council for $6.5 million, and the sale of the New Western Viaduct and Harbour Entrance Protection Wharf to Ports of Auckland for $8.5 million.
These losses were mostly unavoidable because they were subject to prearranged agreements.
The remaining properties have been written down by $8.9 million to $37.9 million. These include the area containing syndicate bases one to seven and the superyacht facilities around Te Wero.
Operation losses, including all tax credits, have totalled $12.6 million since the company's establishment (the tax losses have been sold to Ports of Auckland).
These losses have reduced ACVL's shareholder funds from $85.7 million to $50.4 million.
As the Auckland Regional Services Trust (now called Infrastructure Auckland) received grants of $10 million from the Government and $800,000 from the Ports of Auckland for the basin's development, only $24.5 million of the loss is attributable to the ratepayers of the Auckland region. (As Te Wero was sold to Auckland City Council for $7.5 million less than it cost, it could be argued that the total loss to ratepayers is only $17 million.)
There are three important questions relating to ACVL:
Will the company experience any more operating losses?
Will it realise $37.9 million for the remaining property?
Have Auckland ratepayers received a good deal for their money?
ACVL is now expected to operate at a profit because its only activity in the next America's Cup defence will be leasing seven syndicate bases and the superyacht berths around Te Wero.
As most of the cost associated with these properties has already occurred and six of the seven bases have been leased, the company is reasonably assured of a profit.
There is no question that ACVL's remaining assets are not worth $37.9 million as syndicate bases.
But after the next Cup challenge, the company is free to sell its Halsey St site and the superyacht facilities round Te Wero.
The company's Halsey St holding has huge potential as a commercial property or residential apartment development, and ACVL's realisations will depend on property market conditions at the time.
If market conditions are strong in three years, ACVL should obtain $37.9 million or better. If market conditions are weak, a much lower price may be realised.
A final property realisation of just $25 million - assuming a break-even operating performance - will increase ACVL's total losses from $35.4 million to $43.9 million. This is after taking into account the transfer of tax losses.
ACVL has made several commercial mistakes, particularly the American Express Yacht Club, but it was always going to experience large losses. It was handed non-commercial activities including the dredging of the Viaduct Basin and the development of Te Wero, the New Western Viaduct and the Harbour Entrance Protection Wharf.
To some degree, ACVL has been a victim of its own success. The rapid development of privately owned eating and drinking facilities in the Viaduct Basin had a negative impact on ACVL's royalty and commission earnings during the Cup campaign. These hospitality facilities and the whole Viaduct Basin area are now a huge asset for Auckland City and it is difficult to put a cash value on them.
Looking at the bigger picture, ACVL's controlling shareholder, Infrastructure Auckland, which is effectively owned by the ratepayers of the Auckland region, has had far more successes than failures.
ACVL's losses are insignificant compared with the increase in the value of its 80 per cent shareholding in the Ports of Auckland.
Adding up all the figures, the ratepayers of Auckland can feel very satisfied with their investment in Infrastructure Auckland, ACVL and Ports of Auckland.
Infrastructure Auckland has nothing to be ashamed of - it is financially strong and has been the catalyst behind the long-awaited and successful development of the Viaduct Basin.
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