Council Reading deal labelled ‘hostage’ situation
The council is being held hostage by Reading Cinemas, an economist says, but a shareholder insists the deal is a win-win.
There have been questions swirling about the $32 million Reading Cinemas deal since the Wellington City Council’s plan to offset the Nasdaq-listed company’s redevelopment costs was revealed in October.
The deal appears to be bigger than first thought, with a shareholder suggesting it would lead to the demolition of the current Courtenay Central complex and a new mixeduse development across all of the cinema company’s 1.5ha of land in central Wellington.
Andrew Shapiro, the manager of a US-based investment fund which is one of the largest non-voting shareholders in Reading International, waded into the conversation yesterday morning, replying to councillor Ben McNulty’s tweet asking for feedback about the deal.
“This transaction can be a big win for Wellington at very low risk to the city,” he said.
At times it seemed that Shapiro knew more than the public about the deal, but he later clarified that his posts were informed by common sense and business experience.
According to Shapiro, the council would purchase the land under the Courtenay Central complex, then lease it back to Reading International to redevelop. The incentive for Reading is a buy-back provision.
When redeveloped, the land would be more valuable, encouraging Reading to redevelop in a timely manner.
Through the purchase, Shapiro said, the council would be incentivising development of the three adjoining parcels owned by Reading International which total 1.4ha – adding in the Wakefield Car Park and Tory Car Park next to the cinema.
Without a deal it would take “many years” longer and the city would have far less influence over any future development.
To redevelop the site, Reading would probably demolish the earthquake-prone Courtenay Central complex, which would improve the land’s value and enable further development, Shapiro wrote.
“Imagine, instead of these fallow parcels and dark streets for MANY MANY years, brand new residences, a luxury hotel, cinema complex and/or retail businesses and sooner rather than later!” Shapiro wrote.
He thought the deal would end up being “better than fiscally neutral to Wellington” given the city could get its money back, plus interest and get 1.5ha of inner-city land developed.
Wellington-based economist Sam Warburton disagreed. He said Shapiro’s comments were premised on the idea that the $32m loan was cheaper for the council to hand over than it would be for a bank.
Instead, the risk of the deal was being passed on to Wellington residents, who would be funding the arrangement through rates. Reading would get the benefit of cheap finance, while households bore the cost.
“In a proper transaction, Reading would be happy to accept payment for the council to take some of the land.
“That it sounds like Reading is even happier to take some cheap finance via the council tells us that that’s an even better deal for them and a worse deal for ratepayers – and residents too who miss out on better pipes or parks or everything else that’s high priority.”
Reading is trying to hold the council hostage, Warburton believed – with the disclaimer that information about the deal had been patchy. There was probably some merit to the deal but without further public information, it was impossible to tell.
Councillor Ben McNulty agreed that it was pretty much a hostage situation, given the council had no options to incentivise development of the empty complex other than the deal. While a proposal to increase rates on vacant land in the inner-city was going through, the council would not legally be allowed to use it to target certain buildings like Courtenay Central.
The lack of openness with the public about the deal had been frustrating. McNulty was unable to clarify further details about the deal because of the strict confidentiality, but said councillors had not had new information since October.
Next week the council will vote on councillor Iona Pannett’s motion to stop the Reading Cinemas deal, but staff have recommend it is discussed in private.