Hamilton City Council set to get back into the property game

​Hamilton City Council is posed to become a multimillion-dollar player in the city's bullish property market.

In a split decision, councillors have voted to restore the council's property development company, Hamilton Properties Ltd, after an almost 20-year hiatus.

Elected members also agreed to transfer the city's municipal and domain endowment funds to the council-controlled organisation.

The funds' assets, which include cash and a range of community and commercial property, are worth about $52 million.  And while council staff say the property company will allow the city council to better support Hamilton's growing economy, critics say the council is entering risky territory.

Hamilton Properties Ltd was set up in 1989 and retired in 1998 after developing a host of commercial and community sites, including the BNZ building and Novotel Hamilton Tainui in the central city.

Hamilton Mayor Julie Hardaker​ said reactivating the council's property arm was a "no-brainer" given the success of the company in the past.

The endowment funds have cash assets of $28.4m which is used to offset city debt.

"I've always found it quite incredible that we have these funds sitting passively by and not using it to maximise the opportunities for the future of the city," Hardaker said.

The funds were set up for territorial authorities around the country during the 1970s.

Investment must aim to increase returns from the endowment funds and be used for civic purposes.

Hardaker said other cities, such as Invercargill, had invested their funds to the benefit of the community and believed Hamilton should do the same.

"I think the time has come for us to really grasp the implementation of some of the plans that we've made. But more particularly, to work in partnership with investors to derisk, in some respects, some of their concerns because, at the end of the day, I think we all want the same thing."

Councillor Rob Pascoe said the city would still be without a 4-star hotel if not for the work of Hamilton Properties Ltd.
The feedback from developers and landlords was they were keen for the council to have "some skin in the game" but didn't want to deal with elected members.

"Look back at Hamilton Properties Ltd in the 1990s and they did deliver a good return," Pascoe said.

Council's city growth general manager Kelvyn Eglinton said the Hamilton Properties Ltd model would make it easier for the council and developers to work together and have property experts make strategic decisions on the council's behalf.

Transferring the endowment funds to a council-controlled trading organisation (CCTO) would free it from political debate "and allow it to move forward on a more commercial nature", Eglinton said.

A PwC report said Hamilton Properties Ltd would have sufficient capital to undertake $105m of development activity during a 10 year period.

Based on current industry margins, the company could pay council a yearly dividend of $2.3m.

Councillors Garry Mallett, Andrew King, Karina Green and Dave Macpherson voted against reactivating Hamilton Properties Ltd.

Mallett said the council was not good at property development, adding passive property ownership was less risky.

"If we are in the property development game we are both a player and the regulator and whether it's perceived or real, there will be a risk that we will tilt the playing field to our own advantage," Mallett said.

King said when markets turn, property developers go broke.

"We won't go broke but we will have to sit on that land or that development for up to 10 years for that market to turn," he said.

Council staff will provide elected members with a progress report in March regarding the activation of Hamilton Properties Ltd.

Hardaker said if the new council didn't like the initiative it could "pull the plug" then.

From Stuff.co.nz