Shellharbour councillors have voted to increase the city’s liability in Shell Cove Marina, in a show of confidence as the mammoth harbour project reaches its construction peak.
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At Tuesday night’s meeting councillors agreed to up the project’s shortfall funding to $35 million.
They voted 6-1 to allow this increase after council staff warned the development would, in January, need go into deficit for the first time since construction began.
Mayor Marianne Saliba said the shortfall funding would be set aside by developer Frasers Property Australia (formerly known as Australand, now part of Frasers) to be used when construction costs outstrip the project’s income.
“We always knew there would be a time where we would be spending more than we were making,” she said.
“Now, we expect there will be a pointy end and that’s because we want to finish off the harbour. And, of course, there’s no houses to sell off until that work is completed.”
The vote means, if Frasers was terminated as the project manager of Shell Cove, the council would be liable to pay any outstanding loan funds up to a maximum of $35 million.
The council will also have to pay an extra $340,000 in interest to the developer, taking its total interest paid for the shortfall funding to $2.02 million.
In 2012, the council signed off on an original amount of $20 million – allowing the project to get under way.
Since then, there has been no need to use this shortfall funding, council staff said.
However, executives from Frasers and the council recently briefed councillors to say that development costs were soon expected to outstrip income by about $33 million.
This was mainly because of early construction on the marina piling, as well as town centre construction costs and delays in receiving sale incomes, staff said.
A report to councillors said the consequences of deferring construction contracts were “not considered to not be in the project’s best interests or would cost significantly more”.
Cr Saliba said she was not worried about increasing the council’s liabilities, pointing to the high prices and demand so far for Shell Cove properties.
“We don’t want anything to hold this up – no delays in paying workers or companies we’ve got doing this,” she said.
“I’m not concerned about any genuine risk – you only have to look at the project so far and the great demand for people who want to come and live here. And as we get closer to the harbour front, there will only be greater demand. It will be greater density and, therefore a greater return to council.”
Independent councillor Peter Moran voted against the increase in shortfall funding, as he said the extra interest paid by the council would be used to increase the developers profits.
At the last estimate, the council will make profits of just over $70 million once Shell Cove is completely developed.
The shortfall funding is expected to be required for 25 months, starting in January.
The time period where more than $20 million will be required is expected to last eight months, peaking at $32 million in March 2019.
The key reasons the Shell Cove project will go into deficit are:
- Payment for the cost of the basement carpark associated with the first stage of retail in October 2018 – extra $6.36 million.
- Early construction of the marina piling to take advantage of cost savings from construction in the dry harbour – this would cost an extra $8.2 million during the time but would save $6 million compared with installing the piles in the wet harbour, a report from Frasers says.
- A six month delay in “Precinct E” land sales as a result of “poor consultant performance and delayed responses on planning matters – this means about $34 million in revenue will be delayed.
- A nine month delay to housing revenue due to “construction management and trade resourcing issues” – this has delayed about $10 million in revenue.