|The Udecott programme
The what and the when
Published Thursday 19th June, 2008
Last week this
column took the time to distinguish between public schemes,
infrastructure and commercial schemes. That is important since there are
different criteria for conceiving and selecting projects of different
Our society has an
apparently insatiable appetite for melodrama and conspiracy, but we are
not going to indulge that. We are asking: what are we building and why?
This week we
examine: who knew what and when. Those are important questions since
they can guide us through this complicated situation. Let us start with
what we do know and work from those facts.
What do we know?
1. Prime office
The best six
buildings in our capital command rents in the $15 per sq ft range. These
were listed in the September 20 column in this series. We recently had
reports that a new building in the St Clair area has just been leased at
$20 per sq ft but those remain unconfirmed.
2. State rents
The State rents a
variety of offices, generally speaking, of a lower standard than the
best buildings. Our view is that those rentals are at an average (mean)
of $8 to $9 a sq ft and in arriving at this one is excluding the six
floors of Nicholas Tower rented by the Ministry of Trade and Industry
of the new first-class buildings being put up in our capital would show
that the cost of putting these up—land, construction, professional fees
and finance—requires a break-even rent in the $30 a sq ft range. Please
note that that figure does not provide for profit or maintenance.
implications of the new office buildings in the capital would include:
of occupation: the State’s cost of occupying office space will increase
tremendously. In our estimation that increase would be in the order of a
tripling in those costs. Given State commitments to some 2.6 million sq
ft of these offices, we are talking about a monthly cost in the region
of $80 million. Yes, that’s right, an annual bill of almost a billion
dollars. This does not include maintenance. That represents a colossal
increase in recurrent expenditure which will start just as we are at
peak energy output and prices.
Private rental market: the private rental market will be forced to
adjust to the State’s withdrawal from its accustomed role as tenant. In
the absence of new tenants for the vacant offices resulting from this
change – estimated to be about two million sq ft—landlords will need to
lower their rents if they want tenants.
Greater collateral development challenges
shift in the capital’s commercial “centre of gravity” resulting from
these projects is cause for other concerns. Another of this
government’s ambitious proposals is the complete redevelopment of
East Port-of-Spain; those proposals have been called Eastbridge.
of the cost of Eastbridge are in the region of $1.6 billion. Those
proposals include 300,000 sq ft of commercial space and that would
appear to raise questions as to limits to growth.
character and pace of ongoing state-sponsored office developments at the
edges of the traditional downtown area, one is bound to ask: to what
extent, if any, are those projects compatible with the Eastbridge
More to the point:
how do these proposals fit in with the existing downtown area?
This seems to be
an instance of strategic mis-match, to put it plainly, in that major
office projects which could revitalise an area in economic terms are
being located away from the area one wishes to revitalise. But we will
be dealing thoroughly with Eastbridge and its implications in a
subsequent issue of this series.
What did the State
At this point, the
real question is what did the State know and when? Our Cabinet is not a
rubberstamp and ought properly to be soberly scrutinising the various
proposals which come before it.
On May 13, the
Prime Minister addressed the Senate on the Udecott allegations and that
speech, being a prepared one, deserves our most careful attention. It
sets out a preliminary defence to various allegations which concluded by
proposing that a Joint Select Committee investigate those allegations.
Our interest is in
the description of Cabinet’s oversight into Udecott’s operations.
Manning stated that “…2) a Finance Committee of Cabinet was established
to review the financial implications of projects.” We were not told
more, but one has to ask what that committee told the Cabinet.
When one considers
the various points set out so far in this series and in this article,
one has to wonder at the quality of the advice given to Cabinet on these
We are awaiting
publication of Udecott’s 2007 annual report to carry out a proper
analysis of that aspect of their operations. But some preliminary points
need to be made here.
accounts—as a property development company—are arranged so as to show
the value of land and work in progress separately. Development lands are
valued according to the advice of an independent valuator. The work in
progress is stated at the lower of cost or net realisable value. These
figures are set out in the Notes to the Consolidated Accounts and we
have no reason to doubt their accuracy.
The figures are
amalgamated and that presents a challenge since we are seeking to
establish the viability of these office projects.
There is another
widely-employed and professionally-accepted approach to the valuation of
projects under construction which assumes that the works are completed
according to plan and a current value is put on the project assuming
today’s other factors applied: rents, interest rates, demand and supply.
It would be very
interesting to see such a valuation carried out on one of the flagship
office projects and compare that with the cost of building it.
Afra Raymond is a
director of Raymond & Pierre Limited. Feedback can be directed to email@example.com.