Back in 2012, Seamus Hogan and I were ...mildly sceptical... of proposals to build a giant convention centre in Christchurch.
The convention centre: Eric has written on this, but I can't resist adding my voice. This is why the stadium doesn't upset me so much. The stupidity pales into insignificance compared to the silliness of building a purpose built facility from scratch that is able to host up to three conferences simultaneously. (Aside: from my limited experience with organising conferences, if you have choice over location and date, you choose somewhere where you will be the only conference operating at the time.) The conference centre should be small close to hotels and the performing arts centre so that larger affairs could spill out to those areas.
The bit I'd written on it, in a post titled "What am I missing?", was after one of our regular lunchtime chats in the econ department lunch room. So it owes a fair bit to that discussion with Seamus:
The Press reports that the Christchurch Convention Centre was insured for $30m but that like-for-like replacement would cost $60m. Whatever external benefits come from holding conferences in town are mostly internalised by the local hotel and restaurant industry; solutions letting the convention centre build internalize those external benefits helps ensure an efficiently sized convention centre. Here's one way of doing it, conditional on Council wanting a convention centre.
- Council buys options on a few appropriate sites around town.
- Council gets in touch with the big hotels to tell them that Council's going to build a much smaller convention centre for $30 million, but that they want to site it so it can be linked by skywalks* to adjacent blocks if the hotels want to be linked to it. If the hospitality industry really wants a bigger convention centre, they can come back with a proposal where the hotels fund an expanded facility. But even with a smaller convention centre, they can still host big conventions by holding plenary sessions in the big convention centre facilities and having breakout sessions in the different connected hotels' conference rooms.
- Figure out the set of sites on which you have options that best suits the set of hotel partners. The hotels buy the options off Council for their parts of the build.
- Exercise the options and get on with it. Make sure there's room on the site to put a few restaurants; put restaurant provision up to competitive bidding so that any rents from conventioneers get capitalized into the purchase price and help fund the place, internalizing the external benefit.
Now I know what I was missing: the true chutzpah of Christchurch.
Christchurch, I am in awe.
We were totally right that the thing would be a white elephant that couldn't cover its costs. We were worried about them spending $60m on a new one; the one they got cost $475 million and lost $3.4 million last year. Its visitor numbers hare dropping too.
The ownership question is more tangled than it first appears.
An early, “in principle” version of the 2019 Global Settlement between Christchurch City Council and the Crown talked about the council being best placed to own Te Pae and provide strategic direction for the city’s venues.
But that language did not survive into the final agreement signed later that year.
So the city was cagey about being willing to take ownership while making sure that it didn't sign anything saying that it would.
Good move that. Then:
The Te Pae clause now simply records that the convention centre would be delivered, and that “the parties may continue to engage on future ownership of Te Pae as appropriate”.
The Christchurch City Council said it had already looked hard at taking the asset on, and decided against it.
“After due diligence the council decided not to pursue ownership,” head of facilities and property Bruce Rendall said.
Infrastructure Minister Chris Bishop, one of the shareholding ministers in CID, said the Government was “open to proposals for Christchurch City Council ownership of Te Pae in the future”.
Emphasis added. I'm reminded of Bart Simpson announcing that he would resign, undefeated, from the world of video boxing.
So. Option for the Crown at this point would be to threaten to mothball the thing rather than continue to subsidise it. I don't think they can force Council to own it.
And Christchurch always has the option to offer to agree to take on ownership in exchange for concessions on other margins where central and local government negotiate about things.
Even evil genius needs recognition.
As a bit of fun, I asked my advisor to imagine it were a consultancy like Cameron Partners asked to prepare a report on the likely sale value of the thing if it were offered to market.
As a going concern without ongoing subsidy, the Crown could expect to have to pay someone about $90 million to take it, assuming that the venue could be scrapped in 30 years for its land value.
If instead the owner could demolish and put up something else instead (while paying break fees with the operator), the site might be worth $55 million.
Both $-90 million and $55 million are considerably less than the $352m asserted book value of the building, which is considerably less than the $475m build cost.
A huge up-front and ongoing waste of course. But consider the evil genius here too. That's worth something.
The conversation with my advisor is here, for those keen on that sort of thing. The opening snippet:
In straight commercial terms, Te Pae as a convention centre is not worth anything like its $360m book value to a private buyer. On realistic assumptions:
Highest bid is likely to come from a “scrap + redevelopment” buyer, not a buyer keeping it as a convention centre.
A plausible order‑of‑magnitude sale price for the site in that scenario is around NZ$50–70m net of demolition and contract break‑costs.
As a going concern with no ongoing subsidy, the facility’s value to a private buyer is zero or negative (you’d effectively need to pay someone to take it).
To get a positive price for Te Pae as a going concern, you’re looking at an ongoing subsidy of roughly NZ$8–10m per year over decades, assuming current trading patterns.
