UTAS’ proposed CBD relocation would lead to financial disaster – stop the move now!

Pictured below – the world class Sandy Bay campus site, 2.7 kilometres from the centre of Hobart. 

(Note: Since I wrote this post, UTAS has released further documents in response to my Right to Information requests.  The new documents have strengthened many of my concerns and I intend to publish an update in the near future.  In the meantime, I have updated links to the Southern Future Business Case, as UTAS has replaced the redacted version on its website with an unredacted version.  In response to queries, I have also taken the opportunity to revise some of the text relating to UTAS’ likely ‘losses’, to make it clearer. RH, 27 July)

Section 1 – Key Points

If UTAS’ proposed relocation of its southern campus to the Hobart CBD – and redevelopment of its current Sandy Bay site as a new suburb – proceeds, it would involve one of the largest and most ambitious building programs undertaken in Tasmania’s history. 

• The program would include approximately 60 demolitions, 100 new building constructions and some 26 restorations and refurbishments in the CBD and Sandy Bay, (see Sections 2 and 3 below).

The scale of this proposed program presents many problems and issues that are mentioned throughout this post, but the biggest problem of all is that UTAS’ building program simply cannot be afforded by UTAS and the State.

In its submission to the Legislative Council Select Committee Inquiry into the Provisions of the University of Tasmania Act 1992 (the LegCo Inquiry), UTAS stated that its Hobart relocation and redevelopment of the Sandy Bay campus site “would cover the cost of redevelopment and provide the University with $200 million more over time” (see Appendix 1). 

• “Over time” is likely to mean over 30 years (the standard evaluation period for cost and benefit estimation), but this is not clear.

An amount of $200 million would be a ludicrously small ‘margin’ for UTAS to embark on the massive building program it proposes, even based on the soundest estimates of costs and benefits – and UTAS’ estimates are certainly not that.

Indeed, as will be seen in Section 4, UTAS’ cost and benefit estimates are severely flawed and rather than ‘gaining’ $200 million over a thirty year period, UTAS stands to make a cash loss of between $700 million and $965 million, and quite possibly more, if the foolhardy relocation to the Hobart CBD continues. 

• The principal cost is the building program itself – UTAS’ estimate of building costs for the CBD are far too low; it has refused to release figures for redevelopment of Sandy Bay, but its figures will be preliminary cost estimates only and subject to significant increase. 

• UTAS’ estimates of benefits derive entirely from two sources: (1) increased student numbers based on an argument that relocation of UTAS in the CBD would increase student accessibility, which UTAS has never substantiated and which I will analyse in a future post; and (2) the value to be gained from UTAS’ Sandy Bay site. 

There is also a critical and immediate problem – a substantial time gap has now emerged between UTAS’ expenditure on its building program and its anticipated revenue streams from commercial opportunities in the CBD and, more particularly, from Sandy Bay.

As public policy analyst John Lawrence has shown in his submission to the LegCo Inquiry of 28 June on UTAS’ just released 2022 annual report, UTAS does not appear to have enough cash available to pursue its CBD building program for more than another two or three years.

At that time, if not before, UTAS would need to seek a large State Government – read ‘taxpayer’ – bailout, to continue its building program – and indeed maintain financial viability. 

• While there are alternatives to a State Government bailout – such as further private borrowing, sale and lease back of properties, sale of forward rents and the like – they would involve costs straight to UTAS’ ‘bottom line’. Private institutions would be certain to exact a significant premium for risk, including for regulatory risk. Ultimately such options would just take UTAS further into the mire of an already bad financial situation.

It is likely that if UTAS encounters financial difficulties, the creditors for its $350 million Green Bond would seek immediate repayment. As I have previously argued at length, I believe this creates substantial risks for the State, as UTAS lacks a valid approval for some, if not all, of the Green Bond borrowings. In addition to the ‘bailout’, the State might well need to pay out the Green Bond as well, with penalties for misrepresentation. A downgrading of the State’s debt rating would also be distinctly possible, increasing the cost of borrowing for the State. 

UTAS’ proposed building program faces many other risks, which I have not sought to quantify at this stage (see Section 5), but large among them is the potential redevelopment of Macquarie Point, including the construction of an AFL stadium. This is timed for the very same period in which UTAS’ building program would largely occur.

• Competition for construction resources would be certain to increase costs, requiring a larger bailout from the Government – again read ‘taxpayer’ for CBD relocation to continue.

• There would also be a high likelihood of Hobart’s traffic network being overloaded adding further to costs and raising the need for traffic restrictions (See Section 5).

Action is required now

UTAS’ proposed relocation to the Hobart CBD, and any further wasteful expenditure by UTAS, needs to be stopped now, to avert financial disaster for UTAS and Tasmania.

Refurbishment of the Sandy Bay campus remains, as it always was, a relatively inexpensive, no risk option. It simply requires a UTAS Council and management dedicated to promoting the benefits a southern campus based at Sandy Bay can provide in terms of student welfare, academic excellence and world class amenity. 

• It is still possible that the $350 million Green Bond debt would need to be repaid, but it is better that this situation be managed now rather than occur in crisis. It should not be an excuse for ‘sticking with’ the thoroughly bad relocation option.

If the current UTAS Council and senior management cannot dedicate themselves to the task of reinvigorating the Sandy Bay campus site, they should resign. 

• The Government, and Parliament, should anyway give thought to immediately passing an amendment to the University of Tasmania Act 1992 to ensure an appropriate skill mix, and commitment to UTAS’ long-term future, on the UTAS Council.

Failures in transparency and accountability

While UTAS’ proposed relocation and building program can only be regarded as a vast undertaking (likely to involve well into the billions of dollars, taking Sandy Bay redevelopment into account), UTAS has fought against releasing substantive information, including its flat refusal to publish its most recent business case. 

• UTAS’ lack of transparency is very much worse than that presented by the State Government on Macquarie Point, which has been heavily criticised.

The Government has tolerated UTAS’ lack of transparency.

Much more seriously, however, in complete abrogation of its own responsibilities, the Government has exposed the State to major risk by failing to undertake any independent analysis of UTAS’ plans and business cases, instead providing unquestioning support for every claim UTAS makes. 

• Also in abrogation of its responsibilities, the Opposition has not sought to scrutinise UTAS or the Government on UTAS’ plans.

If UTAS wishes to contest my arguments, it should immediately release all relevant material, including its most recent business case(s) for the CBD move in their entirety. Edited excerpts or glosses by UTAS will not do. 

• This material should, anyway, have long since been in the public domain and it is a scandal on the part of UTAS and the Government that it is not.

I am not making my claims here lightly.

I previously managed a multi-billion-dollar infrastructure program and have extensive experience in assessing business cases, including cost – benefit analyses (see About Me).

I have been supported in preparing this post by retired architect Ian Johnson, and have benefitted greatly from the writings of John Lawrence. 

Section 2 – UTAS’ proposed building program in the Hobart CBD

Based on UTAS’ Southern Campus Transformation Preliminary Urban Design Framework flipbook (the flipbook), UTAS’ Hobart CBD (including Domain) 10-year construction program would involve: 

• Demolition of an entire block length of buildings on the Elizabeth Street side of Argyle Street between Bathurst Street and Melville Street (see Appendix 2) and demolition of seven other city buildings/structures.

• Construction of 10, potentially 11 new buildings, including:
  • One six storey building
  • One five storey building
  • One four storey building
  • Five three storey buildings

• Restoration/retrofit/refurbishment of 14 buildings.
  • These can be different things, but they have been grouped together as there appears to be some confusion in UTAS’ terminology. For example, a number of buildings referred to as historical restorations on page 10 of the flipbook are later referred to as refurbishments, while one building (Hunter Street) is referred to as a combined restoration/refurbishment.

• Work on the Forestry Building in Melville Street is called both a retrofit and a refurbishment – the cost recently increased from $86 million to $131 million and can be expected to go higher.

Streets that would likely suffer direct major long-term traffic disruption due to building work include Harrington Street, Murray Street, Elizabeth Street, Argyle Street, Campbell Street, Brisbane Street, Bathurst Street and Melville Street, which UTAS also envisages as a pedestrian priority street.

Carriage of construction and demolition materials would be required across the Central Hobart and Greater Hobart Road network generally.

While work is underway on the Forestry Building the large majority of work is yet to commence.

In addition to the flip book and Appendix 2, detail and analysis of UTAS’ West End and Midtown Work Programs is provided at this link.

Section 3 – UTAS’ proposed building program on the Sandy Bay campus site

UTAS’ plan for the Sandy Bay campus site is to turn it into, in effect, a new suburb with 2,700 dwellings and retail outlets supporting a population of 8,000 people.

Based on UTAS’ Reimagine Sandy Bay – Engagement #4 [NB: the Reimagine site has ceased to operate since 4 July], UTAS’ building program on the Sandy Bay campus site would include: 

• Demolition of over 50 buildings, and demolition of numerous other structures, with the precise number depending on UTAS’ plans.
  • This would include the demolition of good university buildings – even new or refurbished buildings – such as the Centenary Building (see Appendix 3).

•  Removal of substantial bushland, gardens, trees and parkland, including native habitat.

• Construction of approximately 90 new large buildings up to 8 storeys high.
  • About 60 of the buildings would be residential apartment blocks mostly between 5 to 7 storeys, with blocks having an average of around 40 apartments.

• Retention (presumably including refurbishment) of about 12 buildings, not including existing student accommodation.

If the Sandy Bay building program proceeds (most likely for ten years or more), Sandy Bay Road, Churchill Avenue, Regent Street and Proctors Road would inevitably become choke points (or even worse choke points than now).

The longer-term traffic impacts of 8,000 people located in a small area would also be major, if not overwhelming, on a road system totally constrained by geography – yet no independent traffic analysis has been conducted. 

• On last reckoning, the ‘new suburb’ was also 3,000 parking spaces short.

Full analysis of UTAS’ proposed building program can be found in the documents at the Save UTAS Campus group’s webpage UTAS Masterplan Uncovered (there is also a shorter summary in the brochure Our University is for Sale).

Section 4 – Costs and benefits

Introduction

To my knowledge, there are three critical documents/sets of documents containing cost and benefit estimates for UTAS’ proposed relocation to the CBD: 

• The Hobart Science and Technology Precinct Business Case (the STEM Business Case; 2016)

• The Southern Future Business Case (the SFBC; 2019) – the basis for the UTAS Council’s decision to relocate to the Hobart CBD on 5 April 2019

• Research undertaken by Deloitte Access Economics (DAE research) in 2022 (see Appendix 1).

UTAS has strongly resisted making these documents available under Right to Information (Appendix 4). However, under pressure from the Ombudsman’s office, UTAS has released sufficient material for major flaws in presentation of cost and benefit estimates, and their underlying assumptions, to become apparent.

Analysis of this material makes it clear that the proposed CBD move would be a financial disaster.

Because it is so important, I intend to go through this material at some length, but make three comments first: 

• I focus in this section on UTAS’ cost and benefit estimates for CBD relocation.  However, it is obvious that since 2016 material produced by UTAS has, for whatever reason, clearly ‘loaded the dice’ in favour of CBD relocation against the options of maintaining the current Sandy Bay campus site or consolidating that site below Churchill Avenue. I have previously commented on this ‘dice loading’ and intend to write more fully on this issue in a future post, but note some examples in Section 6.

• While the STEM Business Case (2019) may seem out of date, it sheds light on a number of issues in the SFBC, so I consider these two documents together.

• While I have major issues with the STEM Business Case, it is a more professional product than the SFBC, which is amateurish in the way it considers financial issues and which is primarily constructed of highly questionable qualitative material, frequently written in PR jargon. 

Presentation of Costs and Benefits in the STEM Business Case and the SFBC

I am presenting here three tables from, or derived from, the STEM Business Case and the SFBC.

In a serious omission by UTAS or its consultants, these tables do not include nominal dollar amounts, but rather show discounted cash flow figures (net present value; NPV). I explain this further in Appendix 5. Where I can comment below on nominal dollar amounts found elsewhere in the business cases I do so.

As a general rule, NPV amounts are less, perhaps considerably less, than the base nominal dollar figures underlying the NPV amounts.

As UTAS frequently argues that its financial sustainability depends on CBD relocation, for the benefit of the UTAS Council, nominal dollar amounts should have been presented in all relevant instances. It is ultimately nominal dollar cashflows that will determine UTAS’ financial viability.

• Where I refer to NPV amounts below I use the 7% discount rate favoured by Infrastructure Australia, to which UTAS submitted its STEM Business Case in 2016.

Table 1 is a table derived from page 60 of the STEM Business Case. This Table provides the costs and benefits calculated to flow to UTAS from building a dedicated STEM facility in the CBD in comparison to the base case of maintaining facilities at Sandy Bay. I have edited this table to remove costs and benefits of the project ascribed to the wider economy, as these have nothing to do with UTAS’ viability and are themselves highly questionable.

 TABLE 1

Table 2 is the table on page 65 of the SFBC summarising the costs and benefits from relocation to the Hobart CBD.

The entire section on cost – benefit analysis in the SFBC, including consideration of the option of consolidating the Sandy Bay campus below Churchill Avenue, occupies only two pages of the SFBC (linked here for convenience). I have sought to establish through the Ombudsman what additional material may have been presented to UTAS Council Members to supplement the cost – benefit analysis, either in the heavily redacted appendices or in additional documents (see Appendix 4).

Whatever the answer, the simple fact is that this cost – benefit analysis represents the distillation of the financial case for UTAS’ proposed relocation. As such, it served as a key element in the most important decision in UTAS’ history – the decision to relocate the southern campus to the Hobart CBD.

 TABLE 2

 Table 2 is:

• Poor in presentation – there are for example no “$” signs or “millions”.

• Error ridden – for example, even discounting possible rounding, the numbers in the table fail to add up by significant amounts – this problem is even worse in the table for the Sandy Bay consolidation option.

  • There also seems to be an error in the Residual Building Values (as distinct from major methodological issue I will discuss on this item), as more variation could be expected in the figures between columns (see the significant variation between columns in Table 1)

• Technically deficient – as commented earlier, nominal amounts should have been presented.

As it is a critical summation of the case for relocation, this table should be of immense embarrassment to the UTAS management which produced it. It should also be of immense embarrassment to the UTAS Council that, with the exception of Professor Jamie Kirkpatrick, appears to have accepted it totally uncritically.

In the record of the discussion in the Council Minutes, I note the following:

“The accuracy of elements of the data was questioned by some, while others offered the view that even if there were issues with some parts of the data, it was quite sufficient for the purposes of the decisions to made.”

 and

“Council members commended the quality and comprehensiveness of the materials provided to Council to enable an informed decision to be made.”

Residual Building Value

In Table 3, I have taken Table 2 and corrected the presentational errors. In particular, assuming other figures were correct, I have added a line to account for other items that may have been left out and/or to account for the discrepancy between figures.

TABLE 3

I have also, it will be noted, put a line through the Residual Building Value item, as I also did in Table 1, and corrected the total benefits figure accordingly.

Residual Building Value is a book value item only and does not bear on real world cash flows.

At the very least, there should be an explanation with the tables that Residual Building Value reflects the depreciated amount of building assets rather than a cash amount.

It is notable in this regard that the Strategic Business Plan produced by the Tasmanian Government for the Entertainment and Sports Precinct at Macquarie Point does not present a Residual Building Value in the cost – benefit analysis presented in a table on page 60 of Strategic Business Plan. It also notable that same table, unlike UTAS’ tables, provides nominal dollar amounts (as well as providing an NPV figure with a 7% discount rate). 

• While, understandably, there have been many concerns raised about the Government’s documentation, rigour and transparency on the Macquarie Point project, it is light years better than UTAS’ on its proposed CBD relocation.

• The table on page 60 of the Strategic Business Plan for Macquarie Point presents amounts for “Terminal value”. This is not to be confused with Residual Building Value, being “The value of the benefit stream after the evaluation period [20 years] until the end of life of the asset” (page 58).

When Residual Building Values are removed in Table 1 and 3 there are major changes.

With a 7% discount rate, the STEM facility goes from providing a loss of $83 million to providing a loss of $102 million. In cash (nominal) terms that loss would likely have been more substantially negative and certainly so in the first ten years, which is why, in part, Commonwealth funding was sought.

With a 7% discount rate, relocation of UTAS’ southern campus to the Hobart CBD goes from making a of loss $11 million to making a loss of $282 million. In nominal cash terms that loss could be considerably greater.

Thus, even before I turn to critically assess the assumptions used in the STEM Business Case and the SFBC, it is clear that according to UTAS’ own document, the SFBC, the proposed relocation of UTAS to the Hobart CBD would be very substantially cash negative for UTAS.

Assumptions in the STEM Business Case and the SFBC

Capital cost

The nominal cost for a new STEM facility (capital cost only) in the Hobart CBD was estimated at a $400 million in the STEM Business Case (see for example, page 4) in 2016, compared to the 7% NPV amount of $269 million in Table 1. Applying the ABS Producer Price Index for Construction to this estimate produces a cost of about $520 million (nominal) at 30 March 2023.

The table on page 11 of the SFBC indicates that the nominal cost estimate for the building program envisaged for the Hobart CBD relocation in 2019 was $677 million (compared to the 7% NPV amount of $508 million). Applying the ABS Producer Price Index for Construction to this figure produces a cost of approximately $830 million for UTAS’ building program in the CBD at 30 March 2023.

Even with this indexation applied this figure is not credible as a final cost. 

• UTAS’ flipbook and Section 2 of this post sets out a very large and ambitious building program on the part of UTAS. While the STEM facility envisaged in 2016 was no doubt a large and grandiose building, the idea that UTAS’ entire CBD building program would cost less than two STEM facilities is preposterous.

• Throughout the SFBC, it is made clear that its building cost estimates were very preliminary.  Costs almost always increase very significantly as design work progresses and estimates are refined.

• In fact, real world experience suggests that neither UTAS nor its advisers have a clue with regard to building cost estimation, as evidenced by the recent increase in the cost of refurbishing the Forestry Building from $86 million to $131 million – a 52% cost increase at a relatively advanced stage in design and cost estimation for a refurbishment, the cost of which should be much easier to estimate than a new building.

On this basis, it would be reasonable to suggest that the likely final cost of UTAS’ CBD building program would be at least $1.2 billion (a 50% increase on $830 million would be $1.245 billion). However, in Section 5, I set out a number of risk factors that make further significant cost increases likely and a cost of over $1.5 billion would seem distinctly possible, even likely. 

• Certainly, it is time for all UTAS’ building cost estimates to be in the public domain. The potential for financial disaster for UTAS and Tasmania far outweighs the competitive damage UTAS claims it would sustain.

Land Acquisition Costs

The STEM Business Case did not provide a figure for land acquisition as it already owned the proposed site (on the corner of Argyle and Melville Streets). The SFBC assumed a cost of $20 million for additional land acquisition costs – that land acquisition is already likely to have occurred (indicated by the relatively small variation in NPV figures).

Benefits from increased student numbers

The STEM Business Case assumed that STEM student numbers would increase by 50% from 3,000 to 4,500 students within eight years due entirely to the increased ‘accessibility’ of the university to prospective students in the CBD (see, for example, pages 4, 46 and 100ff). As I previously said, UTAS has never substantiated this claim and I intend to write a future post on the issue. However, it is one thing to assume a marginal increase in student numbers. To assume a 50% increase is Munchausen-like.

• Rather than undertaking a financially disastrous relocation to the CBD, increases in student numbers would more certainly be achieved through improved secondary school completion rates and improved public transport.

The STEM Business Case does not provide nominal figures for costs and benefits associated with its assumption of increased student numbers. However, with a discount rate of 7%, the document indicates that there would be a net NPV gain from increased student numbers of $111 million over 30 years (see page 60; my Table 1).

• This encompasses additional student revenue ($135 million) plus associated research benefits ($86 million) minus additional operating (mainly teaching) costs ($110 million).

The SFBC also does not provide nominal figures for costs and benefits associated with its assumption of increased student numbers. However, with a discount rate of 7%, the document indicates that there would be a net NPV gain from increased student numbers of $130 million over 30 years (see page 65; my Table 3).

• This encompasses additional student revenue ($163 million) plus associated research benefits ($67 million) minus additional operating (mainly teaching) costs ($100 million).

Such a benefit flowing from all subjects (not just STEM) moving to the CBD is a relatively restrained assumption compared to the STEM assumption, but again it has no justification. It is likely that the nominal benefit assumed for increased student numbers was well over $200 million.

Land Value Vacated/Land Disposal

The STEM Business Case (page 99) provides a nominal value of $80 million ($66 million 7% NPV for land to be vacated at Sandy Bay by moving STEM to the CBD and for unlocking “value in previously vacated or underutilised areas of the Sandy Bay site”. The SFBC provides a nominal figure of $200 million for land disposal on page 11, although the 7% NPV figure ($87 million) on page 66 may suggests a nominal figure closer to $150 million was used there, which would be more consistent with a figure for the entire site cited in the STEM Business Case ($120 million).

• I will have more to say on the inconsistencies in the SFBC figures in Section 6.

Deloitte Access Economics research

In a sign of contempt for the Tasmanian Parliament and people, UTAS has entirely refused to release the research containing UTAS’ most recent cost and benefit estimates – namely the research undertaken by DAE in 2022.

All that is available of that research is the confused and confusing half page of material provided by UTAS in its submission to the LegCo Inquiry (see Appendix 1) and UTAS’ most recent refusal letter of my Right to Information application for release of DAE’s research, in which it revealed something of DAE’s methodology.

This material indicates five main ‘facts’: 

• “The relative costs of buildings in the two locations have not fundamentally changed.   The “two locations” means consolidation below Churchill Avenue in Sandy Bay and relocation to the CBD.  I will have more to say about this in Section 6.  Nothing is said about absolute costs.

• Sale of UTAS’ CBD properties with a 40% premium on price paid would recoup about $100 million.

• “across the life of Sandy Bay development (presumably 30 years, but perhaps longer), UTAS “would stand to gain approximately $770 million”.

• “The consolidated city campus would cover the cost of redevelopment and provide the University with $200 million more over time.”
  • “Over time”, presumably means 30 years, the normal period for evaluating costs and benefits.

• UTAS’ refusal letter for the DAE research stated, “Case studies were included in the report from other projects unrelated to the Sandy Bay Redevelopment that are not in the public domain.”  This perhaps indicates that DAE used cost of works on ‘similar’ projects to estimate cost of works at the Sandy Bay site – a method used for very preliminary cost estimation.

While the exact significance of the $770 million claim is not clear, it can be taken as suggesting that without the unlocking of what now appears to be greater value from the Sandy Bay campus than previously estimated, UTAS would be making a significant loss from relocation “over time” – perhaps a loss of $570 million rather than a profit of $200 million.  I will discuss this in Section 6.

If this is a correct interpretation, even accepting the $770 million figure at face value, unless DAE has taken some account of the issues I have raised in earlier discussion, that $200 million profit figure would become a cash loss of between $450 million and $700 million.  

• This is based on removing from calculation Residual Building Value and the costs and benefits flowing from the highly questionable assumption of increased student numbers, while adding increased building costs ($568 – $823 million over the 2019 cost estimate of $677 million).

An imminent cash crisis

Quite apart from the fact that UTAS would make major losses “over time” from relocation to the Hobart CBD, a cash crisis is imminent, if UTAS continues pursuing CBD relocation, as it is constantly incurring costs on its proposed relocation to the Hobart CBD. In contrast, the substantive revenues it anticipated and planned for, particularly from Sandy Bay, are a long way from coming on stream.

As already stated, public policy analyst John Lawrence has shown, in his recent submission to the LegCo Inquiry on UTAS’ just released 2022 annual report, that UTAS does not appear to have enough cash available to pursue its CBD building program for more than another two or three years. 

• After borrowing $350 million through its Green Bond in March 2022, at 30 December 2022 UTAS held only $130 million in cash and $317 million in current investments (with a further $230 in non-current investments, which may be difficult to access). New building works would soon exhaust these funds and indeed exhaust non-current investments to the extent that they can be accessed.

• The current refurbishment of the Forestry Building is estimated to cost $131 million alone, with that cost likely to go higher.  UTAS’ is yet to start on its new building program – the really costly part of its building program.

5. UTAS’ proposed redevelopment of Sandy Bay and the issue of risk

While UTAS’ current plans for Sandy Bay are not entirely clear, its preparation of the Sandy Bay masterplan and the half page on financial sustainability, seemingly based on Deloitte Access Economics’ research, provided to the LegCo Inquiry (Appendix 1) indicate that UTAS now sees itself in the role of master planner and developer of the Sandy Bay campus site, making hundreds of millions of dollars “over time”. 

• Rumours are already running that UTAS plans to buy a development company and a real estate agent.

• Speculators, developers and consultants must be rubbing their hands together, at least to the extent that they care nothing for Tasmania’s larger interests.

As neither the STEM Business Case nor the SFBC provided cost and benefit estimates for the performance of this role, it appears the entirety of UTAS’ business case/cost – benefit analysis for redevelopment must be in DAE’s research, which UTAS is withholding.  

• While I am pursuing the DAE research with the Ombudsman, UTAS’ approach is always to play for time, and the Government/Parliament should compel UTAS to place this research in the public domain immediately.

Considering the massive scale of the building program envisaged by UTAS (Section 3) and the cost of capital works in the CBD (Section 4), the cost of redevelopment of the Sandy Bay campus site must run into the billions of dollars, exceeding in cost by a significant margin the scale of the proposed Macquarie Point development, stadium and all. 

• Apart from the cost of building programs, it should be noted that the Sandy Bay campus site occupies 100 hectares, compared to the 9.3 hectare Macquarie Point site, is spread over a wide variety of terrain and has complex dependencies, relationships and interactions with the communities and transport networks located within and throughout it.

The Issue of Risk

I stand to be proven wrong if DAE’s research is released, but I believe it most unlikely that DAE will have satisfactorily allowed for risk in assessing redevelopment of the Sandy Bay site. 

• It might be thought that one way to mitigate UTAS’ risks, and to enable greater focus on its education task, would be for UTAS to sell or lease some part, or all, of the responsibility for development of Sandy Bay. However, not only would this come at a cost to UTAS in order to provide private sector rates of return, but any prospective purchasers/lessees would be sure to price risk at a premium, particularly risk posed by Macquarie Point and regulatory risk (to which I will now come) and make an appropriate price deduction.

Following is a list of some of the risks to be faced by UTAS, potential purchasers, creditors, contractors and sub-contractors. These risks are not, of course, exclusive. Many of them overlap or have the potential to overlap with compounding, dollar cost, consequences to UTAS.

Development of Macquarie Point – Development of Macquarie Point (2023-2028) is currently envisaged to occur within the time frame of UTAS’ CBD and Sandy Bay building programs (now extending to 2032 at least). Should this occur, there would be a number of very major consequences: 

• The UTAS building program would be competing for the same scarce construction resources at a time when construction costs have been surging. Other building activity in Hobart, like home building, would increase in cost or grind to a halt.

• The already problematic road network in central Hobart and Hobart generally would come under immense strain from the amount of construction material and waste being transported, but more particularly from large scale disruptions to the network from closures due to construction activity. This would threaten to overload the road network and travel restrictions would need to be considered.

• In the SFBC (page 58), UTAS noted the fragile state of Hobart’s traffic network: “The ability of the Hobart CBD to accommodate a significant increase in car driver trips is limited, with impacts expected to spill into surrounding areas and affect the wider Hobart community.” However, it then proceed to totally discount any major scale impact from its CBD and Sandy Bay building program.

• The Government would likely have to fund cost increases for UTAS’ building program and (likely) cost overruns on Macquarie Point at the same time. With a bailout requirement certain for UTAS within the near term, due to the total mismatch in timing between UTAS’ expenditures and revenues (unless UTAS is steered towards worse bridging finance options), the impact on the State budget would be significant.

• Taken together with the likelihood/certainty that UTAS’ Green Bond creditors would seek early repayment of their Green Bond loans to UTAS, exposing the lack of a valid borrowing approval for the Green Bond, this could well see a downgrade in Tasmania’s credit rating.

• The State is also likely to be embarrassed by the reference in Moody’s UTAS credit rating to the Green Bond being implicitly guaranteed (that is, financially backed) by the Commonwealth. The Government will have some explaining to do to the Commonwealth and this may complicate future dealings.

Regulatory Risk – Quite apart from Development Approval processes, UTAS would need to go through a rezoning process for Sandy Bay. UTAS would also need to go through environmental approval processes. The risks in regulatory processes can never be reliably foreseen and can vary considerably. Any amendments required to UTAS’ plans would effectively come straight off its ‘bottom line’. 

• No doubt UTAS would, with potential state Government support, seek to exert as much control over rezoning of Sandy Bay as possible, but it is still unlikely to obtain exactly the result it wants. To the extent UTAS seeks to place regulatory risk on other parties, as mentioned previously they will exact a premium (additional cost), as the private sector tends to assume government parties are better able to negotiate regulatory risk than them.

Building program risk – I have already mentioned this issue a number of times, but it needs to be stressed that to the extent DAE has prepared costs estimates for the Sandy Bay Building program, these will inevitably be wide of the mark, particularly if the Macquarie Point development proceeds (or can UTAS/DAE assure the public through release of the DAE research that this was adequately costed in?).

Timeline risk – This is closely associated with building program risk as delays in commencing and progressing building activity would inevitably see costs increase. UTAS has now produced a succession of documents setting out its proposed/envisaged timetable for work and has been wrong in every instance. Now the maturity date of 24 March 2032 for $280 million of its $350 million Green Bond debt perhaps indicates that it is aiming for a terminal date around that time for its two building programs. 

• UTAS and its advisers would/should have allowed a contingency for timeline risk, but this is likely to be insufficient. There are currently suggestions that Sandy Bay rezoning would not occur until 2025, suggesting that, if UTAS’ Sandy Bay building program goes ahead, it will extend to the mid-2030s.

Failure to cost items – From Vice-Chancellor (VC) Black’s evidence to the LegCo Inquiry on 4 May 2023, it appears that UTAS may not yet have costed significant items, including the handling and management of UTAS’ many valuable collections and sensitive scientific equipment (see the interesting exchange on this at Appendix 6).

In this context VC Black said, “The process for designing any of those buildings has not begun. Those are things that require detailed attention as you go through the design process.”

At least eight years on from the emergence of the Rathjen plan to relocate to the Hobart CBD and to unlock the presumed treasure chest of the Sandy Bay campus, seven years on since UTAS lodged the STEM Business Case with Infrastructure Australia, four years on from the UTAS Council’s formal decision to relocate to the Hobart CBD, two years on from UTAS’ flipbook and Sandy Bay Masterplan, VC Black’s words were astounding. They indicate that UTAS has still not come to grips with the practicalities of its proposed move and confirm that building design remains at an immature stage, even for the CBD.

In light of these risks, the $770 million ‘gain’ figure presented by UTAS as associated with Sandy Bay development should be substantially discounted for estimation purposes. If I have understood the use of that figure correctly, a 33% reduction, which I believe likely understates downside risk, would – building on my earlier calculation – mean a cash loss of between $700 million and $965 million for UTAS over a thirty-year evaluation period.

Section 6 – Time to change course – reinvigorate and promote the Sandy Bay campus

UTAS must stop throwing good money after bad on CBD relocation now. 

• If it does not do so, it will jeopardise both its own finances and those of the State, and risk its own future.

It must refocus the southern campus at Sandy Bay, while leaving established facilities in the CBD in place. 

• As well as providing the best educational and student experience, refocusing the campus at Sandy Bay is by far the best and least risky financial strategy.

While it is not for me to advise on the optimum strategy for refocusing on the UTAS campus, I can suggest some of the key elements that UTAS should seek to implement: 

• Immediately stop work on the $131 million refurbishment of the Forestry Building and explore opportunities for selling/leasing the property.

• Explore opportunities for selling/leasing other surplus properties in the Hobart CBD. A properly managed process now would avoid any need for a ‘fire sale’ at a later date.

• Refurbish the Sandy Bay campus site.
  • UTAS provided an estimate for the maintenance backlog at Sandy Bay of $135 million in the SFBC (page 5).  Applying the ABS Producer Price Index for Construction this figure might now be closer to $165 million (see also Sandy Bay building condition and functionality report, page 4).
  • Refurbishment would also involve significant additional cost, but could be conducted over time on a genuine need basis.
  • Refurbishment would also need to target sustainability and accessibility outcomes.

•  Initiate an objective study exploring the best options for the Sandy Bay campus, taking time to get it right.  Options should include:

• Explore existing commercial opportunities.

• Play to its competitive advantage and market Sandy Bay as the world class campus site it is – to students and academics.
  • This post has been focused on financial issues. As with my approach generally, I have largely left it to academics and students to comment on issues of teaching, research, learning and well-being, however, on the page A Vision for UTAS, I have sought to chart a way forward for UTAS. I would welcome any suggestions on this page.

• If its current investment funds were not sufficient, and while waiting for commercial opportunities to develop, renegotiate terms with Green Bond holders or, if early payout is required, swallow its pride and refinance with Tascorp.
  • There would likely be penalties for early pay out of the Green Bond, but it is better that this occurs in a managed process without court involvement than in a process where bond holders (or worse, secondary bond holders) line up to enforce their rights.

Anticipating the counter argument

I anticipate a counter argument that UTAS (and its consultants) are likely to run against the Sandy Bay option – that adequately refurbishing the Sandy Bay site would also involve high cost that I have not considered.

This is where the issue of the dice being loaded in favour of CBD relocation over Sandy Bay options comes in.  As I have indicated, I intend to do a more thorough post on this issue in the future, but for now I will state some obvious examples.

In the SFBC (page 11) it was estimated that the capital cost of refurbishing (or rebuilding as the SFBC insisted would need to be the case) the Sandy Bay campus on a consolidated site below Churchill Avenue would be $657 million.  Applying the ABS Producer Price Index for Construction would produce an estimate of $810 million at the end of March 2023.

However, while much of the relevant material is redacted, it is clear the SFBC made some very questionable assumptions on future building works required, as well as exaggerating the need for those works to occur in the period 2020 to 2030, including: 

• that a new purpose-built STEM facility would have to be constructed (in the STEM Business Case this was costed as more expensive than a city STEM facility at $429 million compared to $400 million, so it might reasonably be assumed that a high cost was used in the SFBC).

• “the Morris Miller Library would be rebuilt following the STEM construction. A new library or larger study spaces in the city would also be required to support the students already there”.

The issue of what needs to be built or refurbished, and the appropriate timelines for this, is clearly a matter warranting further serious study (rather than the ‘straw man’ approach clearly adopted in the SFBC). However, necessary work can be undertaken over time.

More significantly, and as the crucial driver in arguing that CBD relocation would provide a $120 million net benefit relative to consolidation of the Sandy Bay campus below Churchill Avenue, the SFBC (page 11) estimated the benefit to be gained from the Sandy Bay site was $200 million for the CBD option and only $40 million for the consolidated Sandy Bay option.

Not only does the $200 million figure appear internally inconsistent in the SFBC (the NPV figure on page 65 suggests a figure closer to $150 million), but both figures are inconsistent with the STEM Business Case where it is, for example, suggested that freeing up the STEM facility land alone at Sandy Bay would provide $80 million to UTAS.

Cleary then the $200 million versus $40 million figures should be regarded as unreliable.

As I have already indicated, in the light of the DAE research, these figures appear to have been overtaken anyway. 

• If the entire Sandy Bay campus site is worth $770 million, there would clearly be options for more limited commercialisation of the site that would keep the rest of the campus viable.

It should also be mentioned that pursuit of the Rathjen vision has involved UTAS in needless expenditures, since 2015 at least.  John Lawrence has mentioned some of these in his discussion of “restructuring costs”, but I am sure that there has been much needless expenditure since 2015 lurking beneath the surface of UTAS’ accounts, including payment of administrative staff engaged with relocation and ‘fact-finding’ overseas travel.  The axe needs to come down once and for all on this wasteful expenditure.

Section 7 – A final word – on “renewal”

Throughout the UTAS relocation saga, UTAS has largely relied on three arguments for relocation of the southern campus from Sandy Bay to the Hobart CBD: 

• Most prominently and substantially, that the move is necessary for UTAS’ financial viability – As has been shown, this is nonsense.  CBD relocation would come at a very heavy cost to UTAS and the Tasmania.

• Increased accessibility for students to university – As I have commented above, UTAS has never provided substantive evidence that moving the university will have an effect on student numbers. Rather than courting financial ruin through moving UTAS to the CBD, all other options for improving accessibility should be considered, including substantial improvement of public transport or UTAS operating dedicated shuttle services. I will be looking at the accessibility argument in a future post. The bigger issue for now is to stop the increased flow of Tasmanians to interstate universities.

• Financial benefit to the CBD – UTAS continues to make its bogus claim that 1,500 university staff moving to the Hobart CBD will provide “an extra $15 million spent at small businesses in the area – cafes, restaurants, hairdressers and retail stores.” I do not know how many times I have to say this, but this claim is a complete and utter fabrication. The fact that UTAS continues to make this claim, poses serious questions about the integrity of the UTAS hierarchy, including Chancellor Watkins who has personally stood behind the claim.

While peddling the same old canards in his evidence to the LegCo, VC Black introduced/refreshed another argument, suggesting that UTAS’ relocation to the Hobart CBD was about “renewal” and contemporary facilities. Some of his words on this matter can be found in Appendix 7.

 I do not want to engage with what I see as the cynical deployment of an argument that superficially sounds attractive, like much that VC Black says. I would simply make the points that: 

• VC Black is making a virtue of necessity, by portraying the limited spaces available in the CBD, which are totally unfit-for-purpose, as somehow representing “renewal”.

• Genuine renewal, which should come with adequate space and amenity for all, and which should provide for how individual academics wish to teach/research and individual students wish to learn, is something that can be readily obtained at Sandy Bay. Most students will want to access on-line learning at times, but scope for face to face learning and meaningful social interaction must be maintained.

• According to most of what I hear from academics and students renewal, as currently practiced by UTAS does not even meet minimum requirements for facilities.

• Most seriously, though, there can be no renewal when the financial security and existence of UTAS are at stake.

Appendices

Appendix 1 – Deloitte Access Economics research

In 335 pages of its public submission to LegCo Inquiry, UTAS devoted less than half a page to its financial argument for the Hobart CBD relocation (in Part 13, Attachment 1, page 8), as follows: 

Appendix 2 – An example of major work proposed for the CBD

UTAS ‘campus heart buildings’ – six, five, four and three storey buildings on two blocks bounded by Elizabeth Street, Campbell Street, Bathurst Street and Melville Street, with Argyle Street running through the middle – the disruption to city traffic will be massive.

 See UTAS’ flipbook for more.

Appendix 3 – UTAS’ plans for demolition at Sandy Bay

UTAS plans demolition of the large majority of buildings at Sandy Bay.

If refurbished and properly maintained, most UTAS buildings at Sandy Bay would be in good condition.

 UTAS plans to demolish relatively new and refurbished buildings in including:

• the award-winning Centenary Building
• the refurbished Law School
• the new Pharmacy Building
• new Chemistry Labs
• the relatively new Old IMAS building
• Plant Sciences Glass Houses.

Full analysis of UTAS’ proposed building program for Sandy Bay can be found in the documents at UTAS Masterplan Uncovered (there is also a shorter summary in the brochure Our University is for Sale).

Appendix 4 – Key documents, and UTAS’ efforts to keep them secret

 As mentioned above, to my knowledge there are three critical documents/sets of documents relating to the UTAS’ proposed relocation to the CBD – the STEM Business Case, the SFBC and DAE research (Appendix 1). 

• The proposal to locate a new STEM facility in the Hobart CBD was VC Peter Rathjen’s stalking horse for complete relocation of the southern campus. I sought a copy of the STEM Business Case under Right to Information in August 2022. Under pressure from the Ombudsman’s office, and with Infrastructure Australia separately about to release the document to me in unredacted form, UTAS released an unredacted version on the internet around 16 January 2023.

• I also sought a copy of the SFBC in August 2022. Again, under pressure from the Ombudsman’s office UTAS also released a version of the SFBC on 16 January 2023, claiming that it was releasing the document “in full” when, in fact, 66% of the document was redacted. I am seeking release of the complete document through the Ombudsman and have just received the Ombudsman’s decision on this matter, which rules decisively against UTAS.

• On 26 January 2023, I sought a copy of DAE’s research. After UTAS refused my request twice I have also taken this matter to the Ombudsman.

Appendix 5 – Nominal Dollars and Net Present Value (NPV)

“Nominal dollars (also referred to as actual dollars) represent the actual amount of money spent or earned in a given year“.

NPV is determined by calculating the nominal costs (negative cash flows) and benefits (positive cash flows) for each period of an investment. After the cash flow for each period is calculated, the present value (PV) of each one is achieved by discounting its future value at a periodic (percentage) rate of return (the rate of return dictated by the market or agencies such as Infrastructure Australia). NPV is the sum of all the discounted future cash flows. See Wikipedia and other sources for more detailed explanation.

Appendix 6 – UTAS’ failure to cost items

This is from pages 18-19 of VC Black’s evidence to the LegCo Inquiry on 4 May 2023:

CHAIR – “Just the specifics on, say, that seismic measuring equipment. Obviously, there are records that go back since that site began. Is there a consequent impact on the continuity of measurements if you are going to be moving that facility to some other location? I know the world is a small place and moving from Sandy Bay to the CBD might not be a great distance but there could be some interruption to those sorts of measurements over time.”

Prof BLACK – “It’s a technical question. People who are deeply expert in those matters would be deeply involved in any design process around them.”

CHAIR – “How much consultation has there been with the higher-level management of the various faculties that are involved with the CBD move? How much consultation has taken place in terms of ensuring they have sufficient space to be able to conduct their teaching and their activities?”

Prof BLACK – “The process for designing any of those buildings has not begun. Those are things that require detailed attention as you go through the design process. If you look at what has happened in the north, where we have gone through that process, we had technical working groups assemble with key staff at all levels, not just senior levels – because it is often people in technical roles who have the best knowledge about what is required.”

Appendix 7 – VC Black on “renewal” and “contemporary standards”

This is from pages 16-17 of VC Black’s evidence to the LegCo Inquiry on 4 May 2023:

Prof BLACK – “In the context of Tasmania, if you look at all the building projects around the state, we are progressively going through it over more than a 10-year period. If you look around the state in any one of the cities – Launceston or in Hobart – there’s a very wide range of other activity going on. From the university’s perspective, yes; but a building project – most of them are somewhere in the $30 million to $60 million kind of range. Over time, when you’ve got a capital base of close to a $1 billion, if you don’t do that kind of renewal you end up with seriously outdated facilities that don’t provide the quality of student experience, the ability to deliver the research Tasmania needs…..Of course, on Sandy Bay, consideration is given to can you repurpose buildings and what would it cost to do that and, indeed, how practically or technically feasible it is. That was all
part of the original careful consideration of where you locate facilities. It’s important to remember these buildings on Sandy Bay were mostly built in the 1950s, to 1950s standards, in terms of their environment, their access, the degree to which very large fixed structures were put into them, which are effectively very difficult to remove. These are buildings that belong to a very different age. Therefore, to do anything to them, particularly if you’re trying to meet contemporary standards on all those things – which we are very committed to – it is not a ‘you take a floor and refit a lab’. This is ensuring that those facilities meet all the contemporary standards, and they were carefully weighed up when the university made its decision. That said, as we evolve, how those buildings are retrofitted and for what purposes and whether there are particular things that make very good sense to stay there, is obviously a matter of ongoing consideration. The guiding principle will always be what serves our students, what serves Tasmania best.” [my bolding]

Below – UTAS’ vision of “renewal” and “contemporary standards” – Academics’ “offices” at the Inveresk campus. As one senior academic put it to me “All I need to see is a LED display board showing calls and sales made!”