The Deloitte Reports

On 23 October 2023, the Ombudsman delivered an adverse decision against UTAS in respect of my Right to Information (RTI) application to UTAS seeking copies of research by Deloitte Access Economics (Deloitte).

UTAS had twice refused to provide me with any of the Deloitte research, but under direction from the Ombudsman, UTAS provided me with two documents on 1 November 2023, which I am publishing here, namely:

These two reports are of critical importance, as they provide the revenue and cost projections for UTAS’ proposed redevelopment of the Sandy Bay campus site as, to quote Vice-Chancellor Black, a “micro-suburb. UTAS has relied on these projections for its argument that relocation of its southern campus from the Sandy Bay campus site to the Hobart CBD relocation would provide it with financial sustainability.

  • It is surprising – not to say irresponsible – on UTAS’ part that it has relied on “Preliminary…Interim” and “Working Draft” reports both for its own (apparent) consideration of the financial dimension of relocation and as the basis of its statement to the Tasmanian Parliament that relocation would bring UTAS financial sustainability (see excerpt from UTAS’ submission to the Legislative Council Selection Committee Inquiry into the Provisions of the University of Tasmania Act 1992 (LegCo Inquiry) at Appendix A).

  • This is even more the case when the limitations and deficiencies of the Reports are considered (see the Background section below).

In UTAS’ plans for relocation, the redevelopment of the Sandy Bay campus site not only has to pay for itself, but also for UTAS’ building program for the Hobart CBD, with UTAS using borrowings from the private sector and funds it has in investments to provide bridging funding until its development of the Sandy Bay “micro-suburb” becomes ‘profitable’ for UTAS.

Applying building cost inflation and a reasonable (50%) contingency to available UTAS building cost estimates, I have previously calculated that rather than producing a ‘profit’ of $200 million (over thirty years) as UTAS claims in Appendix A, relocation would involve a loss of over $1.5 billion.

Based on my preliminary analysis of the Deloitte reports, I can say with certainty that applying the same inflation/contingency assumptions to the figures in those reports will produce a greater loss than $1.5 billion.

  • For example, the estimated project cost for Sandy Bay redevelopment is given as $3.23 billion (including and estimated construction cost of $2.73 billion) in Report 2 (pages 14 and 55), compared to the $1.65 billion cost figure I took from UTAS’ December 2021 Sandy Bay Masterplan for my calculation. It is now clear the $1.65 billion figure only comprised construction costs (and no other project costs) and made no allowance for inflation.

  • As noted by Deloitte in Report 2 “the Sandy Bay Master Plan is currently at 5% concept design stage”, with building cost estimates provided by WTP Quantity Surveyors (for example, page 8). Such estimates are notoriously unreliable, as Deloitte itself highlights (see Background), and a reasonable cost contingency should be allowed.

I will shortly provide a fuller analysis of the Deloitte reports with an updated loss figure.

  • This is taking time, as I am considering the detail of the many assumptions contained in the Deloitte reports, and how I best take account of them. I am also seeking advice on some critical points.

It is already clear, however, that the Deloitte reports should sound the death knell of UTAS’ Hobart CBD relocation project.

I want to turn now to a couple of issues that the Deloitte reports brings to the fore – the consequences if UTAS continues with its relocation plan; and the nexus with the Mount Nelson & Sandy Bay Neighbourhood Plan.

Consequences if UTAS continues with its relocation plan

The UTAS Council should immediately reverse the CBD relocation and refocus UTAS’ southern campus at Sandy Bay, while – of course – leaving established facilities in the CBD in place. Any expenditure on relocation from now is wasted taxpayers’ money and can be seen as the UTAS Council knowingly courting insolvency, creating legal exposure for the UTAS Council and risk for the Tasmanian community.

If UTAS’ proposed relocation were to continue, UTAS would, of course, be forced to modify its plans before it loses anywhere near $1.5 billion, let alone the larger loss figure I now anticipate. This modification would inevitably be both messy and costly, involving some combination of the following:

  • A wind-back of UTAS’ ambitious building program for the Hobart CBD, entailing increased use of sub-standard rental accommodation and hot desking, which in turn would mean reduced opportunities for face-to-face learning and social interaction.

  • Further reductions of staff and course offerings and increased outsourcing of teaching (even of on-line content) to other institutions,

  • The Inveresk campus in Launceston becoming UTAS’ main physical campus.

  • A constant flow of requests for amendments to Development Approvals for the Sandy Bay campus site as UTAS seeks to maximise revenue from the site for the sake of “financial sustainability” by, for example, seeking increases to building height limits or conversion of planned green spaces to commercial sites.

  • State and/or Commonwealth government bail-outs or guarantees to support further borrowings. However, any bail-outs would only be partial, while further debt would add debt servicing costs to UTAS’ losses.

The Nexus with the Mount Nelson & Sandy Bay Neighbourhood Plan

The Mount Nelson & Sandy Bay Neighbourhood (MNSBN) Plan Discussion Paper was released for comment last week. It assumes, whatever the disclaimer may say on page 2, that UTAS’ relocation from its Sandy Bay site to the Hobart CBD will proceed.

The Discussion Paper identified the Sandy Bay campus site as a redevelopment opportunity and on page 60 it states:

“In response to UTAS expressing their intention to relocate some of their educational premises from the Sandy Bay campus, the precinct is identified as a key redevelopment area, offering opportunity for well-considered staged urban renewal.”

This is so disingenuous, it is laughable.

UTAS is planning to move all, or very nearly all – not “some” – of their educational premises to the Hobart CBD. This is made totally clear in the Southern Campus Transformation Preliminary Urban Design Framework flipbook, the December 2021 Sandy Bay Masterplan and Report 2 (pages 28-29), which includes modifications to the Masterplan. As noted previously, this is absolutely necessary, from UTAS’ perspective, to pay for building works in the CBD. The move is also more than an expressed intention – UTAS is emphatic that the move is going ahead, and it is in the process of moving to rented and sub-standard accommodation in the CBD, when perfectly satisfactory buildings at Sandy Bay are going empty. This can reasonably be seen as an attempt by UTAS to present the proposed move to the CBD as a fait accompli to the Tasmanian public, before more people wake up to what a financial disaster that move would be.

Any future rezoning of the Sandy Bay campus site to allow redevelopment would be a two-edged sword.

On one hand, as I indicated in a previous post, to the extent UTAS was faced with compromise on its plans for Sandy Bay, this would impact its ‘profit’ projections. Even on UTAS’ own fanciful calculations, it stands to make only a marginal profit of $200 million over 30 years on its current relocation plan. Any compromises on UTAS’ plan for Sandy Bay could shift UTAS’ own calculations into a loss territory (and add to the major losses in my own more realistic calculations). This may, in turn, cause UTAS to reconsider its plans for relocation.

On the other hand, as I suggested in the previous section, if UTAS’ relocation and rezoning go ahead, UTAS could be expected to challenge any restrictions imposed in rezoning/development approval processes and constantly seek amendments to development approvals as part of its efforts to achieve financial sustainability.

I will have more to say about the MNSBN Plan in a future blog post. Insofar as the Plan relates to UTAS’ Sandy Bay campus site, I consider it to be little more than a propaganda piece for UTAS.

I urge all those intending to comment on the MNSBN Plan to familiarise themselves with UTAS’ December 2021 Sandy Bay Masterplan and the modifications flagged in Report 2 (pages 28-29). I am sure UTAS already has further money-making amendments in mind but will, for now, be guarded in its public statements.

Background

The Deloitte reports

As stated in both reports, Deloitte was “engaged by UPPL to provide development feasibility financial modelling for the Sandy Bay Redevelopment Project in Tasmania…[with the purpose of assisting] UPPL in assessing the feasibility of the Sandy Bay Masterplan”. (Report 1, page 5; Report 2, page 4)

  • UPPL is UTAS Properties Pty Ltd (UPPL), a wholly owned subsidiary of UTAS.

A key requirement for both reports was to provide projections of revenues and costs for the Sandy Bay redevelopment project, including “escalation” (roughly meaning “inflation”) together with calculation of a number of key performance indicators.

UPPL provided instructions to Deloitte on a number of key issues, including specifying assumptions that Deloitte should use.  In line with UPPL’s instructions Deloitte also drew on material by other consultants, including the 5% concept design estimate provided by WT Partnership Quantity Surveyors for UTAS’ building program for Sandy Bay (see for example, Report 2, pages 9, and 76).

Differences between the reports

Report 1 was prepared before UTAS submitted its December 2021 Sandy Bay Masterplan to the Hobart City Council (HCC). It sets out 9 project stages for Sandy Bay redevelopment, stretching from January 2022 to October 2053. It projects a Sandy Bay redevelopment profit of $517 million (p28).

Report 2 was submitted to UPPL in March 2022, after submission of the December 2021 Sandy Bay Masterplan to the HCC. It is a more substantial document than Report 1 covering the same subjects as Report 1, but in greater depth in some areas, as well as including additional material, for example: project case studies to “inform possible delivery models for the Sandy Bay Project” (pages 58-67); and a section on alternative delivery models, chiefly considering management and funding options for the Sandy Bay redevelopment project (pages 69-73).

Notably, following instruction from UPPL, Report 2 reduced project stages for Sandy Bay redevelopment from 9 to 8, stretching from March 2022 to July 2052 (page 26), added a land acquisition cost of $26 million (pages 27) and included a number of “departures” (modifications) from the December 2021 Sandy Bay Masterplan submitted to the HCC (pages 28-29). These “departures” were provided in a revision of the Masterplan dated 3 February 2022 (page 26).

According to Report 2 the departures from the Masterplan added “over $250 million in net …development profit” (page 6). Overall, the Sandy Bay redevelopment profit increased from $517 million in Report 1 to $804 million in Report 2 (page 54).

As Report 2 must have provided the basis for UTAS’ claim to the Tasmanian Parliament that it stood to make a $200 million profit through its proposed CBD relocation (over thirty years) – unless UTAS has failed to comply with RTI legislation – then UTAS relied on these departures from the December 2021 Sandy Bay Masterplan to bring it into profit (see Appendix A).

Cynical people might see this as deliberate manipulation to produce a required result.

  • As a Sandy Bay development profit of $804 million produced a total relocation profit of $200 million across thirty years, on UTAS’ figures (Appendix A), a Sandy Bay development profit of $517 million, as per Report 1, would produce a total relocation cost loss of about $87 million on UTAS’ figures. (NB relocation includes the cost of Hobart CBD building works as well as the revenues and costs of Sandy Bay redevelopment).

Qualifications in Deloitte’s Report 2 and the issue of risk

As I have made clear, I consider UTAS’ assertion that it will make a profit from its proposed CBD relocation to be absurd.

Deloitte seems to agree with me, as in all my extensive experience dealing with consultant’s reports, and construction projects, I have never encountered a report in which the consultants sought to distance themselves from their clients, and their own calculations, as much as Deloitte did in Report 2 (although Report 1 comes close).

Deloitte manifestly understands the risks posed by relying on a 5% concept design estimate for building works, stating:

“We stress that the Sandy Bay Master Plan is currently at 5% concept design stage and therefore the estimated cost and value metrics adopted in our assessment may change significantly as the masterplan continues to develop and more information pertaining to individual asset design and schedule of finishes becomes available.” (page 8)

and

“As the Sandy Bay Master Plan is currently at 5% concept design stage, we advise that our development feasibility assessment cannot be relied upon for financial or investment decisions. The assumptions within this report and underlying our ash [sic] flows may change materially over time as the design of the master plan changes.” (page 8; my bolding; “ash” should read “cash”)

Apart from the 5% concept design issue, in Report 2 Deloitte qualifies its work extensively (see diagram below) and makes frequent statements of uncertainty and risk regarding the assumptions it uses.

I will deal more fully with such matters in Part 2 of this blog post, but for now I draw the readers’ attention to the many qualifications and caveats contained in:

  • “Key Project Considerations” (pages 5-7), “Critical Assumptions” (pages 8-9) and “Disclaimers” (page 10) in the “Executive Summary“

  • “Principle [sic] Assumptions” (pages 27-28)

  • “Gross Realisation Summary” (especially pages 31-33)

  • The discussion of “Alternative Delivery Models” (pages 68-73)

  • “General Assumptions & Inputs” (page 75)

  • “Site Development Constraints” (page 79-82)

I particularly note this “critical” statement by Deloitte:

  • “Feasibility Model Input Assumptions – We have been instructed to undertake feasibility modelling for the proposed project. We stress that the project is at the preliminary concept (5% design) stage and that the inputs used in our model are based on the following:
    • Information prepared by other consultants on behalf of UPPL
    • Specific assumptions as instructed by UPPL
    • Market assumptions that have been broadly validated where possible/applicable
    • Industry benchmarks
    • Other
  • It is important to note that the feasibility model outputs are highly sensitive to changes to the input assumptions. All input assumptions will require further testing and validation as the project evolves and a higher degree of design certainty is provided. Over time, as a result of market movement, changes in economic conditions, capital availability and cost and a range of other factors applicable to the project, material changes could occur. Any decisions based on this feasibility assessment should be undertaken with extreme caution and with the understanding that the project feasibility could change materially (either positively or negatively) as the project evolves and more certainty is provided.” (page 9; Deloitte’s bolding)

Readers will have noted two typographical errors in quotes from Report 2 above and there are a number of other sloppy errors throughout Report 2.  These include errors in some of Deloitte’s numbers, which undermines confidence in the Report generally. Again, I will comment more on this in Part 2 of this blog post. 

The level of qualification by Deloitte in Report 2, the frequent statements of uncertainty and risk, and the sloppiness of Report 2 make it all the more extraordinary that UTAS has placed such reliance on the Report (Report 1 is largely subsumed or overtaken by Report 2).

Sensitivity analysis

The manifestly preliminary and contingent nature of Report 2 should have meant that sensitivity analysis was conducted on all key variables with appropriate value ranges.

Instead, presumably on instruction from UPPL, Deloitte’s sensitivity analysis was limited to consideration of variations in “construction cost” and [Sandy Bay property] “sale span period” of up to + or – 10% (page 57).

Even so, the escalated figures show Sandy Bay development profit ranging between $524 million and $1.08 billion.

As a Sandy Bay redevelopment profit of $804 million produced a total relocation profit of $200 million, on UTAS’ figures (Appendix A), a Sandy Bay development profit of $523 million would produce a total relocation loss of about $81 million on UTAS’ figures.

DIAGRAM: An example of the qualifications and caveats in Report 2 (page 8) :

Appendix A – Excerpt from UTAS’ submission to the LegCo Inquiry

(Document image sourced from page 8 of Attachment 1 of Part 13 of UTAS’ submission to the Legislative Council Select Commitee Inquiry into the Provisions of the University of Tasmania Act 1992).

By : Robert Hogan

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