We have recently had an opportunity to look at the funding report submitted by the GOCVM to the Victorian Government’s Victorian Multicultural Commission (VMC) for funding under the $8 million allocated for improvements to the Italian, Chinese and Greek precincts.

We are perplexed that the experts preparing the submission envisage that apartments of 37 squares with a small balcony, no car parking or storage space in a building without any facilities such as, swimming pool and gymnasium, would sell at anywhere near the assumed prices.

The report details the proposed sources of funding for the Greek Tower project on Lonsdale Street, the sales and income forecasts, and the how the spaces in the proposed tower will be used.

We do not want to dampen the new President’s enthusiasm for his vision of a 27 storey tower on Lonsdale Street.  But we would like to add a strong note of caution.

We believe that in his rush to fulfil his vision for the GOCMV, Bill Papastergiadis maybe risking the future of the Community.

The report is based on a 27 storey mixed-use Tower being constructed on the GOCMV’s Lonsdale Street site.

The Greek Tower will have three components.

It will have five floors (Ground floor to Level Four) for the GOCMV,  three levels for commercial rental and the remaining 20 floors for small apartments.

The apartment will vary in size from 37 square metres to 50 square metres; some will be sold and some will be kept by the GOCMV as serviced apartments.

The report assumes that the GOCMV will take full responsibility for the construction of the 27 storey tower.

The report is based on $6 million funding from the Victorian Government’s Victorian Multicultural Commission towards the Greek community’s five floors of the tower and the costing for the project is based on $6 million government funding.

However the Brumby Government has only allocated $2 million to be used for the fit-out of the Community’s five floors .

The $2 million is not more than what was promised by the then Bracks government .

The report estimates the funding of the tower project will require:

– Base building works $21,283.000

– Fit out Community Centre $2,693.000

– Extra Fit out Centre cost $3,400.000

Total cost of project $ 27,376.000 (includes $300,000 project escalation)

The total costing includes $800,000 for consultants.

The report assumes up to 10 percent variation in contingencies and costs.

Due to the nature of the preliminary and concept block plans provided to the consultants, the costings do not include a range of possible cost variations.

These variations plus the lack of details and allowance for the unique external glass facade could possibly add further millions to the costs of the project.

The funding strategy proposed was as follows:

Victorian Government $6 million (Actual approved $2 million)

GOCMV (Cash) $2 million (We assume this is the money that has been received from the Greek Government and allocated for the Alphington Grammar School multi-purpose hall.)

GOCMV : other funds $2.5 million (sponsorship and asset sales but,  which community assets are we to sell?)

Loan $17.1million

Total $27.6 million

The report assumes that the apartments will be sold at prices ranging from $330,000 to $470,000, with the smaller 37 square metres apartments expected to sell for between $330,000 and $400,000 and the 50 square metres for between $390,000 to $470,000 as serviced apartments.

We are perplexed that the experts preparing the submission envisage that apartments of 37 squares with a small balcony, no car parking or storage space in a building without any facilities such as, swimming pool and gymnasium, would sell at anywhere near the assumed prices.

The sale prices for the apartments are based on the figures commanded by 7 Yarra, an up-market development in South Yarra. The rents also adopted for the apartments were similar to this development.

The report ignores other serviced apartment projects such as the Quest in Richmond which fetched lower prices and rental returns.

Present forecasts predict that inner city serviced and student accommodation apartments will offer  six percent to seven percent returns.

Even if we use the more generous figure of six percent the selling prices would range from $260,000 to $340,000 at best.

The GOCMV’s submission assumes that the sale of 42 apartments would clear the debt of $17.1 million.

We believe that the current expectation on sales return are optimistic, considering the current and future state of the Australian economy, the location of the project,  it’s lack of facilities, car parking and other limitations.

We believe a realistic expectation is that the apartments will net the GOCMV an average price of $350,000 for the 50 square metres and $280,000 each  for the 37 square metres.

So 51 apartments will need to be sold in order to repay a loan of $17.1 million.

The current global economic crisis has forced most banks and lending institutions to require pre-sales to cover their full loan exposure. If enough pre-sales  are not attained, the GOCMV risks incurring hundreds of thousands of dollars of debt for design consultants and other project commitments.

To make up the $4 million shortfall in government funding, the GOCMV will need to sell 64 apartments to repay a $21.1 million loan. This will leaving the community with a handful of apartments at best.

Assuming that the GOCMV has overestimated the fit-out for the GOCMV’s five floors by $2 million (reducing it from $6 million to $4 million ) and allowing an extra $2 million for cost escalation and for  the exclusions outlined by the report,  the GOCMV will only be left with 10 to 12 apartments and three floors of commercial space for rental.

Therefore, the GOCMV after contributing  the current building conservatively valued at $6 million plus putting $2 million in cash and a further $2.5 million from other sources  as well as the $ 2M from the Victorian  Government ( say an investment of $12.5 Million) will end up with five floors of a building  (with smaller total usable area than offered in the current building) with a possible income of $400,000 per annum.

The reports estimates the future operating costs of the GOCMV will increase to $1,1 million and that the GOCMV will generate $1.4 million annual income. This is based on the Tower generating annual rental returns of $860,000.

Our forecast that the GOCMV will only enjoy annual rental returns of $400 000 leads us to believe that the GOCMV will struggle to meet its financial commitments.

The report also fails to address the costs the GOCMV will incur in finding alternative accommodation during the construction of the Tower as well as the loss of income from the existing building.

We are convinced Greek Tower proposal will at best give the GOCMV a small income for a huge risk and it will not serve the future needs of the Greek Community.

The current building should be renovated and possibly adding an additional floor using the VMC’s $2 million incorporating  a cultural centre, exhibition centre, resource centre as well as the GOCMV’s offices.

The renovation of the existing building can return a possible yield of $150,000 per year  from the ground floor retail space as well as offering  space for most of the services proposed in the Towers  five floors without the risk attached to such a venture.

Being debt free, our attention can then be turned to the Bulleen site which is the future of the Greek Community.

Accordingly, the last thing that the Greek community of Melbourne deserves is an archaeological red-herring that imprisons future Greek generations to fool-hardy indebtedness.

Cool heads must prevail.

Dimitris Paikopoulos, Apostolis Kounelis and Nondas Tsitas are part
of group of Greek Orhodox Community of Melbourne Victoria, (GOCMV)
members who came together last year to act as an independent group
to assess and comment on proposals that affect the Greek
Community of Melbourne and Victoria.