Confidential report reveals Commercial & General must pay Adelaide City Council $25.5m to develop former Le Cornu site

Adelaide City Council has struck a lucrative deal with a property developer to recover the millions it spent buying the former Le Cornu site in North Adelaide.

An artist's impression of the Commercial & General plan - known as Eighty-Eight –O’Connell – to redevelop the former Le Cornu site at 88 O'Connell Street, North Adelaide. Picture: Adelaide City Council

A property developer must pay $25.5m to build a $400m development on the vacant former Le Cornu site at North Adelaide.

Details of the deal between Adelaide City Council and South Australian company Commercial & General (C&G) have been revealed in a publicly-released confidential report.

The prudential report by BRM Advisory details potential financial risks to the council, particularly if C&G fails to complete the project or goes into insolvency.

The deal states the company must pay $1m to the council when it signs a formal agreement and a further $6m when it starts construction.

C&G must progressively clear the balance of $18.5m as it sells properties.

The deal states the company must pay $1m when it signs a formal agreement, $6m when it starts construction and a remaining $18.5m as it sells properties. Picture: Adelaide City Council

“C&G is contractually liable to pay the City of Adelaide the proceeds related to the project,” says the BRM Advisory report.

“The City of Adelaide will receive the proceeds under a staged payment agreement over time. The total value of this payment plus a State Government $10m grant will see the City of Adelaide recover the initial payment for the land.

“The (total) payment is higher than the current value of the land as recently assessed by a licensed valuer.”

BRM Advisory says the forecast rate revenue from the project “has been estimated at $541,000 per annum”.

The report was discussed behind closed doors by elected members before C&G was announced last month as the developer of the O’Connell St site, which has been sitting empty for almost 30 years.

Concept plans released at a media conference by Lord Mayor Sandy Verschoor show three high-rise buildings with apartments, retail and food outlets, entertainment venues and open space.

Concept plans released at a media conference by Lord Mayor Sandy Verschoor show three high-rise buildings with apartments, retail and food outlets, entertainment venues and open space. Picture: Adelaide City Council

C&G submitted the plans after the council called for expressions of interest from developers following its $34m purchase of the 7525sq m block of land in 2017.

The council initially asked for plans that did not exceed eight levels and included 15 per cent of affordable housing and basement carparking. Instead, C&G and two other potential developers submitted designs for apartment buildings of up to 16 levels including commercial and retail space on their lower floors and basement parking.

The BRM Advisory report warns the council may encounter public opposition to high-rise development, saying residents had expressed concern during community consultation in 2018 about the site’s future.

“Many expressed that they do not want a large, monolithic structure, high rise or a development that dominates the entire site as it would negatively impact surrounding residences, the quality of the area and the development itself,” the report says.

“We are conscious that the height of the proposed C&G scheme, at between 12 and 14 floors, is likely to be a cause of community consternation.”

Other risks identified for the council included:

BEING unable to negotiate commercial terms “acceptable to both parties”.

COMMUNITY opposition to final designs.

INABILITY to update the public because of extended commercial negotiations.

ADVERSE media reaction to the proposed development.

PLANS not meeting development regulations or guidelines.

COUNCIL not getting full payment or the insolvency of C&G during the project.

POTENTIAL buyers withdrawing in large numbers.

“There are, of course, other risks that will arise as the development process occurs,” it says. BRM Advisory says C&G has been told “it must use all reasonable endeavours” to lodge final plans for official approval by late April.