Assessment of

Residential
Development
Feasibility for the
Te Tumu Urban
Growth Area

June 2016
 Table of Contents

1. Executive Summary ................................................................................................. 3

2. Report structure ....................................................................................................... 4

3. Purpose .................................................................................................................... 4

4. Background .............................................................................................................. 4
4.1 Location .......................................................................................................... 4
4.2 History ............................................................................................................ 4
4.3 Current land uses and land owners............................................................... 5
4.4 Growth projections - Base Assumption ........................................................ 5
4.5 Infrastructure servicing.................................................................................. 5
4.6 Infrastructure costs ........................................................................................ 6
4.7 The importance of considering the financial viability of development ........ 7
5. Development Feasibility Methodology / Data Inputs .............................................. 8
5.1 Land development model............................................................................... 8
5.2 Key modelling assumptions .......................................................................... 8
5.3 Revenue inputs............................................................................................... 9
5.4 Cost inputs ..................................................................................................... 9
5.5 Inflation ......................................................................................................... 11
5.6 Financial analysis ......................................................................................... 11
5.7 Timing of revenues and costs ..................................................................... 11
5.8 Goods and services tax ............................................................................... 12
6. Residential development feasibility results .......................................................... 12
6.1 Base model results....................................................................................... 12
6.2 Sensitivity analysis ...................................................................................... 12
6.3 Individual development models ................................................................... 12
6.4 Comparison with developers own modelling .............................................. 14
6.5 High Level Peer Review ............................................................................... 14
7. Other Issues ........................................................................................................... 14
7.1 Contaminated Land ...................................................................................... 14
7.2 Council debt ................................................................................................. 14
8. Conclusions ........................................................................................................... 16
1. Executive Summary
1.1.1 The primary purpose of this research is to assess the financial viability of
development in the Te Tumu Urban Growth Area, an area of around 746.4ha of
land earmarked for future development (mainly residential development) within
the operative SmartGrowth Strategy, Regional Policy Statement (RPS) and
operative Tauranga City Plan.

1.1.2 To assess the feasibility of development in Te Tumu a financial model was built
which assessed development scenarios. This is a model that includes all of
the costs and revenues associated with land development and the timing
thereof, including all infrastructure required to deliver development.

1.1.3 The model allows the financial performance of a development proposal to be

calculated from the perspective of the developer (at either an Urban Growth
Area level, or specific landowner development land area level).

1.1.4 One key scenario (Attachment A) was modelled as summarised below:

· 15 dwelling p/ha residential scenario over land identified;
· Full planning constrained land considered;
· No active reserve (however a 20ha reserve will be required to provide
for recreational use and demand);
· 66ha of employment land;
· No education land (however 2 primary schools and 1 secondary school
are expected to be required to provide for education requirements);
· Infrastructure network providing for a population of 16,500 persons; and
· No provision for Stage 1 and 2 of the Papamoa East Interchange, nor
the Kaituna Link (which has been estimated to cost $67.8M).

1.1.5 The above scenario is considered to be the low (and ‘worst case’) scenario at
15 dwellings per hectare. For the purposes of the assessment 2.2 persons per
dwelling was utilised. As a result the following population and dwellings would
be delivered within the Growth Area under this scenario.

Scenario 15 dwellings per hectare scenario

Population 8,646
Dwellings 3,930

1.1.6 No specific modelling has been undertaken to determine financial modelling

above the assessed scenario. This is because the outputs of the tested
scenario performed well against the considered ‘worst case’ scenario. Given a
low population was tested with a high infrastructure provision it is considered
that any density above the baseline assessed will also be viable (up to a
population of 16,500).

1.1.7 It is logical that development of Te Tumu is staged to commence once

infrastructure is available to its boundary and all required structure planning
and Resource Management Act planning is undertaken. The model has also
been run on an individual land owner basis and each development has been
found to be viable.
 1.1.8 Both the model itself, the outputs and conclusions have been independently
reviewed and found to be reasonable. The high level of developer participation
in the construction of significant infrastructure will enable the Tauranga City
Council (TCC) to see considerable development occur (up to around 800
sections) before it undertakes significant levels of debt. This considerably
reduces TCC’s balance sheet risk.

1.1.9 Based upon the information assessed, and modelling undertaken, there is no
reason why Te Tumu should now not be progressed towards the development
of a structure plan and Resource Management Act planning process.

2. Report structure
2.1.1 This Report is structured as follows:
· Purpose;
· Background;
· Development feasibility methodology and data inputs;
· Residential development feasibility results;
· Other issues;
· Conclusions;
· Appendices.

3. Purpose
The purpose of this project is to:
a) Assess the financial viability of development in the Te Tumu Urban Growth
Area given:
· The prominent role Te Tumu is planned to have in accommodating the city
and sub region’s future population growth;
· The importance of Te Tumu to enable TCC to fund the costs of major
planned infrastructure projects such as the Papamoa East interchange and
the Waiari water treatment plant;
· The importance of Te Tumu to the optimisation of the Tauranga Eastern
Link and to the toll funding model for this project;
· The importance of Te Tumu to enable the delivery of the Papamoa East
Town Centre and creation of an employment area within the Eastern
Corridor in proximity to urban population;
· The need for Council to recoup the investment in infrastructure needed to
service the Urban Growth Area.

4. Background
This section of the Report provides background information on the Te Tumu urban
growth area.

4.1 Location
4.1.1 The Te Tumu Urban Growth area is located in Papamoa East, around 20km
from the Tauranga City Centre. It is bounded by the Pacific Ocean to the north,
the Kaituna River and rural land to the east and south, and the Wairakei Urban
Growth Area to the west in which residential development is now.

4.2 History
4.2.1 Te Tumu has been identified for future urban development TCC for some time.
The role of Te Tumu as a future urban growth area was formalised through the
SmartGrowth Strategy in the early 2000’s and subsequently through the RPS.
It is currently zoned ‘Future Urban’ within the operative Tauranga City Plan. Te
Tumu is a post 2021 growth area within the operative Regional Policy
Statement.

4
 4.3 Current land uses and land owners
4.3.1 Te Tumu’s land area is 746.4ha. It is currently used for farming purposes.
Other lesser land uses include forestry, sand mining, market gardening and a
small number of lifestyle blocks. Approximately 343.7ha of the total land area
is assessed as being developable land free of planning constraints.

4.3.2 Most of the land holdings in Te Tumu are large, although there a small number
of more fragmented blocks throughout the area. Close to 90% of the Te Tumu
land area is owned by three parties:
· Site 1: Tumu Kaituna 14 Trust – 240ha approximately;
· Site 4: Hickson Block (TCC/WBOPDC with option for Carrus to buy back) –
170ha approximately; and
· Site 11 Ford Block – 245ha approximately.

4.3.3 100% of developable land free of planning constraints is owned by the above
three parties and the Tumu 8B1 Trust (Site 9).

4.3.4 It is envisaged that Sites 4, 9 and 11 would be primarily developed for

residential purposes, while the Site 1 would be primarily developed for non-
residential purposes, but will include residential development.

4.4 Growth projections - Base Assumption

4.4.1 For the purpose of financial modelling a range of scenarios were initially
developed to be tested. However only the base 15 dwellings per hectare base
scenario was finally adopted and tested. This was because it was considered
that this would be the ‘worst case’ scenario and once run, would provide clear
insight into financial viability.

4.4.2 After removing all unavailable land 262ha of land is considered available to be
developed primarily for residential purposes.

4.4.3 At an average density of approximately 15 dwellings per hectare this scenario

provides for a total of 3,930 dwellings to be constructed.

4.4.4 At an average number of 2.2 persons per dwelling this would equate to a
population of 8,646 people. This is summarised in Table 1 below.

Table 1: Summary of Population and dwelling numbers for scenario modelled

Scenario 15 dwellings per hectare scenario
Population 8,644
Dwellings 3,929

4.5 Infrastructure servicing

4.5.1 A diagram of the internal Te Tumu infrastructure is included in Attachment Aa.

Transportation
4.5.2 The main network of transport routes are extensions to Te Okuroa Drive, the
Boulevard and Papamoa Beach Road, supported by a network of local roads.
Te Okuroa Drive links back to the Tauranga Eastern Link (TEL) in Wairakei, not
far from the Te Tumu boundary, where it is planned that Stage 1 of the
Papamoa East Interchange would be considered.

5
4.5.3 It is noted that a separate project has been costed for financial modelling that
could form part of the roading network, being the Kaituna Link and associated
roading connections to the TEL. This was priced at $67.8M (Attachment B)
and excluded the cost of the required on-ramp to the TEL. The assessed cost
is an update from the May 2006 “Option 1” cost estimate and Jan 2007 “River
Crossing” estimates. The price for the Kaituna Link reflects recent knowledge
of the area and updated construction costs and is the expected estimate
(50%ile estimate), which includes fees and contingencies.

4.5.4 For the purposes of the financial analysis, the Kaituna Link was not assessed
as part of the development scenario.

4.5.5 Due to the population scenario tested, neither Stage 2 nor 3 of the Papamoa
East Interchange is considered necessary. Therefore these projects have
been excluded from the base development scenario, along with the Kaituna
Link.

Wastewater
4.5.6 The wastewater network aligns with the transport route along Te Okuroa Drive
and is connected back to Te Maunga. The network is supported by two main
pump stations and a network of minor pump stations within Te Tumu (refer
Attachment Ab). A range of upgrades or replacement of pump stations and
trunk pipes between Te Tumu and the Te Maunga wastewater treatment plant
will be necessary to provide for growth within Te Tumu.

Water
4.5.7 The water network aligns with the major transport routes within Te Tumu. The
initial connection to the water network would come from Te Okuroa Drive to the
west in Wairakei, with a dedicated water main from the Waiari water scheme
to the eastern end of Te Tumu (from 2031) providing a second point of
access.

4.5.8 The Waiari water supply scheme is required to provide for ongoing growth for
the entire City, including Te Tumu. It is currently planned to commence
operations in 2021, with construction commencing in 2018.

Stormwater
4.5.9 The stormwater network involves the construction of on-site stormwater
mitigation storage and treatment in accordance with the Papamoa
Comprehensive Stormwater Consent. The flows will be managed through the
Wairakei Stream to Kaituna River stormwater overflow and other consented
stormwater outfalls to the Kaituna River.

4.5.10 While a site has not been selected for the Wairakei Stream to Kaituna River
stormwater overflow, for the purposes of this work this project was indicatively
located within the Hickson block.

4.6 Infrastructure costs

4.6.1 A significant amount of infrastructure needs to be built to the boundary of Te
Tumu to enable urban development. The majority of this is debt funded by
TCC and recovered through the levying of development contributions.
Approximately $75.9M (in 2015 dollars) of capital expenditure has been
identified that directly relates to urban development in the Wairakei and Te
Tumu Urban Growth Areas and funded through development contributions.

6
 4.6.2 Included in the developer funded infrastructure above are projects that would
traditionally have been funded by Council and recovered through development
contributions. Approximately $95.9M (in 2015 dollars) of capital expenditure
has been identified in this category. This breakdown is outlined in Table 1
below.

Table 2: Breakdown of expenditure on major capital works.

Water Waste- Storm- Transport Reserves Total
Supply water water -ation
Council Funded 18.39 34.36 6.16 16.97 0 75.88
Projects ($M)
Developer Funded 10.55 6.12 23.72 51.81 3.67 95.87
Projects ($M)
Total 28.94 40.48 29.88 68.78 3.67 171.75

4.6.3 In addition to the cost of infrastructure, capital expenditure to service growth

across the entire city such as water and wastewater treatment plants and active
reserves would also be partly attributable to Te Tumu (e.g. the Waiari water
treatment plant). These costs will be recovered across the city (including Te
Tumu) through development contributions charged at building consent time (i.e.
not a cost to the developer). As the model only establishes viability of section
sales these costs have been excluded from the model.

4.6.4 Significant infrastructure investment related to Te Tumu will be undertaken by

network utility operators (electricity, gas, and telecommunications) and the
developers themselves. For the purposes of this assessment it is considered
that all internal infrastructure that relates to each development will be fully
developer funded. This is normal practice for TCC and development within the
City.

4.7 The importance of considering the financial viability of development

4.7.1 The term financial viability refers to whether development would be sufficiently
profitable for the developer/landowner to be willing to undertake, and for project
finance to be secured. This is assessed:
· To ensure that the SmartGrowth settlement pattern is realistic and could be
delivered. It is important that growth is not allocated to areas that would be
financially unviable to develop.
· The Tauranga City Council has, and would need to continue to invest
millions of dollars to service new growth areas. To enable new urban
growth areas to occur this investment is often in the form of lead
infrastructure and is required prior to development commencing. Given this,
any Council like TCC can face significant financial challenges if
infrastructure investment occurs in areas that prove to be financially
unviable to development.
· In a general sense it is much more difficult to put together a financially
viable development now than it was say 10 or 20 years ago in the Western
Bay of Plenty.
· There can be a significant difference between the financially viability of
development in different parts of the sub region due to varying development
costs and market prices for sections in different locations.

7
5. Development Feasibility Methodology / Data Inputs
5.1 Land development model
5.1.1 To assess the feasibility of development a hypothetical development model
was built. This is a Microsoft Excel spreadsheet based model that includes all
of the costs and revenues associated with land development, and the timing
thereof. The model allows the financial performance of a development
proposal to be calculated.

5.1.2 The model is not a new model for TCC and has previously been used in a prior
assessment of financial viability for Te Tumu (2011/12), Wairakei and varying
hybrids used for other growth area projects to determine financial viability.

5.1.3 A flow chart of the modelling process steps are outlined in Attachment C.

5.1.4 The original model was externally peer reviewed for mathematical accuracy.
While this mathematical peer review has not been repeated through this current
assessment, there a two external reviews that give the report writers comfort
over the model’s accuracy. These are outlined in section 6 of this Report.

5.2 Key modelling assumptions

5.2.1 To enable considerations of developable land constraints mapping analysis has
been undertaken. This has taken into account the following potential
constraints:

· Outstanding Natural Features and Landscapes;

· Important Amenity Landscapes;
· Natural Character Areas;
· Special Ecological Areas (Category 1 and 2);
· Significant Archaeological Sites;
· Significant Maori Areas;
· Sea Level Rise;
· Flooding (from the Kaituna River);
· Stormwater Management;
· Liquefaction;
· Coastal Erosion; and
· Tsunami.

5.2.2 For the purposes of financial viability modelling a conservative approach has
been taken that all constrained areas are unable to receive any form of urban
development for commercial, industrial or residential purposes.

5.2.3 Development in Te Tumu is anticipated to begin in 2021 in line with the current
urban growth policies of the operative Regional Policy Statement.
Development is also anticipated to occur over 20 plus years. This will result in
likely changes to density delivery and costs to deliver infrastructure (and
therefore financial viability).

5.2.4 Further, there will be varying degrees of upturn and downturn in the
marketplace. As a result, predicting financial feasibility is somewhat difficult.
The approach that has been adopted to overcome these issues is to run the
modelling using conservative base density assumptions against a high
infrastructure capacity assessment.

8
5.2.5 To enable development to proceed, and for modelling purposes, it assumed
that development of the neighbouring Wairakei area has significantly
progressed by 2021 and infrastructure like roads (Te Okuroa Drive), water
reticulation and wastewater reticulation are at the boundary of Te Tumu to
enable growth delivery at or prior to 2021.

5.2.6 The timing of development and path of key infrastructure are detailed in
Attachment Aa.

5.3 Revenue inputs

5.3.1 The approach to the revenue inputs was to use a relatively conservative
estimate for section price sales, as opposed to getting external valuer
estimates.

5.3.2 A base section price of $225,000 (including GST) was initially selected to
undertake modelling viability. This is considered fairly conservative, especially
given that many sections will have high amenity value from being near the
coast and/ or the Kaituna River.

5.3.3 The model also calculates what the section price needs to be in order to
achieve a targeted Gross Margin of 20%.

5.4 Cost inputs

5.4.1 Cost inputs into the land development equation can be broken down into the
following categories:
· Land purchase costs;
· Development setup costs;
· Construction costs;
· Council costs;
· Indirect costs;
· Direct sales costs; and
· Project finance costs.

Land cost
5.4.2 One land purchase scenario has been modelled, being that all of the land is
purchased from the time development occurs at a rate of $379,000 per hectare.
This price is based on the expected purchase price for the Hickson Block which
is currently jointly owned by TCC and the Western Bay of Plenty District
Council (2/3, 1/3 share), and is based on an existing contractual relationship.
This cost is also used for all the other landholdings where the land is already
held by the developer with no debt outstanding. This enables fair comparison
of each block for viability and determines a true market value.

Development setup costs

5.4.3 Development setup costs are associated with planning approval processes
associated with the rezoning of land. These are based on previous experience
and external developer advice.

Construction costs
5.4.4 Construction costs relate to the direct costs of delivering finished lots. They are
made up of earthworks, roads, services (water, wastewater, stormwater,
electricity, gas and telecommunications), landscaping, design and supervision.
Construction costs were sourced from current developers undertaking
development within Tauranga. The model includes a 10% contingency for
construction costs. This was considered conservative by the developers
concerned.

9
 Council costs
5.4.5 Council costs relate to resource consents (both land use and subdivision), 223
and 224 certificates, development contributions (subdivision impact fees) and
rates. The costs are based on Council’s operative fees at the time this Report
was written.

5.4.6 Because development is not anticipated to commence in Te Tumu until 2021,

development contributions for this area are not included in Council’s operative
Development Contributions Policy. For this assessment development
contributions have been calculated based upon the likely required infrastructure
which will be required to deliver services (water, wastewater and transportation)
to the boundary of Te Tumu. The local/internal infrastructure within the urban
growth area is proposed within this assessment to be fully developer funded,
as opposed to a mix of developer and development contribution funding.
These large infrastructure items include a 25% contingency.

Indirect costs
5.4.7 Indirect costs include utilities, insurance, site office, security, office expenses,
project management, administration, legal, consultants, bank charges,
valuations, accounting and marketing. These are based on previous
experience and external developer advice.

Direct sales costs

5.4.8 Direct sales costs are made up of real estate agent commissions and legal
costs associated with sale and purchase agreements and the transfer of legal
title. These are based on previous experience and external developer advice.

Project finance
5.4.9 Project finance relates primarily to the interest incurred on debt used to finance
the project. Holding costs have been calculated on the net debt position of the
project over time.

5.4.10 The financing assumptions used in the financial model are relatively simple.
They are that:
· Land purchase costs will be funded 100% from equity (no debt). This is
based the normal practice of the developers owning land within Te Tumu;
· Other costs will be funded 50% by debt and 50% by equity;
· A minimum working capital amount funded by equity of $1M at all times;
and
· A bank interest rate of 6% which is assumed to also include all bank fees
(e.g. the cost of settling up and rolling over all banking facilities. This rate is
lower than may be expected, but is based on the fact that there is no debt
on the land component).

5.4.11 Other financial measures commonly used in relation to property development

financing such as loan to value ratios (LVRs) and interest cover ratios have
been ignored for the purposes of this project due to the complexity that they
add, and the relatively minor part debt servicing plays in this model (as no debt
on land purchase).

10
5.5 Inflation
5.5.1 All costs used in the financial modelling are assumed to be in 2016 dollars.

5.5.2 The financial modelling assumes no inflation for a number of reasons:

· Difficulty of making accurate assumptions about what inflation is likely to be,
especially in regards to section prices (revenue);
· That if both costs and revenues are inflated by the same amount they
largely cancel each other out; and
· To mitigate risk, the financial viability of a development should not rely on
significant increases to section prices over the project’s lifespan (i.e. the
development should ‘stand on its own feet’ given current information about
costs and revenues).

5.6 Financial analysis

5.6.1 Three financial measures are used to analyse whether development is feasible.
They are the gross margin, the project internal rate of return and the equity
internal rate of return. These are commonly used in the evaluation of
development projects by developers and financiers.

5.6.2 The gross margin is a key measure of the financial viability of the project. It is
calculated by dividing net profit before tax by total costs. A gross margin of
about 20%, or greater, would be acceptable for the project to proceed.

5.6.3 Internal rate of return (IRR) is another measure of a project’s profitability. In

more specific terms, the IRR of a project is the interest rate at which the net
present value of costs (negative cash flows) of a project is equal to the net
present value of the benefits (positive cash flows) of a project. Two IRR
calculations are used to assess development feasibility.

1. The Project IRR (excluding funding costs): This measures the return on
investment for all cashflows (revenues and expenses) in the project
excluding funding costs. A Project IRR in the range of about 10-20% is
broadly acceptable for development to proceed.

2. The Equity IRR: This measures the return on equity by calculating the
interest rate required to make the net present value of equity injections and
withdrawals equal to zero. An equity IRR in the range of 10-20% has been
agreed as broadly acceptable for the purpose of development proceeding.

5.6.4 While developers own expectations of an appropriate gross margin and internal
rate of return are important, the main driver of the minimum acceptable levels
for these ratio’s is driven by the banking industry. It is critical that these
measures are acceptable to the banking sector as without project finance,
development cannot be undertaken. Past discussions with experts within the
banking industry have suggested that a 20% gross margin is their key
requirement when determining if they will provide finance.

5.7 Timing of revenues and costs

5.7.1 The timing of revenue and costs is driven by the agreed development scenario.
This scenario assumes that approximately 200/250 sections will be developed
per annum based upon a hypothetical economic cycle.

5.7.2 Given the timing of the delivery of finished lots discussed above, costs and
revenues have been timed to occur in a realistic fashion. The majority of costs
are incurred prior to sales revenue being received.

11
 5.7.3 The timing of costs and revenues is important as it determines the overall debt
position of the development and thus the amount of interest costs incurred. To
minimise interest costs it is assumed, within reason, that costs will be incurred
on a just in time basis.

5.8 Goods and services tax

5.8.1 All costs and revenues in the financial model are GST exclusive. However
when considering retail section prices to consumers, GST is added because
consumers are required to pay GST.

6. Residential development feasibility results

6.1 Base model results

6.1.1 The base model shows that the overall growth area as having a high level of
viability. The Gross Margin is over 37% and the Return on Equity 11.7%. The
reason for the large differential between these two is the high level of equity
that is injected through the purchase of the land. A summary of the results are
provided in Attachment D.

6.1.2 From this work we are satisfied that bank funding will be made available and
that developers will have a strong incentive to undertake their developments.

6.2 Sensitivity analysis

6.2.1 Because of the positive nature of the financial results, and the conservative
assumptions that were used throughout the modelling exercise, it was deemed
to be unnecessary to run any detailed sensitivity analysis at this point in time. If
any significant additional costs are identified in the future it would be
appropriate to revise the modelling to assess whether development would
remain viable. This can be undertaken yearly or as a structure planning
process is proceeded with.

6.2.2 It should be noted that the scenarios tested could withstand significantly cost
increases (in the order of 20%) and remain viable.

6.2.3 The breakeven point for section price (to give a Gross Margin of 20%) is
$193,465 (inc GST). This is a 14% drop from the base price ($225,000 section
price) used in the model. These results give the Report writers considerable
comfort that our conclusion on the viability of Te Tumu is sound.

6.2.4 TCC also ran the model with a more standard debt structure (50% debt funding
on land and an 8% interest rate. This scenario still produced a high level of
Gross Margin and a higher level of the Return on Equity compared to the base
model.

6.3 Individual development models

6.3.1 As well as looking at Te Tumu from an overall basis, TCC also modelled the
development viability of the four land blocks with unconstrained land areas in
Te Tumu on an individual basis.

6.3.2 The principle difference from the overall model related to the key infrastructure
to be completed by the developers. In the overall model this was averaged into
a general cost per ha. In the individual models, these projects were specifically
allocated to each land owner.

12
Site 4
6.3.3 This development is expected to be the first development area within Te Tumu.
The model assumes that the developer of Site 4 will first construct Te Okura
Drive (with water and wastewater) through the Tumu Kaituna 14 block – Site 1.
This scenario includes the reimbursement for the Kaituna Overflow Stormwater
swale which is indicatively considered to be located over this Site. This block is
expected to take 6-7 years to fully develop.

6.3.4 This block looks highly viable, with a Gross Margin of 37% and an internal Rate
of Return of about 20%.

Site 11
6.3.5 This development is expected to be the second development area within Te
Tumu. The model assumes that the developer of Site 11 will initially connect to
the infrastructure on Te Okura Drive at the shared boundary with the Site 4
block. By 2030 it is expected that traffic volumes along Te Okura Drive will
require the construction of the Boulevard (from Wairakei) through Sites 1 and 9
to the boundary of Site 11.

6.3.6 The model assumes that the developer of Site 11 will construct the Boulevard
with water and wastewater infrastructure as part of the road construction. This
block is expected to take 9-10 years to fully develop. The major difference with
this development is the desire of the current landowner to achieve a much
higher density and to construct the Kaituna Link Road. Therefore this scenario
uses an average density of 23 lots per ha and the costs of developing this road
($67.8M for road and an assumed project cost of $12M for link to TEL).

Site 1
6.3.7 This development is modelled to commence after 2035. The model assumes
that this developer will refund the other developers who have already
constructed infrastructure through this land at this time (i.e. developers of Site 4
and 11). Due to the distance into the future this is a very approximate model
and assumes a very slow development rate (around 2.5 ha per year). It does
not take into account the impact of any industrial development that may also be
happening (which would be likely to improve viability). This block looks viable,
with a Gross Margin of 31%, but only has an internal Rate of Return of about
4% due to the very slow growth assumptions.

Site 9
6.3.8 This development is modelled to commence after 2035. The model assumes
that this developer will refund the other developers who have already
constructed infrastructure through this land at this time (i.e. developers of Site 4
and 11). Due to the distance into the future this is a very approximate model
and assumes a very slow development rate (around 2.5 ha per year). It does
not take into account the impact of any industrial development that may also be
happening (which would be likely to improve viability).

6.3.9 This block looks viable, with a Gross Margin of 31%, but only has an internal
Rate of Return of about 4% due to the very slow growth assumptions.

6.3.10 It is noted that Site 9 is multiple owned Maori land.

13
 Overall
6.3.11 After reviewing all of the individual areas the Report writers are comfortable
that the results are consistent with the base modelling; that development in Te
Tumu is likely to be viable.

6.4 Comparison with developers own modelling

6.4.1 As a means to check the validity of the modelling results, Carrus Corporation
used their own development feasibility model with their own cost inputs in
relation to the Site 4.

6.4.2 The results showed that the development of Site 4 to be viable confirming the
results provided by the TCC model. The outputs were within 5% of each other
giving the Report writers increased comfort that the TCC model was working
correctly and that the conclusions determined are reasonable.

6.5 High Level Peer Review

6.5.1 In order to gain greater assurance over the model outputs, Council obtained a
high level review of the outputs from Martin Udale: Essentia Group. Mr Udale
is a well-respected property consultant and was involved in the viability work
completed for Wairakei in 2011/12 (therefore familiar with the model used).

6.5.2 This review confirmed the validity of the conclusions that TCC reached in
relation to this work. A copy is included as Attachment E.

7. Other Issues

7.1 Contaminated Land

7.1.1 No allowance has been made for the consideration of contaminated land and
potential requirements for remediation of land that is contaminated. If
significant areas of land required remediation then additional costs would be
required. Because of the history of land use there is not expected to be any
significant areas of contamination and therefore no additional cost was placed
within the model.

7.2 Council debt

7.2.1 Development contribution funding of local infrastructure generally results in
Council incurring debt to fund this infrastructure which is then repaid as
development contributions are collected as development proceeds.

7.2.2 Initial modelling suggests that Council’s cumulative debt associated with local
development contribution funded infrastructure for Te Tumu is likely to be low
for most of the development period. There are a few ‘spikes’ in capital
expenditure at particular points in the development as can be seen on the
Graph 1, below.

14
Graph 1: Cost of Delivering Key Infrastructure

7.2.1 This is due to the significant portion of the internal infrastructure works being
proposed to be delivered by the developer (rather than TCC) and the ‘just in
time’ provision of infrastructure, peak debt is $22.6M and would likely occurs in
year ten of Te Tumu’s expected development (2031).

7.2.2 With the developers providing a significant portion of the infrastructure this also
means that TCC’s own investment is delayed. The development will be well
underway with approximately 800 sections completed before TCC is required
to make a significant contribution. This significantly mitigates the risk for TCC
in relation to our investment and the recovery of debt. This is highlighted in
Table 7, below.

Table 7: Cumulative Capital Expenditure by funding source

First 4 Year First 10 Year Total Te Tumu
spend ($M) spend ($M) spend ($M)
Council Funded Capital 7.93 58.82 75.88
Developer Funded Capital 24.94 49.78 95.87
Total 32.87 108.60 171.75
Area delivered (Ha) 53.32 150.00 262.00
Sections delivered (15/ha) 800 2,250 3,930

7.2.3 In the context of TCC’s overall debt limits, the peak debt of $22M is not large.
However there is the possibility that TCC’s debt position may be under
pressure in the future, especially if growth slows which would affect debt
repayment on large projects such as the Southern Pipeline and the Waiari
Water Scheme.

15
 7.2.4 In addition, Council will be carrying significant debt associated with future
projects such as the Waiari Water Treatment Plant and substantial upgrades to
the Te Maunga Wastewater Treatment Plant to cater for growth across the
whole City, including Te Tumu. As such there may be some pressure on
TCC’s ability to fund in a timely manner the entire infrastructure necessary for
development in Te Tumu to be completed.

7.2.5 It is in order to mitigate this risk that TCC’s position is that the local/internal
infrastructure within the Te Tumu Urban Growth Area to be fully developer
funded, as opposed to a mix of developer and development contribution
funding.

8. Conclusions
8.1.1 The financial modelling as a whole indicates that there should not be any
significant challenges to development being financially viable in Te Tumu.

8.1.2 Based upon the information assessed and modelling undertaken here is no
reason why Te Tumu should now not be progressed towards the development
of a structure plan and Resource Management Act planning process.

8.1.3 It order to mitigate TCC’s financial risk it is recommended that the local/internal
infrastructure within the Te Tumu Urban Growth Area to be fully developer
funded, as opposed to a mix of developer and development contribution
funding.

16
Attachment A – Financial Modelling Base Scenario
 Te Tumu Development Scenario

1.0 Introduction
1.1 The Tauranga City Council is currently undertaking an investigation into the financial
viability of Te Tumu through the Te Tumu Strategic Planning Study. Two
workstreams within that Study require the consideration and testing of a development
scenario. The two work streams are:
· Infrastructure Modelling; and
· Financial Viability.

1.2 A summary of each workstream purpose is outlined below:

2.0 Infrastructure Modelling

2.1 To investigate the implications of undertaking varying landuse scenarios (location
and density) within the Te Tumu Strategic Planning Study area within the eastern
and central corridors. This mo d e l l i n g w o r k has been c o m p l e t e d b y
u p d a t i n g existing modelling work and ensuring that analysis sits within identified
urban development scenarios proposed.

2.2 The infrastructure investigation is focused on assessing and detailing the available
infrastructure at main entry / exit points to the Te Tumu future Urban Growth Area,
specifically, water supply, wastewater and transportation.

3.0 Financial Viability

3.1 The financial viability aspect of the project aims to address the following
matters:
· Whether development is financially viable in Te Tumu. This has included a
review of the previous financial viability work undertaken for residential
development in Te Tumu, which concluded that development would be
viable, and considered the following matters:
o Possible additional development costs associated with mitigating
tsunami risk;
o TCC’s desire for internal infrastructure to be fully developer funded
as opposed to a mix of developer and development contribution
funding;
· The sustainability of debt funded infrastructure costs required for Te
Tumu on TCC’s balance sheet.

4.0 Development of Infrastructure Plan – Network Design

4.1 Tauranga City Council has developed a roading and water main layout for
investigation purposes to reflect a likely roading hierarchy (Appendix A). It is further
coupled with a wider wastewater network (including pump stations) which would
provide the necessary services for a maximum population of approximately 16,500
persons. This is the base design in which all modelling has been undertaken.

4.2 The wider network design includes the likely means in which infrastructure would be
delivered under a standard reticulation model. This includes:
Transportation
· A main network of transport routes linking to the Tauranga Eastern Link
(Stage 1 only), Te Okuroa Drive the Boulevard and Papamoa Beach Road
supported by a network of local and collector roads.
 Wastewater
· A wastewater network that aligns with the transport route with connection
back to Te Maunga and supported by two main pump stations and a network
of minor pump stations (10).
o A network of internal pipes and pump stations;
o Two new main pump stations for all of Te Tumu;
o Upgrades or replacement of pump stations and trunk pipes
between Te Tumu and the Te Maunga wastewater treatment plant.
o Upgrades to the Te Maunga wastewater treatment plant and outfall
pipeline.
Water
· A water network that aligns with the transport route supplied by the Waiari
Water Treatment Plant and includes:
o Connection to the water network developed to the west in Wairakei;
o Dedicated water main from the Waiari water scheme to the eastern
end of Te Tumu
o Internal trunk and local network of water pipes.
Stormwater
· A stormwater network that includes the construction of on-site stormwater
mitigation storage and treatment in accordance with the Papamoa
Comprehensive Stormwater Consent; the Wairakei Stream to Kaituna River
stormwater overflow and other consented stormwater outfalls to the Kaituna
River.

5.0 Constraints Mapping

5.1 To ensure the Tauranga City Council understands the developable area, the Council
has undertaken research into constraints mapping. This has considered the following
planning constraints:

· Outstanding Natural Features and Landscapes;

· Important Amenity Landscapes;
· Natural Character Areas;
· Special Ecological Areas;
· Significant Archaeological Sites and Cultural Archaeological Layer;
· Significant Maori Areas;
· Reserves Assessment;
· Sea Level Rise (excluding consideration of erosion);
· Flooding (from the Kaituna River);
· Stormwater Management;
· Liquefaction;
· Coastal Erosion; and
· Tsunami.

5.2 The outputs have resulted in the determination of constraints and unconstrained
land, as outlined in the table below and shown in the map included in Appendix B:

Table 1: Total Unconstrained area

Total Ha - All Development Blocks
Constrained: 402.7
Unconstrained: 343.7
Total Assessed Area 746.4
5.3 The above excludes:
· Provision for a 20ha active reserve;
· Potential school sites (of which it is anticipated that there would be two
primary schools and one secondary school.
· Te Okuroa Drive extension into Te Tumu (which for the purposes of this
assessment is not calculated as part of net density).

6.0 Site identification

6.1 For the purposes of developing a scenario each landowner block which is not
constrained from development has been assessed for development, and identified
below:

Table 2: Ownership of Land-blocks containing unconstrained land

Landowner Development Block Site identifier
Tumu Kaituna 14 Block 1
Carrus/Hickson Block 4
Cameron 8
Tumu Kaituna 8B1 Block 9
Ford Land Properties Block 11
Tumu 11B2 12

6.2 Appendix C outlines all landowner ownership blocks within Te Tumu.

7.0 Scenario Development

7.1 The below information has been used to develop a scenario for financial and
infrastructure modelling. The scenario assumptions include:

· All infrastructure required for development to proceed is located at the

boundary of the Te Tumu Urban Growth Area by end of the 2020 financial
year. The infrastructure location will be via Te Okuroa Drive (Roading,
Water/Wastewater).
· Stormwwater will be managed in accordance with the comprehensive
stormwater consent for Papamoa. The Wairakei Stream to Kaituna River
overflow will be required when development is initiated within the northern
catchment or when the relevant flood levels within the Papamoa
Comprehensive consent are met.
· The land is able to be earthworked and appropriate RL’s delivered without any
requirement for fill to be imported into the individual landowner blocks (refer
Appendix D for earthworks calculations – excludes roading and stormwater
ponds/Kaituna Overflow and any earthworks being able to be undertaken
within constrained areas).
· Te Okuroa Drive is able to accommodate 20,000 vehicle movements per day
(or 2000 lots/133ha at 15dw/per ha) prior to additional road construction being
required. It is a 140 Collector Road over Sites 1 and 2. All other roads shown
in the network plan have a width of 25.5m). For the purposes of the
assessment Te Okuroa Drive is excluded from the calculation of nett density.
· The Kaituna Link ($67.8M) and Stage 2 and 3 of the Papamoa East
Interchange are not included in the assessment.
· Before any development can be undertaken all infrastructure
(roading/water/wastewater) is required to be built to that development site.
No provision is made in this research for alternative forms of infrastructure
provision.
 · Development will proceed as follows:
· Year 1 – 5: Residential sections at 15dw/ha – 200 sections per year,
with uptake occurring the following year of all sections.
· Year 6 – 10: Residential sections at 15dw/ha – 250 sections per year,
with uptake occurring the following year of all sections.
· Year 11 – 15: Residential sections at 15dw/ha – 200 sections per year,
with uptake occurring the following year of all sections.
· The average household size will be 2.2 persons per hectare at the completion
of developing the growth area.
· The Papamoa East Town Centre development will not begin before 2025 and
take 10 years to develop.
· 66ha of employment land will be provided within Site 1, with subdivision and
development beginning after 2035. The uptake rate of this will be at 2.5
hectares per year (4.5ha per year is the current Tauranga City Council
average for the last 6 years).
· Development will initially proceed within Site 4, with that beginning in Year 1
of any development model. The anticipated sequence of development is
shown in Appendix A.
· Development will occur on all land (either commercial, industrial, residential)
over the development period (including development on multiple owned Maori
Land).
· Financial viability will be calculated using a standard density of 15dw/ha over
all developable land.
· All constraints identified in the constraints mapping remain, and are un-
modified with no development proceeding within these areas. Developable
land areas are outlined below within each site:

Table 3: Unconstrained land by Land Owner

Site Unconstrained Unconstrained Unconstrained
Land Area (ha) Land Area for net Land excluding
density employment land
calculations
1 132 127.7 61.7
4 86 81.4 81.4
8 0.8 0.8 0.8
9 15.8 15.8 15.8
11 109 102.2 102.2
12 0.1 0.1 0.1
Total 343.7 326.0 262.0

· It is recognised that within any final development undertaken through a structure

plan process that a 20ha active reserve will be required, one neighbourhood centre
will be provided at 1.8ha and likely to constructed 5 years after residential
development occurs and two local centres will be provided at 0.32ha (located within
Site 1 and Site 4) and will be constructed at the time of development.
7.2 The timing and infrastructure requirements for this scenario are as follows (as
provided in 5 yearly timeslots).

Table 4: Breakdown of development and infrastructure provision in 5 year blocks

No. of Popn
Residential
Sit Lots (2.2
Year Developme Infrastructure Requirements
e (15/ha) per
nt Area (ha)
Lot)
Years 1 - 5
1. All infrastructure at Te Tumu boundary

1 - 2. Development progressively constructed over

development period. Infrastructure provision
includes:
· Transport: 1, 2 (80%), signalised
intersections A & C, and one roundabout
(D).
4 66.67 1,000 2,200 · Water: 1, 2 (80%), 8.
· Wastewater: 1, 2 (80%), 8 and pump
stations: Main Pump West, E & F.
Years 6 – 10
1. Development progressively constructed over
4 14.73 221 486 development period. Infrastructure provision
includes:
· Transport: 2 (20%), 3, 10, one signalised
intersection (E) and one roundabout (F).
8 0.8 12 26 · Water: 2 (20%), 3, 10.
· Wastewater: 2 (20%), 3, 10 and pump
stations: H and Main Pump East.
11 67.8 1,017 2,238
· Stormwater: Kaituna Overflow.
Years 11-15
1. Development progressively constructed over
development period. Infrastructure provision
11 34.40 516 1,135 includes:
· Transport: 7, 9, 5, 4 11, and three
roundabouts B, G & H.
1 32.27 484 1,065 · Water: 6, 7, 9, 4, 11.
· Wastewater: Pump stations: I and J.
Years 16-20
1 29.43 442 973
9 15.8 237 521 -
12 0.10 1 2
Total 262.0 3,930 8,646
 Appendix A
Infrastructure Plan – Network Design &
Infrastructure Plan – Network Pump Station Design
 Roading Infrastructure (including water mains within
road corridor)
Water Mains Infrastructure (outside of road corridor)

Wastewater Mains Infrastructure

Intersection Infrastructure
Water Main: #6
Subdivision and Development 2021-2025
Subdivision and Development 2026-2030
4
Boulevard: #7 Subdivision and Development 2031-2035
Water Main: #7
Subdivision and Development Post 2035
Te Okuroa Drive: #1 B
Constrained Land Areas
Water Main: #1
2

Wastewater Main: #1 7A
A
D
5

Boulevard: #8
2
Water Main: #8
6A

7B
C
6Te 7C
A Okuroa
6A
Drive: #2 Boulevard: #9
Water Main: #2 Water Main: #9
Wastewater Main: #2
F
Boulevard:
7D #10
Water Main: #10
EE Te Okuroa Drive: #3 G
6B
Water Main: #3
Connection: #5
Wastewater Main:6#3
B
Connection: #5
Boulevard: #11
8B Te Okuroa Drive: #4 8AMain: #11

9
Water
H
Water Main: #4

16
8B
Kaituna Link Road 8D

Tauranga City council

Te Tumu growth area, ProposedTe
Utilities
Tumu Infrastructure Provision and Timing
Document Path: Q:\ServiceDeskRequests\2001-3000\2508_Te_Tumu_Tsunami_Proposed_Models\PumpStations\Te Tumu Growth Area proposed [Link]
 Subdivision and Development 2021-2025
Subdivision and Development 2026-2030
Subdivision and Development 2031-2035
Subdivision and Development Post 2035

Pump Station
A

Pump Station
C

Pump Station
B Pump Station
E

Pump Station
A
D
Pump Station
F
Main Pump
West
Pump Station
G

Pump Station
H

Main Pump
East

Pump Station
I
Pump Station
J

Tauranga City council

Te TumuTe Tumu
growth Proposed
area, ProposedPump Station
Pump Stations Layout (Main and Local Pump Stations) - 400m radius
Document Path: Q:\ServiceDeskRequests\2001-3000\2508_Te_Tumu_Tsunami_Proposed_Models\PumpStations\Te Tumu Growth Area Pump Station [Link]
Appendix B
Constraints Map
 Legend
T
eTumu Futur
eUr
ba n Zo n e
Amen dedAr
cha eo l
o gi
cal
Exten t
Ci
ty Pl
a n ,Si
gn i
fi
ca n tMa o r
iAr
ea s
Ci
tyPl
a n ,Outsta n di
n gNa tur
a lFea tur
es An dLa n dsca p es Pl
a n Ar
ea
Ci
ty Pl
a n ,I
mp o r
ta n tAmen i
ty La n dsc
a p es Pl
a n Ar
ea
Ci
ty Pl
a n .Sp eci
a lEco l
o gi
ca l
Area -Ca tego r
y1
Ci
ty Pl
a n ,Sp eci
a lEco l
o gi
ca l
Area -Ca tego r
y2
U
M78
Sea LevelRi
seI
n un da ti
on
Sto r
mw a terReser
ve
Wa i
ra keito Ka i
tun a Over
la n dFl
o w Pa th
Ka i
tun a Po ssi
bleFl
o o dAr
ea
Ci
ty Pl
a n ,Co a sta lPr
o tecti
o n Ar
ea
Regi
o n a lPo l
i
cy Sta temen t,Na tur
a lCha r
a cter-Ra ti
n g:Hi
gh
Pr
o p o sedEsp a n a deReser
ve
TCCTsun a mi
– Po ssi
bleI
n un da ti
o n Ar
ea

U
M76

UM77

U
M74

U
M79

UM75

U
M80

U
M81

0 0.
25 0.
5 1Km

1:
7,200 GI
S-2746

Constraints - Te Tumu Future Urban Zone

Displaying Amended Archaeological Extent
- Tauranga City Council -
E
 Appendix C
Site Identification – Ownership Blocks
 /
Te Tu m u O w n e r s h i p B l o c k s Information shown on this plan is indicative
only .The Council accepts no liability for its
accuracy and it is your responsibility to ensure
-- TT aa uu rr aa nn gg aa C
C ii tt yy C
C oo uu nn cc ii ll -- that the data contained herein is appropriate
and applicable to the end use intended.

Land Ownership Blocks

2
1
3

13 9
4
Document Path: Q:\ServiceDeskRequests\2001-3000\2746\TeTumu_OwnershipBlocks.mxd

5
8
6
7 14
10
11
12

0 125 250 500 750

Metres
 Appendix D
Earthwork Cut to Fill Plan

Landowner Development Block Achieved RL (cm3)

1 Te Tumu Kaituna 14 Block RL 5.65m
4 Carrus/Hickson Block RL 5.89m
9 Te Tumu 8B1 Block RL 6.11m
11 Ford Land Block RL 6.3m
 Area 1
775000 cube to be shifted

Area 2
762000 cube to be shifted

Area 3
107600 cube to be shifted

Area 4
688000 cube to be shifted

Tauranga City council

Te Tumu growth area, Cut and Fill areas
Document Path: Q:\ServiceDeskRequests\2001-3000\2508_Te_Tumu_Tsunami_Proposed_Models\Te Tumu growth area Cut and Fill areas 1 to [Link]
Attachment B – Detailed financial breakdown: Kaituna Link

18
 GENERAL SUMMARY COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

CO SECTION NAME UNIT QUANTITY RATE COST

KAITUNA LINK CONCEPT ESTIMATE 78,000,000

TOTALS OF SELECTED SECTIONS 78,000,000

3932338 KAITUNA LINK DEC 2015 GS/1

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

KAITUNA LINK RIVER CROSSING CONCEPT

ESTIMATE

Inputs

Previous December 2006 prliminary estimate

(filed in P:425/Estdata6/Back-up of old
projects/3932176 Dec 2006

Note this estimate is filed in

P:419/Estdata6/3500000-3999999

Drawings attached to Kaituna Link Study

Report dated 30/1/2007 including;
1. Dwg 3932010-CK02B with route between
Kaituna River crossing and Rangiuru Business
Park shown
2. Dwg 3932176-CK03C
3. Dwg 3932176-CK02A

Scope

375m long x 14.03m wide steel I girder

bridge with 80m long embankment to 1No. end
only

New Kaituna Link Rd 1.5km long (from

bridge, across Kaituna Rd Extension to new
connection with Te Tumu Rd)

Widening of existing Te Tumu Rd 1.5km long.

Assumes existing road is 6m wide and is
widened to 10m wide carriageway (2No. x
3.5m lanes and 2No. x 1.5m
shouler/cycleways with footpath one side)

New link road to proposed Rangiuru Business

Park Interchange 0.75km long. 10m wide
carriageway (2No. x 3.5m lanes, 2No. x 1.5m
shoulder/cycleways with footpath one side.
Assumed 200m long x 6m high embankment to
ramp up to Rangiuru Business Park
Interchange

Assumptions

All lengths of the proposed route have been

scaled from the 1:40,000 drawings (checked
by Google Maps) but need confirmation at
developed design stage

2m of preload surcharge is assumed to be

required for the new Kaituna Link Road only
(i.e no preload required to existing Te
Tumu Rd or link to Rangiuru Business Park)

An allowance of $5M for ground improvements

to the new bridge approach embankments has
been assumed. Note no geotechnical
investigation has been carried out at this
stage of the design cycle

Undercutting to pavement to Te Tumu Rd

3932338 KAITUNA LINK DEC 2015 /1

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

wideneing and new link to Rangiuru

Busiuness Park only

The embankment to the Rangiuru Business

Park does not require any ground
improvement (based on FHHCA design
information from Tauranga Eastern Link)

A connection only to the proposed Rangiuru

Business Park is assumed

Pavement construction of 250mm thick GAP65,

cement stabilised, 150mm thick AP40
basecouse cement modified with chipseal
surfacing

Generally feather edge pavement with swale

drainage (kerb and channel to bridge
embankments only)

All other drainage allowances are assumed

Property purchase costs, property

accommodation works and alterations to
driveway entrances, shelter belts are
assumed

A stock underpass (assumed through the

Kaituna River bridge embankment) is
required

Street lighting to intersections and bridge

only (i.e. no street lighting provided to
general raod sections)

Relocation of existing services is assumed

(overhead power and assume underground
Telecom/fibre)

A traditional consultant design and

competitive tender with measure value
procurement is assumed. No allowance for
Design/Build or alternative forms of
procurement have been allowed for

Exclusions

Roading connections either end of project

ATMS system and ductwork

Variable Message Signage system (VMS)

Tolling and associated costs

Ground improvements compliant with NZTA

Bridge Manual

Preload to existing Te Tumu Rd or to

new link to Rangiuru Business Park

Rangiuru Business Park interchange

3932338 KAITUNA LINK DEC 2015 /2

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Connection to TCC/ Te Okuroa Drive roading

network

Alternative Kaituna River crossing through

Ford Road (shown as Option 5 on drawing
3932010-CK02)

Additional capital funding cost to purchase

entire properties including holding costs,
subdivision and re-sale costs. Note this
may be required as the proposed route
divides significant farms and kiwifruit
blocks

Funding costs

Escalation from December 2015

GST

Accuracy of Estimate

This estimate has been prepared from

conceptual information. No detailed design
or geotechnical information has been
provided. Accordingly this estimate has an
accuracy range no better than + / - 25%

New Kaituna River Bridge

Allowance for environmental controls LS 1 50,000.00 50,000

Steel I girder bridge structure 375m long x

14.03m wide m2 5,262 4,000.00 21,048,000

Abutment walls m2 290 1,000.00 290,000

Allowance for training piles at navigation

span LS 1 400,000.00 400,000

Allowance for flood plain pier protection no 5 75,000.00 375,000

Temporary platforms for piling work in

river. Assume 2No. x 25m long x 6m wide m2 300 1,500.00 450,000

Temporary access road under bridge m 400 100.00 40,000

25mm AC levelling to bridge deck (excludes

cycleway/footpath) m2 3,525 24.00 84,600

40mm SMA surfacing to bridge deck (excludes

cycleway/footpath) m2 3,525 32.00 112,800

TL5 barriers to bridge m 790 included

TL4 approach barrier - assume 50m long each

side m 200 125.00 25,000

Barrier TL4 to TL5 transition at bridge No 4 1,500.00 6,000

Leading end terminal No 2 4,000.00 8,000

3932338 KAITUNA LINK DEC 2015 /3

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Trailing end terminal No 2 1,500.00 3,000

Pedestrian/cycle rail m 375 300.00 112,500

Balustrade and pedestrian rail m 375 550.00 206,250

Lighting to bridge - assume at 50m centres

both sides No 23 9,000.00 207,000

Traffic management - minimal requirement LS 1 40,000.00 40,000

Rounding sum 1 1,850.00 1,850

Total of New Kaituna River Bridge ** 23,460,000

Kaituna River Bridge Embankment 80m

long x 13m wide (plus 3:1 side
batters)

Allowance for ground improvement (both ends

of bridge. No geotechnical investigation
has been completed and this is an item of
high risk and cost uncertainty PS 1 5,000,000.00 5,000,000

600mm dia stone columns x 12m deep under

embankment (assume 1.5 x 1.5m grid) No 1,000 Included

Undercut embankment for raft foundation to m3 2,048 Included

waste off site

1000mm thick sand raft foundation m3 2,048 Included

Geogrid reinforcing to raft foundation m2 6,144 Included

(assume 3 layers)

General filling to preload embankment

(allow for 2m preload surcharge) m3 6,331 30.00 189,930

Cut preload surchage to waste off site m3 3,088 20.00 61,760

Allowance to remove sand dune at chainage

1300 (assume 5,000m3 to be removed) m3 5,000 20.00 100,000

Kerb and channel to sides of embankment m 160 45.00 7,200

Allowance for landscaping to embankment m2 1,600 20.00 32,000

Traffic management - no requiremens LS 1 Nil

Rounding sum 1 9,110.00 9,110

Total of Kaituna Bridge Embankment ** 5,400,000

New Greenfield Kaituna Link Road (1.5km

long - measured over bridge embankment)

10m wide carriage way including; m 1,500 2,315.00 3,472,500

200mm thick topsoil cut to waste off-site
2m thick preload surcharge
1.5m thick preload surcharge removal
Undercutting (20% of subgrade x 0.5m deep)

3932338 KAITUNA LINK DEC 2015 /4

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Subgrade trimming
250mm thick GAP65 sub-basecourse
Cement stabilising to sub-basecourse
150mm thick AP40 basecoures cement modified
First and second coat chipseal
Drainage swale both sides
3m wide pedestrian cycleway one side
Topsoil and grass reinstatement
Road markings
Allowance for edge barriers to 20% of road
Sediment control

Allowance for upgrade of intersection of LS 1 205,000.00 205,000

existing Kaituna Rd with new Link Rd
including street lighting

Allowance for signage LS 1 5,000.00 5,000

Allowance for drainage and stormwater

treatment LS 1 100,000.00 100,000

Allowance for property purchase (generally

farm land) - assume 20m wide Ha 3 350,000.00 1,050,000

New stock fencing m 3,000 16.00 48,000

Allowance for stock underpass. Assume

located in new Kaituna River bridge
embankment No 1 500,000.00 500,000

Allowance to relocate existing farm race

and stock fencing both sides - assume m 1,000 87.00 87,000
1,000m

Traffic management - minimal requirement LS 1 40,000.00 40,000

Rounding LS 1 2,500.00 2,500

Total New Greenfield Kaituna Link Road ** 5,510,000

Upgrade and Widening of existing Te Tumu

Rd, 1.5km long

10m wide carriage way including; m 1,500 1,490.00 2,235,000

200mm thick topsoil cut to waste off-site
Allowance for earthworks
Scarify existing surfacing
Undercutting (20% of subgrade x 0.5m deep)
Subgrade trimming
250mm thick GAP65 sub-basecourse
Cement stabilising to sub-basecourse
150mm thick AP40 basecoures cement modified
First and second coat chipseal
Drainage swale both sides
Allowance to relocate existing overhead
power lines
Allowance to relocate existing underground
Telecom
3m wide pedestrian cycleway one side
Topsoil and grass reinstatement
Road markings
Allowance for edge barriers to 20% of road

3932338 KAITUNA LINK DEC 2015 /5

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Sediment control

Allowance for signage LS 1 5,000.00 5,000

Allowance for drainage and stormwater

treatment LS 1 100,000.00 100,000

Allowance for upgrade of existing drive No 12 5,000.00 60,000

crossing and culvert

Allowance for property purchase (generally

kiwifruit orchard) - assume 5m wide along Ha 1 500,000.00 500,000
entire route

Allowance to remove and replace existing m 1,500 250.00 375,000

shelterbelt

Traffic management - assume 9 months

construction with Level 1 stop/go
management Day 270 1,250.00 337,500

Rounding LS 1 17,500.00 17,500

Total Upgrade and Widening of Te Tumu Rd ** 3,630,000

New Greenfield Rangiuru Business Park Link

Road (750m long - measured over
embankment up to Business Park
interchange)

10m wide carriage way including; m 750 1,180.00 885,000

200mm thick topsoil cut to waste off-site
2m thick preload surcharge
1.5m thick preload surcharge removal
Undercutting (20% of subgrade x 0.5m deep)
Subgrade trimming
250mm thick GAP65 sub-basecourse
Cement stabilising to sub-basecourse
150mm thick AP40 basecoures cement modified
First and second coat chipseal
Drainage swale both sides
3m wide pedestrian cycleway one side
Topsoil and grass reinstatement
Road markings
Allowance for edge barriers to 20% of road
Sediment control

Allowance to undercut embankment (assume

20% of area x 1m deep) m3 410 52.00 21,320

General filling to Business Park

embankment m3 5,280 27.50 145,200

Kerb and channel to sides of embankment m 160 45.00 7,200

TL4 barrier - to embankment - assume 50m

long each side m 100 125.00 12,500

Leading end terminal No 2 4,000.00 8,000

Trailing end terminal No 2 1,500.00 3,000

3932338 KAITUNA LINK DEC 2015 /6

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Allowance for landscaping to embankment m2 1,600 20.00 32,000

Allowance for signage LS 1 10,000.00 10,000

Allowance for upgrade of intersection of LS 1 150,000.00 150,000

existing Te Tumu Rd with new Business Park
Link Rd including street lighting

Allowance for drainage and stormwater

treatment LS 1 100,000.00 100,000

Traffic management - minimal requirement LS 1 40,000.00 40,000

Allowance for property purchase (Kiwifruit

orchard) - assume 20m wide Ha 2 500,000.00 1,000,000

New shelterbelt m 1,000 200.00 200,000

New stock fencing m 2,000 16.00 32,000

Rounding LS 1 3,780.00 3,780

Total New Business Park Link Road ** 2,650,000

Sub Total Physical Works ## 40,650,000

Preliminary and General

Allowance for P&G % 41,150,000 0.25 10,275,000

Adjust P&G measured on land % -2,100,000 0.25 -525,000

Total P&G ** 9,750,000

TOTAL PHYSICAL WORKS ESTIMATE ## 50,400,000

Fees

Allowance for Investigation and Reporting LS 50,400,000 0.02 1,000,000

Allowance for geotechnical investigation LS 1 200,000.00 200,000

Allowance for Design and Project

Documentation LS 50,400,000 0.05 2,530,000

Allowance for MSQA fee LS 50,400,000 0.04 2,020,000

Allowance for TCC direct costs LS 1 200,000.00 200,000

Allowance for resource monitoring fees LS 1 30,000.00 30,000

Allowance for Resource and Consent fees LS 1 120,000.00 120,000

Total of Fees ** 6,100,000

TOTAL OF BASE ESTIMATE ## 56,500,000

Contingency Allowance

3932338 KAITUNA LINK DEC 2015 /7

 Section ''-'KAITUNA LINK CONCEPT ESTIMATE' COMPANY : Beca
PROJECT : KAITUNA LINK RIVER CROSSING DATE : Wed 23 Dec 2015 03:28pm
SubTitle : December 2015 Bid Currency : New Zealand

BQREF DESCRIPTION UNIT QTY RATE COST

Allowance for project contingency (20%) LS 56,500,000 0.20 11,300,000

Total of Contingency Allowance ** 11,300,000

TOTAL OF EXPECTED ESTIMATE ## 67,800,000

95th Percentile Funding Risk

Allowance for 95th Percentile funding risk

(15%) LS 67,800,000 0.15 10,200,000

Total of 95th Percentile Funding Risk ** 10,200,000

Totals for Section ''-'KAITUNA LINK CONCEPT ESTIMATE' 78,000,000

3932338 KAITUNA LINK DEC 2015 /8

Attachment C – Financial Viability Flow Chart

19
 Financial Viability Assessment

Development Contributions Calculation

Development Plan/Structure Plan

· Determine Roading alignment and widths.
· Determine Wastewater provision and design.
Determine
· Determine Water provision and design.
· Determine Stormwater design.
· Reserves

· Determine Quantities (size/length)

· Determine Timing for Delivery of Infrastructure.
Stage One – Calculation of Large
Infrastructure Costs
· Determine Unit Rate Costs.
· Establish which projects are TCC and which
developer funded
· Determine rollout of development

Outputs:
Calculation of Development Contribution and developer
funded large works (per hectare charge).

Development Feasibility – Growth Area

Development of Assumptions:
· Determine Allotment Typology (size/zone).
(i.e. dwellings per hectare).
· Determine Rate of Development.
· Determine Contingency Costs.
· Determine design and Supervision Costs.
· Determine expected cash-flow of sales

Development of Inputs
· Determine Expected Sales Prices.
· Determine Costs:
o Earthworks Costs.
o Developer Funded Works.
§ Per ha (road/water/wastewater);
§ Per lot (power/phone/lighting etc).
o Consent Fees and Processing Costs.
o Project Management.
· Development Contribution and developer funded Stage Two – Calculation of Developer Costs
large works (as a per hectare charge) – refer Stage 1.
· Individual landowner information
o Undevelopable Land
o Land area and terms of purchase
o Completion of Construction of Individual
Allotment
o Sales by Number of Allotments
o Development Set Up Costs
o Capital Funding Requirements
§ Land Purchase
§ Development
o Borrowing Rate
o Gross Margin required (must be plus 20 –
25%)

Outputs:
Calculation of Growth Area Development Feasibility.

Development Feasibility – Sensitivity Analysis

Development of key variables to be tested:

· Sales price.
· Individual development feasibility.
· Impact of some developments not occurring
· Cost of infrastructure
· Speed of Development Stage Three
Sensitivity Analysis

Outputs:
· Key aspects that may put development at risk
Attachment D – Base model Financial Summary

20
Attachment E – External High Level Revue

21
MEMORANDUM
Attention Campbell Larking, Tauranga City Council

Date 28 May 2016

From Martin Udale

Subject Te Tumu Development Viability – High Level Review

1.0 Background and Task

The Te Tumu urban growth area is an area of land adjoining and east of Papamoa and
Wairakei. It comprises a total area of approximately 746 ha of which approximately 344 ha
are assessed as unconstrained and of which approximately 262 ha is assumed to be
residentially developed over a 15-20 year period commencing in 2021. It has been assessed
that this area is capable of providing in the order of 3,930 lots/dwellings of residential
development at a density of 15 dwellings per hectare.

Tauranga City Council (TCC) is investigating the development potential of the area including
consideration of its commercial viability.

TCC have requested a high level review of the development viability model developed for the
Te Tumu urban growth area. This high level review is based on internal feasibility modelling
undertaken by TCC which has been informed by inputs from both internal TCC resources and
external parties. This has included developers/landowners, and their advisors who are
currently active in the Tauranga development market, and in particular those familiar within
the Wairakei/Te Tumu urban growth areas. As such the principal purpose of this high level
review is to consider the assumptions/inputs made within the modelling and the outputs
derived from it and to make recommendations in regard to any changes suggested and the
reasons for such changes.

2.0 Use of Feasibility Model

TCC staff have developed a feasibility model for Te Tumu based on their prior involvement
and familiarity with having developed feasibility models for similar large greenfield
development areas in recent years, in particular the Wairakei urban growth area. The author
is familiar with the model previously developed for the Wairakei urban growth area viability
assessment, undertaken in 2011/12, and is comfortable that such a model is appropriate for
the Te Tumu assessment noting that the model was subject to a robust peer review process
at that time.
3.0 Review of Model Assumptions and Outputs

It is noted that assumptions have been based on information from a number of sources
including commercial landowners/developers currently active in both the immediate district
and the wider sub-region, Council’s own internal infrastructure assessments and prior
feasibility investigations undertaken by Council for this area.

Council have undertaken an assessment of major earthworks to test the ability to achieve a
balanced cut and fill within the various ownership parcels, the potential road network
requirements and likely water supply and wastewater infrastructure requirements to the
boundary of the development area. All internal infrastructure construction is assumed to be
undertaken by the land developer at their cost, excluding two main wastewater pump
stations that would be required to service the growth area. It is noted that more detailed
investigations will be required to validate such assumptions if the decision is made to take
this area forward.

Overall - the inputs for the feasibility model appear reasonable and generally in line with
costs associated with the development of other larger scale greenfield residential projects in
the region. The nature of developing this form of land and underlying soil/geotechnical
conditions is well understood in the Tauranga context and thus the cost assumptions should
be comparable to recent and current projects being undertaken within the wider
“Papamoa/Wairakei” area.

The extent to which soil conditions are known, or not, for matters such as extent of peat
should be considered and reflected in an appropriately set level of contingency to reflect the
level of risk, or unknowns, in this regard. It is understood that TCC has undertaken a range of
assessment work in respect of ground conditions to understand potential effects and these
are reflected within the inputs to the model. It would be useful to note in any output reports
the parameters used to calculate costs (i.e. no peat deposits present etc) together with the
respective contingency allowances provided for.

The feasibility modelling reports an unusually high Gross Margin (GM), of almost 40% overall,
is achievable. This level of return reflects particular assumptions made in respect of land
acquisition/holding cost that are unusual, and particular to the circumstances of current
landowners within the Te Tumu urban growth area. Further comment on this is provided
below. Given that the inputs overall are considered reasonable the level of profitability
derived provides a level of comfort that even with quite significant changes to cost or
revenue parameters the area is likely to remain viable for development purposes.

Recommendation on base assumptions - It is good practice to note where and when

assumptions have been sourced from for future reference and should at any time these need
to be reviewed or questioned. It is recommended that they be captured within the project
master file and/or within any output report.
Comments in relation to specific input elements within the feasibility model follow below: -

Land Acquisition – of the 262 ha assumed to be residentially developed most is already

owned by the expected end developer, or where it is yet to be acquired, the acquisition price
is already known based on a pre-agreed and long-standing arrangement – the Carrus/Hickson
block. Much of the land held for development has been in the ownership of the likely end
developer for many years and the historic acquisition costs are not known/nominal.
Therefore it is understood that within the model, for the purposes of establishing an
assumed land acquisition price for viability assessment, the acquisition cost for the Carrus
block (approximately 30% of the overall area) has been applied to the total development
area. This establishes a per lot land cost of just over $25,000 at 15 lots per ha.

On the basis that all other cost inputs are reasonable the derived GM suggests that were any
of the landowners to decide not to develop and to bring their landholding to the market, and
assuming a reasonable level of competitive interest in the land and that all other input costs
are fair and reasonable, then land cost is likely to be “bid up" to a level reflecting a gross
margin on the project more in the order of 20 to 25%. This would provide a short term and
less risky value uplift of some significance to the current landowner; however for the
purposes of this viability assessment it is also reasonable to assume that any developer
purchasing the land would only do so at a level, and on terms, which delivered an acceptable
level of risk and return to them. As such whilst the reported GM would suggest that the land
value input might be low in an open market context, any increase in the land cost would only
be to a level that maintained the overall project viability.

Civil Works/Other Development Costs – it is noted that the development costs have been
sourced from and/or agreed with local developers currently active in the market and the
relevant area – as such they should form a reasonable basis for the assessment of the overall
viability of development within Te Tumu. A review of these cost allowances also suggests
that they are broadly in line with similar costs for large greenfield development projects and
industry standard allowances for this stage of viability assessment.

Project Contingency – an initial review of the model inputs questioned the level of
contingency provided. Further advice from TCC staff indicates that a range of contingency
allowances are provided for across a number of differing inputs – these contingency
allowances range from 10–37.5 % depending on the relevant input factor. Given this further
advice the current contingency levels are considered acceptable.

Recommendation on Project Contingency- It is noted that some of the contingency

allowances are grossed up in the rate adopted within the model and thus not easily
identified. In general it would be better if the model could show the net cost for different
input rates with the contingency factor then separately shown against that factor – this
provides greater transparency and understanding to the casual viewer and also prevents
inadvertent provision of further contingency amounts on top of those already provided for –
which could unintentionally and negatively impact project viability. If this cannot be easily
done within the existing model then it is important to make sure that these are clearly
articulated within any output report and / or project master file for future reference and
understanding.

Project Finance – project finance costs provided for appeared low upon initial review.
Further advice form TCC staff clarified that the underlying assumptions were that land was
acquired on an all equity basis and that all other development costs were funded as to 50%
equity and 50% senior bank debt with an interest rate of 6%. Such a funding structure would
be unusual within more typical greenfield land development projects. To test the impact of
alternate funding structures TCC re-ran the model assuming land acquisition is funded as to
50% equity and 50% bank debt with all other development costs funded with 100% senior
bank debt at an interest rate of 8%. This provides a result more inline with “normal”
expectations at $5,037 per developed lot. Whilst this is a significant increase in finance costs,
overall the impact on the project viability is marginal with a resultant overall GM of 33% - this
suggests that project finance should be readily secured if required and subject to normal
lending criteria.

Revenue – revenue assumptions are understood to be based on recent sales of similar

residential sections both within the district and the views and assumptions being adopted by
the landowners/developers themselves. Modelling shows that the average assumed lot sale
price of $225,000 (inc GST) could fall as far as $193,000 (inc GST) and still maintain an overall
GM of 20%. This suggests that the viability of the Te Tumu development is relatively robust in
terms of revenue assumptions.

Sales rates are assumed at 200-250 lots per year across the development period. Clearly
these will be informed by both the rate of population growth within the region and changing
demographic mix of that population over time and this should be monitored on an ongoing
basis. If the assumption holds good that the current landowners, with a low level of land
cost, remain as the long-term developers then the ability of the developer to ride out
property cycles is likely to be more resilient and less susceptible to annual fluctuations in
sales rates. Clearly a lower rate of sales will have an impact on funding cost recovery for
TCC’s lead infrastructure, and thus this assumption should be robustly tested as to impact on
both the developer and TCC if a lower level of annual sales were to be adopted.

Various – the initial review identified questions around a number of other more minor inputs
and outputs. These were not material within the overall assessment of viability and have
been satisfactorily answered by relevant TCC staff involved with the project. As such they are
not repeated here, they are held on TCC files should there be any need to review these
further in the future.
4.0 Summary

In summary, and noting that this assessment is still based at a fairly high and conceptual
level, it appears that the development of the Te Tumu urban growth area for predominantly
residential development is likely to be viable and return a level of GM to the developers
significantly above normally acceptable returns. This in turn could mean that such developers
would favour this area and potentially accelerate its development once enabling planning
controls and infrastructure are in place.

Clearly the usual range of project and market risks will impact the rate at which this land is
developed. Given the size of the area in question, and that it will take many years to develop,
it will be subject to the normal market cycles – good and bad – that the development sector
is subject to. Hence, market conditions may have a significant impact on the final
development capacity/output within the growth area and the rate at which it is developed.
Council should be cognisant of this in considering its infrastructure investment in to opening
up the area for development.

Martin Udale