Council buys mall for $105 million

Hills Shire Council has spent $105 million to acquire a major shopping center in Sydney’s northwest as part of a strategy to better control and manage assets within the municipality.

Last month the council beat a dozen other potential buyers to secure the 7,900sqm Castle Mall in Terminus Street, Castle Hill.

The mixed-use site, which has 64 stores anchored by Tong Li IGA Express, TK Maxx and Castle Hill Medical Centre, has been sold by QIC, the Queensland government-owned investment company behind the adjacent Castle Towers.

Hills Shire Council chief executive Michael Edgar said their strategic investment portfolio provides a revenue stream outside of rates and fees that fund community services, such as capital works programmes.

“The purchase of Castle Mall will not only help increase the council’s annual income, but it also means that as a property owner you have a much greater ability to determine what is happening on the property you own, than if you’re a tenant,” Edgar said.

“It gives us legitimacy that can determine an outcome and our future. Remember that this is indeed our CBD.

The deal was an all-cash offer, approved in a second vote by the board in early April.

Castle Mall and the neighboring 112,000 m² Castle Towers property were jointly owned by QIC Property Fund and QIC Town Center Fund.

QIC Real Estate managing director Michael O’Brien said Castle Mall was a highly sought-after property, resulting in very competitive offers from a dozen buyers. These included institutions, private investors, developers and syndicators.

“At $105 million and an initial fully leased yield of approximately 4.1%, the sale of this asset was a very satisfying outcome for our investors and QIC,” O’Brien said.

“QIC is always strategically reassessing its holdings, seeking to position funds to capture optimal growth and yield results for our clients,” he said.

“QIC continues to focus on activating its retail-anchored mixed-use downtown master plan for Castle Towers. As Castle Mall is not part of this master plan, it was surplus to our needs.

For Hills Council, Castle Mall adjoins other key council-owned sites in the area, including Terminus Street Car Park and the former Castle Hill Day Clinic, which will soon house the University of Canberra.

“We don’t know what other people were willing to pay for it, but when you look at this site, and the value of the other land and assets we have around it, it’s probably worth a lot more to us than he would not be to others,” Edgar said.

▲Castle Mall, now one of the Hill Council holdings.

He defended the $105 million award.

“Don’t think for a minute that this council did this for its own edification,” he said.

“The motivation here is not in self-interest, but rather in the sustainability of our board.

“It’s not often that you find a key site becoming available in your municipality. All we have done here is exchange cash deposits in the bank for cash investments in real estate.

Edgar said that for the foreseeable future the Castle Mall property will remain a shopping center, but does not rule out further development or even a sale.

“This is a key location, very close to a world class tube station (Castle Hill tube station). It is booked by a number of our other properties. What it currently contains is well below the potential of the site.

“There is great potential for capital growth.”

An all-cash purchase is a far cry from 30 years ago when The Hills Shire went into administration.

“That council was technically bankrupt in the late 1980s and early 1990s,” Edgar said.

“We have gone from a true basket case to one of the most successful municipalities outside of Sydney City Council itself. We did this partly through real estate investment.

In July of this year, Hills will reopen what they now call the Waves Fitness and Aquatic Center, after a $50 million renovation, paid for entirely by the council.

“Many other aquatic center renewals, such as North Sydney and Bateman’s Bay, have only been possible because of significant state and federal funding,” he said. “We did it by ourselves.”

Hills rates will represent about 50% of council revenue this year, while investment revenue is expected to be between 4 and 5%. Edgar accepts that Castle Mall also produces a similar return of 4%.

“It’s a thin slice of the pie, but it all adds up,” he said.

Rates are set to rise 0.7% across New South Wales next year – the lowest in 20 years – although the Independent Rate and Regulatory Tribunal has approved a 1.6% increase in Hills in recognition of the additional costs of population growth in the municipality.

Edwin S. Wolfe