Cairns Resort Investments Pty Ltd v The Valuer-General [1992] QLC 243

., LAND COURT, BRISBANE. 19th June, 1992. Re: Appeals against determinations of the Valuer-General, City of Cairns. (AV91-3 & 321) Cairns Resort Investments Pty Ltd V. The Valuer-General (Hearing at Cairns} DECISION Cairns Resort Investments Pty Ltd as the lessee of land situated at the corner of Marlin Parade and Wharf Street Cairns and on which is constructed the Hilton Hotel, has appealed against the .Valuer-General's determination of the unimproved value of the land as at both the 31st March, 1989, and 31st March, 1990. The land is described as Part Portion 319 (Leases B and E) and Portion 478 and Part Portion 319 (Lease D) - leased from the Cairns Port Authority - Parish of Cairns, County of Nares and contains an area of 9184 square metres. A dedicated right-of-way encumbers a strip of land adjacent to part of the southern boundary then through the site to Wharf Street, creating a small severance in the extreme south-western corner. The Valuer-General estimates the area of the right of way together with the severed area as containing 481 square metres. Wharf Street has a four lane bitumen sealed carriageway with central metered parking. Marlin Parade has a narrow dual lane bitumen sealed carriageway with parallel metered parking~ - All Cairns city services are available to the land, which is adjacent to the waterfront and approximately 150 metres from the Post Office and Central Business area of the city. [1992] QLC 243 -- 1 of 25 -- 2 Prior to the presently existing lease, the zoning is said to have been "81 Main Business and Shopping". At the commencement of the lease (16th April, 1986) and at the relevant date in these matters, the zoning had become and remained: "Special Facilities (International Resort and Convention Hotel including: a) Licensed Premises, accommodation rooms, cabaret, caterer's rooms, catering industry, commercial premises, indoor entertainment, restaurant; b) shops (not exceeding 2,500 m2 aggregates lettable area) c) Carparking") The Hilton Hotel was opened in 1987 and is described as a nine level five star international hotel having 264 rooms (including 5 suites), a ground level public bar, pool, gymnasium, first level bar, reception area, fully licensed restaurant, night club, mezzanine office, undercover parking and 693 square metres of retail shops along the Wharf Street frontage. As at 31st March, 1989, the Valuer-General's unimproved freehold valuation of the land was $22,000,000 and at the 31st March, 1990, $18,500,000. The Notices of Appeal contain estimates of value at the relevant dates of $13,000,000 and $11,000,000 respectively. Three witnesses were called by the appellant company. Firstly valuation evidence was given by Mr K.F. Malone AVLE (Val) a registered valuer in private practice in Cairns. Through him were tendered valuation reports relating to the respective dates. He assessed the unimproved freehold value of the land at 31st March, 1989, based on the actual 264 room component of the development at $50,000 per hotel room, rounded to a valuation of $13,000,000. It is Mr Malone's .·opinion that the highest and best use of the site is established by its zoning and then the existing development conforms with the optimum development of thisFsite. He sees the Hotel as being "Well located for accommodation purposes although the retail component is just outside the known retair heart of Cairns City. and with Anzac Park and the Port Authority premises "' surrounding, there is nq surrounding development which would draw people to the -- 2 of 25 -- 3 retail component of the subject premises." He is of the strong opinion that in the valuation of the site with potential for hotel accommodation use, it should be seen as basic to the assessment that comparisons of value be made on a "per room" basis. In his experience, room capacity of a potential hotel development site is the criterion critical firstly to any feasibility analysis and then to the price a developer might be prepared to pay for such a site. It would be a flawed approach, in his opinion, to attempt to value a potential hotel development site on a pure unit of site area basis. Mr Malone recognises that sales evidence should be the primary basis of valuation and then for such statutory type valuations as the subject matters are, he has found it necessary to give consideration also to the application of correct relativity between sites capable of comparison. To this end, he has investigated the available sales evidence and also the relativity which has resulted from the Valuer- General's valuations of various sites capable of comparison. Dealing firstly with the 31st March, 1989, valuation, Mr Malone had given consideration to six sales of Esplanade located properties, the brief details of which are as follows:- (1) 216-222 Lake Street; 1734 m 2, zoned R2-Residential Multiple Unit, purchased for $513,000 in January 1988 by adjoining owner for 73 room expansion of existing Harbourside Hotel, showing $296 per m 2 or a room value of $7,027 based on the actual expansion which took place. (2) 104-112 Abbott Street, 4 Florence Street and 21-23 Esplanade; aggregated in May 1988 as a site to provide an area of 6640 m 2 on r,esurvey, at a co<st to the purchaser of $10,238,000 including payout of existing leases and commission charges, zoned R2 -Residential Multiple Unit, with subsequent development of the 241 room Holiday Inn, showing $1,541 per m 2 or $42,481 per room.· r .• -- 3 of 25 -- 4 (3) 54-60A Abbott Street and 71-75 Esplanade; aggregated between March and October 1988, 4048 m 2 for $10,500,000, zoned 81-Main Business and Shopping, showing $2,593 per m 2 as a commercial rather than hotel redevelopment site. (4) 173-181 Esplanade; 3240 m 2, zoned R2-Residential Multiple Unit, purchased December 1988 for $3,600,000 or $1,111 per m 2, subsequently developed as a nine level residential unit complex. (5) 267 Esplanade; 1554 m 2, zoned R2-Residential Multiple Unit, purchased September 1989 for $957,800 or $616 per m 2• (6) Trinity Wharf; 6972 m 2 zoned Special Purposes, sold by the Receiver in March 1990 for $12,000,000 developed with two level retail, bus- depot and cruise liner terminal. Mr Malone gained most assistance from his Sale (2), being the amalgamation of the Holiday Inn site at a reflected room rate of $42,481. He had been directly involved in the acquisition of that site on behalf of the purchaser. He said that while buoyant conditions were being experienced in the general real estate market in Cairns towards the latter part of the 1988, he considered that by then, "there was a definite perception in the market place that Cairns was facing an oversupply of international hotels with new projects under construction and due to come on stream; the Cairns International completed in July 1988, the Four Seasons Hotel near to completion and opened in April 1989 and the Holiday Inn under construction as the site had been acquired in 1988." He provided room night supply and demand _statistics for Cairns hotels for the periods prior and subsequent to March 198:9. It is hi~ opinion that because of the supply and demand situation, r there should not have been seen to be any escalation in value for sites with potential limited to hotel development above that reflected by the Holiday Inn site acquisition. He agreed, under cross-examination, that, based on the evidence of escalating levels of value for Esplanade sites generally, the market value of the -- 4 of 25 -- 5 Holiday Inn site may also have escalated during 1988 subsequent to its purchase, but not, in his opinion, if its use had been limited to that of an international hotel. Mr Malone felt that explanation was needed as to Sale (3) which indicated a value of $2,593 per square metre. The site had not been redeveloped as was intended by the purchasers. He says the site was too small for viable redevelopment as an international hotel. The redevelopment proposal was for a two level arcade retail complex with upper levels of budget style accommodation. The site enjoys an Esplanade position where there is a very high pedestrian count. The Trinity Wharf Sale (6) took place in March 1990. The development had been completed one year earlier at a cost in excess of $9,000,000. It was on leasehold land and the development had encountered major disabilities, having been sold by the Receiver for the developers. Mr Malone believed it was worthy of mention because the site was within 100 metres of the subject land and also on the waterfront. . His second approach was to compare relativity between the Valuer-General's valuations on other sites with hotel or tourist accommodation type use. Fourteen examples were given including the valuation of the ten major city hotel sites, analysed on a unit of area and per room of development basis. Including the Hilton, there are three recognised five star hotel developments in Cairns, the other two being the Radisson Plaza and the Cairns International. The Radisson Plaza is constructed on an as yet unzoned site of 13,230 square metres leased from the Cairns Port Authority. It is prominently located adjacent to Trinity Inlet and marina development. It is on reclaimed land easterly of the original Esplanade and associated commercial area adjoining a large public car park and northerly of the . .. . subject Hilton, Hotel. The Radisson development comprised a gross floor area of approximately 27,000 square metres comprising 220 hotel rooms and a retail component with net lettable area of 9,496 square metres. The Valuer-General's . .,,, valuation at 31st March, 1989, on the Radisson site was $16,000,000 on a freehold -- 5 of 25 -- • 6 basis. This equated $1,209 per square metre or $72,727 per room if the retail component was to be ignored. Mr Malone endeavoured to isolate the retail component additional to that of the Hilton's 693 square metres so that a like with like comparison could be made. On a hypothetical development basis he calculated that the additional retail area component would equate $700 per square metre. He deduced that on a like with like basis the hotel component contained in the Valuer-General's valuation of the Radisson site was $44,717 per room. The Cairns International Hotel of 8, 139 square metres, zoned B1-Main Business and Shopping, is located in Abbott Street through to Lake Street within the Central Business District southerly of the retail heart. While it is westerly of the waterfront, there is low rise and park development opposite to the north-east and water views become available from above the lower floors of the building. The development comprises a gross floor area of approximately 31,400 square metres incorporating 321 rooms and hotel facilities as well as a retail component of 2,626 square metres net lettable floor area. The Valuer-General's valuation of the Cairns International site is also $16,000,000. Doing a similar exercise of hypothetical development to isolate the retail component in excess of 693 square metres, Mr Malone deduces that in the Valuer-General's valuation the hotel component equates $45,628 per room. Mr Malone is of the opinion that the Hilton Hotel site is inferior on a relativity basis to both the Radisson Plaza and the Cairns International site "due to their larger retail components and scope for development plus the larger number of rooms in the Cairns International allowed by its superior plot ratio (gross floor area ratio of 4 to 1 of sife area, as · opposed to 2 to 1 for the Hilton site). The Valuer- < General's valuations included in the schedule of examples, indicate on Mr Malone's analyses, room rates for the hotel developments ranging from $45,628 for the Cairns International to $59,659 for the Pacific International, (cnr Esplanade and Spence Street) the latter site also being, in his opinion, superior to the subject. He -- 6 of 25 -- • 7 concludes that $83,333 per room for the subject site development with its 693 square metre of retail is excessive and a more realistic valuation would be $50,000 per room resulting in his rounded valuation of $13,000,000 as at 31st March, 1989. As at 31st March, 1990, Mr Malone assessed the unimproved value in the rounded sum of $11,000,000 on the basis of $42,000 per room. There had been no sales evidence additional to that already tendered. The date of the sale of the improved leasehold property, Trinity Wharf, now became more relevant, and the sale of the Holiday Inn site remained as the most recent evidence of a site purchased for the development of an international hotel. For this relevant date, the Valuer-General had adopted a lower level of value for both the subject land and land capable of comparison. Mr Malone again analyses these lower values and deduces that after adjustment of the retail component in each, the Valuer-General's valuation of the Radisson Plaza site of $14,000,000 equates $39,628 per room and the Cairns International site of $13,500,000 equates $38,442 per room. The remaining examples had reduced by varying degrees. The Valuer-General's reduced valuation on the Hilton Hotel site of $18,500,000 now equated $70,075 per room. Due to the lack of sales evidence Mr Malone saw the need to extend his considerations relative to the 31st March, 1990, relevant date valuation. The following passages are contained within his valuation report: In the absence of comparable sales, as well as the relativity approach we have considered other influencing factors on the real estate market for hotel sites, namely interest rates, supply and demand for the hotel rooms, potential purchasers of a hotel site and the general state of the economy. Leading ·up to the relevant date of valuation being the 31st March, 1990, the ..,. Cairns region and the Australian economy in general had been subjected to the Pilots dispute from August to December and while officially finished in December, there were lingering effects with numbers significantly down in the early months of - 1990 and many forward group bookings for later months cancelled by overseas visitors. -- 7 of 25 -- 8 Attached as an appendix to this report is a "Room Night Supply and Demand" graph for Cairns Hotels which shows that in the 1985, 1986 and 1987 years it was quite evident that demand was quickly approaching supply and this coupled with the opening of the Cairns International Airport in 1984 meant that a considerable number of overseas tourists would be discovering Cairns during the 1990's. However it also became apparent during 1988 that Cairns was faced with an oversupply of hotel rooms and this coupled with the Gulf War, the Pilots dispute, a blow out in the Japanese Yen Prime Borrowing Rate from 5.5% in January, 1988, to 7.5% in February, 1990, and the Australian economy in the middle of the worst recession since the 1930's supports our contention that hotel sites declined significantly in demand and value leading up to the relevant date of valuation and the situation has not improved significantly since. " Mr Malone holds the opinion that an · understanding of the international hotel industry requires examination of wider trends than might be evident in a local region and felt that it was appropriate to investigate the position on the Gold Coast. He was aware of an 8048 square metre site at George Avenue, Anne Avenue and Old Burleigh Road having been sold by the mortgagee-in-possession to a Japanese company for $9,000,000 in May 1990. He says this equated $28,037 per potential hotel room. He gave two examples of values then being adopted by the Valuer-General on the Gold Coast being the Mirage Hotel site on the Spit with 296 rooms which was valued at $15,500,000 or $52,364 per room and the 403 room hotel component of the Seaworld Nara had been valued at $15,000,000 or $37,000 per room. I will comment here that when evidence is introduced relative to differing geographic locations where different market forces may affect levels of value, and where proper examination of the relevant material is difficult, little weight can be attributed to such ev_i_dence. . . < In Mr Malone's opinion; adoption of $42,000 "per allowable hotel room" for the subject Hilton Hotel .site, takes into consideration "the adopted value for other hotel complexes in Cairns, relevant sales information and the limited scope for development of the subject site due to its zoning." -- 8 of 25 -- 9 Sir Frank Moore, an acknowledged authority on the Queensland, Australian and International tourist industry as well as being a registered valuer in private practice, was called to give verbal evidence. He was well aware of the events which led to the establishment of Cairns as an international tourist destination and the demand in that locality for hotel accommodation. In his opinion, the number of hotel rooms which could be provided on any particular site determined the number of guests, staff requirements, public rooms, restaurants, bars, etc. and was a critical factor in the analysis of the feasibility of such development. He agreed that location of the site was an important factor in determining the status of the development potential. It was his opinion that the development on the subject site reflected its highest and best use in 1989. However had the site been vacant in 1990 its development potential as an international hotel might not in his opinion, have been seen as immediate. There were no Australian investors in the market at that time according to Sir Frank and it was his experience that Asian investors preferred not to acquire raw land. When asked to make a comparison between the Hilton Hotel site and both the Cairns International and Radisson Plaza sites, Sir Frank was of the strong opinion that the Cairns International site was preferable to the Hilton site because of the development potential allowed by the more intense plot ratio. He saw the Radisson site ·as being superior to both because it had allowed a development which was an outstanding example of a facility of world tourism standard, being in itself a destination point. Town Planning evidence was given Mr C.G. Buckley, who had been employed from 1980 to 1989 as Planning Officer and City Planner, Cairns City Council. He provided a·report outlining the history of the zoning of the Hilton Hotel site, culminating in a Ministerial rezoning in 1986 the purpose of which was to facilitate the particular development now existing. The development's height, bulk and residential density met and were appropriate to the limitations of the zone and -- 9 of 25 -- ti 10 the Development Control Plan 2 (DCP2) of 1983. As at 31st March, 1989, amendments to DCP2 were well advanced, the draft DCP having been forwarded to the Minister for gazettal on 14th March, 1989, with the gazettal eventually occurring on 19th October, 1989. The plot ratio to which development of the subject site was limited except with discretionary increase in special circumstances, allowed an intensity of development (gross floor area) up to twice the area of the site. This was unchanged in the amended DCP2. The building is marginally under this plot ratio of 2. Where there was no previously stipulated height limitation the 1989 "Height and Bulk" DCP2, limited the building height to 30 metres. Mr Buckley says the existing structure exceeds that by 1 metre. Mr Buckley concludes his observations of the Town Planning position as at 31st March, 1989, as follows: In short the development as it stands today represents the range and intensity of uses to which the subject premises could have been put as at 31st March, 1989. It is important that the effect of the Development Control Plans be noted as the principal determinant of building form and floor area. Any rezoning of a description quite different to the existing zone would have no impact on achievable floor space. A rezoning to a zone that enabled a greater degree of shopping would have had little prospects of success in view of the extensive commitment to the main business and shopping zone across the suburb of Cairns City. There would have been no need for additional land for shopping purposes. Also the DCP - 2 {1989) envisaged this locality providing a suitable area for the establishment of tourist accommodation and support facilities. The core CBD area with a preferred plot ratio of 4 was to remain the principal retail area. His comments relevant to 31st March, 1990, are then as follows: The zone as of this date is identical to that of the corresponding date in 1989. DCP 2's provisions,. had become more restrictive, limiting further any potential · to seek a rezonin·g to expand uses or floor space. The Development Control Plan was gazetted in October 1989 and was (and is) part of the Town Planning Scheme. The Council has no discretion to vary the maximum height; nor does the building display compliance with the range of facilities that may permit ,, . Council to increase floor area at lower levels. -- 10 of 25 -- • 11 He then concludes: In my opinion, from a town planning perspective, the building shown, in its form and floor area represents the highest and best use of the site. There is no disagreement between the parties as to the highest and best use of the site being as existing and as zoned because that was also the opinion of the Valuer-General's only witness, Mr P.F. Goodman-Jones AVLE (Val) registered valuer, employed by the Department of Lands. He has been stationed in Cairns for a ·period of 18 years during which time he has carried out regular valuations and revaluations of the Cairns Central Business District and the Esplanade multi unit sites. Broadly his approach to the matters before the Court was that as a level of value had been established by the sales evidence available of Esplanade located land for the last general valuation as at 1987, it was realistic to review that level on the necessary annual basis, by application of the trend interpreted from the subsequent sales evidence. With specific regard to the subject land its history of applied value is as follows: 1987 - $9,000,000 - $1,000 per m2 1988 - $16,000,000 - $1,750 per m2 1989 - $22,000,000 - $2,450 per m2 1990 - $18,500,000 - approx $2,000 per m2 The level for the 1989 valuation is said to have been derived from six sales and from relativity between eight similar type properties. Brief details of the sales information provided by Mr Goodman-Jones together with his comments are as follows: Sale 1 - Esplanade . & _..Abbott - 3042 m 2 site zoned Main Business and Shopping, sold in Janucfry 1987 for $2,500,000 · analysed to show an unimproved value of $2,497,000 with an applied value in 1987 of $2,400,000 . ($800 per m2). The site is described as having had the area and potential for high rise development at the date of sale and is "considered to be inferior to the subject due to its location". -- 11 of 25 -- 12 Sale 2 - Esplanade & Lake - 2418 m 2 site zoned Residential Multiple Unit, sold in July 1987 for $1,200,000, analysed to show an unimproved value of $1,197,500, with an application of $1,100,000 ($450 per m 2) in 1987 then $650 per m 2 in 1988. It is located some 1.5 km north-west of the subject site and is considered by Mr Goodman-Jones to be inferior due to its location and zoning. Sale 3 - Esplanade & Abbott - 4048 m 2 site zoned Main Business and Shopping, sold in August 1987 for $5,750,000, analysed to show an unimproved value of $5,746,000 with an application of $5,700,000 ($1,400 per m 2) in 1988. It is noted that this sale comprised the land in Sale 1 together with an additional area of Esplanade frontage land. Sale 4 - Esplanade, Abbott & Florence - 6,595 m 2 site zoned Residential High Density, sold in May 1988 for $9,969,600 analysed to show an unimproved value of $9,966,600 with an applied value in 1988 of $8,300,000 ($1,250 per m2) then in March 1989 of $12,000,000 ($1,800 per m2 ). Mr Goodman-Jones comments that the property was purchased for the Holiday Inn Hotel complex, located 750 metres north-west of the subject to which it is considered inferior due to the location. This was Mr Malone's Sale (2) with relatively minor adjustments to the area as resurveyed and including the additional costs of which Mr Malone had been aware. Sale 5 - Esplanade & Lake (Mr Malone's Sale 4) - 3240 m 2 site zoned Residential Multiple Unit, sold in December 1988 for $3,600,000 showing an analysed unimproved value of $1,110 per m 2 with an application in 1989 of $1,050 per m 2• This site is l9cated about 1.5 km north-west of the subject site. and Mr Goodman-Jones descriges it as inferior due to its location and zoning. Sale 6 - Abbott & Esplanade - 4048 m 2 site zoned Main Business and Shopping, aggregated (according to Mr Goodman-Jones) between 1988 and January 1989 at a recorded price of $11,500,000. Mr Goodman-Jones' verbal comments are that this sale (of a redevelopment site) did not fo(m any part of the basis of his valuation of the Hilton Hotel site. -- 12 of 25 -- 13 It is noted that this is Mr Malone's sale (3) at a purchase price of $10,500,000 between March and October of 1988. Mr Malone's evidence was that there was a later transfer of part of the land, between related parties, but the actual purchase price was $10,500,000 not the $11,500,000 as suggested by Mr Goodman-Jones. Mr Goodman-Jones' evidence is that he has not used any individual sale as providing directly comparable evidence at this specific date. He had provided the sales in chronological order to indicate the increasing trend in value from the base date in 1987, with Sale (1) supporting the general level of value applied at that time. His perception of the market was that levels of value for sites with high-rise development potential escalated quite significantly from 1987 through to early 1989 then stagnated during 1989 when there was a lack of demand and no sales evidence. He sees the reasons for this latter market as including the effect of the Pilots' dispute and the general downturn in the economy. His perception of the market is that a decline in values had occurred by the 1990 relevant date. He saw this decline as realistically ranging from 10% below the March 1989 level for property with prime development location to 20% in the more marginal areas. He considered this range would reflect a reduction of 15% in the 1989 applied value of the subject property. · · His relativity schedule is summarised briefly as follows: 1. 223 Esplanade, 10 storey 3½ star Acacia Court Hotel - 4450 m 2 , zoned Residential Multiple Unit - 1989 valuation $4,200,000 - $950 m 2 - 2.1 km north-west of the su_bject land, ocean aspect - inferior due to location. 2. 209 Esplanade, 8 stor.,ey 4½ star Harbourside Hotel - 4595 m 2 , zoned Residential Multiple Unit - 1989 valuation $4,400,000 - $950 per m 2 - 2.1 km north-west of the subject land, ocean aspect - inferior due to location. -- 13 of 25 -- 14 3. Abbott Street, Cairns City, 14 storey Four Seasons 4½ star hotel - (referred to in other matters as the Matson Plaza) 1.222 hectares, zoned Residential Multiple Unit - 1989 valuation $18,500,000 - $1,500 per m 2 - 1.35 km north- west of the subject land, ocean aspect - inferior due to location. 4. Esplanade & Minnie, 8 storey Tradewinds Esplanade 4 star hotel - 8138 m 2, zoned Residential Multiple Unit - 1989 valuation $14,500,000 - $1,800 per m 2 - 900 metres north-west of the subject land, ocean aspect - inferior due to location. 5. Esplanade, 7 storey Holiday Inn 4 star hotel - 6640 m 2 , zoned Residential Multiple Unit - 1989 valuation $12,000,000 - $1,800 per m 2 - 800 metres north-west of the subject land, ocean aspect - inferior due to location. 6. Esplanade & Aplin, 10 storey and part low rise Lyons Motel - 3067 m 2 , zoned Main Business and Shopping - 1989 valuation $6,400,000 - $2,100 m 2 - 600 metres north-west of the subject land, ocean aspect - inferior due to location. Mr Goodman-Jones did not agree that it was necessary to approach the assessment of unimproved value for the subject land on the basis of a "per room" of development unit of value. He agreed that, as zoned, the highest and best use of the subject land was for an international standard hotel as existed. It is his contention however, that it is possible to make like with rike comparisons on a unit of area basis just as it is on a per room basis. The areas of criticism directed at Mr Goodman-Jones' valuation by the appellant company are no1 examined as follows: (1) Zoning It was :put to Mr Goodman-Jones that his valuation failed to recognise that the highest and best use of the Hilton site was specific and restrictive due to its zoning. It was suggested that as a consequence, any broad trends in the real estate market should not be interpreted to reflect upon the narrower use permitted on the subject site. -- 14 of 25 -- 15 Mr Goodman-Jones response is interpreted to indicate an opinion that there is a nexus between the zoning of the subject land and the high density accommodation unit consent usage capable of being achieved in the Residential- Multiple Unit zone. He was not prepared to differentiate between high rise residential unit development and international standard hotel development both of which he saw as requiring waterfront aspect. (2) Lack of Supporting. Sales Mr Goodman-Jones states that his basis of valuation is not reliant on a direct comparison with any of the individual sales submitted. The evidence indicated to him, at least in terms of the 1989 valuation, distinct trends since 1987 in level of value for the waterfront aspect lands with zoning and use potential capable of comparison with the subject land. He admits that the correctness of his 1987 general valuation of these lands is the foundation of the subsequent annual valuations. He makes no apology for this as the constraints on the time permitted to conduct annual valuations demands the application of trends. He has been able to check actual sales evidence subsequent to 1987 against the reviewed valuation of the properties subject of those sales. The 1990 valuation is then reliant on his interpretation of the probable effect on values caused by a local and wider recessionary economy. (3) Basis of Valuation Mr Goodman-Jones adopts a value per square metre of site area as his basis for the analysis of sales and the application of values and relativity of values. He sees difficulties in comparisons on a "per room" basis using the criteria of ~- actual development, due to the varying standards and densities of development. His evidence is that he has taken into consideration town planning criteria such- as plot ratio, population density and zonings when arriving at his adopted values. -- 15 of 25 -- 16 (4) Relativi ty of Values The primary area of criticism levelled at Mr Goodman-Jones' relativity of values related to the valuations of the competing five-star hotels - the Radisson Plaza and the Cairns International. Brief details are repeated as follows: Hilton Hotel Radisson Plaza Cairns International Area of Site 9184 m2 13230 m2 8139 m2 Plot Ratio 2:1 not zoned - 4:1 achieved approx 2: 1 Permitted GFA 18368 m2 not zoned 32556 m2 Actual GFA 18092 m2 27000 m2 (approx) 31400 m2 (approx) No. of Rooms 264 220 321 Net Retail Component 692 m2 9496 m2 2626 m2 V.G. Valuation - 1989 $22,000,000 $16,000,000 $16,000,000 - 1990 $18,500,00 $14,000,000 $13,500,000 Mr Goodman-Jones holds the opinion that the Hilton Hotel site is superior to both the Radisson Plaza and the Cairns International sites. He takes some comfort in arriving at this opinion in that the Hilton Hotel was the first of the three to be developed, although the relevance of this is arguable. Both Mr Malone and Sir Frank Moore are of the opinion that both the Radisson Plaza and the Cairns International sites are superior to the Hilton site. The Radisson Plaza has waterfront location within easy walking distance of the Central Business District, is served by a large public carpark, and has been developed with a significant retail component. The development density of the site is similar to that of the Hilton (approximately 2:1) but the site is much larger. The Cairns International is within the Central Business District. It ·does not have direct water frontage although it is in fairly close proximity and the existing development envirol:lment allows water aspect from the accommodation tower of the development. The site is ~maller in area than both the Radisson Plaza and the Hilton but it enjoys double the plot ratio (4:1) allowing the much denser development which exists. retail/ commercial component. This development includes a significant -- 16 of 25 -- ,. 17 Mr Goodman-Jones' evidence is that, due to the high retail/commercial content of both the Radisson Plaza and the Cairns International developments, then the Main Business and Shopping zoning of the latter, he has chosen to value these competing sites on a comparison with the commercial levels of value as indicated by sales within those zones rather than the basis adopted for the Hilton. He agrees that had he adopted the same basis as for the Hilton, the resultant valuations would not have been lower. He was not however prepared to be drawn on whether the valuations would have been higher. Mr Goodman-Jones gave general evidence that in adopting the relativities he had, between smaller and larger sites, that there was no sales evidence to indicate any differing pro rata level of site area value between the smaller and larger sites. He had specific sales evidence to support this contention in the Main Business and Shopping zone but not in the high density residential areas. Conclusions (1) Zoning The zoning of the land must be considered in the valuation exercise. There is no disagreement between the parties that the highest and best use of the land is its existing development - as zoned. The evidence would indicate, however, that, even if the land was vacant and unzoned, achievement of the zoning and development which exists would still represent the highest and best use of the site. I agree with Mr Goodman-Jones' opinion that evidence as to value might be drawn from zones where high density residential use could be achieved. It is noted that this is possible as a consent use not only in the Residential-Multi Unit zone but also in the Main Business and ·Shopping zone. < ·. Where· highest arid best use is specifically limited to that of an hotel, such as is the case with the subject land, then it does not necessarily follow that trends in the Residential-Multi Unit or Main Business and Shopping zones, where alternative uses are available as of right .or with consent, will automatically flow to the restricted zone. -- 17 of 25 -- 18 (2) Sales Evidence Rather than accepting that trends in the Residential-Multi Unit zone may be applied directly to the subject land as zoned, I have decided that the acquisition of the Holiday Inn site subsequently redeveloped for hotel purposes, provides evidence on which conclusions may be reached as to the value of the subject site. It is necessary to firstly consider the differing conditions which existed at the dates relevant to this matter. Mr Malone agreed under cross-examination that buoyant market conditions would have influenced higher values for the high density accommodation land between the date of acquisition of the Holiday Inn site and 31st March, 1989. He would not accept that any similar increase in value would have applied for sites limited to hotel development because of the developing over- supply situation. This over-supply perception was however, caused in part, by the development of the Holiday Inn itself. What needs to be decided is whether the Holiday Inn site, as vacant land, would have fetched a higher price as a hotel site in March 1989. I can accept that any hotel development additional to the Holiday Inn may have been seen to cause the perceived developing over-supply situation as described by Mr Malone. It is the notional situation, ignoring the actual Holiday Inn development, which needs to be considered, not the actual situation to which the Holiday Inn contributed. It seems to me that if the over-supply situation had not hypothetically been reached then a developer seeking to acquire a suitable site would have been required to meet the increased market level of value. Mr Malone was not in a position to provide an opinion as to the level of value which might have been reached subsequent to the Holiday Inn acquisition. The only evidence before me then is that of Mr Goodman-Jones through his actual valuation. With <" knowledge of .the Holiday Inn~acquisition for near $10,000,000 in 1988, he valued the site as at 31st March, 1989, at $12,000,000. As the evidence stands, I accept that valuation at that relevant date although it may well have been optimistic rather than conservative. The next question is what the correct valuation of the Holiday -- 18 of 25 -- 19 Inn site was as at March 1990. Mr Goodman-Jones values the site at that date at $10,000,000 being the rounded purchase price in mid 1988. He says that in March 1990, the market was stagnant, no sales were being recorded, the local economy had been affected by the downturn in tourism caused in part by the Pilots' dispute and the general recessionary climate. In contrast, when the Holiday Inn site had been acquired there was confidence in the local economy with a buoyant market influencing subsequent increasing levels of value. On the totality of the evidence before me I have concluded that a more cautious approach to the 1990 valuuation of the Holiday Inn site would have been warranted had town planning criteria remained constant. Had that been the case and for the purpose of the necessary comparison of the Hilton site, I would have seen a valuation of $9,000,000 as being more realistic as at the relev.ant date in 1990. However, in the meantime, the plot ratio had been increased to 1.75 to 1. The minimum height had been reduced but there is no evidence before me to indicate that the plot ratio was unachievable. The actual plot ratio achieved was 1.62 to 1. In the circumstances the Valuer-General's valuation may have been capable of support on the increased plot ratio alone. The comparison between the Holiday Inn site and the Hilton site will be further discussed under the remaining headings. (3) Basis of Valuation The appellant company urges me to adopt a basis of valuation related to the "room value" method adopted by Mr Malone and approved by Sir Frank Moore, being the criterion used within the development industry. Mr Goodman-=-Jones identified the difficulty in the broad approach taken by Mr Malone in·,that the actual developments on the various sites are or significantly varying standards. As a specific example, the gross floor area of development achieved on the Holiday Inn site (including all areas ancillary to the rooms) equates 44.6 square metres of the gross floor area for each hotel room, while the Hilton -- 19 of 25 -- 20 development equates 67.5 square metres of the achieved gross floor area for each hotel room. There are varying areas of retail in several of the relativity comparisons and no retail areas in others. Mr Malone has made an attempt to equalise the retail components in the three five star hotels, by a theoretical adaptation of the hypothetical development methodology. am not convinced that his overall methodology, particularly his use of the Holiday Inn analysis of room value, has provided the necessary "like with like" comparison when applied to the Hilton site valuation. Both Mr Malone and Mr Buckley were convincing in their evidence that in consideration of development potential of any site, matters such as permissible site coverage, height . of building, population density and the plot ratio were, either singularly or in combination critical to maximum achievable development. There are of course other matters which affect the building design such as the provision of carparking. However while all of these criteria will be of varying importance for particular developments on specific sites, the plot ratio, from which is able to be calculated the maximum permissible gross floor area would appear to provide a nexus in the broad appreciation of the potential of comparison sites. Mr Goodman-Jones says that all town planning criteria have been considered in his valuation exercise. Neither he nor Mr Malone has provided any cogent analytic evidence which shows how such criteria has been employed. It seems to me that there is no principle which demands that valuation criteria must be reduced to any particular unit of comparison, whether it be "per room" or "per square metre of site area" or some other unit such as "per square metre of permissible~gross floor area". It is a basic valuation principle however that < when comparisons are being made "like should be compared with like". For the purpose of the exercise to be considered by the Court, it was known that a plot ratio of 1.5 to 1 permitted (before resurvey or negotiation of the actual development) a maximum gross floor area of development on the Holiday Inn site -- 20 of 25 -- l . 1 21 of 9892 square metres. The sale price in 1989 equates, in round figures, $1,000 per square metre of gross floor area and Mr Goodman-Jones' valuation of that site in 1989 equated a rounded $1,200 per square metre of gross floor area. The maximum permissible gross floor area of development on the Hilton site was 18,368 square metres (the actual development being 18,092 square metres). Mr Goodman-Jones' valuation of $22,000,000 in 1989 equated a rounded $1,200 per square metre of permissable gross floor area - coincidentally the same as for the Holiday Inn site. (4) Relativity of Values On the basis of gross floor area and restricting comparison of relativities to the Radisson Plaza and Cairns International, Mr Goodman-Jones' valuation of $16,000,000 for each site indicate valuations of a rounded $600 per square metre (plot ratio 2 to 1) and $500 per square metre (plot ratio 4 to 1) of gross permissable floor area respectively. There is, on this basis, strong support for criticism of the existing relativity between the valuations of the Hilton, Radisson Plaza and Cairns International sites. Mr Goodman-Jones says that such criticism is not warranted because different bases of sales evidence are employed and the valuations of the Radisson Plaza and Cairns International sites, on an unimproved basis, reflect proper relativity with the retail levels of values applied in the commercial zone. He points to the high content of retail usage in the actual developments. I find the Valuer-General's evidence in connection with the valuation relativity between these three sites as being far from conclusive. It seems to me that if retail development has the historically unusual effect of depressing values, then . < legislation proyides the machinery for the Radisson Plaza and Cairns International sites to have been dealt with in terms of Section 12(1A) of the Valuation of Land Act. . I have no evidence before me to assist in understanding the amount of the valuation which would result ~rom an acceptance that the existing developments on -- 21 of 25 -- 22 the Radisson Plaza and Cairns International sites reflected any higher and better use than pure commercial/retail. In terms of relativity, another area of diverse valuation opinion emerges. That is the effect on market value caused by significant increase in area of a site or its development intensity. Mr Goodman-Jones says that there is no evidence one way or the other to show that there is, or is not, any difference from .smaller to larger sites in the high density accommodation orientated waterfront aspect land, but it is his opinion that there is no lessening in pro rata value as size increases. He says this is the case with the Main Business and Shopping zoned lands where sales evidence is available. It seems to me however, that if in the latter zone where sites have been purchased for high-rise development, allowing maximum permissible gross floor area, at the same square metre of land value as sites purchased for development with significantly less than maximum permissible gross floor area, then, at least on the gross floor area value basis, heavy discounting would be identified for the more intense developments. Mr Malone says that even though there is an increasing tendency for the larger sites to be more in demand for international hotel development, it is an historical fact of market value that the greater the size or intensity of development the lesser the unit of value. Again there is no evidence available in this matter to support the more logical opinion of Mr Malone, except my interpretation of the situation in the Main Business and Shopping zone. The question becomes of relevance when comparison needs to be made between the Holiday Inn site and the subject land. Summary of Conclusions As indicated, I will accept the following as basic to this determination: (1) The Holiday Inn site acquisition is the preferred evidence of value. (2) As at 31st March, 1'989, relevant date that evidence requires adjustment to reflect a value of·$12,000,000 or a rounded $1,800 per square metre of land area or a rounded .$1,200 per square metre of permissible gross floor area. -- 22 of 25 -- 23 (3) As at 31st March, 1990, relevant date that evidence should have been adjusted to reflect a value of $9,000,000 being 25% less than 31st March, 1989, relevant date, had the plot ratio of that site remained constant. On the increased plot ratio of 1. 75 to 1 the maximum gross permissible floor area would have increased to 11,620 square metres. The Valuer-General's valuation of $10,000,000 is seen then as being reasonable. Now, in comparison, the Hilton Hotel site is recognised as having: (a) superior location. (b) approximately 40% greater site area. (c) approximately 85% greater permissible gross floor area of building development as at 31st March, 1989, and approximately 60% as at 31st March, 1990. (d) an easement and severance area disability. The Valuer-General's 1989 valuation of the Hilton site is in the amount of $22,000,000, equivalent to $2,395 per square metre of site area or $1,200 per square metre of gross floor area. If the gross floor area was adopted as the nexus, it could be shown that the superiority of the location of the Hilton Hotel site has been equalised by the discounting effect of the bulk of permissible development. It seems to me that it could be argued that correct principles have been preserved by the Valuer.;General's 1989 valuation, and it has, on the warranted adjustment of sales evidence, not been proved wrong. However as the overall evidence leads to the conclusion that the evidence of the Holiday Inn site acquisition should reflect a lower figure at 31st March, 1990, than at May 1988 and 25_o/o below the level adopted for 1989, had the plot ratio remained constant as it has·_with the Hilton site, a valuation in the amount of $16,500,000 s~oul<::I be found 6s· at _31st March, 1990. Finally, further comment is warranted with regard to the matter of relativity betw_een the valuations of the Hilton, Radisson Plaza and Cairns International sites. It seems to me on the evidence before this Court that the Valuer-General's basis of -- 23 of 25 -- 24 valuation of the latter two is inconclusive. Doubt has been raised as to whether the valuations reflect existing usage as being the highest and best use of each site. It seems to me that many aspects of the criticism of relativity in this matter are similar to matters considered by the Land Appeal Court in R. and M.M. Barnwell v. The Valuer-General (1990-91) 13 QLCR 13. At pp. 16, 17 the Land Appeal Court said: " Unless it can be demonstrated that the Valuer-General, in making a valuation, has acted on a wrong principle or made a serious error of fact, the valuation by the Valuer-General is presumed to be correct. Vide Brisbane City Council v. Valuer-General - Shire of Esk - (1977-78) 140 C.L.R. 41; (1978) 5 Q.L.C.R. 283 (H.C.). Thus, the valuations of land (other than the subject) referred to by Mr Barnwell must be presumed correct. We are conscious that it is desirable that valuations made for the purposes of the Valuation of Land Act of comparable lands should bear proper relativity, one to the other, if the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis. In Ladies' Hosiery and Underwear Ltd v. West Middlesex Assessment Committee (1932) 2 K.B. 679; (1932) All E.R. Rep. 427 (C.A.), Scrutton L.J. (at p. 606 of (1932) 2 K.B .) said:- "One would have thought that this evidence destroyed the ratepayer's objection, but he said: 'No, I will show you that seven other hereditaments in the borough are assessed at sums lower than the rents which their hypothetical tenant would pay, and I require that I also should be assessed at a sum lower than the hypothetical tenant would pay. I do this because the essence of rating is fairness and uniformity, and I prefer my assessment to be inaccurate but uniform, rather than it should be accurate but out of harmony with my neighbours. It is true that I can, if my facts are right, secure uniformity by correcting the inaccuracy of my neighbours' assessments, on objection to those assessments, and can get those assessments made uniform with my correct assessment. But I do not want this; I want to indulge -my passion for uniformity . by securing uniform inaccuracy, though that uniformity makes my correct assessment incorrect, but the inaccuracy is to my pecuniary advantage.' I think this view is wrong. It is a vital principle of the law of rating that each hereditament should be independently assessed." and at p. 688 - ·· "The appellants here, however, say that besides the principle of independent valuation there is another vital principle - that as between different classes of hereditaments and as between different hereditaments in the same class the valuation should be fair and equal. I agree, but, in my view, there is a third important qualift~ation, that the assessing authority should not sacrifice correctness to ensure uniformity, but, if possible, obtain uniformity by correcting inaccuracies rather than by making an inaccurate assessment in order to secure uniform error." -- 24 of 25 -- 25 This third principle was referred to without disapproval by the Court of Appeal in R. v. Hastings Justices, ex parte Pevensey Levels Internal Drainage Board (1962) 1 All E.R. 278 and applied in Vaughan v. Auckland City Council (1973) 2 N.Z.L.R. 269 (S.C .). We adopt the third principle stated by Scrutton L.J." If there is, as appears, the possibility of inaccuracy in the valuations of the Radisson Plaza and Cairns International sites, I too would adopt the third principle. My decision as to the valuation of the subject land is based, as best it was able to be, on the Holiday Inn site acquisition and I would refer to another Land Appeal Court judgment in W.M. & T.J. Fischer v. The Valuer-General (1983) QLCR 44 where at p.46 the Court said: It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. Whilst maintenance of correct relativi ty is also of considerable importance for rating or revenue type valuations, we cannot prefer in the circumstances of this case, the use of the principle of relativity to the exclusion of the sales evidence.• For the reasons given my decision is as follows:- (1) Appeal AV91-3 - This appeal is dismissed and the amount of the Valuer- General's unimproved valu~ of $22,000,000 as at 31st March, 1989, is affirmed. (2) Appeal AV91-321 - This appeal is allowed, the determination of the Valuer- General set as _ide and the unimproved value as at 31st March, 1990, determined in the amount of $16,500,000. (signed) R.E. Wenck. Member of the Land Court. -- 25 of 25 --